<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 2, 1997
REGISTRATION NO. 333-35759
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BMJ MEDICAL MANAGEMENT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 8099 65-0676079
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
4800 NORTH FEDERAL HIGHWAY, SUITE 101E
BOCA RATON, FLORIDA 33431
(561) 391-1311
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
NARESH NAGPAL, M.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
4800 NORTH FEDERAL HIGHWAY, SUITE 101E
BOCA RATON, FLORIDA 33431
(561) 391-1311
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
With copies to:
<TABLE>
<S> <C>
LAWRENCE G. GRAEV, ESQ. ROBERT ROSENMAN, ESQ.
O'SULLIVAN GRAEV & KARABELL, LLP CRAVATH, SWAINE & MOORE
30 ROCKEFELLER PLAZA 825 EIGHTH AVENUE
NEW YORK, NEW YORK 10112 NEW YORK, NEW YORK 10019
(212) 408-2400 (212) 474-1000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 2, 1997
PROSPECTUS
5,000,000 SHARES
BMJ MEDICAL MANAGEMENT, INC.
COMMON STOCK
All of the 5,000,000 shares of Common Stock offered hereby are being sold
by the Company. Prior to this offering, there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price will be between $7.00 and $9.00 per share. See 'Underwriting' for
a discussion of the factors to be considered in determining the initial public
offering price. The Common Stock has been approved for quotation on the Nasdaq
National Market ('Nasdaq') under the symbol BONS, subject to official notice of
issuance.
------------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE 'RISK FACTORS' COMMENCING ON PAGE 6.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Share............................................. $ $ $
Total (3)............................................. $ $ $
</TABLE>
(1) Does not include a $ non-accountable expense allowance to be
received by the Underwriters. See 'Underwriting' for indemnification
arrangements with the several Underwriters.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 750,000 additional shares of Common Stock solely to cover
over-allotments, if any. If all such shares are purchased, the total Price
to Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See 'Underwriting.'
----------------------
The shares of Common Stock are offered by the several Underwriters subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about , 1997, at the office of the agent of
Hambrecht & Quist LLC in New York, New York.
HAMBRECHT &QUIST
RAYMOND JAMES & ASSOCIATES, INC.
VOLPE BROWN WHELAN & COMPANY
, 1997
<PAGE>
ADDITIONAL INFORMATION
A Registration Statement on Form S-1 under the Securities Act, including
amendments thereto, relating to the Common Stock offered hereby has been filed
by the Company with the Commission. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to such Registration Statement
and exhibits and schedules filed as a part thereof. A copy of the Registration
Statement may be inspected by anyone without charge at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located at
7 World Trade Center, Suite 1300, New York, New York 10048 and Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
all or any portion of the Registration Statement may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of prescribed fees. The Commission maintains a WorldWide Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
Such reports, proxy and information statements and other information may be
found on the Commission's site address, http: //www.sec.gov. Copies of such
material also can be obtained from the Company upon request.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
As a result of the Offering, the Company will become subject to the
information and periodic reporting requirements of the Securities Exchange Act,
as amended, and, in accordance therewith, will file periodic reports, proxy
statements and other information with the Commission. Such periodic reports,
proxy statements and other information will be available for inspection and
copying at the public reference facilities, regional offices and Web site
referred to above.
------------------------
Forward-Looking Statements. Certain statements contained in this
Prospectus, including statements regarding the anticipated development and
expansion of the Company's business, the intent, belief or current expectations
of the Company, its directors or its officers, primarily with respect to the
future operating performance of the Company and other statements contained
herein regarding matters that are not historical facts are 'forward-looking'
statements. Because such statements include risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially from those expressed or implied by such forward-looking statements
include, but are not limited to, the potential inability to affiliate with
physician practices, the potential termination of contractual relationships,
fluctuations in the volume of procedures performed by the practices' physicians,
changes in the reimbursement rates for those services, uncertainty about the
ability to collect the appropriate fees for services provided or ordered by the
practices' physicians, as well as other risks detailed in 'Risk Factors,'
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and 'Business.'
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE 'UNDERWRITING.'
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements including the notes thereto appearing
elsewhere in this Prospectus. Investors should carefully consider the
information set forth under the heading 'Risk Factors.' As used herein, the term
the 'Company' refers to BMJ Medical Management, Inc., a Delaware corporation;
the term 'Existing Practices' collectively refers to the 25 Practices that have
affiliated with the Company via management services agreements as of the date of
this Prospectus; and the term 'Practices' includes the Existing Practices and
other practices with which the Company may affiliate in the future. Unless
otherwise indicated, all information in this Prospectus assumes no exercise of
the Underwriters' over-allotment option.
THE COMPANY
The Company is principally a physician practice management company (a
'PPM') that provides management services to physician practices that focus on
musculoskeletal care, which involves the medical and surgical treatment of
conditions relating to bones, muscles, joints and related connective tissues.
The broad spectrum of musculoskeletal care offered by the physician practices
ranges from acute procedures, such as spine or other complex surgeries, to the
treatment of chronic conditions, such as arthritis and back pain. The management
services provided by the Company include physician practice and network
development, marketing, payor contracting and financial, administrative and
clinical information management. In addition, the Company, through its wholly
owned subsidiary, Orthopaedic Management Network, Inc. ('OMNI'), operates an
Independent Physician Association (the 'IPA') that negotiates and administers
payor contracts for the delivery of health care services by physicians and
physician practices that focus on musculoskeletal care on behalf of a specified
patient population. Since its formation in January 1996, the Company has
affiliated (the 'Affiliation Transactions' with 25 Existing Practices comprising
117 doctors practicing in Arizona, California, Florida, Pennsylvania, New Jersey
and Texas by entering into management services agreements (the 'Management
Services Agreements') and operates an IPA with 42 physicians in Arizona.
The market for musculoskeletal care in the United States is significant and
growing. According to the American Academy of Orthopaedic Surgeons (the 'AAOS'),
total direct costs associated with the delivery of musculoskeletal care exceeded
$60 billion in 1988 and increased to approximately $72 billion in 1992. The
increase in expenditures can be attributed to various factors, including
improvements in medical technology, more active lifestyles which have resulted
in the growth of sports medicine and the overall aging of the population. In
1992, the 65-and-over age group represented approximately 12% of the U.S.
population, but accounted for more than half of all musculoskeletal care
expenditures. Historically, surgical and non-surgical orthopaedic specialists
have maintained separate practices; recently, however, musculoskeletal
physicians have begun to follow the consolidation trend seen elsewhere in the
health care industry.
The Company's goal is to develop the leading musculoskeletal network in
each of its markets by aligning the Company's interests with those of the
Practices' physicians. The Company has divided the United States into three
geographic regions, and selects specific markets based primarily on population
size, which must be large enough to support a viable musculoskeletal physician
network. The Company's strategy consists of (i) expanding into targeted new
markets by affiliating with leading musculoskeletal practices; (ii) continuing
to develop its existing markets by strengthening and expanding the Practices in
order to achieve significant local market presence; (iii) introducing ancillary
services to expand the breadth of care directly offered by the Practices'
physicians; and (iv) developing and implementing a disease management
information system to foster curative and palliative regimens, improve provider
and patient access to resources and technology and deliver cost-effective,
quality care.
Under the Management Services Agreement, the Company provides management,
administrative and development services to the Existing Practices, while the
Existing Practices retain, among other things, sole responsibility for all
aspects of the practice of medicine. The Company's revenues under the Management
Services Agreements are typically based on a specified percentage of Practice
revenues, generally 10% to 15%, rather than on a percentage of net operating
income. In addition, the Company typically assumes the Practices' clinic
overhead expenses and charges them back to the Practices at actual cost, and
receives two-thirds of savings realized through the Company's purchasing power.
Pursuant to the Management Services Agreements, the
3
<PAGE>
Company collects revenues on behalf of the Practices, pays clinic overhead
expenses and pays physician draws to the Practices. See 'Business--BMJ
Operations.' The Company seeks to develop and maintain long-term relationships
with the Practices by providing physician performance incentives through equity
ownership in the Company, ensuring physician clinical autonomy and participation
in Practice governance and delivering national support services on a regional
basis. The Company believes that its affiliation model, versus other existing
models, provides less financial risk to the Company while enhancing its
relationships with the Practices' physicians.
In addition to a Management Services Agreement, the Company typically
enters into an asset purchase agreement (the 'Asset Purchase Agreement'), a
restricted stock agreement (the 'Restricted Stock Agreement') and a stockholder
noncompetition agreement (the 'Stockholder Noncompetition Agreement') with a
Practice that affiliates with the Company. Under the Asset Purchase Agreement,
the Company purchases from the Practice substantially all of those assets used
or generated by the Practice in the operation of the Practice. The Restricted
Stock Agreement governs the Common Stock issued by the Company to the physician
owners of the Practice as partial consideration for affiliating with the
Company. Under the Stockholder Noncompetition Agreement, the Practice's
physicians agree not to compete with or disclose confidential information about
the Company. See 'Business--Contractual Agreements with Practices.' The Company
will use approximately $11.3 million of the proceeds to repay outstanding notes
issued to five Practices in Affiliation Transactions. See 'Use of Proceeds' and
'Certain Transactions--Affiliation Transactions'.
The Company's executive offices are located at 4800 North Federal Highway,
Suite 101E, Boca Raton, Florida 33431, and its telephone number is (561)
391-1311.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............................ 5,000,000 shares
Common Stock to be outstanding after the offering.............. 20,787,183 shares(1)
Use of proceeds................................................ Repayment of debt and general corporate
purposes. See 'Use of Proceeds.'
Proposed Nasdaq National Market symbol......................... BONS
</TABLE>
- ------------------
(1) Excludes 1,604,500 shares of Common Stock issuable upon exercise of
outstanding options to purchase Common Stock with a weighted average
exercise price of $1.18 per share and 321,665 shares of Common Stock
issuable upon exercise of outstanding warrants to purchase Common Stock with
a weighted average exercise price of $3.44 per share. See 'Management' and
'Certain Transactions.'
4
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PRO FORMA
AS
NINE MONTHS ENDED ADJUSTED(2)(3)
YEAR ENDED PRO FORMA NINE MONTHS
DECEMBER 31, AS ADJUSTED(1)(2) SEPTEMBER 30, ENDED
------------ YEAR ENDED ------------------------ SEPTEMBER 30,
1996 DECEMBER 31, 1996 1996 1997 1997
---- ----------------- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Practice revenues, net.................. $ 6,029 $94,145 $ 674 $ 38,325 $ 77,226
Less: amounts retained by physician
groups................................ (2,912) (33,392) (336) (17,878) (31,676)
------------ ------- ---------- ---------- -------
Management fee revenue.................. 3,117 60,753 338 20,447 45,550
Costs and expenses:
Medical support services.............. 2,844 50,571 343 17,934 36,219
General and administrative............ 1,299 1,299 675 4,187 4,187
Depreciation and amortization......... 104 1,796 12 661 1,687
Interest expense (income), net........ (21) 256 (6) 817 191
------------ ------- ---------- ---------- -------
Total costs and expenses............ 4,226 53,922 1,024 23,599 42,284
------------ ------- ---------- ---------- -------
Income (loss) before income taxes....... (1,109) 6,831 (686) (3,152) 3,266
Income taxes(4)......................... -- 2,595 -- -- 1,241
------------ ------- ---------- ---------- -------
Net income (loss)....................... $ (1,109) $ 4,236 $ (686) $ (3,152) $ 2,025
------------ ------- ---------- ---------- -------
------------ ------- ---------- ---------- -------
Net income (loss) per common share:
Primary............................... $ (0.09) $ .19 $ (.06) $ (.25) $ .09
Diluted............................... $ (0.09) $ .19 $ (.06) $ (.25) $ .09
Weighted average common shares
outstanding:
Primary............................... 11,870 21,914 11,659 12,499 21,914
Diluted............................... 11,870 22,470 11,659 12,499 22,470
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(4) AS ADJUSTED(4)(5)
------- --------------- ------------------
(IN THOUSANDS, EXCEPT OPERATING DATA)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................... $ 2,404 $ 3,363 $ 4,646
Working capital..................................................... 10,978 437 20,997
Total assets........................................................ 42,429 65,934 67,217
Long-term debt, less current portion................................ 16,480 18,491 4,051
Total stockholders' equity.......................................... 15,156 20,519 55,519
OTHER OPERATING DATA:
Number of Practices................................................. 22 25 25
Number of physicians................................................ 106 117 117
</TABLE>
- ------------------
The unaudited pro forma financial information presented does not purport to
(i) represent what the results of operations or financial condition of the
Company would actually have been if the transactions reflected therein had in
fact occurred on the assumed dates or (ii) project the future results of
operations or financial condition of the Company.
(1) Gives effect to the Affiliation Transactions as if they had occurred on
January 1, 1996. See 'The Company,' 'Pro Forma Financial Information' and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
(2) Gives effect to this offering (the 'Offering') as if it had occurred at
January 1, 1996 at an assumed initial public offering price of $8.00 per
share and the receipt and application of the estimated net proceeds
therefrom. See 'Use of Proceeds' and 'Capitalization.'
(3) Gives effect to the Affiliation Transactions completed in 1997 (the '1997
Affiliation Transactions') as if they had occurred on January 1, 1997. See
'The Company,' 'Pro Forma Financial Information' and 'Management's
Discussion and Analysis of Financial Condition and Results of Operations.'
(4) Gives effect to the 1997 Affiliation Transactions completed after September
30, 1997 as if such transactions had occurred on September 30, 1997. See
'The Company,' 'Management's Discussion and Analysis of Financial Condition
and Results of Operations,' 'Pro Forma Financial Information' and
'Capitalization.'
(5) Gives effect to the completion of this Offering at an assumed initial public
offering price of $8.00 per share and the receipt and application of the
estimated net proceeds therefrom as if such transactions had occurred on
September 30, 1997. See 'Use of Proceeds' and 'Capitalization.'
5
<PAGE>
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. Prospective investors should carefully consider the following risk
factors, in addition to the other information contained in this Prospectus,
before purchasing the securities offered hereby. This Prospectus contains
forward-looking statements. Discussions containing such forward-looking
statements may be found in the material set forth below and under 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
'Business,' as well as in the Prospectus generally. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties. Actual events or results may
differ materially from those discussed in the forward-looking statements as a
result of various factors, including, without limitation, the risk factors set
forth below and the matters set forth in this Prospectus generally.
Lack of Significant Combined Operating History. The Company was
incorporated in January 1996 and, prior to its affiliation with the first
Existing Practice in July 1996, had no history of operations or earnings. Before
affiliating with the Company, the Existing Practices operated as independent
entities, and there can be no assurance that the Company will be able to
integrate and manage profitably the assets and personnel of the Existing
Practices or of any other Practices. In addition, there can be no assurance that
the Company's affiliation with any Practice will not result in a loss of
patients or other unanticipated adverse consequences, any of these events could
have a material adverse effect on the Company. Prior to the Company's
acquisition of the IPA in October 1997, the Company had no history of operating
an IPA. There can be no assurance that the Company will be able to successfully
and profitably manage payor contracting on behalf of the IPA. Additionally,
there can be no assurance that the Company's affiliation with the IPA will not
result in the termination of the agreements pursuant to which the physicians
affiliated with the IPA provide services to enrollees of health care plans and
other specified patient populations (the 'IPA Provider Agreements') or other
unanticipated adverse consequences, any of which could have a material adverse
effect on the Company. The Company's strategy is predicated on its ability to
achieve significant consolidation of Practices and to sustain and enhance the
profitability of such Practices. There can be no assurance that the Company's
personnel, systems and infrastructure will be sufficient to achieve effective
and profitable management of the Practices under the Management Services
Agreements or to implement effectively the Company's strategies. See
'Business--Strategy' and 'Management.'
Dependence on the Practices and Physicians. The Company's revenues are
dependent on its affiliation through Management Services Agreements with the
Practices and on the success of the Practices, including the IPA. There can be
no assurance that the Practices will maintain successful operations, that they
will not terminate their Management Services Agreements or that key physicians
in a particular Practice will continue to affiliate with such Practice. On a pro
forma basis for the year ended December 31, 1996 and the nine months ended
September 30, 1997, the Company received approximately 19% and 21%,
respectively, of its total revenue from management fees paid by the Southern
California Orthopedic Institute Medical Group ('SCOI'). The termination of the
SCOI Management Services Agreement would have a material adverse effect on the
Company. For a further description of the Management Services Agreements,
including a description of their termination provisions and noncompetition
arrangements with the Practices' physicians, see 'Business--Contractual
Agreements with the Practices.' For a discussion of circumstances under which a
Management Services Agreement may be rendered unenforceable, see '--Government
Regulation.'
Some of the Existing Practices derive a significant portion of their
revenue from a limited number of physicians. The physicians are employees of the
Practices, not of the Company, and there can be no assurance that the Company or
the Existing Practices will maintain cooperative relationships with key members
of any such Practice. In addition, key members of a Practice could retire,
become disabled or otherwise become unable or unwilling to continue generating
revenues at the current level or practicing medicine with such Practice. The
loss by a Practice of one or more key members would have a material adverse
effect on the revenue of such Practice and on the Company. The Company has the
right under the Management Services Agreements to obtain and maintain life
insurance in the amount of $500,000 on the life of each licensed physician
employed by each Practice for the benefit of the Company. Nonetheless, the loss
of revenue by any Practice as a result of a physician's death could have a
material adverse effect on the Company. Additionally, although the Company has
entered into noncompetition agreements with each Practice and its respective
physicians, there can be no assurance as to the enforceability of such
noncompetition agreements.
6
<PAGE>
Rescission Rights. The Company has entered into a Management Services
Agreement with South Texas Spinal Clinic, P.A. ('STSC') which permits STSC and
the individual physicians to rescind the Affiliation Transaction on November 1,
2003. In addition, the Management Services Agreements for nine other Existing
Practices comprising thirty-one physicians contain provisions that permit such
Existing Practices to rescind their Affiliation Transactions on their respective
seventh anniversaries.
Risk of Termination. The Management Services Agreement may be terminated
by either party if the other party (a) files a petition in bankruptcy or other
similar events occur, or (b) defaults in any material respect in the performance
of any duty or obligation under the Management Services Agreement, which default
is not cured within a specified period after receipt of notice thereof or (c)
any of the representations and warranties made by such party in the Management
Services Agreement is materially untrue or misleading and such party fails to
correct such matter after receipt of written notice thereof. The Company also
has the right to terminate the Management Services Agreement in the event that
the Practice is excluded from participation in the Medicaid or Medicare program
for any reason. Either party may also terminate the Management Services
Agreement if such party determines that the structure of the Management Services
Agreement violates any state or federal laws or regulations existing at such
time and that an amendment to the Management Services Agreement will be unable
to correct such defect.
Risks Related to the IPA Provider Agreements. There can be no assurance
that the IPA will maintain successful operations, that agreements between the
IPA and payors ('IPA Payor Agreements') will not be terminated, that the IPA
will successfully enter into additional IPA Payor Agreements or that the IPA
Provider Agreements will not be terminated. Each IPA Provider Agreement now in
effect permits the physician member to terminate the agreement without cause
upon 90 days' written notice to the IPA. Because the IPA contracts with payors
to arrange for specialty provider services sufficient to furnish care as needed
to a specified patient population, termination of IPA Provider Agreements could
jeopardize the IPA's ability to satisfy its obligations under IPA Payor
Agreements, and may result in termination of those agreements. Any termination
of IPA Provider Agreements or IPA Payor Agreements could have a material adverse
effect on the Company.
Risks Related to New Affiliations and Expansion. The Company is exposed to
significant growth-related risks because an essential element of its strategy is
to affiliate with and/or to merge affiliated musculoskeletal practices and to
expand the business of such practices. The Company's strategy also involves
assisting the Practices in recruiting physicians, expansion and development of
the IPA and, to the extent permitted by applicable law, contracting with or
establishing ancillary musculoskeletal facilities (the 'Ancillary Service
Facilities'), such as ambulatory surgery, physical therapy and magnetic
resonance imaging ('MRI') centers and mobile units, and contracting with
associated providers. Identifying appropriate physician group practices,
individual physicians and ancillary providers and facilities, and proposing,
negotiating and implementing economically attractive affiliations with such
practices, physicians and providers, as well as merging such practices, can be a
lengthy, complex and costly process. The failure of the Company to affiliate
with additional musculoskeletal practices or merge practices would have a
material adverse effect on the Company's ability to execute its expansion
strategy. Moreover, future affiliations or mergers, if any, may not contribute
to the Company's profitability or otherwise facilitate the successful
implementation of the Company's overall strategy. See 'Business--Strategy.'
The Company's expansion is also dependent upon factors such as the ability
of the Company and the Practices to (i) adapt the Company's arrangements with
the Practices to comply with current and future legal requirements, including
state prohibitions on fee-splitting and corporate practice of medicine, state
and federal limitations on physicians ordering ancillary services from, or
referring patients to, facilities with which such physicians have a financial
relationship, state and federal anti-kickback provisions and state regulation of
the business of insurance; (ii) obtain regulatory approval and certificates of
need, where necessary; and (iii) comply with licensing requirements applicable
to physicians and to facilities operated, and services offered, by physicians.
No assurance can be given that the application of current laws or changes in
legal requirements would not have a material adverse effect on the Company.
Moreover, the Company and the Practices may not be able to obtain and maintain
all necessary regulatory approvals or comply with all applicable laws,
regulations and licensing requirements. See '--Government Regulation' and
'Business--Government Regulation and Supervision.'
7
<PAGE>
Since its inception, the Company's business has grown rapidly. Continued
rapid growth through affiliation and expansion could impair the Company's
ability to efficiently provide its management services to the Practices, to
adequately manage and supervise its employees and to effectively operate the
IPA. There can be no assurance that the Company will be able to expand its
infrastructure and management to achieve planned growth. In addition, the
Company may be unable to retain personnel or acquire other resources necessary
to service growth adequately. Moreover, the Company is still in the process of
integrating the Practices that have affiliated with the Company to date and no
assurance can be given that the Company will be successful in integrating all of
such Practices or any Practices that affiliate with the Company in the future.
Risks Associated with Ancillary Service Facilities. To date, the Company
has not opened any Ancillary Service Facilities. The Company is unable to
predict whether it will be able to obtain the critical mass in any particular
market needed to establish Ancillary Service Facilities and, if so, whether the
Company and/or the Practices will be able to consistently minimize costs and
maintain a sufficient volume of patient visits to the Ancillary Service
Facilities for such facilities to be profitable. Moreover, such facilities must
be structured and operated to comply with various federal and state laws. Future
judicial or regulatory interpretation could adversely affect such operations.
See '--Government Regulation.'
Dependence on Information Systems. No assurance can be given that the
Company will be able to enhance existing and/or implement new information
systems that can be integrated with the Practices' existing operational,
financial and clinical information gathering systems. In addition to their
integral role in helping the Practices realize operating efficiencies, such new
systems are critical to developing and implementing a disease management
information database. See 'Business--Strategy.' To develop its network, the
Company must continue to invest in and administer sophisticated management
information systems. The Company may experience unanticipated delays,
complications and expenses in implementing, integrating and operating such
systems. Furthermore, such systems may require modifications, improvements or
replacements as the Company expands and as new technologies become available.
Such modifications, improvements or replacements may require substantial
expenditures and may require interruptions in operations during periods of
implementation. Moreover, implementation of such systems is subject to the
availability of information technology and skilled personnel to assist the
Company in creating and implementing the system. The failure to successfully
implement and maintain operational, financial and clinical information systems
would have a material adverse effect on the Company. See 'Business--BMJ
Operations.'
Reductions in Third Party Reimbursements. The health care industry is
experiencing a trend toward cost containment as third party payors, such as
governmental programs (e.g., Medicare and Medicaid), private insurance plans and
managed care plans, seek to impose lower reimbursement and utilization rates and
to negotiate reduced capitated payment schedules with service providers. Further
reductions in payments to health care providers or other changes in
reimbursement for health care services could have a material adverse effect on
the Practices and/or the IPA and, as a result, on the Company. These reductions
could result from changes in current reimbursement rates or from a shift in
clinical protocols to non-surgical solutions for orthopaedic conditions. The
Company may not be able to successfully offset any or all of the payment
reductions that may occur.
The federal government has implemented, through the Medicare program, a
resource-based relative value scale ('RBRVS') payment methodology for heath care
provider services. RBRVS is a fee schedule that, except for certain geographical
and other adjustments, pays similarly situated health care providers the same
amount for the same services. The RBRVS is subject to annual increases or
decreases at the discretion of Congress or the federal Health Care Financing
Administration ('HCFA'). To date, the implementation of RBRVS has reduced
payment rates for certain of the procedures historically provided by the
Existing Practices. Furthermore, HCFA is required by law to recalibrate the
practice expense component of the RBRVS over the next four years in a way that
will have positive effects on payments to primary care providers but will
decrease payments for most services provided by specialists, including many
services provided by the Existing Practices. For the nine months ended September
30, 1997, the net practice revenue from Medicare constituted approximately 15%
of the aggregate net practice revenue of the Existing Practices. RBRVS types of
payment systems have also been adopted by certain private third party payors and
may become a predominant payment methodology. Wider implementation of such
programs would reduce payments from private third party payors, and could
indirectly reduce revenue to the Company.
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Rates paid by private third party payors are based on established health
care provider and hospital charges and are generally higher than Medicare
payment rates. A change in the patient mix of any of the Practices that results
in a decrease in patients covered by private insurance could have a material
adverse effect on the Practices and, as a result, on the Company. See
'Business--Payor Mix of Existing Practices.'
Government Regulation. Existing and future federal and state regulation of
health care, including the relationships among health care providers such as
physicians and other clinicians, could have a material adverse effect on the
Company's financial condition and results of operations. While the Company
believes that its operations are conducted in material compliance with
applicable laws, it has not received or applied for a legal opinion from counsel
or from any federal or state judicial or regulatory authority to this effect,
and many aspects of the Company's business operations have not been the subject
of state or federal regulatory interpretation. The laws applicable to the
Company are subject to evolving interpretations, and therefore there can be no
assurance that a review of the Company's operations by federal or state judicial
or regulatory authorities would not result in a determination that the Company,
or one of the Practices has violated one or more provisions of federal or state
law. Any such determination could have a material adverse effect on the Company.
Expansion of the operations of the Company to certain jurisdictions may
require modification of the Company's form of relationship with the Practices,
which could have a material adverse effect on the Company. Furthermore, the
Company's ability to expand into, or to continue to operate within, certain
jurisdictions may depend on the Company's ability to modify its or the
Practices' operational structure to conform to such jurisdictions' regulatory
framework or to obtain necessary approvals, licenses and/or permits. Any
limitation on the Company's ability to expand could have a material adverse
effect on the Company. See 'Business-- Government Regulation and Supervision.'
Physician Self-Referral Laws. The federal Self-Referral Law (also
known as the 'Stark Law') imposes restrictions on physicians' referrals for
designated health services reimbursable by Medicare or Medicaid to entities with
which any such physician (or an immediate family member of such physician) has a
financial relationship, whether through an ownership, debt or compensation
arrangement. Many states, including several of the states in which the Company
conducts business, also have adopted self-referral laws. Unlike the Stark Law,
however, many state self-referral laws are not limited to Medicare or Medicaid
reimbursed services. In addition, state self-referral laws may apply to all
health care services, not just certain designated health services, and state
self-referral laws may apply only to ownership relationships and not to
compensation relationships. State workers' compensation laws also may contain
self-referral prohibitions. Unless a statutory exception applies, if a physician
has a financial relationship in or with the Company, then that physician is
prohibited from referring patients to any Ancillary Service Facilities owned (or
possibly managed) by the Company for the furnishing of designated health
services or other health care services as defined by federal or state law. In
addition, neither the Company nor the physician is authorized to bill for
services furnished to such physician's patients by the Company or at such
Ancillary Service Facilities where there is no exception available for the
physician's financial relationship with the Company. Penalties for violating
these restrictions usually are limited to civil penalties. State laws also may
require a physician to disclose to patients the nature of the physician's
financial relationship with the Company and any Ancillary Service Facilities
prior to recommending the Company and any Ancillary Service Facilities to that
patient.
In the preamble to the adoption of certain regulations regarding the Stark
Law, adopted when such law only regulated clinical laboratory services, HCFA
stated that it would not recognize any group in which the physicians were in
multiple corporate entities as a 'group practice' under the Stark Law. In
November 1996, the Company affiliated with SCOI, a partnership comprised of
individual physician members as well as single member professional corporations
('P.C.s'). The use of P.C.s as partners at SCOI was historical and designed to
accommodate practice structures that existed prior to the creation of SCOI.
Recently, at the Eighteenth Annual Institute on Medicare and Medicaid Payment
Issues, co-sponsored by the American Academy of Healthcare Attorneys and
National Health Lawyer's Association, an HCFA representative stated that HCFA
will recognize a 'group practice' consisting of multiple physician entities,
such as P.C.s, provided that each P.C. or other physician entity is limited to
one physician member. Nevertheless, given HCFA's prior written statement and
HCFA's position that its written comments on the Stark Law as applied to
clinical laboratories reflect its view on the Stark Law in its current expanded
form, it may be necessary to restructure SCOI before any Stark-designated health
services are provided. Failure to do so would result in the risk of the
penalties described above, or the
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inability of SCOI to provide Stark-designated health services, either of which
could have a material adverse effect on the Company. See 'Business--Government
Regulation and Supervision.'
Fraud and Abuse. The anti-kickback provisions of the Social Security
Act, as well as anti-kickback laws adopted by many states, including the states
in which the Company conducts business, prohibit the solicitation, payment,
receipt or offering of any direct or indirect remuneration in return for, or as
an inducement for, certain referrals of patients for items or services covered
by health benefits programs. State laws governing workers' compensation may also
contain anti-kickback prohibitions. In addition, federal law and some state laws
impose significant penalties for false or improper billings. These anti-kickback
and false claims laws are commonly referred to as the fraud and abuse laws.
Violations of any of these laws may result in substantial civil or criminal
penalties, and, in the case of violations of federal laws, exclusion from
participation in the Medicare and Medicaid programs. Such exclusion and
penalties, if applied to the Company, its Ancillary Service Facilities or the
Practices, would have a material adverse effect on the Company. Further, the
application of these laws is subject to modification by statutory amendment or
promulgation of regulations and any such change could have a material adverse
effect on the Company. See 'Business--Government Regulation and Supervision.'
State Regulation of the Practices. The laws of many states, including
one or more of the states in which the Company conducts business: (i) prohibit
business corporations, such as the Company, from practicing medicine or
exercising control over the medical judgments or decisions of physicians and
from engaging in certain financial arrangements involving the division of
professional fees earned by physicians (commonly referred to as
'fee-splitting'); (ii) require entities seeking to provide certain ancillary
services (including ambulatory surgery) to be licensed and/or to have obtained a
certificate of need related to the service; and (iii) require licensure or
certification of, and regulate provider networks that agree to provide or
arrange for the provision of certain health services to members of health care
plans. These laws and their interpretations vary from state to state and are
enforced by both the courts and regulatory authorities, each of which has broad
discretion. In particular, with regard to the corporate practice of medicine,
Texas and California have taken the position that control by a management
company over certain business aspects of a medical practice is effectively the
prohibited practice of medicine by the management company. In addition, recent
developments in Florida's fee-splitting law have changed how management
arrangements may be structured there. The State of Florida Board of Medicine has
taken the position that a management services fee based on a percentage of
revenues violates Florida's prohibition on fee splitting by licensed
professionals. The Company has included such percentage fees in all of its
Management Services Agreements with physicians in Florida. Thus, no assurance
can be given that the Company's Management Services Agreements based on such
percentage fees will be enforceable. To avoid this risk, the Company will seek
to restructure such agreements in Florida to comply with the order, but such
modifications, or the failure to obtain agreement on such modifications, could
have a material adverse effect on the Company's business, financial condition
and results of operations. Violations of state laws regulating the Practices
could result in censure or loss of license for the physician, civil or criminal
penalties, or other sanctions. The licensure or certificate of need laws of
applicable states could also preclude the Company from expanding its operated or
managed services to include certain ancillary services, which could have a
material adverse effect on the Company. In addition, a determination in any
state that the Company is engaged in the corporate practice of medicine or any
unlawful fee-splitting arrangement could render any Management Services
Agreement or IPA Provider Agreement between the Company and a Practice located
in such state unenforceable or subject to modification, which could have a
material adverse effect on the Company. There can be no assurance that
regulatory authorities or other parties will not assert that the Company or a
Practice is engaged in the business of insurance or the corporate practice of
medicine in such states or that the management and administrative fees paid to
the Company by the Practices constitute unlawful fee-splitting or the corporate
practice of medicine. If such a claim were asserted successfully, the Company
could be subject to civil and criminal penalties and the Company or the
Practices could be required to restructure their contractual arrangements. Such
results or the inability of the Company or the Practices to restructure their
relationships to comply with such prohibitions could have a material adverse
effect on the Company's financial condition and results of operations. See
'Business--Government Regulation and Supervision--State Law.'
In Texas, it is unlawful to provide 'staff leasing services' without a
license issued by the State. The Company believes that the provision of
non-physician personnel to STSC in connection with the Management Services
Agreement between the Company and STSC constitutes staff leasing services
subject to licensure under
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Texas law. The Company filed an application on October 14, 1997 for such
license, but there can be no guaranty that the State of Texas will approve the
Company's application. Failure to obtain a license to provide staff leasing
services may result in civil or criminal penalties, may prevent the Company from
providing personnel to STSC and may, therefore, have a material adverse effect
on the Company. See 'Business--Government Regulation and Supervision--State
Law--Texas Staff Leasing Services Law.'
Antitrust Issues. Because the Practices remain separate legal
entities, they may be deemed competitors subject to a range of antitrust laws
that prohibit anti-competitive conduct, including price fixing, concerted
refusals to deal and division of market. The Company intends to comply with such
state and federal laws as may affect its development of integrated health care
delivery networks, but there can be no assurance that a review of the Company's
business by courts or regulatory authorities would not result in a determination
that could adversely affect the operation of the Company and the Practices.
Numerous Reform Initiatives. In addition to extensive existing
government health care regulation, there are numerous initiatives on the federal
and state levels for comprehensive reforms affecting the payment for, and
availability of, health care services. These initiatives include reductions in
Medicare and Medicaid payments, trends in adopting managed care for Medicare,
Medicaid and workers' compensation patients, regulation of entities that provide
managed care, and additional prohibitions related to financial relationships
between health care providers that are in a position to generate business for
each other. Certain of these health care proposals, if adopted, could have a
material adverse effect on the Company.
In the recently enacted Balanced Budget Act of 1997 (the '1997 Budget
Bill') and Health Insurance Portability and Accountability Act of 1996
('HIPAA'), Congress has responded to perceived fraud and abuse in the Medicare
and Medicaid programs. This legislation has fortified the government's
enforcement authority with increased resources and greater civil and criminal
penalties for offenses. It is anticipated that there will be further restrictive
legislative and regulatory measures to reduce fraud, waste and abuse in the
Medicare and Medicaid programs. There can be no assurance that any such
legislation will not have a material impact on the Company. See '--Reliance on
Affiliation and Expansion,' '--Reductions in Third Party Reimbursements' and
'Business--Government Regulation and Supervision.'
Changes in Workers' Compensation Market. Legislative reforms in some
states permit employers to designate health plans such as HMOs to cover workers'
compensation claimants. Because many health plans have the capacity to manage
health care for workers' compensation claimants, such legislation may intensify
competition in the market served by the Company. Within the past few years,
several states have experienced decreases in the number of workers' compensation
claims and the average cost per claim, both of which have been reflected in
workers' compensation insurance premium rate reductions in those states. The
Company believes that declines in workers' compensation costs in these states
are due principally to intensified efforts by payors to manage and control claim
costs, improved risk management by employers and legislative reforms. In Florida
(a state in which the Company does business), all workers' compensation services
must be provided under a managed care arrangement approved by Florida's Agency
for Health Care Administration. If declines in workers' compensation costs occur
in many states and persist over the long-term, they may have an adverse impact
on the Company's business and results of operations. A number of states,
including California and Pennsylvania (states in which the Company does
business), have regulations such as anti-kickback and self-referral laws that
are specific to the workers' compensation program. See 'Business--Payor
Contracting-- Workers' Compensation' and 'Business--Government Regulation and
Supervision.'
Potential Risks of Managed Care Contracts. As more patients enter into
health care coverage arrangements with managed care payors, no assurance can be
given that the Company will be able to negotiate contracts on behalf of the
Practices with health maintenance organizations ('HMOs'), employer groups and
other private third party payors. The inability of the Company to enter into
such arrangements on behalf of the Practices, or unfavorable terms that may be
contained in such arrangements, could have a material adverse effect on the
Company.
The Company may seek to negotiate with third party payors on behalf of the
Practices and other physicians or group practices willing to permit the Company
to negotiate on their behalf. The Company anticipates that, in the future, the
payor contracts entered into on behalf of the Practices and any related network
physicians may include contracts based on capitated fee arrangements. Under some
of these types of contracts, a health care
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provider agrees either to accept a predetermined dollar amount per member per
month in exchange for undertaking to provide all covered services to patients or
to provide treatment on an episode of care basis. Such health care providers
bear the risk, generally subject to certain loss limits, that the aggregate
costs of providing medical services will not exceed the predetermined amounts.
Some agreements may also contain 'shared risk' provisions under which the
Practices may earn additional compensation based on utilization control of
institutional, ancillary and other services to patients, and the Practices may
be required to bear a portion of any loss in connection with such 'shared risk'
provisions. If patients or enrollees covered by such contracts require more
frequent or, in certain instances, more extensive care than anticipated, there
could be a material adverse effect on a Practice and, therefore, on the Company.
Revenue negotiated under risk-sharing or capitated contracts could be
insufficient to cover the costs of the health care services provided. Any such
reduction or elimination of earnings to the Practices under such fee
arrangements could have a material adverse effect on the Company.
No assurance can be given that the Company, the Practices or the IPA will
be able to establish or maintain satisfactory relationships with managed care
and other third party payors, many of which already have existing provider
structures in place and may not be able or willing to change their provider
networks. In addition, any significant loss of revenue by the Practices as a
result of the termination of third party payor contracts or otherwise would have
a material adverse effect on the Company. See 'Business--Government Regulation
and Supervision.'
Need for Additional Funds. The Company's expansion and affiliation
strategy will require substantial capital, and no assurance can be given that
the Company will be able to raise additional funds through debt financing or the
issuance of equity or debt securities. Sufficient funds may not be available on
terms acceptable to the Company, if at all. If equity securities are issued,
either to raise funds or in connection with future affiliations, dilution to the
Company's stockholders may result, and if additional funds are raised through
the incurrence of debt, the Company may become subject to restrictions on its
operation and finances. Such restrictions may have a material adverse effect on,
among other things, the Company's ability to pursue its affiliation and
expansion strategy. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations-- Liquidity and Capital Resources.'
Risks Related to Intangible Assets. The Company has a significant amount
of intangible assets. As a result of the Affiliation Transactions, intangible
assets (net of accumulated amortization) of approximately $14.3 million have
been recorded on the Company's balance sheet as of September 30, 1997.
Affiliations that result in the recognition of intangible assets will cause
amortization expense to increase further. Although the Company's net unamortized
balance of intangible assets acquired and anticipated to be acquired was not
considered to be impaired as of September 30, 1997, any future determination
that a significant impairment has occurred would require the write-off of the
impaired portion of unamortized intangible assets, which could have a material
adverse effect on the Company's results of operations. See 'Management's
Discussion and Analysis of Financial Condition and Results of Operations.'
Intense Competition. Competition for affiliation with additional
musculoskeletal physician practices is intense and may limit the availability of
suitable practices with which the Company may be able to affiliate. Several
companies with established operating histories and greater resources than the
Company, including multi-specialty companies, companies that specialize in
orthopedics, some hospitals, IPAs, clinics and HMOs, are pursuing activities
similar to those of the Company. The Company may not be able to compete
effectively with such competitors, additional competitors could enter the market
and such competition could make it more difficult and costly to affiliate with,
and provide management services to, musculoskeletal physician practices on terms
beneficial to the Company. The Company also believes that changes in
governmental and private reimbursement policies, among other factors, have
resulted in increased competition among providers of medical services. The
Practices face competition from several sources, including sole practitioners,
single and multi-specialty groups, hospitals and managed care organizations. The
Company's strategy includes the development of Ancillary Service Facilities.
Pursuit of this strategy will subject the Company to competition with other
providers of such facilities, some of which will have greater financial
resources and experience than the Company. There can be no assurance that the
Company or the Practices will be able to compete effectively in the markets they
serve. See 'Business--Competition.'
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Dependence on Key Personnel. The Company is dependent upon the ability and
experience of its executive officers and key personnel, including Dr. Naresh
Nagpal, the Company's President and Chief Executive Officer, for the management
of the Company and the implementation of its business strategy. The Company
currently has an employment contract with Dr. Nagpal. Because of the difficulty
in finding an adequate replacement for Dr. Nagpal, the loss of his services,
regardless of whether he may choose to compete with the Company, or the
Company's inability in the future to attract and retain management and other key
personnel could have a material adverse effect on the Company. See
'Management--Employment Agreement.'
Exposure to Professional Liability. Due to the nature of its business, the
Company from time to time may become a defendant in medical malpractice
lawsuits, and may become subject to the attendant risk of substantial damage
awards. Direct claims, suits or complaints could be asserted against the Company
relating to services delivered by the Practices (including claims with regard to
services rendered by the Existing Practices prior to the Affiliation
Transactions). While the Company has attempted to address these risks by
maintaining malpractice and other types of insurance, with coverage limits of
$1,000,000 per individual claim and $3,000,000 in the aggregate, on behalf of
itself and the Existing Practices, there can be no assurance that any claim
asserted against the Company, any of the Existing Practices, or any other
Practice will be covered by, or will not exceed the coverage limits of,
applicable insurance. However, the Company may not be able to maintain insurance
in the future at a cost that is acceptable to the Company, or at all. A
successful malpractice claim against any of the Practices, even if covered by
insurance, or any claim made against the Company that is not fully covered by
insurance, could have a material adverse effect on the Company. See
'Business--Corporate Liability and Insurance.'
No Prior Market; Possible Volatility of Stock Price. Prior to this
Offering, there has been no public market for the Common Stock, and there can be
no assurance that an active public market for the Common Stock will develop or
continue after the Offering. The initial public offering price will be
determined by negotiations among the Company and Hambrecht & Quist LLC, Raymond
James & Associates, Inc. and Volpe Brown Whelan & Company, LLC and may not be
indicative of the market price for the Common Stock after the Offering. See
'Underwriting' for factors to be considered in determining the initial public
offering price. From time to time after the Offering, there may be significant
volatility in the market price of the Common Stock. Deviations in results of
operations from estimates of securities analysts, changes in general conditions
in the economy or the health care industry or other developments affecting the
Company or its competitors could cause the market price of the Common Stock to
fluctuate substantially. The equity markets have, on occasion, experienced
significant price and volume fluctuations that have affected the market prices
for many companies' securities and have often been unrelated to the operating
performance of these companies. Concern about the potential effects of health
care reform measures has contributed to the volatility of stock prices of
companies in health care and related industries and may similarly affect the
price of the Common Stock following the Offering. Any such fluctuations that
occur following completion of the Offering may adversely affect the market price
of the Common Stock.
Shares Eligible for Future Sale. The market price of the Common Stock of
the Company could be materially adversely affected by the sale of substantial
amounts of the Common Stock in the public market following the Offering. After
giving effect to the shares of Common Stock offered hereby, the Company will
have outstanding 20,787,183 shares of Common Stock. Of these shares, all of the
shares of Common Stock sold in the Offering will be freely tradeable without
restriction under the Securities Act of 1933, as amended (the 'Securities Act'),
except for any shares purchased by 'affiliates,' as that term is defined under
the Securities Act, of the Company. The remaining 15,787,183 shares are
'restricted securities' within the meaning of Rule 144 promulgated under the
Securities Act. Of these restricted shares, 5,526,501 shares will be eligible
for sale pursuant to Rule 144 in December 1997 and the balance will be eligible
for sale at various times in 1998, subject to the lock-up arrangements described
in the following paragraph. See 'Shares Eligible for Future Sale.'
The Company and the officers, directors and certain other stockholders of
the Company, who upon completion of the Offering will own in the aggregate
shares of Common Stock, have agreed that they will not, without the
prior written consent of Hambrecht & Quist LLC, issue, sell, offer, contract to
sell, make any short sale, pledge, issue or sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of any shares of Common
Stock, or securities exchangeable for or convertible into or exercisable for any
rights to purchase or acquire any shares of Common Stock during the 180-day
period following the date of this Prospectus, except that such stockholders
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may transfer securities pursuant to bona fide gifts and the Company may issue,
and grant options to purchase, shares of Common Stock under its current stock
option plan and may issue shares of Common Stock in connection with affiliation
transactions, provided such shares are subject to the 180-day lock-up agreement.
Certain holders of shares of Common Stock outstanding on the date of this
Prospectus have certain registration rights with respect to such shares and
additional shares that may be issued to such persons upon exercise of options
and warrants (subject to certain limitations on the number of shares such
holders are entitled to have registered under any registration statement),
although all such holders have agreed to refrain from selling their shares
during the lock-up period. In addition, the Company intends to register
approximately 2,000,000 shares of Common Stock reserved for issuance under the
BMJ Medical Management, Inc. 1996 Stock Option Plan (the 'Option Plan') as soon
as practicable after completion of the Offering. See 'Management' and
'Underwriting.'
Control by Existing Stockholders. Following the completion of the
Offering, the officers and directors of the Company and the physician owners of
the Existing Practices will beneficially own approximately 81% of the
outstanding shares of Common Stock. Following the Offering, such persons may
effectively be able to control the affairs of the Company, including the ability
to delay or prevent a change of control of the Company. See 'Principal
Stockholders.'
Potential Anti-Takeover Effects of Charter and By-laws Provisions; Possible
Issuances of Preferred Stock. Certain provisions of the Amended and Restated
Certificate of Incorporation (the 'Certificate of Incorporation') and by-laws
(the 'By-laws') of the Company that will become operative upon the closing of
this Offering may be deemed to have anti-takeover effects and may delay, deter
or prevent a change in control of the Company that a stockholder might consider
in his/her best interest. These provisions (i) classify the Company's Board of
Directors into three classes, each of which will serve for different three-year
periods; (ii) provide that only the Board of Directors or certain members
thereof or officers of the Company may call special meetings of the
stockholders; and (iii) authorize the issuance of 'blank check' preferred stock
having such designations, rights and preferences as may be determined from time
to time by the Board of Directors. See 'Description of Capital Stock.'
Immediate and Substantial Dilution. Purchasers of the Common Stock in this
Offering will incur immediate and substantial dilution in the net tangible book
value per share of Common Stock of $5.44 per share. See 'Dilution.'
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THE COMPANY
GENERAL
The Company was founded by Dr. Nagpal in January 1996. Since its inception,
the Company has expanded its network through Affiliation Transactions and
through the addition of physicians to its Existing Practices to reach a total of
25 Existing Practices comprising 117 physicians in six states as of the date of
this Prospectus.
In July 1996, the Company affiliated with its first Practice, Lehigh Valley
Bone, Muscle and Joint Group, LLC ('LVBMJ'), comprising five physicians. In
November 1996, the Company affiliated with STSC and SCOI, resulting in the
addition of a total of 29 physicians located in Texas and California. The
Company affiliated with Lauderdale Orthopaedic Surgeons ('LOS') and Tri-City
Orthopedic Surgery Medical Group, Inc. ('Tri-City') in April 1997, Fishman &
Stashak, M.D.'s, P.A. (d/b/a Gold Coast Orthopaedics) ('Gold Coast') in June
1997 and Sun Valley Orthopaedic Surgeons ('Sun Valley') in July 1997, resulting
in the addition of a total of 23 physicians. In September 1997, the Company
affiliated with Broward Institute of Orthopaedic Specialties, P.A. ('BIOS') and
Orthopaedic Surgery Associates, P.A. ('OSA'), resulting in the addition of a
total of 15 physicians. In addition to the foregoing Affiliation Transactions,
the Company has affiliated with 17 other Practices comprising 45 additional
physicians. In order to finance the Affiliation Transactions and provide for its
working capital needs, the Company has raised approximately $51.0 million
through a series of equity and debt financings. See 'Risk Factors--Lack of
Significant Combined Operating History' and 'Certain Transactions.'
The Company was incorporated under the laws of Delaware in January 1996.
The Company's principal executive offices are located at 4800 North Federal
Highway, Suite 101E, Boca Raton, Florida 33431 and its telephone number is (561)
391-1311.
AFFILIATION TRANSACTIONS
The Company has divided the United States into the eastern, central and
western regions. Set forth below is a description of the Affiliation
Transactions that the Company has entered into in each region as of the date of
this Prospectus.
Eastern Region
Effective July 1, 1996, the Company entered into a Management Services
Agreement with LVBMJ in Bethlehem, Pennsylvania. Under the terms of the initial
Management Services Agreement between LVBMJ and the Company, the Company
received a fee equal to 50% of the net collected revenues of LVBMJ and became
responsible for all the clinic overhead expenses (medical support services).
Effective July 1, 1997, the Company and LVBMJ entered into an amended and
restated Management Services Agreement, (the 'LVBMJ Management Services
Agreement'). Under the terms of the LVBMJ Management Services Agreement the
Company is entitled to receive a fee equal to 10% of all cash and cash
equivalents received for professional services by the Practice during the period
in question net of refunds paid during such period ('Collections') plus
reimbursement of clinic overhead expenses and 66-2/3% of the cost savings the
Company is able to achieve through its purchasing power. As consideration to
LVBMJ for entering into the LVBMJ Management Services Agreement, the Company
issued an aggregate of 518,031 shares of Common Stock and options to purchase an
aggregate of 30,000 shares of Common Stock and additional consideration of
$324,582 to the physician owners of LVBMJ. The Company may be required to issue
more shares of Common Stock to the Practice in 1998 based on the Practice's
actual Collections for a specified twelve month period.
Effective April 1, 1997, the Company entered into a Management Services
Agreement (the 'LOS Management Services Agreement') with LOS located in Ft.
Lauderdale, Florida. As consideration to LOS for entering into the agreement,
the Company issued an aggregate of 465,962 shares of its Common Stock and paid
additional consideration of $512,514 to the LOS physicians. The Company may be
required to issue more shares of Common Stock to the Practice in 1998 based on
the Practice's actual Collections for a specified twelve month period. Under the
terms of the LOS Management Services Agreement, the Company is entitled to
receive a fee equal to (i) the aggregate of (A) 20% of net operating income (as
defined in the LOS Management Services Agreement) of the Practice, plus (B)
66-2/3% of the cost savings the Company is able to achieve through its
purchasing power. Notwithstanding the foregoing, during the first seven years of
the term of the LOS
15
<PAGE>
Management Services Agreement, the Company is entitled to receive a guaranteed
minimum annual management fee of $400,000. The Company also purchased certain
assets from LOS, including the assumption of two leases, for an aggregate
purchase price of $2,250,000 (subject to adjustment based upon the Company's
actual collection of the purchased accounts receivable).
Effective June 1, 1997, the Company entered into a Management Services
Agreement (the 'Gold Coast Management Services Agreement') with Gold Coast
located in West Palm Beach, Florida, pursuant to which the Company issued
250,614 shares of Common Stock and paid no additional consideration to the
physician owners of Gold Coast. The Company may be required to issue more shares
of Common Stock to the Practice in 1998 based on the Practice's actual
Collections for a specified twelve month period. Under the terms of the Gold
Coast Management Services Agreement, the Company is entitled to receive a fee
equal to the aggregate of (i) 15% of the Collections plus reimbursement of
clinic overhead expenses, plus (ii) 66-2/3% of the cost savings the Company is
able to achieve through its purchasing power. Notwithstanding the foregoing,
during the first six years of the term of the Gold Coast Management Services
Agreement, the Company is entitled to receive a guaranteed minimum annual
management fee of $500,000. In connection with the Gold Coast Affiliation
Transaction, the Company also entered into an Asset Purchase Agreement,
effective as of June 1, 1997, pursuant to which the Company purchased certain
assets (including accounts receivable) from Gold Coast for an aggregate purchase
price of $2,976,577.
Effective August 1, 1997, the Company entered into a Management Services
Agreement (the 'BOS Management Services Agreement') with Broward Orthopedic
Specialists, Inc. ('BOS') located in Ft. Lauderdale, Florida, pursuant to which
the Company issued 625,768 shares of Common Stock and paid no additional
consideration to the physician owners of BOS. The Company may be required to
issue more shares of Common Stock to the Practice in 1998 based on the
Practice's actual Collections for a specified twelve month period. Under the
terms of the BOS Management Services Agreement, the Company is entitled to
receive a fee equal to the aggregate of (i) 15% of the Collections plus
reimbursement of clinic overhead expenses, plus (ii) 66-2/3% of the cost savings
the Company is able to achieve through its purchasing power. Notwithstanding the
foregoing, during the first four years of the term of the BOS Management
Services Agreement, the Company is entitled to receive a guaranteed minimum
annual management fee of $810,000. In connection with the BOS Affiliation
Transaction, the Company also entered into Asset Purchase Agreements, effective
as of August 1, 1997, pursuant to which the Company purchased certain assets
(including accounts receivable) from BOS, Matthews, Scott and Seavey for an
aggregate purchase price of $4,222,498.
Effective August 1, 1997, the Company entered into a Management Services
Agreement (the 'PM&R Management Services Agreement') with Physical Medicine and
Rehabilitation Associates, Inc. ('PM&R'), located in Delray Beach, Florida,
pursuant to which the Company issued 126,923 shares of Common Stock and paid no
additional consideration to the physician owners of PM&R. Under the terms of the
PM&R Management Services Agreement, the Company is entitled to receive a fee
equal to the aggregate of (i) 10% of the Collections plus reimbursement of
clinic overhead expenses, plus (ii) 66-2/3% of the cost savings the Company is
able to achieve through its purchasing power. Notwithstanding the foregoing,
during the first five years of the term of the PM&R Management Services
Agreement, the Company is entitled to receive a guaranteed minimum annual
management fee of $136,000. In connection with the PM&R Affiliation Transaction,
the Company also entered into an Asset Purchase Agreement, effective as of
August 1, 1997, pursuant to which the Company purchased certain assets
(including accounts receivable) from PM&R, for an aggregate purchase price of
$830,700.
In October 1997, the Company entered into a Management Services Agreement
(the 'OSA Management Services Agreement') with OSA located in Boca Raton,
Florida, pursuant to which the Company issued 62,110 shares of Common Stock and
paid no additional consideration to the physician owners of OSA. The Company may
be required to issue more shares of Common Stock to OSA in 1998 and 1999. Under
the terms of the OSA Management Services Agreement, the Company is entitled to
receive a fee equal to the aggregate of (i) 12.5% of Collections plus
reimbursement of clinic overhead expenses, plus (ii) 66-2/3% of the cost savings
the Company is able to achieve through its purchasing power. Notwithstanding the
foregoing, during the first four years of the term of the OSA Management
Services Agreement, the Company is entitled to receive a guaranteed minimum
annual management fee of $799,000. In connection with the OSA Affiliation
Transaction, the Company also entered into an Asset Purchase Agreement,
effective as of September 1, 1997, pursuant to which the Company purchased
certain assets (including accounts receivable) from OSA for an aggregate
purchase price of $6,773,951 and issued 248,436 shares of Common Stock to the
physician owners of OSA.
16
<PAGE>
In October 1997, the Company entered into a Management Services Agreement
(the 'BIOS Management Services Agreement') with BIOS located in Hollywood,
Florida. As consideration to BIOS for entering into the agreement, the Company
issued an aggregate of 255,237 shares of its Common Stock and paid additional
consideration of $24,000 to the BIOS physicians. The Company may be required to
issue more shares of Common Stock to BIOS in 1998 based on BIOS's actual
Collections for a twelve month period. Under the terms of the BIOS Management
Services Agreement, the Company is entitled to receive a fee equal to the
aggregate of (i) 15% of net operating income (as defined in the BIOS Management
Services Agreement) of the Practice, plus (ii) 66-2/3% of the cost savings the
Company is able to achieve through its purchasing power. The Company also
purchased certain assets from BIOS for an aggregate purchase price of
$2,761,563.
In October 1997, the Company entered into a Management Services Agreement
(the 'LOAS Management Services Agreement') with Lighthouse Orthopaedic
Associates, P.A. ('LOAS') located in Lighthouse Point, Florida. As consideration
to LOAS for entering into the agreement, the Company issued an aggregate of
52,972 shares of its Common Stock and paid no additional consideration to the
LOAS physicians. The Company may be required to issue more shares of Common
Stock to the Practice in 1998 based on the Practice's actual Collections for a
twelve month period. Under the terms of the LOAS Management Services Agreement,
the Company is entitled to receive a fee equal to the aggregate of (i) 12.5% of
the Collections plus reimbursement of clinic overhead expenses, plus (ii)
66-2/3% of the cost savings the Company is able to achieve through its
purchasing power. Notwithstanding the foregoing, during the first four years of
the term of the LOAS Management Services Agreement, the Company is entitled to
receive a guaranteed minimum annual management fee of $535,000. In connection
with the LOAS Affiliation Transaction, the Company also entered into Asset
Purchase Agreements, effective as of September 1, 1997, pursuant to which the
Company purchased certain assets (including accounts receivable) from each of
LOAS, certain affiliates of LOAS and each of the physicians of LOAS, for an
aggregate purchase price of $3,899,930 and issued an aggregate of 218,936 shares
of Common Stock to the physician owners of LOAS.
In October 1997, the Company acquired all of the issued and outstanding
shares of common stock of Valley Sports Surgeons, Inc., a physician practice
management company located in Allentown, Pennsylvania ('VSI'), in exchange for
an aggregate of 503,250 shares of Common Stock. Pursuant to the terms of a
Management Services Agreement (the 'Valley Management Services Agreement'), VSI
currently manages Valley Sports & Arthritis Surgeons, P.C., an orthopedic
medical practice also located in Allentown, Pennsylvania ('VSAS'). Under the
terms of the Valley Management Services Agreement, the Company is entitled to
receive a fee equal to the aggregate of (i) 10% of Collections plus
reimbursement of clinic overhead expenses, plus (ii) 66-2/3% of the cost savings
the Company is able to achieve through its purchasing power. Prior to the
acquisition of the capital stock of VSI, the Company purchased substantially all
of the assets of VSAS used in connection with its medical practice, including
certain accounts receivable, for an aggregate purchase price of $897,727.
Effective November 1, 1997, the Company entered into a Management Services
Agreement (the 'New Jersey Management Services Agreement') with New Jersey
Orthopedic Associates, P.A., a New Jersey professional association ('NJOA'),
located in Freehold, New Jersey, pursuant to which the Company issued 95,002
shares of Common Stock and paid additional consideration of $411,680 to the
physician owners of NJOA. Under the terms of the New Jersey Management Services
Agreement, the Company is entitled to receive a fee equal to the aggregate of
(i) 10% of the Collections plus reimbursement of clinic overhead expenses, plus
(ii) 66 2/3% of the cost savings the Company is able to achieve through its
purchasing power. In connection with the NJOA Affiliation Transaction, the
Company entered into an Asset Purchase Agreement, effective November 1, 1997,
pursuant to which the Company purchased certain assets from Orthopedic
Associates of New Jersey, an affiliate of NJOA, for a purchase price of $75,000.
Additionally, NJOA and the Company entered into a Stockholders Noncompetition
Agreement and paid consideration of $954,194 to the physician owners of NJOA.
Other Eastern Region Affiliations
Effective July 1, 1997, the Company entered into a Management Services
Agreement with Kramer & Maehrer, LLC, located in Bethlehem, Pennsylvania. In
order to enhance the Company's presence in the Ft. Lauderdale market, the
Company entered into Management Services Agreements with Jeffrey Beitler, M.D.,
P.A., located in Adventura, Florida, and Michael Abrahams, M.D., P.A., located
in Plantation, Florida, effective as of September 1, 1997 and August 1, 1997,
respectively. Under the terms of these Management Services
17
<PAGE>
Agreements, the Company is entitled to receive a fee equal to the aggregate of
(i) 10% (15% in the case of Dr. Abrahams) of the Collections plus reimbursement
of clinic overhead expenses, plus (ii) 66-2/3% of the cost savings the Company
is able to achieve through its purchasing power.
Central Region
The Company's initial Affiliation Transaction in the central region was
with STSC. The Company entered into a Management Services Agreement with STSC,
located in San Antonio, Texas, effective as of November 1, 1996, pursuant to
which the Company issued 1,076,501 shares of Common Stock and deferred
consideration of $915,835. Pursuant to the STSC Management Services Agreement,
the Company is entitled to receive a management fee equal to an aggregate of (i)
11-1/2% of Collections of the Practice (less certain lease payments) plus
reimbursement of clinic overhead expenses, plus (B) 66-2/3% of the cost savings
the Company is able to achieve through its purchasing power. The Company also
entered into an asset purchase agreement with STSC, pursuant to which the
Company agreed to purchase certain assets (including accounts receivable) and
assume certain liabilities for a purchase price of (i) $1,703,826 (subject to
adjustment based upon the Company's actual collection of the purchased accounts
receivable) plus (ii) a future payment of $446,327.
Other Central Region Affiliations
Effective July 1, 1997, the Company entered into a Management Services
Agreement with Eradio Arrendondo, M.D., P.A., located in San Antonio, Texas.
Western Region
Effective November 1, 1996, the Company entered into a Management Services
Agreement (the 'SCOI Management Services Agreement') with SCOI, located in Van
Nuys, California, and, in connection therewith, the Company issued 4,000,000
shares of Common Stock to the physician owners and certain key employees of
SCOI. Under the SCOI Management Services Agreement, the Company is entitled to
receive a fee equal to the aggregate of (i) 10% of the Collections of the
Practice (if certain conditions are met) less certain equipment lease payments
plus reimbursement of clinic overhead expenses, plus (ii) 66-2/3% of the cost
savings the Company is able to achieve through its purchasing power.
Simultaneously with the execution and delivery of the SCOI Management Services
Agreement and pursuant to an Asset Purchase Agreement, the Company acquired
certain assets (including the outstanding accounts receivable), and assumed
certain liabilities, of SCOI for an aggregate purchase price of $5,930,897
(which included $4,448,000 of value of accounts receivable purchased).
In a subsequent transaction with the Center for Orthopedic Surgery, Inc.
('COSI'), an outpatient surgery center in Van Nuys, California owned by the SCOI
physicians, the Company issued 550,000 shares of Common Stock to the physician
owners of COSI as consideration for the execution of the Management Services
Agreement entered into between COSI and the Company (the 'COSI Management
Services Agreement'). The number of shares issued to the physicians in
connection with each of the SCOI and COSI Affiliation Transactions is subject to
recalculation on the earlier to occur of the filing by the Company of a
registration statement containing a preliminary prospectus with the Commission
or November 1, 1997. The number of shares will be increased or decreased based
upon the respective revenue contribution of the SCOI and COSI practices at such
date as compared to the aggregate revenues of the entire musculoskeletal
practice network of the Company at such date.
To expand its network in the western region, effective April 1, 1997, the
Company entered into a Management Services Agreement (the 'Tri-City Management
Services Agreement') with Tri-City, located in Oceanside, California, pursuant
to which the Company issued 402,723 shares of Common Stock and paid $202,900 to
the physician owners of Tri-City. Under the terms of the Tri-City Management
Services Agreement, the Company is entitled to receive a fee equal to the
aggregate of (i) 10% of Collections of the Practice (less certain lease
payments) plus reimbursement of clinic overhead expenses, plus (ii) 66-2/3% of
the cost savings the Company is able to achieve through its purchasing power. In
connection with the Tri-City Affiliation Transaction, the Company also entered
into three Asset Purchase Agreements with Tri-City or affiliates thereof, all
effective as of April 1, 1997, pursuant to which the Company purchased certain
assets (including accounts
18
<PAGE>
receivable) from such parties for an aggregate purchase price of $745,300
($519,000 of which is subject to refund, based upon the Company's actual
collection of the purchased accounts receivable).
Effective July 1, 1997, the Company entered into a Management Services
Agreement (the 'Sun Valley Management Services Agreement') with Sun Valley
Orthopaedic Surgeons, an Arizona general partnership ('Sun Valley'), located in
Sun City, Arizona, pursuant to which the Company issued 157,807 shares of Common
Stock and paid no additional consideration to the physician owners of Sun
Valley. The Sun Valley Management Services Agreement requires the Company to pay
additional cash consideration to the physician owners of Sun Valley if the
current market value of the Company's Common Stock is not at least equal to a
specified price on the first anniversary of such agreement. Under the terms of
the Sun Valley Management Services Agreement, the Company is entitled to receive
a fee equal to the aggregate of (i) 10% of the Collections plus reimbursement of
clinic overhead expenses, plus (ii) 66-2/3% of the cost savings the Company is
able to achieve through its purchasing power. In connection with the Sun Valley
Affiliation Transaction, the Company also entered into an Asset Purchase
Agreement, effective as of July 1, 1997, pursuant to which the Company purchased
certain assets (including accounts receivable) from Sun Valley for an aggregate
purchase price of $355,750.
Effective August 1, 1997, the Company entered into a Management Services
Agreement (the 'Stockdale Management Services Agreement') with Stockdale
Podiatry Group, Inc. ('Stockdale'), located in Bakersfield, California, pursuant
to which the Company issued 124,385 shares of Common Stock and paid additional
consideration of $300,435 to the physician owners of Stockdale. Under the terms
of the Stockdale Management Services Agreement, the Company is entitled to
receive a fee equal to the aggregate of (i) 10% of the Collections plus
reimbursement of clinic overhead expenses, plus (ii) 66-2/3% of the cost savings
the Company is able to achieve through its purchasing power. In connection with
the Stockdale Affiliation Transaction, the Company also entered into an Asset
Purchase Agreement, effective as of August 1, 1997, pursuant to which the
Company purchased certain assets (including accounts receivable) from Stockdale
for an aggregate purchase price of $516,065.
Other Western Region Affiliations
Effective June 1, 1997 in order to enhance the Company's presence in the
Los Angeles market area, the Company entered into separate Management Services
Agreements with H. Leon Brooks, M.D. and Clive Segil, M.D., both located in Los
Angeles, California. In addition, effective July 1, 1997, in order to establish
a presence in the Lake Tahoe area, the Company entered into separate Management
Services Agreements with R.C. Watson, M.D., Inc., Swanson Orthopedic Medical
Corporation and Lake Tahoe Sports Medicine Center, all located in South Lake
Tahoe, California. In addition, effective July 1, 1997, the Company entered into
a Management Services Agreement with Robert O. Wilson, M.D. located in Sun City,
Arizona. Effective August 1, 1997 the Company entered into a Management Services
Agreement with John Zimmerman, M.D. located in Bakersfield, California. Under
the terms of each of these Management Services Agreements, the Company is
entitled to receive a fee equal to the aggregate of (ii) 10% of the Collections
plus reimbursement of clinic overhead expenses, plus (ii) 66-2/3% of the cost
savings the Company is able to achieve through its purchasing power.
In October 1997, the Company acquired its IPA, Orthopaedic Management
Network, Inc., an Arizona corporation, in exchange for $63,000 in cash, the
assumption of $809,332 in accounts payable and accrued liabilities and the
issuance of 57,036 shares of Common Stock.
19
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 5,000,000 shares of
Common Stock offered hereby are estimated to be $35.7 million ($41.3 million if
the Underwriters' over-allotment option is exercised in full), based on an
assumed initial public offering price of $8.00 per share and after deducting
estimated underwriting discounts and expenses of the Offering. The Company
intends to use approximately $34.4 million of the net proceeds to repay certain
indebtedness and the remaining net proceeds for general corporate purposes,
including possible future affiliations.
The indebtedness being repaid consists of (i) approximately $11.3 million
(the 'HCFP Debt') outstanding under several loan and security agreements
(collectively, the 'HCFP Loan Agreements') between the Company and HCFP Funding,
Inc. ('HCFP Funding'), an affiliate of Health Care Financial Partners; (ii)
approximately $6.0 million of subordinated debt (the 'Comdisco Loan')
outstanding under a Subordinated Loan and Security Agreement (the 'Comdisco Loan
Agreement') between the Company and Comdisco, Inc. ('Comdisco'); (iii)
approximately $1.5 million of subordinated debt (the 'Galtney Loan') outstanding
under a Subordinated Loan and Security Agreement (the 'Galtney Loan Agreement')
between the Company and Galtney Corporate Services, Inc. (iv) approximately $3.4
million of subordinated debt due to certain stockholders ('the Stockholder
Debt'); (v) approximately $11.3 million of notes and obligations payable to
physician groups issued in connection with Affiliation Transactions (the
'Physician Notes'); and (vi) approximately $900,000 of subordinated debt owed to
Dr. Nagpal (the 'Nagpal Debt'). See 'Certain Transactions.'
The HCFP Debt was incurred for working capital purposes and to finance
Affiliation Transactions, bears interest at rates ranging from 10 1/4% to 12%
per annum and matures from 1998 to 2000. The indebtedness under the Comdisco
Loan and the Galtney Loan was incurred to finance Affiliation Transactions,
bears interest at 14% per annum and matures on December 1 and December 31, 2000.
The Stockholder Debt was incurred to finance Affiliation Transactions, bears
interest at the prime rate plus 3.5% (12% at October 31, 1997) and matures on
January 10, 1998. The Physician Notes were issued in connection with Affiliation
Transactions, bear interest at rates ranging from 6% to 11% and mature between
December 1997 and October 1998. The Nagpal Debt was also incurred to finance
Affiliation Transactions, bears interest at 14% per annum and is payable on
December 31, 1997.
Pending use of the remaining net proceeds for general corporate purposes,
the Company intends to invest such net proceeds in short-term, investment grade,
interest-bearing securities. The Company continues to review and evaluate
additional Practices for purposes of future Affiliation Transactions, but as of
the date of this Prospectus has not entered into agreements with any such
Practices.
DIVIDEND POLICY
The Company has never paid or declared dividends on the Common Stock and
does not anticipate paying any dividends on the Common Stock in the foreseeable
future. Under the terms of the HCFP Loan Agreements and the Debenture Purchase
Agreement (as defined) the Company is prohibited from declaring or paying any
cash dividend or making any distribution on any class of stock, except pursuant
to an employee repurchase plan or with the consent of its lenders. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources' and 'Certain Transactions.'
20
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the Company at
September 30, 1997, the pro forma capitalization of the Company at September 30,
1997 after giving effect to the Affiliation Transactions and the pro forma
capitalization as adjusted to give effect to the sale of the 5,000,000 shares of
Common Stock offered hereby (based on an assumed initial public offering price
of $8.00 per share and after deducting estimated underwriting discounts and
expenses of the Offering), the application of the net proceeds therefrom and the
automatic conversion of all outstanding shares of preferred stock into shares of
Common Stock. See 'Use of Proceeds' and 'Description of Capital Stock.' The
table should be read in conjunction with the Pro Forma Financial Information and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and the historical financial statements of the Company and the
Existing Practices appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt, including current portion of long-term debt and capital
lease obligations.......................................................... $ 3,102 $19,213 $ 15
------- --------- -----------
------- --------- -----------
Long-term debt and capital lease obligations, less current portion........... $16,480 $18,491 $ 4,051
Stockholders' equity:
Convertible preferred stock, $0.01 par value--9,233,049 shares authorized,
4,184,740 shares issued and outstanding; 4,184,740 shares authorized,
issued and outstanding pro forma; and no shares issued and outstanding
pro forma as adjusted................................................... 42 42 --
Common stock, $0.001 par value--25,000,000 shares authorized; 10,048,482
shares issued and outstanding; 11,602,443 shares issued and outstanding
pro forma; and 20,787,183 shares issued and outstanding pro forma as
adjusted(1)............................................................. 10 12 21
Additional paid-in capital................................................. 19,365 24,726 60,459
Accumulated deficit........................................................ (4,261) (4,261) (4,961)
------- --------- -----------
Total stockholders' equity.............................................. 15,156 20,519 55,519
------- --------- -----------
Total capitalization............................................... $31,636 $39,010 $59,570
------- --------- -----------
------- --------- -----------
</TABLE>
- ------------------
(1) Excludes 1,604,500 shares issuable upon exercise of outstanding options with
a weighted average exercise price of $1.18 per share and 321,665 shares of
Common Stock issuable upon exercise of outstanding warrants to purchase
Common Stock with a weighted average exercise price of $3.44 per share. See
'Management' and 'Certain Transactions.'
21
<PAGE>
DILUTION
As of September 30, 1997, the pro forma net tangible book value of the
Company was approximately $18,142,000, or approximately $1.15 per share. Pro
forma 'net tangible book value per share' represents the amount of the Company's
total pro forma tangible assets less the Company's total pro forma liabilities
divided by the number of shares of Common Stock outstanding, after giving effect
to the conversion of all outstanding shares of Preferred Stock (including
accrued dividends) into shares of Common Stock. After giving effect to the sale
of 5,000,000 shares of Common Stock offered by the Company hereby based on an
assumed initial public offering price of $8.00 per share and after deducting
estimated underwriting discounts and expenses of the Offering, the pro forma net
tangible book value of the Company at September 30, 1997 would have been
approximately $53,142,000 or approximately $2.56 per share of Common Stock,
representing an immediate increase in pro forma net tangible book value of $1.41
per share to existing stockholders and an immediate, substantial dilution of
$5.44 per share to persons purchasing shares of Common Stock offered hereby. The
following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........................................ $8.00
Pro forma net tangible book value per share at September 30, 1997.................... $1.15
Increase attributable to price paid by new investors per share....................... 1.41
-----
Pro forma net tangible book value per share after the Offering......................... 2.56
-----
Dilution per share to new investors.................................................... $5.44
-----
-----
</TABLE>
The following table sets forth, as of September 30, 1997, the pro forma
number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price paid per share by
existing stockholders and purchasers of shares of Common Stock offered hereby,
after giving effect to (i) the sale of 5,000,000 shares of Common Stock offered
hereby based on an assumed initial public offering price of $8.00 per share and
before deducting estimated underwriting discounts and expenses of the Offering
and (ii) the conversion of all outstanding shares of Preferred Stock of the
Company into shares of Common Stock.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........................ 15,787,183 75.9% $24,780,000 38.3% $1.57
New investors................................ 5,000,000 24.1 40,000,000 61.7 8.00
---------- ------- ----------- -------
Total................................. 20,787,183 100.0% $64,780,000 100.0%
---------- ------- ----------- -------
---------- ------- ----------- -------
</TABLE>
The foregoing computations do not include the effect of the issuance of
1,604,500 shares of Common Stock issuable upon exercise of outstanding options
with a weighted average exercise price of $1.18 per share and 321,665 shares of
Common Stock issuable upon exercise of outstanding warrants with a weighted
average exercise price of $3.44 per share. To the extent such options and
warrants are exercised, there will be further dilution to the new investors. See
'Management' and 'Certain Transactions.'
22
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The pro forma statement of operations for the nine months ended September
30, 1997 gives effect to (i) the 1997 Affiliation Transactions and (ii) receipt
and application of the estimated net proceeds from this Offering at an assumed
initial public offering price of $8.00 per share as if such transactions had
occurred on January 1, 1996. The pro forma statement of operations for the year
ended December 31, 1996 gives effect to (i) the Affiliation Transactions and
(ii) the receipt and application of the estimated net proceeds from this
Offering as if such transactions had occurred on January 1, 1996. The pro forma
balance sheet as of September 30, 1997 gives effect to (i) the 1997 Affiliation
Transactions, (ii) the receipt and application of the estimated net proceeds
from this Offering, (iii) the conversion of all outstanding Preferred Stock and
other outstanding equity securities into Common Stock concurrently with the
Offering as if all of such transactions had occurred on September 30, 1997. The
pro forma financial information is based on the financial statements of the
Company, after giving effect to the assumptions and adjustments in the
accompanying notes to the pro forma financial information. Although such
information is based on preliminary allocations of the consideration paid in
connection with the 1997 Affiliation Transactions, the Company does not expect
that the final allocations will be materially different from such preliminary
allocations.
The pro forma financial information has been prepared by management based
on the historical financial statements of the Company and the Existing Practices
at and for the year ended December 31, 1996 and the nine months ended September
30, 1997, adjusted where necessary to reflect the Affiliation Transactions as if
the related Management Service Agreements had been in effect during the entire
periods presented. The pro forma financial information is presented for
illustrative purposes and does not purport to represent what the results of
operations or financial condition of the Company for the periods or at the dates
presented would have been if such transactions had been consummated as of such
dates and is not indicative of the results that may be obtained in the future.
BMJ MEDICAL MANAGEMENT, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
1997 AFFILIATIONS (A)
---------------------------------------------------------------------
THE GOLD SUN OTHER
COMPANY(B) TRI- CITY LOS COAST VALLEY BIOS OSA AFFILIATIONS
---------- -------- ------ ------ ------ ------- ------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Practice revenues, net......................... $ 38,325 $1,240 $1,600 $1,609 $1,358 $ 5,333 $5,245 $ 22,516
Less: amounts retained by physician groups..... (17,878) (702) (813) (1,005) (782) (2,874) (2,846) (11,594)
---------- -------- ------ ------ ------ ------- ------ ------
Management fee revenue......................... 20,447 538 787 604 576 2,459 2,399 10,922
Costs and expenses:
Medical support services...................... 17,934 538 787 604 576 2,459 2,399 10,922
General and administrative.................... 4,187 -- -- -- -- -- -- --
Depreciation and amortization................. 661 -- -- -- -- -- -- --
Interest expense (income), net................ 817 -- -- -- -- -- -- --
---------- -------- ------ ------ ------ ------- ------ ------
Total costs and expenses.................... 23,599 538 787 604 576 2,459 2,399 10,922
---------- -------- ------ ------ ------ ------- ------ ------
(Loss) income before income taxes.............. (3,152) -- -- -- -- -- -- --
---------- -------- ------ ------ ------ ------- ------ ------
Income taxes................................... -- -- -- -- -- -- -- --
---------- -------- ------ ------ ------ ------- ------ ------
Net (loss) income.............................. $ (3,152) $ -- $ -- $ -- $ -- $ -- $ -- $ --
---------- -------- ------ ------ ------ ------- ------ ------
---------- -------- ------ ------ ------ ------- ------ ------
Net (loss) income per common share:
Primary....................................... $ (0.25)
Diluted....................................... $ (0.25)
Weighted average common shares
outstanding:
Primary....................................... 12,499
Diluted....................................... 12,499
<CAPTION>
PRO FORMA OFFERING PRO FORMA
ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Practice revenues, net......................... $ -- $ 77,226 $ -- $ 77,226
(6,513)(d)
Less: amounts retained by physician groups..... (305)(c) (31,676 ) -- (31,676)
----------- --------- ----------- -----------
Management fee revenue......................... (6,818) 45,550 -- 45,550
Costs and expenses:
Medical support services...................... -- 36,219 -- 36,219
General and administrative.................... -- 4,187 -- 4,187
Depreciation and amortization................. 1,026(e) 1,687 -- 1,687
Interest expense (income), net................ 2,630(f) 3,447 (3,256)(h) 191
----------- --------- ----------- -----------
Total costs and expenses.................... 3,656 45,540 (3,256) 42,284
----------- --------- ----------- -----------
(Loss) income before income taxes.............. (3,162) 10 3,256 3,266
----------- --------- ----------- -----------
Income taxes................................... 4(g) 4 1,237(h) 1,241
----------- --------- ----------- -----------
Net (loss) income.............................. $(3,158) $ 6 $ 2,019 $ 2,025
----------- --------- ----------- -----------
----------- --------- ----------- -----------
Net (loss) income per common share:
Primary....................................... $ 0.09
Diluted....................................... $ 0.09
Weighted average common shares
outstanding:
Primary....................................... 21,914
Diluted....................................... 22,470
</TABLE>
23
<PAGE>
BMJ MEDICAL MANAGEMENT, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
1997 AFFILIATIONS (A)
1996 AFFILIATIONS (A) ----------------------------------------------------------
THE -------------------------- GOLD SUN
COMPANY(B) LVBMJ SCOI STSC TRI-CITY LOS COAST VALLEY BIOS OSA
---------- ------ ------- ------- -------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Practice revenues, net...... $ 6,029 $1,540 $17,907 $ 6,027 $ 3,478 $ 6,365 $ 3,434 $ 2,468 $ 7,615 $ 8,470
Less: amounts retained by
physician groups........... (2,912) (716 ) (9,141) (4,399) (1,658) (4,055) (2,050) (1,384) (2,353) (2,656)
---------- ------ ------- ------- -------- ------- ------- ------- ------- -------
Management fee revenue...... 3,117 824 8,766 1,628 1,820 2,310 1,384 1,084 5,262 5,814
Costs and expenses:
Medical support services... 2,844 824 8,766 1,628 1,820 2,310 1,384 1,084 5,262 5,814
General and
administrative........... 1,299 -- -- -- -- -- -- -- -- --
Depreciation and
amortization............. 104 -- -- -- -- -- -- -- -- --
Interest expense (income),
net...................... (21) -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
---------- ------ ------- ------- -------- ------- ------- ------- ------- -------
Total costs and
expenses................ 4,226 824 8,766 1,628 1,820 2,310 1,384 1,084 5,262 5,814
---------- ------ ------- ------- -------- ------- ------- ------- ------- -------
(Loss) income before income
taxes...................... (1,109) -- -- -- -- -- -- -- -- --
Income taxes................ -- -- -- -- -- -- -- -- -- --
---------- ------ ------- ------- -------- ------- ------- ------- ------- -------
Net (loss) income........... $ (1,109) $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
---------- ------ ------- ------- -------- ------- ------- ------- ------- -------
---------- ------ ------- ------- -------- ------- ------- ------- ------- -------
Net (loss) income per
common share:
Primary.................... $ (0.09)
Diluted.................... $ (0.09)
Weighted average common
shares outstanding:
Primary.................... 11,870
Diluted.................... 11,870
<CAPTION>
OTHER PRO FORMA OFFERING PRO FORMA
AFFILIATIONS ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Practice revenues, net...... $ 30,812 $ -- $ 94,145 $ -- $ 94,145
Less: amounts retained by 8,372 (d)
physician groups........... (11,977) 1,537 (c) (33,392) -- (33,392)
------ ----------- ----------- ----------- -----------
Management fee revenue...... 18,835 9,909 60,753 -- 60,753
Costs and expenses:
Medical support services... 18,835 -- 50,571 -- 50,571
General and
administrative........... -- -- 1,299 -- 1,299
Depreciation and
amortization............. -- 1,692(e) 1,796 -- 1,796
Interest expense (income),
net...................... -- 4,297(f) 4,276 (4,020)(h) 256
-- -- -- -- --
------ ----------- ----------- ----------- -----------
Total costs and
expenses................ 18,835 5,989 57,942 (4,020) 53,922
------ ----------- ----------- ----------- -----------
(Loss) income before income
taxes...................... -- 3,920 2,811 4,020 6,831
Income taxes................ -- 1,068 (g) 1,068 1,527(h) 2,595
------ ----------- ----------- ----------- -----------
Net (loss) income........... $ -- $ 2,852 $ 1,743 $ 2,493 $ 4,236
------ ----------- ----------- ----------- -----------
------ ----------- ----------- ----------- -----------
Net (loss) income per
common share:
Primary.................... $ 0.19
Diluted.................... $ 0.19
Weighted average common
shares outstanding:
Primary.................... 21,914
Diluted.................... 22,470
</TABLE>
24
<PAGE>
NOTES TO PRO FORMA STATEMENTS OF OPERATIONS
Practice revenue represents the revenue of the Existing Practices and the
COSI ambulatory surgery center reported at the estimated realizable amounts from
patients, third party payors and others for services rendered, net of
contractual and other adjustments. Management fee revenue represents practice
revenue less amounts retained by the Existing Practices (consisting of amounts
retained by physician groups, principally compensation and fees paid to
physicians). Under each Management Services Agreement, the Company assumes
responsibility for the management of the non-medical operations of the Practice,
employs substantially all of the non-professional personnel utilized by the
Practice and may provide the Practice with the facilities and equipment used in
its medical practice.
The Company's operating expenses consist of the expenses incurred in
fulfilling its obligations under the Management Services Agreements. These
expenses include medical support services (principally clinic overhead expenses
that would have been incurred by the Existing Practices, including
non-professional employee salaries, employee benefits, medical supplies,
malpractice insurance premiums, rent and other expenses related to clinic
operations) and general and administrative expenses (personnel and
administrative expenses in connection with maintaining a corporate office that
provides management, contracting, administrative, marketing and development
services to the Existing Practices). The Practices' operating expenses prior to
affiliation with the Company consist of the clinic overhead expenses, including
non-professional employee salaries, employee benefits, medical supplies,
malpractice insurance premiums, rent, depreciation and amortization and general
and administrative expenses related to clinic operations which have been
presented as medical support services.
(a) The 1996 Affiliations column presents historical information for
the portion of the year preceding the Practices' affiliation with the
Company recognizing that the Practices typically distribute any net income
to the physicians as compensation. In the pro forma statement of operations
for the year ended December 31, 1996, the 1997 Affiliations columns present
historical information of the 1997 Affiliation Transactions for the year
ended December 31, 1996, recognizing that the Practices typically
distribute any net income to the physicians as compensation. In the pro
forma statement of operations for the nine months ended September 30, 1997,
the 1997 Affiliations column presents historical information of the 1997
Affiliation Transactions for the portion of the year preceding the
Practices' affiliation with the Company recognizing that the Practices
typically distribute any net income to the physicians as compensation.
Physician compensation is presented as amounts retained by physician
groups.
The Other Affiliations column presents the information from the following
practices:
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
PRACTICE AMOUNTS RETAINED MANAGEMENT MEDICAL
REVENUES, BY FEE SUPPORT
PRACTICE NET PHYSICIAN GROUPS REVENUE SERVICES
- ---------------------------------------------------------- --------- ----------------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Tower Orthopedics......................................... $ 376 $ 150 $ 226 $ 226
Clive Segil, M.D.......................................... 285 100 185 185
R.C. Watson, M.D.......................................... 441 169 272 272
Swanson Orthopedics....................................... 316 126 190 190
Lake Tahoe Sports......................................... 270 89 181 181
San Antonio Bone & Joint.................................. 196 71 125 125
Stockdale Podiatry........................................ 1,008 397 611 611
John Zimmerman, M.D....................................... 338 141 197 197
Broward Orthopedic Specialists............................ 4,239 1,753 2,486 2,486
Jeffrey Beitler, M.D...................................... 340 157 183 183
Michael Abrahams, M.D..................................... 1,118 486 632 632
Physical Medicine and Rehabilitation...................... 835 468 367 367
Kramer & Maehrer, LLC..................................... 412 261 151 151
Lighthouse Orthopaedics................................... 5,661 3,032 2,629 2,629
Valley Sports & Arthritis Surgeons........................ 3,340 1,904 1,436 1,436
New Jersey Orthopedic Associates.......................... 2,110 1,224 886 886
Orthopaedic Management Network, Inc. (Omni IPA)........... 1,231 1,066 165 165
--------- -------- ---------- --------
Totals.................................................. $22,516 $11,594 $ 10,922 $ 10,922
--------- -------- ---------- --------
--------- -------- ---------- --------
</TABLE>
25
<PAGE>
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRACTICE AMOUNTS RETAINED MANAGEMENT MEDICAL
REVENUES, BY FEE SUPPORT
PRACTICE NET PHYSICIAN GROUPS REVENUE SERVICES
- ---------------------------------------------------------- --------- ----------------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Tower Orthopedics......................................... $ 536 $ 214 $ 322 $ 322
Clive Segil, M.D.......................................... 535 187 348 348
R.C. Watson, M.D.......................................... 610 244 366 366
Swanson Orthopedics....................................... 550 180 370 370
Lake Tahoe Sports......................................... 618 236 382 382
San Antonio Bone & Joint.................................. 464 167 297 297
Stockdale Podiatry........................................ 1,856 731 1,125 1,125
John Zimmerman, M.D....................................... 676 283 393 393
Broward Orthopedic Specialists............................ 6,407 2,044 4,363 4,363
Jeffrey Beitler, M.D...................................... 501 138 363 363
Michael Abrahams, M.D..................................... 1,398 587 811 811
Physical Medicine and Rehabilitation...................... 1,600 539 1,061 1,061
Kramer & Maehrer, LLC..................................... 749 474 275 275
Lighthouse Orthopaedics................................... 5,747 1,743 4,004 4,004
Valley Sports & Arthritis Surgeons........................ 4,687 1,663 3,024 3,024
New Jersey Orthopedic Associates.......................... 2,927 1,698 1,229 1,229
Orthopaedic Management Network, Inc. (Omni IPA)........... 951 849 102 102
--------- -------- ---------- -------
Totals.................................................. $30,812 $11,977 $ 18,835 $18,835
--------- -------- ---------- -------
--------- -------- ---------- -------
</TABLE>
(b) In the pro forma statement of operations for the year ended
December 31, 1996, the Company column includes the operations of the
Existing Practices that affiliated with the Company in 1996 from the date
of affiliation and all actual expenses related to corporate infrastructure,
which were primarily general and administrative expenses. In the pro forma
statement of operations for the nine months ended September 30, 1997, the
Company column includes all operations of the Existing Practices that
affiliated with the Company in 1996 and the operations of the Existing
Practices that affiliated with the Company in the first nine months of 1997
from the date of affiliation and all actual expenses related to corporate
infrastructure, which were primarily general and administrative expenses.
See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations.'
(c) Reflects the impact of applying the provisions of the SCOI
Management Services Agreement and the amended and restated LVBMJ Management
Services Agreement relating to management fees payable to the Company
retroactively to January 1, 1996 and 1997 whereby the base management fees
are adjusted to 10% of net collected revenue.
(d) Reflects the impact of applying the provisions of the Management
Services Agreements relating to the portion of the management fees payable
to the Company that are based on a percentage of revenue.
26
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
PRACTICE 1996 1997
- ------------------------------------------------------------------------------------ ------------ -------------
(IN THOUSANDS)
-----------------------------
<S> <C> <C>
LVBMJ/Orthopaedic Associates of Bethlehem........................................... $ 154 $ 1,052
Southern California Orthopedic Institute............................................ 596 531
COSI................................................................................ -- 286
South Texas Spinal Clinic........................................................... 633 310
Tri-City Orthopedics................................................................ 348 124
Lauderdale Orthopaedic Surgeons..................................................... 637 160
Gold Cost Orthopedics............................................................... 515 241
Sun Valley Orthopaedics............................................................. 247 136
Tower Orthopedics................................................................... 53 37
Clive Segil, M.D.................................................................... 53 29
R.C. Watson, M.D.................................................................... 61 45
Swanson Orthopedics................................................................. 55 31
Lake Tahoe Sports................................................................... 62 27
San Antonio Bone & Joint............................................................ 53 23
Stockdale Podiatry.................................................................. 185 101
John Zimmerman, M.D................................................................. 68 34
Broward Orthopedic Specialists...................................................... 961 636
Jeffrey Beitler, M.D................................................................ 50 34
Michael Abrahams, M.D............................................................... 210 112
Physical Medicine and Rehabilitation................................................ 160 125
Kramer & Maehrer, LLC............................................................... 75 41
Broward Institute of Orthopaedic Specialties(b)..................................... 609 427
Lighthouse Orthopaedics............................................................. 718 708
Orthopaedic Surgery Associates...................................................... 1,059 656
Valley Sports & Arthritis Surgeons.................................................. 469 334
New Jersey Orthopedic Associates.................................................... 293 211
Orthopaedic Management Network, Inc. (Omni IPA)..................................... 48 62
------------ -------------
Totals............................................................................ $8,372 $ 6,513
------------ -------------
------------ -------------
</TABLE>
(e) Reflects increase in depreciation and amortization expense for
intangible assets and furniture, fixtures and equipment based upon the
Affiliation Transactions as if they had all occurred on January 1, 1996 and
January 1, 1997. The intangible assets related to all the affiliations
total approximately $14.6 million at September 30, 1997 and are being
amortized over periods ranging from 7 to 25 years. The adjustment by
Practice is as follows (see Note 2 to the financial statements for the
allocation of consideration in the Affiliation Transactions):
27
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
PRACTICE 1996 1997
- ------------------------------------------------------------------------------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C>
LVBMJ/Orthopaedic Associates of Bethlehem........................................... $ 9 $ 0
Southern California Orthopedic Institute............................................ 54 0
COSI................................................................................ 9 2
South Texas Spinal Clinic........................................................... 45 0
Tri-City Orthopedics................................................................ 19 5
Lauderdale Orthopaedic Surgeons..................................................... 37 10
Gold Cost Orthopedics............................................................... 92 36
Sun Valley Orthopaedics............................................................. 42 22
Tower Orthopedics................................................................... 5 3
Clive Segil, M.D.................................................................... 17 7
R.C. Watson, M.D.................................................................... 13 7
Swanson Orthopedics................................................................. 11 7
Lake Tahoe Sports................................................................... 14 8
San Antonio Bone & Joint............................................................ 40 21
Stockdale Podiatry.................................................................. 29 15
John Zimmerman, M.D................................................................. 14 7
Broward Orthpedic Specialists....................................................... 227 133
Jeffrey Beitler, M.D................................................................ 13 9
Michael Abrahams, M.D............................................................... 30 18
Physical Medicine and Rehabilitation................................................ 56 33
Kramer & Maehrer, LLC............................................................... 13 6
Broward Institute of Orthopaedic Specialties(b)..................................... 184 138
Lighthouse Orthopaedics............................................................. 199 142
Orthopaedic Surgery Associates...................................................... 316 244
Valley Sports & Arthritis Surgeons.................................................. 96 72
New Jersey Orthopedic Associates.................................................... 89 66
Orthopaedic Management Network, Inc. (Omni IPA)..................................... 19 15
------------ -------------
Totals............................................................................ $1,692 $ 1,026
------------ -------------
------------ -------------
</TABLE>
(f) To record interest expense on debt issued in connection with the
Affiliation Transactions as if such transactions had occurred on January 1,
1996 and January 1, 1997.
(g) To reflect the estimated income tax effect at an effective rate of
approximately 38%.
(h) To eliminate interest expense assuming repayment of all
outstanding senior and subordinated indebtedness (other than the
Debentures) with a portion of the net proceeds of the Offering, net of
estimated federal and state income taxes at a rate of approximately 38%.
See 'Use of Proceeds.'
28
<PAGE>
BMJ MEDICAL MANAGEMENT, INC.
UNAUDITED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
AFFILIATION PRO FORMA
AND OTHER OFFERING AS
THE COMPANY ADJUSTMENTS PRO FORMA ADJUSTMENTS ADJUSTED(A)
----------- ----------- --------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. $ 2,404 $ 6,875 (c) $ 3,363 $ 1,283(a) $ 4,646
(5,916)(b)
Accounts receivable, net............... 19,325 4,047 (b) 23,372 -- 23,372
Prepaid expenses and other current
assets............................... 42 584(b) 626 -- 626
----------- ----------- --------- ----------- ------------
Total current assets................. 21,771 5,590 27,361 1,283 28,644
Furniture, fixtures and equipment, net... 3,877 1,227(b) 5,104 -- 5,104
Management Services Agreements, net...... 14,302 16,688(b) 30,990 -- 30,990
Other assets............................. 2,479 -- 2,479 -- 2,479
----------- ----------- --------- ----------- ------------
Total assets......................... $42,429 $23,505 $65,934 $ 1,283 $ 67,217
----------- ----------- --------- ----------- ------------
----------- ----------- --------- ----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................... $ 299 $ -- $ 299 $ -- $ 299
Accrued expenses....................... 2,456 20(b) 2,476 -- 2,476
Accrued salaries and benefits.......... 946 -- 946 -- 946
Due to physician groups................ 3,990 -- 3,990 (79)(a) 3,911
Shareholder note payable............... 894 -- 894 (894)(a) --
Current portion of long-term debt and
capital lease obligations............ 2,208 9,986(b) 18,319 (18,304)(a) 15
6,125(c)
----------- ----------- --------- ----------- ------------
Total current liabilities............ 10,793 16,131 26,924 (19,277) 7,647
Long-term debt........................... 16,480 750(c) 18,491 (14,440)(a) 4,051
1,261(b)
Stockholders' equity:
Convertible preferred stock............ 42 -- 42 (42)(a) --
Common stock........................... 10 2(b) 12 9 (a) 21
Additional paid-in capital............. 19,365 5,361(b) 24,726 35,733 (a) 60,459
Deficit................................ (4,261) -- (4,261) (700)(a) (4,961)
----------- ----------- --------- ----------- ------------
Total stockholders' equity........... 15,156 5,363 20,519 35,000 55,519
----------- ----------- --------- ----------- ------------
Total liabilities and
stockholders' equity.......... $42,429 $23,505 $65,934 $ 1,283 $ 67,217
----------- ----------- --------- ----------- ------------
----------- ----------- --------- ----------- ------------
</TABLE>
NOTES TO PRO FORMA BALANCE SHEET
(a) To reflect (i) the net proceeds from the sale of shares of Common Stock
in the Offering estimated to be approximately $35.7 million (after deducting
underwriting discounts and estimated Offering expenses) and the repayment of
$34.4 million of indebtedness consisting of (A) approximately $11.3 million of
HCFP Debt, including $700,000 for a success fee and payment for the exercise of
a put option due at the completion of the Offering; (B) approximately $6.0
million of the Comdisco Loan; (C) approximately $1.5 million of the Galtney
Loan; (D) approximately $900,000 of the Nagpal Debt; (E) approximately $3.4
million of the Stockholder Debt; and (F) approximately $11.3 million of the
Physician Notes and (ii) the conversion of the Preferred Stock and all other
outstanding equity securities into Common Stock upon the closing of the
Offering.
(b) To record the historical basis of the assets acquired and liabilities
assumed by the Company in the Affiliation Transactions. In connection with the
Affiliation Transactions, the Company issued 1,553,961 shares of common stock,
paid cash of approximately $5.9 million and issued $11.3 million of the
Physician Notes. The accounts receivable were recorded at net realizable value
and the furniture, fixtures and equipment was recorded
29
<PAGE>
at fair market value. In connection with the recording of intangible assets,
primarily Management Services Agreements, the Company analyzed the nature of
each Practice with which a Management Services Agreement was entered into,
including the number of physicians in each Practice, number of offices and
ability to recruit additional physicians, the Practice's relative market
position, the length of time each Practice had been in existence and the term
and enforceability of the Management Services Agreement. The Management Services
Agreements are for a term of 40 years and typically cannot be terminated by the
Practice without cause, consisting primarily of bankruptcy or material default.
See Notes 1 and 2 to the financial statements.
The breakdown of the Affiliation Transactions in the aggregate resulted in
total consideration of $22.6 million, consisting of cash of $5.9 million, the
Physician Notes in the aggregate amount of $11.3 million and Common Stock of
$5.4 million. Of such total consideration, $16.8 million was allocated to
Management Services Agreements, $4.0 million was allocated to accounts
receivable, $.6 million was allocated to other current assets, and $1.2 million
was allocated to furniture, fixtures and equipment. See Note 2 to the financial
statements.
The Company believes that there is no material value allocable to the
employment and noncompete agreements entered into between the Existing Practices
and the individual physicians, because the primary economic beneficiaries of
these agreements are the Existing Practices, which are entities that the Company
does not legally control. The Company believes that the Existing Practices are
long-lived entities with an indeterminable life and that the physicians, patient
demographics and various contracts will be continuously replaced. The amounts
allocated to the Management Services Agreement are being amortized over periods
varying from 7 to 25 years.
The Emerging Issues Task Force of the Financial Accounting Standards Board
is currently evaluating certain matters relating to the PPM industry, which the
Company expects will include a review of the consolidation of professional
corporation revenues and the accounting for business combinations. The Company
is unable to predict the impact, if any, that this review may have on the
Company's affiliation strategy, allocation of consideration related to
affiliations and amortization life assigned to intangible assets.
(c) To record $6.9 million raised after September 30, 1997. Of such amount,
$3.4 million was provided from the stockholder debt, $2.5 million was provided
from the additional HCFP debt and $1.0 million was provided from the additional
Comdisco debt.
30
<PAGE>
SELECTED FINANCIAL INFORMATION
The following selected financial data with respect to the Company's
statements of operations for the year ended December 31, 1996 and the nine
months ended September 30, 1997 and the balance sheet data at December 31, 1996
and September 30, 1997 have been derived from the financial statements of the
Company which have been audited by Ernst & Young LLP, independent certified
public accountants. The selected financial data presented below for the nine
months ended September 30, 1996 is unaudited and was prepared by management of
the Company on the same basis as the audited financial statements appearing
elsewhere in this Prospectus and, in the opinion of management of the Company,
include all adjustments necessary to present fairly the information set forth
therein. The results for the nine months ended September 30, 1997 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1997 or future periods. The following data should be read in
conjunction with 'Management's Discussion and Analysis of Financial Condition
and Results of Operations' and the financial statements of the Company and the
related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
YEAR ENDED ------------------
DECEMBER 31, 1996 1996 1997
----------------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Practice revenues, net.......................................... $ 6,029 $ 674 $38,325
Less: amounts retained by physician groups...................... (2,912) (336) (17,878)
-------- ------- -------
Management fee revenue.......................................... 3,117 338 20,447
Costs and expenses:
Medical support services..................................... 2,844 343 17,934
General and administrative................................... 1,299 675 4,187
Depreciation and amortization................................ 104 12 661
Interest expense (income), net............................... (21) (6) 817
-------- ------- -------
Total costs and expenses................................... 4,226 1,024 23,599
Loss before income taxes........................................ (1,109) (686) (3,152)
Income taxes.................................................... -- -- --
-------- ------- -------
Net loss........................................................ $(1,109) $ (686) $(3,152)
-------- ------- -------
-------- ------- -------
Net loss per common share....................................... $ (0.09) $ ( .06) $ (.25)
-------- ------- -------
-------- ------- -------
Weighted average common shares outstanding...................... 11,870 11,659 12,499
-------- ------- -------
-------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(IN THOUSANDS, EXCEPT
OPERATING DATA)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................ $ 1,439 $ 2,404
Working capital.......................................................... 1,819 10,978
Total assets............................................................. 13,675 42,429
Long-term debt, less current portion..................................... 59 16,480
Total stockholders' equity............................................... 7,724 15,156
OTHER OPERATING DATA:
Number of Practices...................................................... 3 22
Number of physicians..................................................... 34 106
</TABLE>
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the financial
statements and notes thereto of the Company included elsewhere in this
Prospectus. This Prospectus contains forward-looking statements. Discussions
containing such forward-looking statements may be found in the material set
forth below and under 'Business,' as well as in this Prospectus generally.
Prospective investors are cautioned that any such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties. Actual
events or results may differ materially from those discussed in the
forward-looking statements as a result of various factors, including, without
limitation, the risk factors set forth under 'Risk Factors' and the matters set
forth in this Prospectus generally.
OVERVIEW
The Company is a PPM that provides management services to physician
practices and the COSI ambulatory surgery center that focus on musculoskeletal
care, which involves the medical and surgical treatment of conditions relating
to bones, muscles, joints and related connective tissues. The broad spectrum of
musculoskeletal care offered by the physician practices ranges from acute
procedures, such as spine or other complex surgeries, to the treatment of
chronic conditions, such as arthritis and back pain. As of the date of this
Prospectus, the Company has affiliated (the 'Affiliation Transactions') with 25
Existing Practices comprising 117 physicians practicing in Arizona, California,
Florida, Pennsylvania, New Jersey and Texas by entering into Management Services
Agreements. The Company was incorporated in Delaware in January 1996 and
affiliated with the first Existing Practice in July 1996. At December 31, 1996,
the Company had entered into Management Services Agreements with three Existing
Practices comprising 34 physicians at that time and 37 physicians as of the date
of this Prospectus. During the first eleven months of 1997, the Company entered
into additional Management Services Agreements with 22 Existing Practices,
comprising 80 physicians and acquired the IPA with 42 physicians in Arizona.
Generally, the total consideration paid to a Practice's physicians, once
the Practice has agreed to affiliate with the Company, is based on a multiple of
the Company's management fee plus the fair market value of the Practice's
furniture, fixtures and equipment and, subject to legal limitations regarding
Medicare and Medicaid receivables, the estimated net realizable value of its
outstanding accounts receivable. The consideration paid by the Company consists
of Common Stock, cash and the assumption of certain liabilities (principally
notes payable to financial institutions secured by receivables of the Practice,
which notes are repaid at the time the Affiliation Transaction is consummated).
In exchange for this consideration, the Practice enters into a 40-year
Management Services Agreement with the Company.
Practice revenue represents the revenue of the Existing Practices and the
COSI ambulatory surgery center reported at the estimated realizable amounts from
patients, third party payors and others for services rendered, net of
contractual and other adjustments. Management fee revenue represents Practice
revenue less amounts retained by the Existing Practices (consisting of amounts
retained by physician groups, principally compensation and fees paid to
physicians and other health care providers) which are paid to the physicians
pursuant to the Management Services Agreements. Under each Management Services
Agreement, the Company assumes responsibility for the management of the
non-medical operations of the Practice, employs substantially all of the
non-professional personnel utilized by the Practice and may provide the Practice
with the facilities and equipment used in its medical practice. For a more
detailed discussion of the rights and obligations of the parties to the
Management Services Agreements, see 'Business--Contractual Agreements With the
Practices--Management Services Agreement.'
The Company's management fee revenue consists of three components: (i)
percentage of the Practices' net collected revenue (generally ranging from 10%
to 15%), plus (ii) 100% of the non-physician affiliated practice expenses
(generally ranging from 45% to 55% of the Practices' net collected revenue),
plus (iii) 66 2/3% of the cost savings the Company is able to achieve through
its purchasing power (generally related to medical malpractice insurance,
property and liability insurance, group benefits and certain major medical
supplies). The portion of the management fee revenue that represents a
percentage of net collected revenue is dependent upon the Practices' revenue
which must be billed and collected. See 'The Company--Affiliation Transactions.'
The Company's operating expenses consist primarily of the expenses incurred
in fulfilling its obligations under the Management Services Agreements. These
expenses include medical support services (principally clinic
32
<PAGE>
overhead expenses that would have been incurred by the Existing Practices,
including non-professional employee salaries, employee benefits, medical
supplies, malpractice insurance premiums, building and equipment rental and
other expenses related to clinic operations) and general and administrative
expenses (personnel and administrative expenses in connection with maintaining a
corporate office function that provides management, contracting, administrative,
marketing and development services to the Existing Practices).
As a result of the Company's rapid growth, costs and expenses exceeded
management fee revenue due to the start-up nature of the Company. The level of
these costs and expenses are expected to continue to increase as affiliations
with additional Practices are achieved and the Company adds to its management
infrastructure.
RESULTS OF OPERATIONS
The following table sets forth the percentages of the Existing Practices'
revenue represented by certain items reflected in the Company's consolidated
statements of operations. As a result of the Company's limited period of
existence and affiliation with the Existing Practices, the Company does not
believe that comparisons between periods and percentage relationships within the
periods set forth below are meaningful.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
Practice revenues, net..................................................... 100.0% 100.0%
Less: amounts retained by physician groups................................. 48.3 46.6
------ ------
Management fee revenue..................................................... 51.7 53.4
Costs and expenses:
Medical support services................................................. 47.2 46.8
General and administrative............................................... 21.5 10.9
Depreciation and amortization............................................ 1.7 1.7
Interest expense (income), net........................................... (0.3) 2.1
------ ------
Total costs and expenses.............................................. 70.1 61.5
------ ------
Loss before income taxes................................................... (18.4) (8.1)
Income taxes............................................................... -- --
------ ------
Net loss................................................................... (18.4)% (8.1)%
------ ------
------ ------
</TABLE>
Practice Revenues, Net. For the year ended December 31, 1996, net practice
revenue was $6.0 million, arising from Affiliation Transactions with LVBMJ on
July 1, 1996 and SCOI and STSC on November 1, 1996 ('the 1996 Affiliations').
For the nine months ended September 30, 1997, net practice revenue was $38.3
million arising from the 1996 Affiliations and affiliations with 19 additional
Practices comprising 69 physicians at April 1, 1997 (LOS and Tri-City), June 1,
1997 (Gold Coast and two additional Practices in Los Angeles, CA), July 1, 1997
(Sun Valley, three Practices in Lake Tahoe, CA, two Practices in Bakersfield,
CA, one Practice in Bethlehem, PA, and one in San Antonio, TX), August 1, 1997
(three additional Practices in Broward and Palm Beach counties in South Florida)
and September 1, 1997 (four Practices comprised of three in South Florida and
one in Allentown, PA).
Amounts Retained by Physician Groups. Amounts retained by physician groups
for the year ended December 31, 1996 was $2.9 million, consisting of
compensation and fees paid to physicians and other health care providers by the
Practices pursuant to Management Services Agreements entered into on July 1,
1996 and November 1, 1996. For the nine months ended September 30, 1997, amounts
retained by physician groups was $17.9 million, reflecting the effect of the
1996 Affiliations and affiliations with 16 additional Practices pursuant to
Management Services Agreements executed in the first nine months of 1997.
Management Fee Revenue. Management fee revenue for the year ended December
31, 1996 was $3.1 million as a result of the factors set forth above. For the
nine months ended September 30, 1997, management fee revenue was $20.4 million
as a result of the factors set forth above.
Medical Support Services. Medical support services, principally clinic
overhead expenses, was $2.8 million for the year ended December 31, 1996,
resulting from the 1996 Affiliations. For the nine months ended September 30,
1997, medical support services was $17.9 million, reflecting the 1996
Affiliations, plus the effect of 16 additional Management Services Agreements
executed in the first nine months of 1997.
General and Administrative. General and administrative expenses for the
year ended December 31, 1996 was $1.3 million, reflecting the expenses incurred
in establishing a corporate office. These expenses consisted of
33
<PAGE>
labor costs, group benefits, accounting, legal, rent and other expenses,
substantially all of which were incurred after July 1, 1996 (the date of the
first Affiliation Transaction). For the nine months ended September 30, 1997,
general and administrative expenses were $4.2 million, of which $3.5 million
were incurred in the six months ended September 30, 1997, reflecting the
Company's increased development of corporate infrastructure to support the
additional affiliations as they occur and $391,000 of compensation expense
related to stock options granted to certain employees. While the Company expects
that general and administrative expenses will continue to increase as more
Practices affiliate with the Company, it also expects them to continue to
decline as a percentage of both practice revenue and management fee revenue.
However, the Company expects to resolve the contingencies related to the SCOI
and COSI affiliation transactions and will issue additional shares of Common
Stock in the fourth quarter and record non-cash compensation expense in the
fourth quarter of 1997 ranging from $10 million to $13 million related to these
transactions. See Note 2 to the financial statements.
Depreciation and Amortization. Depreciation and amortization for the year
ended December 31, 1996 was $104,000, substantially all of which was incurred
after July 1, 1996. The depreciation expense relates to acquired furniture,
fixtures and equipment and the amortization relates to Management Services
Agreements. For the nine months ended September 30, 1997, depreciation and
amortization were $414,000 and $247,000, respectively, reflecting the additional
Affiliation Transactions entered into during the nine months. The intangible
assets related to the Management Services Agreements are being amortized over
periods ranging from 7 to 25 years. The Company expects that depreciation and
amortization expenses will continue to increase significantly as additional
Practices affiliate with the Company, but may remain relatively constant as a
percentage of both practice revenue and management fee revenue. Although the
Company's net unamortized balance of intangible assets acquired ($14.3 million
at September 30, 1997) is not considered to be impaired, any future
determination that a significant impairment has occurred would require the
write-off of the impaired portion of unamortized intangible assets, which could
have a material adverse effect on the Company's results of operations.
Net interest expense. Net interest expense for the nine months ended
September 30, 1997 was $817,000 compared to interest income of $21,000 for the
year ended December 31, 1996. The increase in interest expense was due primarily
to borrowings related to the affiliation transactions.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996 and September 30, 1997, the Company had $1.8 million
and $11.0 million, respectively, in working capital and $1.4 million and $2.4
million, respectively, in cash and cash equivalents. The Company's principal
sources of liquidity as of December 31, 1996 and September 30, 1997 consisted of
the cash and cash equivalents and net accounts receivable of $5.8 million and
$19.3 million, respectively.
The Company has financed its Affiliation Transactions, capital expenditures
and working capital needs since its inception through a combination of (i)
private placements of capital stock; (ii) borrowings from institutional lenders;
(iii) short-term borrowings from stockholders; and (iv) issuance of promissory
notes to certain physicians.
For the year ended December 31, 1996 and the nine months ended September
30, 1997, cash used in operations was $1.0 million and $3.5 million,
respectively, resulting primarily from net operating losses adjusted for
non-cash expenses.
Cash used in investing activities for the year ended December 31, 1996 and
the nine months ended September 30, 1997 was $4.6 million and $20.3 million,
respectively, relating primarily to Affiliation Transactions resulting in
increases in accounts receivable, intangible assets and furniture, fixtures and
equipment.
Cash provided by financing activities for the year ended December 31, 1996
and the nine months ended September 30, 1997 was $7.1 million and $24.8 million,
respectively. For the year ended December 31, 1996, substantially all of the
cash provided resulted from proceeds from the issuance by the Company of two
series of Preferred Stock. For the nine months ended September 30, 1997, cash
provided by financing activities resulted primarily from $20.2 million in net
borrowings and $5.2 million in proceeds from the issuance of three series of
preferred stock.
Beginning in March 1997, the Company entered into the HCFP Loan Agreements
with HCFP Funding, secured by the accounts receivable acquired from Existing
Practices. The Company may borrow up to an aggregate of $17.0 million under HCFP
Loan Agreements, subject to a borrowing base of 85% of eligible accounts
receivable. Upon completion of the Offering, the Company will repay all
outstanding amounts under the
34
<PAGE>
HCFP Loan Agreements. See 'Use of Proceeds.' Borrowings under the HCFP Loan
Agreements bear interest at the prime rate plus 1.75% per annum. The HCFP Loan
Agreements require the Company to maintain a prescribed level of tangible net
worth, place limitations on indebtedness, liens, and investments and prohibit
the payment of dividends.
On June 30, 1997, the Company entered into an additional HCFP Loan
Agreement secured by a pledge of all of the assets of the Company. The Company
may borrow up to $3.3 million under such agreement for Practice affiliations.
Borrowings under such agreement bear interest at the prime rate plus 3.5%.
Interest only is payable through December 31, 1997, at which time the loan
converts to a term loan repayable in 36 monthly installments. In addition, in
connection with such agreement the Company issued warrants to HCFP to purchase
40,000 shares of the Common Stock. The warrants contain put rights which give
the holder the right to receive payment, based on a minimum put price of $10 per
share, for the value of these stock warrants at the earlier of the effective
date of the Company's initial public offering or January 15, 1998.
In August 1997 and November 1997, the Company borrowed an aggregate of $7.5
million under the Comdisco Loan Agreement and the Galtney Loan Agreement to fund
Practice affiliations. The Comdisco Loan and the Galtney Loan have three year
terms, bear interest at 14% per annum and are secured by a second lien on all of
the Company's tangible and intangible personal property. In connection with
these loans the Company issued warrants to Comdisco and Galtney of 150,000 and
37,500 shares, respectively.
On September 9, 1997, the Company issued $4.0 million principal amount of
its 6% convertible debentures due 2000 (the 'Debentures') to fund Practice
affiliations. The Debentures are convertible into Common Stock. See 'Certain
Transactions.'
On October 14, 1997, the Company obtained short-term financing in the form
of a secured term note for $2.5 million payable to HCFP Funding to fund Practice
affiliations, secured by a lien on substantially all of the assets of the
Company. The loan bears interest at the prime rate plus 3.5% (12% at October 31,
1997). Interest only is payable through December 31, 1997 and the entire
principal sum is due and payable on January 10, 1998. In connection with this
loan agreement, the Company will pay HCFP Funding a fee in the amount of
$300,000 on the maturity date.
On October 15, 1997, the Company obtained short-term bridge financing in
the aggregate amount of $3.4 million from certain stockholders, including Dr.
Nagpal, to fund Practice affiliations. In connection with these loans, the
Company issued warrants to such stockholders to purchase an aggregate of 67,500
shares of Common Stock at an exercise price of $0.01 per share. Outstanding
loans bear interest at the prime rate plus 3.5% (12% at October 31, 1997). The
principal of and accrued interest on such loans are due and payable on January
10, 1998.
During October and November 1997, in connection with several Practice
affiliations, the Company issued the Physician Notes in the aggregate amount of
approximately $11.3 million. These outstanding promissory notes bear interest at
rates ranging from 6% to 11%. The Physician Notes are due and payable either on
the date of the completion of the Offering or at various maturity dates ranging
from December 31, 1997 to October 31, 1998.
The Company's affiliation and expansion programs will require substantial
capital resources. In addition, the operations and expansion of the Practices,
including the addition of Ancillary Service Facilities, and of the IPA will
require ongoing capital expenditures. The financing of future affiliations and
business expansion is anticipated to be provided by a combination of the
proceeds of the Offering, borrowings under the HCFP Loan Agreements and cash
flows from operations. The Company believes that the combination of these
sources will be sufficient to meet its currently anticipated operating and
capital expenditure requirements and working capital needs through 1998. In
order to meet its affiliation and expansion goals as well as its long-term
liquidity needs, the Company expects to incur, from time to time, additional
short-term and long-term indebtedness and to issue additional debt and equity
securities, the availability and terms of which will depend upon market and
other conditions. See 'Risk Factors--Risks Related to Intangible Assets.'
REIMBURSEMENT RATES
The health care industry is experiencing a trend toward cost containment as
payors seek to improve lower reimbursement and utilization rates with providers.
Further reductions in payments to health care providers or other changes in
reimbursement for health care services could adversely affect the Practices with
which the Company is affiliated and adversely affect the Company's results of
operations.
35
<PAGE>
BUSINESS
GENERAL
The Company is principally a PPM that provides management services to
physician practices that focus on musculoskeletal care, which involves the
medical and surgical treatment of conditions relating to bones, muscles, joints
and related connective tissues. The broad spectrum of musculoskeletal care
offered by the physician practices ranges from acute procedures, such as spine
or other complex surgeries, to the treatment of chronic conditions, such as
arthritis and back pain. The management services provided by the Company include
physician practice and network development, marketing, payor contracting and
financial, administrative and clinical information management. As of the date of
this Prospectus, the Company has entered into Affiliation Transactions by
entering into Management Services Agreements with 25 Practices comprising 117
physicians practicing in Arizona, California, Florida, Pennsylvania, New Jersey
and Texas and owns and operates one IPA with 42 physicians in Arizona.
INDUSTRY OVERVIEW
The market for muscoloskeletal care in the United States is significant and
growing. According to the AAOS, total direct costs associated with the delivery
of musculoskeletal care exceeded $60 billion in 1988 and increased to
approximately $72 billion in 1992. The increase in expenditures can be
attributed to various factors, including improvements in medical technology,
more active lifestyles which have resulted in the growth of sports medicine and
the overall aging of the population. In 1992, the 65-and-over age group
represented approximately 12% of the U.S. population, but accounted for more
than half of all musculoskeletal care expenditures.
Musculoskeletal care is provided by a variety of medical and surgical
specialists. Although the orthopaedic surgeon is the primary musculoskeletal
provider, musculoskeletal care is also provided by physiatrists,
rheumatologists, podiatrists, occupational medicine physicians, rehabilitative
therapists, neurosurgeons and neurologists. In addition, there are a number of
subspecialties of orthopaedics, including adult reconstructive (joint
replacement) surgery, spinal care, sports medicine, foot and ankle care, hand
and upper extremity care, pediatrics and trauma care. The AAOS estimates that in
1995 there were approximately 23,000 orthopaedic surgeons, as well as
approximately 5,500 physiatrists, 3,500 rheumatologists, 3,000 occupational
medicine physicians, 4,900 neurosurgeons and 11,400 neurologists in the United
States.
Historically, most orthopaedic procedures have been performed on an
inpatient basis. Recently, however, there has been a trend towards handling
these procedures on an outpatient basis. The Company believes this trend may be
attributable to a number of factors: less invasive surgery with the arthroscope
and new anaesthetic techniques have significantly reduced post-operation trauma;
outpatient procedures are less costly and thus more desirable to both patients
and payors; outpatient settings represent a 'health environment' which promotes
wellness and improved patient attitudes; and outpatient settings foster
preventive team situations which minimize waste and improve efficiency. For
these reasons, the Company believes that the trend toward treatment in the
outpatient setting will continue to increase in the foreseeable future.
According to the AAOS, in 1996, the principal payors for musculoskeletal
care were Medicare and Medicaid at 27% (combined), managed care, including
discounted fee-for-service and capitation, at 26%, private pay (indemnity
insurers) at 23% and workers' compensation at 17%. Reflecting the emergence of
managed care, the percentage of payments by private payors declined from 39% in
1988 to 23% in 1996, while payments from managed care sources increased from 12%
to 26%. This shift from private pay to managed care reimbursement has added the
complexity of managing the clinical and administrative aspects of the
physicians' practices and increased the emphasis on managing practices more
efficiently.
Historically, surgical and non-surgical orthopaedic specialists have
maintained separate practices; recently, however, musculoskeletal physicians
have begun to follow the consolidation trend seen elsewhere in the health care
industry. The AAOS estimates that approximately 3% to 5% of all orthopaedic
practices have affiliated with PPMs as of February 1997. Consolidated practices
increasingly are utilizing a separate professional management company to handle
practice management functions such as staffing, information systems, managed
care contracting, leasing, purchasing and marketing, thereby enabling the
physicians to focus on providing high quality medical services. Several factors
have contributed to the trend toward affiliation with PPMs by
36
<PAGE>
musculoskeletal physicians. These factors include the increasing complexity of
managing a practice due, in part, to the increase in managed care contracting,
the need for cost-effective management of patient care, the economies of scale
achievable in such areas as administration, purchasing and marketing, the desire
to capture revenues from ancillary services and in-network referrals and the
growing importance of capital resources to acquire and maintain state-of-the-art
equipment, clinical facilities and management information systems.
STRATEGY
The Company's goal is to develop the leading musculoskeletal network in
each of its markets by aligning the Company's interests with those of the
Practices' physicians. Key components of the Company's strategy are:
Expand Into New Markets. The Company intends to expand into targeted new
markets by establishing relationships and affiliations with the most qualified
practices in such markets. The Company targets markets that have a large enough
population to support a viable musculoskeletal physician network. The Company
generally seeks to affiliate initially with platform practices in new markets.
Platform practices generally consist of at least five physicians who have the
demonstrated ability to grow in their market. Potential affiliation candidates
are evaluated on a variety of factors, including, but not limited to, physician
credentials and reputation, the practice's competitive market position,
specialty and subspecialty mix of physicians, historical financial performance,
growth potential, the local demographics potential and potential for development
of Ancillary Service Facilities.
Continue to Develop Existing Markets. The Company strengthens its market
positions by (i) providing uniform financial reporting systems to the Practices;
(ii) implementing uniform practice management systems to facilitate the
collection of financial and clinical data; (iii) investing in new clinical
equipment such as EMGs and bone densitometers; (iv) increasing the number of
physicians and diversifying the subspecialties in a Practice; (v) developing
satellite offices to accommodate increased patient flow; (vi) committing capital
to develop or acquire Ancillary Service Facilities; and (vii) expanding revenues
through additional payor contracting and focused marketing on a regional basis.
The Company believes these services will enable the physicians to devote more
time to the practice of medicine and the strategic development of their
practice, thereby increasing revenues and creating greater efficiencies in the
operation of each Practice.
Introduce Ancillary Service Facilities. Ancillary Service Facilities will
provide such services as ambulatory surgery, physical therapy and MRI services.
Once the Practices or a network in a particular market have achieved a
significant local presence, the Company plans to introduce Ancillary Service
Facilities by assisting the Practices in developing such facilities. The first
Ancillary Service Facility is planned to open in late 1997 (a mobile MRI unit in
San Antonio, Texas) and additional Ancillary Service Facilities are planned to
be opened in 1998 in other markets. In addition, the Company currently manages
one physician-owned ambulatory surgery center which was under development by the
physicians prior to their involvement with the Company and for which the Company
receives a 10% management fee. For a discussion of the applicability of the
Stark Law to the operation of the Ancillary Service Facilities, see
'Business--Governmental Regulation and Supervision--The Stark Self-Referral
Laws.'
Develop Disease Management and Clinical Information System. Following the
implementation of a uniform practice management system, the Company has a
two-step strategy for creating a disease management and clinical information
system. The Company is in the process of developing standard procedures for
gathering clinical and financial information, such as personal patient data,
physician and procedure identifier codes, payor class and amounts charged and
reimbursed. The Company's goal is to establish a non-patient identifiable
information database across all Practices pursuant to which efficiencies may be
achieved by gathering, interpreting and sharing clinical information,
standardizing referral patterns and treatment protocols within a physician
network and coordinating the needs of the patient population in any geographic
market. Utilization of the database is expected to result in an increased
ability to control and predict the cost of care for various patient diagnoses.
The Company believes that its network of musculoskeletal physicians with access
to reliable clinical outcome information will make the Company more attractive
to payors because the Company will be able to demonstrate cost-effective quality
care.
37
<PAGE>
BMJ OPERATIONS
Existing Practices. Since commencing operations in January 1996 through
the date of this Prospectus, the Company has affiliated with 25 Existing
Practices, comprising 117 physicians, in Arizona, California, Florida,
Pennsylvania, New Jersey and Texas, and owns and operates one IPA, comprising 42
physicians, in Phoenix, Arizona. Approximately 83% of the physicians at the
Managed Practices are orthopaedic surgeons.
The following table sets forth certain information concerning the Existing
Practices.
<TABLE>
<CAPTION>
ADDITIONAL PRACTICES
IN
NUMBER/SPECIALITIES MARKET SINCE
OF PHYSICIANS AFFILIATION
EFFECTIVE ------------------- NUMBER OF ---------------------
AFFILIATION AT OCTOBER 31, SATELLITE NUMBER OF NUMBER OF
REGION PRACTICE MARKET DATE 1997 OFFICES PRACTICES PHYSICIANS
- ------ -------- ------ ---- -------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Eastern LVBMJ Bethlehem, PA 7/1/96 6 Orthopaedics 0 3 10
1 Physiatry
1 Spine surgery
LOS Ft. Lauderdale, FL 4/1/97 6 Orthopaedics 2 5 23
1 Podiatry
Gold Coast Palm Beach 6/1/97 5 Orthopaedics 0 2 13
County, FL
Central STSC San Antonio, TX 11/1/96 6 Orthopaedics 9 1 1
1 Physiatry
Western SCOI Los Angeles, CA 11/1/96 20 Orthopaedics 4 7 10*
2 Physiatry
Tri-City Oceanside, CA 4/1/97 7 Orthopaedics 0 0 0
Sun Valley Sun City, AZ 7/1/97 4 Orthopaedics 0 0 0**
</TABLE>
- ------------------
* Includes three doctors and three separate practices in South Lake Tahoe,
California.
** Does not include the IPA with 42 physicians in Phoenix, Arizona.
Regional Business Model. While health care has become an increasingly
significant national issue, it is still delivered on a local level. Therefore,
in order to execute its growth and operating strategies, the Company has divided
the United States into the eastern, central and western regions. The Company
believes that its regional business model benefits both the Company and the
Practices. Local management teams allow the Company to better understand the
specific characteristics of a region, such as the demographics, the payor mix,
the competitive landscape and the managed care environment, thus enabling the
Company to be more effective in marketing to patients and negotiating with third
party payors and suppliers. In addition, the regional management team is able to
develop and maintain long-term relationships with both the Practices' physicians
and local entities such as hospitals, managed care networks, suppliers and
non-musculoskeletal physician groups. The Company believes that due to its
regional business model, it is better equipped to develop relationships with
such local entities than PPMs with centralized business models.
A regional vice president is responsible for a management team that
supervises the development of each market within a region. The regional
management team coordinates market expansion initiatives and integration of
administrative services within the region. The regional team provides management
and network services related to the following: (i) integration and transition;
(ii) physician services including cost containment and operating efficiencies;
(iii) ancillary services development and management; (iv) physician recruitment
and professional development; (v) workers' compensation; and (vi) payor
contracting.
Affiliation Structure. The Company believes its affiliation model aligns
the interests of the Company and the Practices' physicians by (i) providing
equity ownership in the Company to the physicians; (ii) assuring that the
physicians and the Company share in the profits from the Ancillary Service
Facilities and Practice cost savings; (iii) focusing on revenue enhancement; and
(iv) reducing the amount of time the physicians must spend on administrative
matters, thereby enabling them to dedicate more of their efforts to the delivery
of health care services. Additionally, each Practice retains professional
autonomy and control over its medical practice through continued ownership and
participation in Practice governance.
The total consideration generally paid to a Practice's physicians, once the
Practice has agreed to affiliate with the Company, is based on a multiple of the
Company's management fee plus the fair market value of the
38
<PAGE>
Practice's assets, including furniture, fixtures and equipment and, subject to
legal limitations regarding Medicare and Medicaid receivables, the estimated net
realizable value of its accounts receivable. See 'Business-- Contractual
Agreements with the Practices--Asset Purchase Agreement.' The multiple of the
Company's management fee is determined by reference to a number of factors,
including the geographic location of the Practice, the size and specialty mix of
the Practice, the Practice's competitive market position, the Practice's
historical financial performance and the potential for the development of
Ancillary Service Facilities. See '-- Strategy--Expand into New Markets.' The
total consideration paid by the Company consists of Common Stock, cash and the
assumption of certain liabilities (principally notes payable to financial
institutions secured by receivables of the Practice, which notes are repaid at
the time the Affiliation Transaction is consummated). In exchange for this
consideration, the Practice enters into a 40-year Management Services Agreement
with the Company.
The revenue to the Company from a Practice is typically based on a
specified percentage (typically 10% to 15%) of the Practice's revenues (rather
than on a percentage of the net operating income of the Practice) plus
reimbursement of the Practice's overhead expenses and two-thirds of the cost
savings the Company is able to achieve through its purchasing power. See 'The
Company--Affiliation Transactions.' In addition, the Company will be responsible
for arranging the funding of Ancillary Service Facilities when appropriate and
will, subject to applicable laws, share appropriately in the profits from such
facilities.
Upon affiliating with a Practice, the Company assumes the management of
substantially all aspects of the Practice's operations other than the provision
of medical services. Pursuant to the Management Services Agreements, the Company
assists the Practices in the preparation of operating budgets and capital
project analyses, the coordination of group purchases of medical supplies and
insurance and the introduction of physician candidates. The Company provides the
full range of administrative services required for a Practice's day-to-day
non-medical operations, including management and monitoring of the Practice's
billing and collection, accounting, payroll, legal services, recordkeeping, cash
flow activity, physician recruiting, payor contracting and marketing.
Comprehensive administrative support should facilitate more effective billing
and collections, and, as the Company grows, economies of scale in effecting
purchases. In addition, the Company plans to integrate the Practices' management
information systems into a single system that will expand the financial and
clinical reporting capabilities of each of the Practices and facilitate the
analysis of data collected.
The Company believes that through its affiliation with Practices across
multiple markets it can achieve benefits in the aggregate purchasing of products
and services for the Practices. The Company believes that, in particular, it can
assist the Practices in reducing its purchasing expenses such as insurance,
medical equipment and clinical and administrative supplies. Pursuant to the
Management Services Agreements, the Company receives two-thirds of any such cost
savings.
Financial and Practice Management Systems. To date, the Company has
implemented an interconnected financial accounting system in the Practices. This
system allows the Company to analyze the financial aspects of the Practices from
a centralized location and ensure uniformity with respect to financial
classifications at the Practice level.
The Company receives daily cash receipts related to the collection of
patient accounts receivable and revenues. The Company utilizes these funds to
pay the clinic overhead expenses (medical support services) as they are incurred
and pays to the Practice a physician draw based upon a predetermined percentage
of estimated net collected revenue. Annually, the cash actually collected and
paid as physician draw, medical support services or management fee is reconciled
with the Practice and any over/under payments are settled.
The Company believes that the implementation of a uniform practice
management system will enable it to monitor the operations of the Practices in a
cost-effective manner, enhance utilization of the Practices, develop practice
protocols and provide the Company with a competitive advantage in negotiating
contracts with third party payors. The Company is currently reviewing various
practice management software programs and expects to select and implement such a
program within 12 to 18 months following completion of the Offering.
The Company believes that the implementation of the practice management
system, together with the integrated financial accounting system, will enable it
to gather data that will be the foundation for a disease management and clinical
information system. The Company intends to capture, retain and use such
information
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in accordance with applicable legal and ethical requirements regarding the
confidentiality of medical records. The Company further believes that such a
system will facilitate the collection of clinical information such as type of
injuries reported, patient characteristics and diagnoses of injuries, that will
improve provider and patient access to resources and technology, facilitate
quantitative analysis of outcome quality and cost and eventually allow for the
development of curative and palliative regimens based on such information. The
Company intends to obtain the informed, written consent of each patient for whom
information will be included in the database.
Staffing and Facilities. The Company employs most of the Practices'
non-professional personnel. These non-professional personnel, along with
additional personnel at the Company's headquarters, manage the day-to-day
non-medical operations of each of the Practices, including, among other things,
secretarial, bookkeeping, scheduling and other routine services. Under the
Management Services Agreements, the Company must generally provide facilities
and equipment to the Practices and, to this end, the Company assumes the
Practice's existing leases for the facilities and equipment and purchases the
assets, or a leasehold interest in the assets, utilized by the Practice.
DEVELOPMENT OF ANCILLARY SERVICE FACILITIES
Within each market, the Company plans to establish Ancillary Service
Facilities including, ambulatory surgery centers, physical therapy facilities
and MRI centers and mobile units. In order to establish such facilities, the
Company has designated professionals within each market to locate sites,
identify acquisition opportunities and otherwise arrange for the provision of
the ancillary services. Additionally, the Company's regional management teams
are responsible for marketing the Ancillary Service Facilities to payors and
referral sources and staffing, operating and financial management of the
facilities. For risks associated with the establishment of Ancillary Service
Facilities, see 'Risk Factors--Reliance on New Affiliations and Expansion.' For
a discussion of the applicability of the Stark Law to the operation of the
Ancillary Service Facilities, see 'Business-- Governmental Regulation and
Supervision--The Stark Self-Referral Laws.'
PAYOR MIX OF EXISTING PRACTICES
The Company's Practices derive revenue from a broad mix of third party
payors. This payor mix is a result of a number of underlying trends in the
patient base of musculoskeletal specialists. A significant portion of
reimbursement to physicians in musculoskeletal practices is derived from
workers' compensation insurance programs, which generally pay higher
reimbursements per procedure than health insurance payors and are generally not
subject to co-payments and deductibles. The Company believes that reimbursement
from workers' compensation payors will continue to represent a substantial
portion of practice revenues because of broader definitions of work-related
injuries, the shift of medical costs from health insurance payors to workers'
compensation payors, aging of the work force, and the requirement that employers
pay the total cost of medical treatment for work-related injuries.
The following table sets forth the payor mix of the Existing Practices for
the nine months ended September 30, 1997:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1997
------------------
<S> <C>
Workers' compensation........................................... 27%
Medicare(1)..................................................... 17
Private payors and managed care(2).............................. 56
</TABLE>
- ------------------
(1) Includes 2% attributable to Medicaid.
(2) Includes managed care, substantially all of which is on a fee-for-service
basis.
Workers' Compensation. Workers' compensation is a state-mandated,
comprehensive insurance program that requires employers to fund medical
expenses, lost wages and other costs resulting from work-related injuries and
illnesses. Provider reimbursement methods vary on a state-by-state basis. A
majority of states have adopted fee schedules pursuant to which all health care
providers are uniformly reimbursed. The fee schedules are set by each state and
generally prescribe the maximum amounts that may be reimbursed for a designated
procedure. In
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most states without fee schedules, health care providers are reimbursed based on
usual, customary and reasonable fees charged in the state in which the services
are provided. In Florida (a state in which the Company does business), state law
mandates that all workers' compensation services be provided under a managed
care arrangement approved by Florida's Agency for Healthcare Administration.
Medicare. The federal government has implemented, through the Medicare
program, the RBRVS payment methodology for health care provider services. RBRVS
is a fee schedule that, except for certain geographical and other adjustments,
pays similarly situated health care providers the same amount for the same
services. The RBRVS is subject to annual increases or decreases at the
discretion of Congress or HCFA. To date, the implementation of RBRVS has reduced
payment rates for certain of the procedures historically provided by the
Existing Practices. Furthermore, it is expected that HCFA will be required by
law to recalibrate the practice expense component of the RBRVS over the next
four years in a way that will have positive effects on payments to primary care
providers, but will decrease payments for most services provided by specialists,
including many services provided by the Existing Practices.
Managed Care Payors. An increasing portion of the net revenue of the
Existing Practices is derived from managed care payors which make payments under
discounted fee-for-service and capitation arrangements. Although rates paid by
managed care payors are generally lower than commercial indemnity rates, managed
care payors can provide access to large patient volumes. To date, the Company
has not entered into any contracts on behalf of the Managed Practices with
managed care payors; however, the Company intends to seek to negotiate both
discounted fee-for-service and capitated contracts on behalf of the Practices.
Discounted fee-for-service contracts involve negotiated rates for specified
procedures and services. Under capitated arrangements, providers deliver health
care services to managed care enrollees and typically bear all or a portion of
the risk that the cost of such services may exceed capitated payments.
Private Payors. Rates paid by private third party payors are based on
established health care provider and hospital charges and are generally higher
than Medicare payment rates. Recently, RBRVS types of payment systems have been
adopted by certain private third party payors and may become a predominant
payment methodology. Wider implementation of such programs would reduce payments
from private third party payors, and could indirectly reduce revenue to the
Company.
CONTRACTUAL AGREEMENTS WITH THE PRACTICES
The Company has entered into Management Services Agreements and, in most
cases, Asset Purchase Agreements, Restricted Stock Agreements and Stockholder
Noncompetition Agreements (collectively, the 'Affiliation Agreements'), with
each of the Existing Practices, and intends to enter into Affiliation Agreements
with each additional Practice, to provide management, administrative and
development services. The following summary of the Affiliation Agreements is
intended to be a general summary of the form of the Affiliation Agreements. The
actual terms of the individual Affiliation Agreements, and other service
agreements into which the Company may enter in the future, may vary in certain
respects from the description below as a result of negotiations with the
individual Practices and the requirements of local regulations. The Management
Services Agreements and certain related agreements are filed as exhibits to the
registration statement of which this Prospectus forms a part. The following
summary is qualified in its entirety by reference to such exhibits. For a
discussion of circumstances under which a Management Services Agreement may be
rendered unenforceable, see 'Risk Factors--Government Regulation.'
Management Services Agreement. Under the Management Services Agreement,
the Practices are solely responsible for all aspects of the practice of medicine
and the Company has the primary responsibility for the business and
administrative aspects of the Practices. Pursuant to the Management Services
Agreements, the Company provides or arranges for various management,
administrative and development services relating to the day-to-day non-medical
operations of the Practices. Pursuant to the Management Services Agreements, the
Company acts as the exclusive manager and administrator of non-medical services
relating to the operation of the Practices. Subject to matters for which the
Practices maintain responsibility or which are governed by the Operations
Committee (as defined herein) of the Practices, the Company (i) bills patients,
insurance companies and other third party payors and collects, on behalf of the
Practices, the fees for medical and other services rendered, including goods and
supplies sold by the Practices; (ii) provides or arranges for, as necessary,
clerical,
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accounting, purchasing, payroll, legal, bookkeeping and computer services,
personnel, information management, preparation of certain tax returns, printing,
postage and duplication services and medical transcribing services; (iii)
supervises and maintains custody of substantially all files and records (medical
records of the Practices remain the property of the Practices); (iv) provides
facilities and equipment for the Practices; (v) prepares, in consultation with
the Operations Committee and the Practices, all operating and capital
expenditure budgets; (vi) orders and purchases inventory and medical supplies as
reasonably requested by the Practices; (vii) implements, in consultation with
the Operations Committee and the Practices, national and local public relations
or advertising programs; (viii) provides financial and business assistance in
the negotiation, establishment, supervision and maintenance of contracts and
relationships with managed care and other similar providers and payors; (ix)
recruits physician employees and other medical professionals on behalf of the
Practices; and (x) ensures that all medical and technical personnel have the
licenses, credentials, approvals and other certifications needed to perform
their respective duties.
Under the Management Services Agreements, the Practices retain the
responsibility for, among other things, providing professional services to
patients in compliance with the ethical standards, laws and regulations to which
they are subject. In addition, the Practices maintain exclusive control of all
aspects of the practice of medicine and the delivery of medical services.
The revenue to the Company from a Practice is typically based on a
specified percentage (typically 10-15%) of the Practice's revenues (rather than
on a percentage of the net operating income of the Practice) plus reimbursement
of the Practice's overhead expenses and two-thirds of cost savings that the
Company is able to achieve through its purchasing power. The Management Services
Agreements provide that each Practice will retain an amount equal to net
collections less the management fee earned by the Company, which includes the
authorized operating costs incurred. If the amount of such costs incurred and
paid by the Company exceeds the amount authorized, approval to reimburse the
Company for such excess must come from the Operations Committee. See 'The
Company--Affiliation Transactions.' The Company is required to pay up to 5% of
its annual management fee from a Practice for new fixed asset additions at such
Practice. In addition, the Company will be responsible for arranging the funding
of Ancillary Service Facilities when appropriate and will, subject to applicable
laws, share appropriately in the profits from such facilities.
Each Management Services Agreement has an initial term of 40 years, with
automatic extensions (unless at least six months' notice is given) of additional
five-year terms. The Management Services Agreement may be terminated by either
party if the other party (a) files a petition in bankruptcy or other similar
events occur, or (b) defaults in any material respect in the performance of any
duty or obligation under the Management Services Agreement, which default is not
cured within a specified period after receipt of notice thereof or (c) any of
the representations and warranties made by such party in the Management Services
Agreement is materially untrue or misleading and such party fails to correct
such matter after receipt of written notice thereof. The Company also has the
right to terminate the Management Services Agreement in the event that the
Practice is excluded from participation in the Medicaid or Medicare program for
any reason. Either party may also terminate the Management Services Agreement if
such party determines that the structure of the Management Services Agreement
violates any state or federal laws or regulations existing at such time and that
an amendment to the Management Services Agreement will be unable to correct such
defect.
Upon termination of the Management Services Agreement, neither party is
obligated to the other party except as set forth below. In the event of such
termination, the Company is required to complete, within four months after the
termination date, the annual settlement of the respective obligations of the
Company and Practice for the period prior to the termination date. Furthermore,
following any such termination, the Company must sell to the Practice all of the
Company's interest in the assets that are located in the offices of the Practice
and used in connection with the medical practice. The purchase price for all of
such assets will be agreed upon by the parties; however, if an agreement is not
reached, the purchase price will be determined by an independent appraisal.
Under the Management Services Agreement, the Company is typically entitled to
receive all of the revenues collected by the Practice during the 90-day period
following termination of the agreement.
The Company has entered into a Management Services Agreement with STSC that
permits STSC and the individual physicians to rescind the Affiliation
Transaction on November 1, 2003. Management Services Agreements for nine other
Existing Practices comprising thirty-one physicians contain provisions that
permit
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such Existing Practices to rescind their Affiliation Transactions on their
respective seventh anniversaries. See 'Risk Factors--Rescission Rights.'
Under the Management Services Agreement, the Practice agrees generally not
to, at any time prior to the second anniversary of the termination of the
Management Services Agreement, compete with the Company by providing services to
other medical groups similar to those provided by the Company under the
Management Services Agreement or by entering into a management relationship with
another provider of non-professional management services that provides such
services to multiple physician groups. The Company and the Practice agree not to
disclose to third parties any confidential information relating to the other
party.
Asset Purchase Agreement. Subject to the terms and conditions of an asset
purchase agreement (the 'Asset Purchase Agreement'), the Company typically
purchases from the Practice all of those assets used by the Practice in the
operation of the medical practice, including medical equipment, furniture, trade
fixtures, office equipment, supplies, and, subject to legal limitations
regarding Medicare and Medicaid receivables, outstanding accounts receivable.
Pursuant to an assignment and assumption agreement entered into as a condition
to the Asset Purchase Agreement, the Company also acquires a leasehold interest
in certain assets leased by the Practice, including offices and equipment. The
Company also assumes certain liabilities related to any leased equipment and
leased offices. The purchase price paid by the Company under the Asset Purchase
Agreement is customarily determined by the parties after an appraisal of the
assets being acquired. Under the Asset Purchase Agreement, the Practice agrees
to indemnify the Company for any losses resulting from the operation of such
medical practice prior to the effectiveness of the affiliation of such Practice
with the Company.
Restricted Stock Agreement. The Company issues Common Stock to the
physician owners of the Practice as partial consideration for affiliating with
the Company. Such Common Stock is issued pursuant to the terms and conditions
set forth in a restricted stock agreement (the 'Restricted Stock Agreement'),
which terms generally include annual vesting of 25% of the Common Stock each
year in a four year period, a right of first refusal for the Company in the
event the physician decides to sell such Common Stock and the authority of the
Company's Board of Directors to prevent a physician's sale of such Common Stock
to a competitor of the Company. The Restricted Stock Agreement further provides
that the shares of Common Stock issued by the Company to the physicians remain
issued and outstanding regardless of whether such physicians remain with the
Practice, but the rights of the individual physicians to such shares (as opposed
to the right of the Practice) will vest equally over four years, with the
Practice retaining the right to utilize unvested shares to recruit new
physicians. Upon termination of the Management Services Agreement, the Company
has the right to repurchase all or any part of the Common Stock issued in the
Affiliation Transaction. If the Company elects to repurchase unvested shares,
the price per share is the original value of such Common Stock as set forth in
the Restricted Stock Agreement. If the Company elects to purchase vested shares,
the price per share is the then fair market value of the Common Stock. The
Company may also issue Common Stock to employed physicians and other key
personnel of the Practice pursuant to a Restricted Stock Agreement containing
substantially similar terms.
Stockholder Noncompetition Agreement. Under a non-competition agreement
(the 'Stockholder Non-competition Agreement'), each physician owner and
employed physician of the Practice agrees not to (i) compete directly or
indirectly with the Practice in the provision of medical services or with the
Company in the provision of practice management services for a period of two
years after termination of his affiliation with the Practice and within a 25
mile radius of any of the Practice's offices; or (ii) disclose any confidential
information of the Company or the Practice. Each physician further agrees to
indemnify the Company and the Practice for any damages they may suffer as a
result of the physician's failure to abide by the foregoing covenants. There can
be no assurance as to the enforceability of the Stockholder Noncompetition
Agreements.
COMPETITION
The Company competes with many other entities to affiliate with
musculoskeletal practices. Several companies that have established operating
histories and greater resources than the Company are pursuing the acquisition of
the assets of both general and specialty practices and the management of such
practices. Other PPMs and some hospitals, clinics, HMOs and provider networks
engage in activities similar to those of the Company. There can be no assurance
that the Company will be able to compete effectively with such competitors, that
additional competitors will not enter the market, or that such competition will
not make it more
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difficult to affiliate with, and to enter into agreements to provide management
services to, medical practices on terms beneficial to the Company.
The Practices and the IPA will compete with local musculoskeletal care
service providers as well as some managed care organizations. The Company
believes that changes in governmental and private reimbursement policies and
other factors have resulted in increased competition for consumers of medical
services. The Company believes that the cost, accessibility and quality of
services provided are the principal factors that affect competition. There can
be no assurance that the Practices or the IPA will be able to compete
effectively in the markets that they serve. The inability of the Practices or
the IPA to compete effectively would have a material adverse effect on the
Company.
Further, the Practices and the IPA compete with other providers for
musculoskeletal managed care contracts. The Company believes that trends toward
managed care have resulted in increased competition for such contracts. Other
practices and management service organizations may have more experience than the
Practices, the IPA and the Company in obtaining such contracts. There can be no
assurance that the Company and the Practices will be able to successfully obtain
sufficient managed care contracts to compete effectively in the markets they
serve. The inability of the Practices to compete effectively for and obtain such
contracts could materially adversely affect the Company. See 'Risk
Factors--Intense Competition.'
GOVERNMENT REGULATION AND SUPERVISION
The delivery of health care services is regulated at both the federal and
state level. The laws applicable to the Company are subject to evolving
interpretations, and therefore there can be no assurance that a review of the
Company's operations by federal or state judicial or regulatory authorities
would not result in a determination that the Company, the IPA or one of the
Practices has violated one or more provisions of federal or state law. Any such
determination could have a material adverse effect on the Company.
Federal Law
Among the significant federal laws that apply to the Company's activities
are those that prohibit: (a) the filing of false or improper claims with a
federally funded health program; (b) unlawful inducements for the referral of
business reimbursable under most federally funded health programs; (c) fraud in
regard to payment or service in any health program; and (d) the billing for the
provision of certain Medicare or Medicaid covered items or services where such
items or services were provided based upon a referral to the providing entity by
a physician who has, or whose immediate family member has, a financial
relationship with that entity that does not fall within an applicable exception.
False and Other Improper Claims. Under numerous federal laws, including
the Federal False Claims Act (the 'False Claims Act'), the federal government is
authorized to impose criminal, civil and administrative penalties on any health
care provider that files a false claim for reimbursement from a federally funded
health program (such as Medicare or Medicaid). The False Claims Act provides for
a civil penalty of not less than $5,000 and not more than $10,000 per false
claim and between two to three times the amount of damages depending on the
facts and circumstances. The Medicare civil monetary penalty is now ten thousand
dollars ($10,000) per false item or service claimed. Recently enacted federal
legislation also imposes federal criminal penalties on persons who file false or
fraudulent claims with private insurers. While the criminal statutes are
generally reserved for instances of fraud, the civil and administrative penalty
statutes are being applied by the government in an increasingly broad range of
circumstances. Civil sanctions may be imposed if the claimant knew or should
have known that billing was improper. The government also has taken the position
that claiming reimbursement for services that are substandard is a violation of
these false claims statutes if the claimant knew or should have known that the
care was substandard or rendered under improper circumstances. Private persons
may bring civil actions to enforce the False Claims Act. Under certain lower
court decisions, claims derived from a violation of the Anti-Kickback Statute
(as defined herein) or the Stark Law have been deemed to be, or may under
certain circumstances be construed to be, false claims.
The Stark Self-Referral Law. The Stark Law prohibits a physician from
referring a patient for certain designated health services reimbursable by
Medicare or Medicaid to an entity with which the physician (or the physician's
immediate family member) has a financial relationship, whether through
ownership, debt or
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compensation arrangements. Designated health services means clinical laboratory
services, physical therapy services, occupational therapy services, radiology
(including magnetic resonance imaging, computerized axial tomography scans and
ultrasound services), radiation therapy services and supplies, durable medical
equipment and supplies, parenteral and enteral nutrients, equipment, and
supplies, prosthetics, orthotics, and prosthetic devices, home health services
and supplies, outpatient prescription drugs, and inpatient and outpatient
hospital services. Referrals for services other than designated health services
and the furnishing of physicians' services that do not involve any designated
health services are not subject to the Stark Law. The term 'referral' under the
Stark Law means more than merely recommending a vendor for designated health
services to a patient; referrals are defined to include the request or
establishment of a plan of care by a physician which includes the provision of
designated health services. Consequently, the ordering of designated health
services within a physician's medical group can constitute a referral within the
meaning of the Stark Law.
Further, unless an exception is met, both the health care entity that
furnishes the services and the physician who makes the referral are prohibited
from billing Medicare or Medicaid for services rendered to Medicare or Medicaid
beneficiaries in violation of the Stark Law. The Stark Law is a civil statute
which does not include criminal penalties. Violations of the Stark Law could
result in significant civil sanctions, including denial of payment, refunds of
amounts collected in violation of the statute and civil money penalties of up to
fifteen thousand dollars ($15,000) for each bill or claim for a service a person
knows or should know is a service for which payment may not be made. The Stark
Law also includes civil money penalties of up to one hundred thousand dollars
($100,000) for each arrangement or scheme which the physician or entity knows or
should know has a principal purpose of assuring referrals which, if directly
made, would violate the Stark Law proscription. Both penalty provisions also
provide for exclusion from the Medicare and Medicaid programs.
The Company currently does not directly provide any designated health
services as that term currently is defined under the Stark Law; however, one or
more of the Practices may provide designated health services within their
offices. Because the Company provides management services and managed care
contracting services to the Practices for a fee, there can be no assurance that
the Company will not be deemed to be providing designated health services within
each Practice. If the Company is held to be the provider of such designated
health services within each Practice, the Stark Law will require that the
arrangements between the Company and the physicians in each Practice that
provide designated health services be structured to meet a Stark Law exception.
Under this scenario, the physicians' ability to order designated health services
within the Practices and the ability of the Practices to bill Medicare or
Medicaid for such designated health services will be permissible only if the
financial arrangements under the Management Services Agreements or IPA Provider
Agreements entered into by the Company and the Practices meet certain exceptions
set forth in the Stark Law. The Company believes that the financial arrangements
under the Management Services Agreements or IPA Provider Agreements qualify for
applicable exceptions under the Stark Law; however, there can be no assurance
that a review by the courts or regulatory authorities would not result in a
contrary determination. Also, to the extent that the Company in the future owns,
manages or operates Ancillary Service Facilities that provide designated health
services, the Stark Law may require the arrangements for the Company's
acquisition of certain non-clinical assets of the Practices and its Management
Services Agreements or IPA Provider Agreements with each Practice to be
structured to meet Stark Law exceptions in order for the physicians within each
Practice to refer patients to the Ancillary Service Facilities for designated
health services.
It is also possible that, as a result of the Company's Management Services
Agreements and IPA Provider Agreements with the Practices, the physicians in the
Practices will be deemed to have indirect financial interests in Practices by
virtue of the physicians' ownership interests in the Company. Under such
interpretation of the Stark Law, the physicians' ability to order and bill for
designated health services provided within the Practices and the ability of the
Practices to bill Medicare or Medicaid for such designated health services will
be permissible only if an exception under the Stark Law is applicable. The
current Stark Law exception related to physicians' ownership interests in
entities to which they refer patients may be relevant to the physicians' ability
to make referrals for designated health services to any Ancillary Service
Facilities owned or managed by the Company in the future. The Company will not
be in a position to meet that exception related to investment interests until
the Company's stockholders' equity exceeds $75 million.
The Stark Law also governs the physicians' ability to refer patients for
designated health services within the Practices in light of the physicians'
ongoing compensation and ownership arrangements with such Practices. An
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exception for in-office ancillary services requires that the Practices meet
certain structural and operational requirements on an ongoing basis in order to
bill for in-office ancillary designated health services rendered by employed or
contracted physicians. A key feature of the in-office ancillary services
exception is the Stark Laws definition of a 'group practice.' HCFA has announced
its intention to publish proposed regulations in the near future which, among
other things, are expected to focus on the definition of 'group practice.' Any
adverse changes to the group practice definition may have a material adverse
effect on the Company by severely limiting the Practices' ability to bill the
Medicare and Medicaid Programs for certain ancillary services furnished by the
Practices.
In the preamble to the adoption of certain regulations regarding the Stark
Law, adopted when such law regulated only clinical laboratory services, HCFA
stated that it would not recognize any group in which the physicians were in
multiple corporate entities as a 'group practice' under the Stark Law. SCOI is a
partnership comprised of individual physician members as well as P.C.s. The use
of P.C.s as partners at SCOI was historical and designed to accommodate practice
structures that existed prior to the creation of SCOI. Recently, at the
Eighteenth Annual Institute on Medicare and Medicaid Payment Issues,
co-sponsored by the American Academy of Healthcare Attorneys and the National
Health Lawyers Association, an HCFA representative stated that HCFA will
recognize a group practice consisting of multiple physician entities, such as
P.C.s, provided that each such P.C. or other physician entity is limited to one
physician member. Nevertheless, given HCFA's prior written statement and HCFA's
position that its written comments on the Stark Law as applied to clinical
laboratories reflect its view on the Stark Law in its current expanded form, it
may be necessary to restructure SCOI before any Stark-designated health services
are provided. Failure to do so would result in the risk of the penalties
described above, or the inability of SCOI to provide Stark-designated health
services, either of which would have a material adverse effect on the Company.
In the recently enacted 1997 Budget Bill, Congress directed the Secretary
of the U.S. Department of Health and Human Services ('HHS') to issue advisory
opinions as to whether a referral relating to designated health services (other
than clinical laboratory services) is prohibited under the Stark Law. The
advisory opinion mechanism is authorized beginning on or about November 3, 1997.
An advisory opinion issued by the Secretary will be binding as to the Secretary
and the party or parties requesting the opinion. The Company has no present
intention to seek an advisory opinion from HHS, HCFA or any other governmental
authority regarding its current operations, arrangements with physicians or the
referral activities of physicians in the Practices.
Federal Anti-Kickback Statute. A federal law commonly known as the
'Anti-Kickback Statute' prohibits the offer, solicitation, payment or receipt of
anything of value (direct or indirect, overt or covert, in cash or in kind)
which is intended to induce business for which payment may be made under a
federal health care program. A 'federal health care program' is any plan or
program that provides health benefits, whether directly, through insurance, or
otherwise, which is funded directly, in whole or in part, by the United States
Government (e.g., Medicare, Medicaid, and CHAMPUS). Excluded from the definition
of federal health care program is the Federal Employee Health Benefits Program.
The type of remuneration covered by the Anti-Kickback Statute is very broad. It
includes not only kickbacks, bribes and rebates, but also proscribes any such
remuneration, whether made directly or indirectly, overtly or covertly, in cash
or in kind. Moreover, prohibited conduct includes not only remuneration intended
to induce referrals, but also remuneration intended to induce the purchasing,
leasing, arranging or ordering of any goods, facilities, services, or items paid
for by a federal health care program. The Anti-Kickback Statute has been
interpreted broadly by a number of courts to prohibit remuneration that is
offered or paid for otherwise legitimate purposes if one purpose of the payment
is to induce referrals. Even bona fide investment interests in a health care
provider may be questioned under the Anti-Kickback Statute if the government
concludes that the opportunity to invest was offered as an inducement for
referrals.
In part to address concerns regarding the implementation of the
Anti-Kickback Statute, in 1991 the federal government published regulations that
provide exceptions or 'safe harbors' for certain transactions that are deemed
not to violate the Anti-Kickback Statute. Among the safe harbors included in the
regulations are transactions involving the sale of physician practices,
management and personal services agreements and employee relationships. Congress
recently added a significant new statutory exception related to 'remuneration
between an organization and an individual or entity' if the organization is a
Medicare risk contracting organization or if the remuneration is provided
pursuant to a written agreement that places the individual or entity at
substantial financial risk for the cost or utilization of services. Regulations
implementing the foregoing statute
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have not yet been adopted, but are expected to be enacted soon. The failure of
an activity to qualify under a safe harbor provision, while potentially leading
to greater regulatory scrutiny, does not render the activity automatically
illegal under the Anti-Kickback Statute. Conduct falling outside the safe
harbors will be judged by government regulators on a case-by-case basis based on
the specific facts and circumstances.
Each offense under the Anti-Kickback Statute is classified as a felony and
is punishable by a criminal fine of up to twenty-five thousand dollars ($25,000)
and/or imprisonment of up to five (5) years; a civil money penalty of fifty
thousand dollars ($50,000) for each violation and/or civil damages of not more
than three times the total amount of remuneration offered, paid, solicited or
received may be imposed without regard to whether any portion of such
remuneration was for a lawful purpose. Both the offeror and the recipient of the
illegal remuneration are potentially liable. In addition, violators are subject
to civil exclusion from participation in the federal health care programs,
regardless of whether they also have been convicted under the criminal penalty
provisions or have been found liable under the civil monetary penalty provisions
of the Anti-Kickback Statute. Also, there is a risk that, in a civil lawsuit to
enforce a contract that contains a structure in violation of the Anti-Kickback
Statute, a court might conclude that the contract is unenforceable as against
public policy.
There are several aspects of the Company's relationships with the
physicians and the Practices to which the Anti-Kickback Statute may be relevant.
In some instances, for example, the government may construe some of the
Company's marketing and managed care contracting activities as arranging for the
referral of patients to the physicians with whom the Company has a Management
Services Agreement or IPA Provider Agreement. Further, any referral of patients
between physicians within the Practices and between the Practices could be
construed as a referral to which the Anti-Kickback Statute applies. Although
neither the investments in the Company by physicians nor the Management Services
Agreements or the IPA Provider Agreements between the Company and the Practices
qualify for protection under the statutory exception or the safe harbor
regulations described above, the Company does not believe that these activities
fall within the type of activities the Anti-Kickback Statute were intended to
prohibit. The Company also does not believe that referral activities within the
Practices violate the Anti-Kickback Statute. A determination that the Company
has violated the Anti-Kickback Statute would have a material adverse effect on
the Company.
As a component of the recently enacted HIPAA, Congress directed the
Secretary of the U.S. Department of Health and Human Services to issue advisory
opinions regarding compliance with the Anti-Kickback Statute. The advisory
opinion mechanism is authorized for a trial period, beginning six months after
the date of enactment, August 21, 1996. Advisory opinions are available
concerning what constitutes prohibited remuneration within the meaning of the
Anti-Kickback Statute, whether an arrangement satisfies the statutory exceptions
to the Anti-Kickback Statute, whether an arrangement meets a safe harbor, what
constitutes an illegal inducement to reduce or limit services to individuals
entitled to benefits covered by the Anti-Kickback Statute, and whether an
activity constitutes grounds for the imposition of a civil or criminal penalty
under the applicable exclusion, civil money penalty and criminal provisions.
Advisory opinions, however, will not assess fair market value for any goods,
services or property or determine whether an individual is a bona fide employee
within the meaning of the Internal Revenue Code. The statutory language makes
clear that advisory opinions are available for both proposed and existing
arrangements. The failure of a party to seek an advisory opinion, however, may
not be introduced into evidence to prove that the party intended to violate the
Anti-Kickback Statute. The Company has not sought, and has no present intention
to seek an advisory opinion regarding any aspect of its current operations or
arrangements with physicians.
PIP Regulations. HCFA has issued final regulations (the 'PIP regulations')
covering the use of physician incentive plans ('PIPs') by HMOs and other managed
care contractors and subcontractors that contract to arrange for services to
Medicare or Medicaid beneficiaries ('Organizations'), potentially including the
Company. Any Organization that contracts with a physician group that places the
individual physician members of the group at substantial financial risk for the
provision of services that the group does not directly provide (e.g., a primary
care group takes risk but subcontracts with a specialty group to provide certain
services), must satisfy certain disclosure, survey and stop-loss requirements.
Under the PIP regulations, payments of any kind, direct or indirect, to induce
providers to reduce or limit covered or medically necessary services are
prohibited ('Prohibited Payments'). Further, where there are no Prohibited
Payments, but there is risk sharing among participating providers related to
utilization of services by their patients, the regulations contain three groups
of requirements: (i) requirements for physician incentive plans that place
physicians at 'substantial financial risk';
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(ii) disclosure requirements for all Organizations with PIPs; and (iii)
requirements related to subcontracting arrangements. In the case of substantial
financial risk (defined in the regulations according to several methods, but
essentially risk in excess of 25% of the maximum payments anticipated under a
plan with less than 25,000 covered lives), Organizations must conduct enrollee
surveys and ensure that all providers have specified stop-loss protection. The
violation of the requirements of the PIP regulations may result in a variety of
sanctions, including suspension of enrollment of new Medicaid or Medicare
members, or a civil monetary penalty of $25,000 for each determination of
noncompliance. In addition, because of the increasing public concerns regarding
PIPs, the PIP regulations may become the model for the industry as a whole.
Although the Company currently has no contracts that require compliance with the
PIP regulations, the new regulations, by limiting the amount of risk that may be
imposed upon physicians in certain arrangements, could affect the ability of the
Company to meaningfully reduce the costs of providing services.
Antitrust. Because the Practices that affiliate with the Company remain
separate legal entities, they may be deemed competitors subject to a range of
antitrust laws that prohibit anti-competitive conduct, including price fixing,
concerted refusals to deal and divisions of markets. In particular, the
antitrust laws have been interpreted by the Federal Trade Commission ('FTC') and
the United States Department of Justice ('DOJ') to prohibit joint negotiation by
competitors of price terms in the absence of financial risk that is shared among
the competitors, other financial integration or substantial clinical integration
among the competitors. The Company intends to comply with such state and federal
laws as may affect its development of, and contracting for, integrated health
care delivery networks (and in particular its IPA) and will utilize the DOJ and
FTC approved 'messenger model'--which avoids joint price negotiations--for those
agreements that do not involve sufficient financial or clinical integration.
Nevertheless, there can be no assurance that a review of the Company's business
by courts or regulatory authorities will not result in a determination that
could adversely affect the operation of the Company and the Practices.
State Law
State Self-Referral Laws. A number of states have enacted self-referral
laws that are similar in purpose to the Stark Law but which impose different
restrictions on referrals than the Stark Law. These various state self-referral
laws have different requirements. Some states, for example, only prohibit
referrals when the physician's financial relationship with a health care
provider is based upon an investment interest. Other state laws apply only to a
limited number of designated health services or, alternatively, to all health
care services furnished by a provider. Some states do not prohibit referrals at
all, but require only that a patient be informed of the financial relationship
before the referral is made.
The following provides a brief review of the self-referral laws in each of
the states in which the Company does business:
Arizona law requires that physicians, when making referrals to an entity
they own that is not part of their group practice, disclose to patients (i) that
the physician has a direct financial interest in the separate diagnostic or
treatment agency or non-routine goods or services that such patient is being
prescribed, and (ii) that the prescribed treatment, goods or services are
available on a competitive basis from other agencies.
California's principal self-referral law applies to all payors and provides
that it is unlawful to refer a person for certain defined categories of services
(including laboratory, physical therapy, physical rehabilitation and diagnostic
imaging) to an entity in which or with which the referring person has a
financial interest (broadly defined). Several exceptions apply, including an
exception for group practices and for referrals to certain publicly traded
entities. Any financial interest by a physician in a health related facility
providing the listed services must be disclosed to the state as a condition of
licensure. The California self-referral statute also requires all physicians to
make disclosure to patients in the event of any referral to a service in which
the physician or his or her family has a significant beneficial interest (even
if such service is not one of the covered services affected by the self-referral
prohibition). In the context of a group practice, the patient disclosure
requirement may be met by providing a written disclosure to each patient or
posting a notice in a common area. Disclosure to the state of physician referral
interests is also a condition of payment under the California Medi-Cal
(Medicaid) program. California also has a separate self-referral law with
respect to care that is covered under workers' compensation
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insurance, although the scope of the prohibition, the list of covered services,
and the exceptions provided are virtually identical to those contained in the
state's all-payor self-referral law summarized above.
Florida's Patient Self-Referral Act of 1992 prohibits health care
providers, including physicians, from referring a patient for the provision of
designated health care services, and in some circumstances any health care
services, to an entity in which the health care provider has an investment
interest, unless an exception, such as for referrals within a group practice,
applies.
New Jersey statutes and regulations contain a general prohibition against
self-referrals of a patient to any 'health care service' in which the
practitioner or his or her immediate family has a significant beneficial
interest. This self-referral prohibition is, however, subject to certain
exceptions, including an exception for referrals to a referring physician's own
'medical office' for services billed directly by and in the name of the
referring physician. In general, the Company is aware that significant portions
of New Jersey regulations addressing the issues of self-referral, anti-kickback,
fee splitting and corporate practice of medicine are currently in the process of
being developed and revised by appropriate agencies for possible publication as
proposed rules.
In Pennsylvania, there is no comprehensive self-referral prohibition,
although Pennsylvania does require disclosure to patients where a financial
interest exists in the entity or with the person to which a referral is made.
For providers treating Medicaid patients, Pennsylvania Medicaid regulations
contain a limited self-referral ban, prohibiting, without exceptions, referrals
to an independent laboratory, pharmacy, radiology or ancillary medical service
in which the referring practitioner has an ownership interest. Finally,
Pennsylvania's workers' compensation statute also prohibits the referral of
workers' compensation patients from a provider to a person or an entity with
which the provider has a financial relationship. The Pennsylvania's workers'
compensation self-referral law applies all of the exceptions, including the
group practice exception, applicable under the federal Stark Law.
Texas law does not have a specific self-referral law.
Failure to comply with the foregoing laws may result in loss of licensure,
which would be imposed against the physicians in the Practices, or other civil
or criminal penalties, which may be imposed against the physicians in the
Practices, or against the Company in its capacity as billing agent for the
physicians (pursuant to the Management Services Agreements) or in the event the
Company becomes or is deemed to be a provider of health care services subject to
the various self-referral laws, or if the Company becomes or is deemed to be in
a position to make or influence referrals to the Practices. In addition, any
determination that any Management Services Agreement violates any of the
foregoing laws may result in such agreement being unenforceable. Additional
risks under state self-referral laws could arise, however, to the extent that
the Company or the Practices undertake to own, manage or operate any Ancillary
Service Facilities to which the physicians within the Practices may wish to
refer patients.
State Anti-Kickback Laws. Many states have laws that prohibit payment of
kickbacks in return for the referral of patients. Some of these laws apply only
to services reimbursable under state Medicaid programs. However, a number of
these laws apply to all health care services in the state, regardless of the
source of payment for the service. Some state laws governing workers'
compensation and other insurance also include an anti-kickback prohibition.
The following provides a brief review of the anti-kickback laws of the
states in which the Company does business:
In Arizona, the state's Professions and Occupations statute declares it
unprofessional conduct for a physician to divide fees for professional services
with another health care provider or health care institution. Arizona's Medicaid
statute also includes a broad general anti-kickback proscription.
California has a general, all-payor anti-kickback statute which prohibits
the offer or acceptance of any compensation by a licensed provider as
compensation or inducement for referring patients, clients or customers.
Significantly, however, this statute also provides that payments for services
other than the referral of patients based on a percentage of gross revenue (or
other similar type of contractual arrangement) is not unlawful if the
consideration is commensurate with the value of the services furnished.
Prohibitions against receiving
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remuneration for patient referrals also exist elsewhere in the California
statutes, including the state Medicaid statute, the workers' compensation
statute, and the insurance code.
Florida's Patient Brokering Law prohibits any person, including health care
providers, from offering or paying, soliciting or receiving, any commission,
bonus, rebate, kickback, or bribe, or from engaging in any split-fee
arrangement, in return for referring patients. Exceptions include payment
arrangements that are not prohibited by the federal Anti-Kickback law, and
financial arrangements within a group practice. In addition, the Florida Medical
Practice Act provides that licensed physicians are subject to discipline for
paying kickbacks. Florida's Medicaid statute also includes a ban on the knowing
offer or receipt of any remuneration in exchange for referrals involving the
Medicaid program.
New Jersey's professional licensure statutes generally prohibit receipt of
payments for referrals. In addition, under New Jersey's Medicaid statute,
criminal penalties are imposed for any provider or other person who solicits,
offers or receives any kickback, rebate or bribe in connection with the
furnishing of Medicaid items or services. In general, the Company is aware that
significant portions of New Jersey regulations addressing the issues of
self-referral, anti-kickback, fee splitting, and corporate practice of medicine
are currently in the process of being developed and revised by appropriate
agencies for possible publication as proposed rules.
In Pennsylvania, the criminal code provides a general anti-kickback
prohibition, which defines the crime of insurance fraud to include a health care
provider's giving of anything of value in consideration of a referral with
respect to services subject to insurance benefits or claims. Substantially
similar anti-kickback prohibitions are also contained in Pennsylvania's statues
dealing with regulation of providers who participate in the Pennsylvania
Medicaid program or who are paid under the state's workers' compensation
program.
Texas anti-kickback law applies to remuneration or compensation for
referrals made between a licensed provider and an unlicensed person or entity,
but it permits any activity that complies with the federal anti-Kickback Statute
or any regulations promulgated thereunder. In addition, the medical practice
standards in Texas prohibit physicians from paying any person for soliciting or
securing referrals.
Failure to comply with the foregoing laws may result in loss of licensure,
which would be imposed against the physicians in the Practices, or other civil
or criminal penalties, which may be imposed against the physicians in the
Practices, or against the Company in its capacity as billing agent for the
physicians (pursuant to the Management Services Agreements) or in the event the
Company becomes or is deemed to be a provider of health care services subject to
the various anti-kickback laws, or if the Company becomes or is deemed to be in
a position to make or influence referrals to the Practices. In addition, any
determination that any Management Services Agreement violates any of the
foregoing laws may result in such Agreement being unenforceable. The laws in
most states regarding kickbacks have been subjected to limited judicial and
regulatory interpretation and therefore, no assurances can be given that the
Company's activities will be found to be in compliance. Noncompliance with such
laws could have a material adverse effect upon the Company and subject it and
the Practices' physicians to penalties and sanctions.
Fee-Splitting Laws. Many states prohibit a physician from splitting with a
referral source the fees generated from physician services. Other states have a
broader prohibition against any division of a physician's fees, regardless of
whether the other party is a referral source. Some states have laws that
specifically address payments for services rendered to physicians based on a
percentage of revenues from the physician's practice.
The following provides a brief review of the fee-splitting laws in each of
the states where the Company does business:
Arizona does not explicitly prohibit the sharing of fees between physicians
and non-professionals (e.g., a management company). However, as noted above,
Arizona does declare it unprofessional conduct for a physician to divide fees
for professional services with another health care provider or health care
institution in return for a patient referral.
As noted above in the discussion of California's anti-kickback provisions,
California explicitly permits payment for services (other than the referral of
patients) based on a 'percentage of gross revenue or similar type of contractual
arrangement,' provided that the consideration is commensurate with the value of
the services furnished. However, even if a contractual arrangement does not
involve unlawful fee splitting, the arrangement
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nonetheless could be deemed to constitute an arrangement involving payment for
referrals under the state anti-kickback laws.
On November 3, 1997, the State of Florida Board of Medicine issued an order
holding that percentage-based management services fees violates Florida's
prohibition on fee splitting by licensed professionals. The Company has included
such percentage fees in all of its Management Services Agreements with
physicians in Florida. Thus, no assurance can be given that the Company's
Management Services Agreements based on such percentage fees will be
enforceable. To avoid this risk, the Company will seek to restructure such
agreements in Florida to comply with the order, but such modifications, or the
failure to obtain agreement on such modifications, could have a material adverse
effect on the Company.
New Jersey does not explicitly prohibit the sharing of fees between
physicians and nonprofessionals, but such fee sharing may be a factor in the
determination as to whether New Jersey's corporate practice of medicine doctrine
has been violated. In general, the Company is aware that significant portions of
New Jersey regulations addressing the issues of self-referral, anti-kickback,
fee splitting, and corporate practice of medicine are currently in the process
of being developed and revised by appropriate agencies for possible publication
as proposed rules.
Pennsylvania does not explicitly prohibit the sharing of fees between
physicians and nonprofessionals, but such fee sharing may be a factor in the
determination as to whether Pennsylvania's corporate practice of medicine
doctrine has been violated.
In Texas, judicial interpretation of the state's corporate practice of
medicine doctrine in Texas has suggested that payments of a percentage of
profits from a physician's medical practice to a management company is a factor
indicative of the corporate practice of medicine.
The Company is reimbursed by physicians in the Practices on whose behalf
the Company provides management services. There can be no certainty that, if
challenged, the Company and the Practices will be found to be in compliance with
each state's fee-splitting (or related corporate practice) laws. Failure to
comply with the foregoing laws may result in loss of licensure, which would be
imposed against the physicians in the Practices, or other civil or criminal
penalties, which may be imposed against the physicians in the Practices, or
against the Company in its capacity as agent for the physicians (pursuant to the
Management Services Agreements) or in the event the Company becomes or is deemed
to be a provider of health care services subject to the various fee-splitting
laws, or if the Company becomes or is deemed to be in a position to make or
influence referrals to the Practices. A determination in any state that the
Company is engaged in any unlawful fee-splitting arrangement could render any
Management Services Agreement or IPA Provider Agreement between the Company and
a Practice located in such state unenforceable or subject to modification in a
manner materially adverse to the Company.
Corporate Practice of Medicine. The laws of many states prohibit business
corporations, including the Company, from employing physicians, exercising
control over the medical judgments or decisions of physicians and from engaging
in certain financial arrangements, such as fee-splitting with physicians. These
laws and their interpretations vary from state to state and are enforced by both
the courts and regulatory authorities, each with broad discretion. Some states
interpret the 'practice of medicine' broadly to include activities of
corporations such as the Company that have an indirect impact on the practice of
medicine, even where the physician rendering the medical services is not an
employee of the corporation and the corporation exercises no discretion with
respect to the diagnosis or treatment of a particular patient.
The following provides a brief review of the corporate practice of medicine
doctrine as applied in each of the states in which the Company does business:
Although Arizona case law dated 1967 suggests a long-standing proscription
against the practice of medicine by corporate entities, there are no reported
cases or Arizona Attorney General opinions of this proscription in recent years.
In addition, Arizona's professional corporation statute permits less than
fifty-one (51%) ownership of professional medical corporations by
non-physicians.
The prohibition on the corporate practice of medicine in California is
reflected both in statute and in case law. In California, a management contract
can be interpreted as unlawfully violating the prohibition on the corporate
practice of medicine if it concedes too much power to the management company.
Examples of such
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power would be the ability of the management company to select office sites, set
fee schedules, establish office hours, hire or fire office staff, or other
matters which singly or in combination may interfere with the ability of the
physician to exercise independent professional judgment. The Company also is
aware that the California Medical Association has developed guidelines for
physicians on the extent to which a management company can exercise
decision-making over a physician practice.
The Florida Board of Medicine has ruled that Florida law does not prohibit
licensed physicians from engaging in the practice of medicine as employees of
business entities, such as business corporations or limited liability companies,
as long as the physicians maintain control over medical decision-making.
New Jersey regulations specify permitted practice forms for physicians and
provide examples of relationships a medical practice may enter into with
non-professional entities for space, equipment and management services. These
regulations require that the physicians retain control of the professional
medical aspects of the practice, as well as control over fee schedules and
certain other functions. In general, the Company is aware that significant
portions of New Jersey regulations addressing the issues of self-referral,
anti-kickback, fee splitting, and corporate practice of medicine are currently
in the process of being developed and revised by appropriate agencies for
possible publication as proposed rules.
Pennsylvania's corporate practice of medicine doctrine permits only
licensed professionals and entities owned solely by such professionals to
practice medicine, not business corporations or similar entities. Although there
is no regulatory guidance or case law regarding management services agreements
with professionals, the Company believes Pennsylvania will require the
professionals to maintain control of their practices.
Texas' physician licensure statute contains a broad prohibition against the
'aiding or abetting, directly or indirectly,' of the corporate practice of
medicine. Further, judicial interpretation in Texas of the state's corporate
practice doctrine has suggested that payments of a percentage of profits from a
physician's medical practice to a management company is a factor indicative of
the corporate practice of medicine.
The Company's practice management structure, which the Company believes is
consistent with standard practices for PPMs, uses an operations committee (the
'Operations Committee') of six members, three of whom are designated by each of
the Company and the Practice. Among other things, the Operations Committee
approves a budget, medical group costs, costs and expenses that exceed the
budget, the acquisition and replacement of equipment and the integration of new
technologies. In addition, the Company's explicit approval is required for
implementation or acquisition of new technologies or medical equipment if the
costs of such equipment or technology exceeds 5% of the management fee. Company
approval is also required for all new offices and new ancillary services. If a
new medical office is not profitable, the Company may, in its sole discretion,
close the new office. Finally, a change in control of the Practice requires the
consent of the Company (not to be unreasonably withheld). While these provisions
in the Company's Management Services Agreements are designed to give the Company
control over certain business transactions by the Practices, which explicitly
retain their professional independence, the Management Services Agreements give
the Company either control over or require the agreement of the Company and the
Practices with respect to certain matters that might be viewed as indicia of the
corporate practice of medicine. While the Company is not given any control over
clinical care decisions, its control or substantial influence over other
decisions may be deemed to be great enough to constitute the corporate practice
of medicine.
The Company's intent is not to exercise any responsibility on behalf of the
Practices' physicians that interferes with the physicians' independent patient
care and professional judgments. However, as noted, the laws and legal doctrines
relating to the corporate practice of medicine have been subjected to only
limited judicial and regulatory interpretation and there can be no assurance
that, if challenged, the Company would be considered to be in compliance with
all such laws and doctrines. A determination in any state that the Company is
engaged in the corporate practice of medicine could render any Management
Services Agreement or IPA Provider Agreement between the Company and a Practice
located in such state unenforceable or subject to modification in a manner
materially adverse to the Company.
The Company hires certain ancillary health personnel (nurses and
technicians) and leases their services back to the Practices in a manner that it
believes accords with applicable Medicare billing requirements. The Company's
ability to hire such ancillary personnel is subject to various state
regulations. The Company believes
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that its structure in this area is common among PPMs. Should such state
corporate practice laws be interpreted to prohibit such hiring by the Company,
the Company will be required to revise its relationship with such ancillary
personnel, and the relationship of the ancillary personnel to the Practice would
also have to be modified. Such modification in the forgoing relationships could
have a material adverse effect on the Company.
Texas Staff Leasing Services Law. Texas law requires any person offering
'staff leasing services' to obtain a license from the Texas Department of
Licensing and Regulation. The Company leases certain non-physician personnel to
STSC as part of the management services provided by the Company to STSC. The
Company believes that it must obtain a license to provide such services in
Texas, and filed the application on October 14, 1997 for such license. The
Company has no reason to believe that it does not comply with the license
criteria which require, among other things, that the Company demonstrate a
certain net worth (dependent upon the number of assigned employees that the
Company has) and that the contract between the Company and STSC contains certain
specified provisions. See 'Risk Factors--Government Regulation--State Regulation
of the Practices.'
Licensure and Certificate of Need Laws. Certain of the ancillary services
that the Company anticipates providing or managing on behalf of the Practices
are now or may in the future be subject to licensure or certificate of need laws
in various states. There can be no assurance that the Company or the Practices
will be able to obtain such licenses or certificates of need approval to the
extent required for the particular ancillary service. Failure to obtain such
licenses or certificates of need could have a material adverse effect on the
Company.
Insurance Laws. Laws in all states regulate the business of insurance and
the operation of HMOs. Many states also regulate the establishment and operation
of networks of health care providers. While these laws do not generally apply to
companies that provide management services to networks of physicians, they have
been construed in some states to apply to such companies and there can be no
assurance that regulatory authorities of the states in which the Company
operates would not apply these laws to require licensure of the Company's
operations as an insurer, as an HMO or as a provider network. The Company
believes that its proposed operations are in compliance with these laws in the
states in which it currently does business, but there can be no assurance that
future interpretations of insurance and health care network laws by regulatory
authorities in these states or in the states into which the Company may expand
will not require licensure or a restructuring of some or all of the Company's
operations. See 'Risk Factors--Government Regulation.'
The National Association of Insurance Commissioners ('NAIC') in 1995
endorsed a policy proposing the state regulation of risk assumption by
physicians. The policy proposes prohibiting physicians from entering into
capitated payment or other risk sharing contracts except through HMOs or
insurance companies. Several states have adopted regulations implementing the
NAIC policy in some form. In states where such regulations have been adopted,
practices are precluded from entering into capitated contracts directly with
employers, individuals and benefit plans unless they qualify to do business as
HMOs or insurance companies. The Existing Practices currently provide services
under very few capitated payment contracts. The Company intends to limit the
number of capitated payments or other risk-sharing arrangements into which it
enters on its own behalf or on behalf of the Practices. The Company expects to
make such arrangements only with HMOs or insurance companies. In addition, in
December 1996, the NAIC issued a white paper entitled 'Regulation of Health Risk
Bearing Entities,' which sets forth issues to be considered by state insurance
regulators when considering new regulations, and encourages that a uniform body
of regulation be adopted by the states. Certain states have enacted statutes or
adopted regulations affecting risk assumption in the health care industry. In
some states, including California, these statutes and regulations subject any
physician or physician network engaged in risk-based contracting, even if
through HMOs and insurance companies, to applicable insurance laws and
regulations, which may include, among other things, laws and regulations
providing for minimum capital requirements and other safety and soundness
requirements. The Company believes that additional regulation at the state level
will be forthcoming in response to the NAIC initiatives.
The IPA that is owned by the Company operates as a specialty physician
network in Arizona, and contracts directly or indirectly with licensed HMOs or
insurance companies to arrange for the provision of specialty orthopedic
physician services on behalf of enrollees of the HMOs or insurance companies. In
return, the IPA accepts a fee from the relevant payor, which fee the IPA passes
along to the participating physician provider, less
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the IPA's fee (generally 13%) to compensate the IPA for its services. The two
IPA Payor Agreements currently in place with the IPA involve 'capitation'
fees--a fixed per month per enrollee fee for all designated orthopedic services.
Arizona law does not permit a provider network to enter into such agreement
directly with enrollees, unions, employers or other patient group on behalf of
their members or employees, as applicable; the direct acceptance of risk by such
a network, under Arizona law, would constitute the 'business of insurance'
subject to licensure and regulation by the Arizona Department of Insurance.
However, where the capitation or other risk-based payment is accepted by a
provider network as a 'downstream' risk from a licensed HMO or insurance
company, the Arizona Department of Insurance has indicated that such risk
contracting would not subject the Company to licensure or regulation by the
Department. However, there can be no assurance that the laws governing the
business of insurance in Arizona will not be revised or interpreted in a manner
that would prohibit operation of the IPA under either the IPA Payor Agreements
or the IPA Provider Agreements, and in such event, the Company would be required
to modify or terminate its relationships with payors or providers in Arizona.
Such modification or termination could have a material adverse effect on the
Company.
FEDERAL AND STATE INITIATIVES
Fraud and Abuse. In the recently enacted 1997 Budget Bill and HIPAA,
Congress has responded to perceived fraud and abuse in the Medicare and Medicaid
programs. This legislation has fortified the government's enforcement authority
with increased resources and greater civil and criminal penalties for offenses.
It is anticipated that there will be further restrictive legislative and
regulatory measures to reduce fraud, waste and abuse in the Medicare and
Medicaid programs. There can be no assurance that any such legislation will not
have a material impact on the Company.
Health Care Reform. As a result of the continued escalation of health care
costs and the inability of many individuals to obtain insurance, numerous
proposals have been or may be introduced in Congress and state legislatures
relating to health care reform. There can be no assurance as to the ultimate
content, timing or effect of any health care reform legislation, nor is it
possible at this time to estimate the impact of potential legislation, which may
be material, on the Company.
Confidentiality of Patient Records. The confidentiality of patient records
and the circumstances under which such records may be released is subject to
substantial regulation under state and federal laws and regulations. To protect
patient confidentiality, data entries to the Company's databases delete any
patient identifiers, including name, address, hospital and physician. Further,
the Company obtains the informed, written consent of the patient to use or
disclose patient information where the Company believes that such consent is
necessary or appropriate. The Company believes that its procedures comply with
the laws and regulations regarding the collection of patient data in
substantially all jurisdictions, but regulations governing patient
confidentiality rights are evolving rapidly and are often difficult to apply.
Additional legislation governing the dissemination of medical record information
has been proposed at both the state and federal level. Furthermore, the Health
Insurance Portability and Accountability Act of 1996 requires the Secretary of
Health and Human Services to recommend legislation or promulgate regulations
governing privacy standards for individually identifiable health information and
creates a federal criminal offense for knowing disclosure or misuse of such
information. These statutes and regulations may require holders of such
information to implement security measures that may be of substantial cost to
the Company. There can be no assurance that changes to state or federal laws
would not materially restrict the ability of the Company to obtain patient
information originating from records.
EMPLOYEES
As of October 31, 1997, the Company had approximately 804 employees, of
whom 20 are located at the Company's headquarters, 9 are located in the regional
offices and 775 are located at the Existing Practices. The Company believes that
its relations with its employees are satisfactory.
54
<PAGE>
PROPERTIES
The Company has a five-year lease for its headquarters in Boca Raton,
Florida, which provides for annual lease payments of approximately $63,000. In
addition, in connection with the Affiliation Transactions, the Company assumed
leases for the facilities utilized by the respective Existing Practices for
aggregate annual lease payments of approximately $1.5 million as of September
30, 1997. For additional information, see 'Certain Transactions.'
LEGAL PROCEEDINGS
On September 3, 1997, an action entitled Robert P. Lehmann, M.D., et al. v.
Bone, Muscle & Joint, Inc., et al., was filed in the United States District
Court for the Southern District of Texas. In the action, plaintiffs have
asserted claims for breach of contract, common law fraud and promissory estoppel
arising out of an alleged restricted stock purchase agreement between plaintiffs
and the Company. Plaintiffs' complaint seeks compensatory and exemplary damages
as well as specific performance for delivery of 165,000 shares of the Company's
Common Stock. The Company believes that each of the plaintiffs' claims is
without merit, and it intends to defend against the action vigorously.
The Company is subject to legal proceedings in the ordinary course of its
business. The Company does not believe that any such legal proceedings will have
a material adverse effect on the Company, although there can be no assurance to
this effect. In addition, the Company may become subject to certain pending
claims as the result of successor liability in connection with the assumption of
certain liabilities of the Practices; nevertheless, the Company believes that
the ultimate resolution of such additional claims will not have a material
adverse effect on the Company. See 'Risk Factors--Exposure to Professional
Liability.'
CORPORATE LIABILITY AND INSURANCE
The provision of medical services entails an inherent risk of professional
malpractice and other similar claims. However, the Company does not influence or
control the practice of medicine by physicians or have responsibility for
compliance with certain regulatory and other requirements directly applicable to
physicians and physician groups. As a result of the relationship between the
Company and the Practices, the Company may become subject to some medical
malpractice actions under various theories. There can be no assurance that
claims, suits or complaints relating to services and products provided by the
Practices will not be asserted against the Company in the future. The Company
maintains medical professional liability insurance and general liability
insurance and believes that such insurance will extend to professional liability
claims that may be asserted against employees of the Company that work on-site
at Practice locations. In addition, pursuant to the Management Services
Agreements, the Practices are required to maintain comprehensive professional
liability insurance. The availability and cost of such insurance has been
affected by various factors, many of which are beyond the control of the Company
and the Practices. The cost of such insurance to the Company and the Practices
may have a material adverse effect on the Company. In addition, successful
malpractice or other claims asserted against the Practices or the Company that
exceed applicable policy limits would have a material adverse effect on the
Company. See 'Risk Factors--Exposure to Professional Liability.'
55
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES
The following table sets forth certain information concerning the
directors, executive officers and other key employees of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------------------- --- ----------------------------------------------------
<S> <C> <C>
Naresh Nagpal, M.D. ................................ 47 President, Chief Executive Officer and Director
David H. Fater...................................... 50 Executive Vice President, Chief Financial Officer
and Director
David K. Ellwanger.................................. 40 Senior Vice President of Operations
Sheldon Lutz........................................ 54 Senior Vice President of Corporate Development
Tony Anderson....................................... 39 Treasurer
Ronald Garey........................................ 42 Controller
Sherry Pulliam...................................... 42 Director of Financial Operations and Assistant
Treasurer
Glenn Cozen......................................... 43 Vice President of Development, Western Region
Joanna Robben....................................... 37 Vice President of Development, Central Region
Keith Bolton........................................ 35 Vice President of Ancillary Services
Beth Landel......................................... 33 Vice President of Ancillary Services
Lee Bodendorfer..................................... 47 Vice President of Operations, Eastern Region
Randolph Farber..................................... 38 Vice President of Operations, Western Region
Randal J. Farwell................................... 37 Vice President of Development, Eastern Region
Brent E. Mellecker.................................. 35 Vice President of Development, Central Region
Andrea Serrate...................................... 43 Vice President of Operations, Southwest Region
Georges Daou(2)..................................... 36 Director
Stewart G. Eidelson, M.D............................ 47 Director
James M. Fox, M.D.(1)............................... 55 Director
Ann H. Lamont(1).................................... 40 Director
Donald J. Lothrop(2)................................ 38 Director
</TABLE>
- ------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Upon consummation of the Offering, the Company's Board of Directors will be
classified into three classes which consist of, as nearly as practicable, an
equal number of directors. The members of each class will serve staggered
three-year terms. Messrs. Eidelson and Fox will be Class I directors, Mr. Fater
and Ms. Lamont will be Class II directors and Messrs. Nagpal, Daou and Lothrop
will be Class III directors. Nominees for director will be divided among the
three classes upon their election or appointment. The terms of Class I, Class II
and Class III directors expire at the annual meeting of stockholders to be held
in 1999, 2000 and 2001, respectively. See 'Description of Capital Stock--Certain
Provisions of the Company's Certificate of Incorporation and By-laws--
Classified Board of Directors.'
Naresh Nagpal, M.D. became President and Chief Executive Officer and a
director in March 1996. From September 1993 to August 1996, Dr. Nagpal served on
the board of directors of InPhyNet Medical Management Inc. ('IMMI'), a PPM. From
September 1993 to August 1995, Dr. Nagpal was the Senior Executive Vice
President and Chief Operating Officer of IMMI. From January 1985 to August 1993,
Dr. Nagpal was President of Acute Care Specialists, Inc. and its related
companies which are PPMs that provide services to several hospitals and
physicians. Dr. Nagpal was the Chairman of the Department of Emergency Medicine
at Barberton Citizens Hospital in Barberton, Ohio from January to June of 1992
and Chairman of the Department of Emergency Medicine at Audobon Regional Medical
Center in Louisville, Kentucky from July to December of 1992.
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<PAGE>
David H. Fater became Executive Vice President and Chief Financial Officer
in February 1997 and a director in April 1997. From June 1995 to January 1997,
Mr. Fater was the Executive Vice President and Chief Financial Officer of
Community Care of America, Inc. From January 1993 to April 1995, Mr. Fater was
the Executive Vice President and Chief Financial Officer of Coastal Physician
Group, Inc. ('Coastal'). Prior to that, Mr. Fater was a partner at Ernst &
Young, LLP.
In connection with Mr. Fater's position at Coastal, in May 1995 he was
named as one of several defendants in a stockholder class-action lawsuit filed
in the United States District Court for the Middle District of North Carolina,
Friedland v. Coastal Healthcare. The complaint, as amended, alleges that the
defendants violated federal securities laws through misrepresentations and
omissions of material facts concerning the Company's operations and financial
condition. The defendants have filed an answer to the complaint, denying the
principal allegations contained therein.
David 'Deke' K. Ellwanger became Senior Vice President of Operations in
July 1997. From July 1994 to July 1997, Mr. Ellwanger was the Vice President of
Managed Care for MedPartners/InPhyNet Medical Management Inc. From August 1985
to June 1994, Mr. Ellwanger worked for Aetna Health Plans/PARTNERS National
Health Plans managing various HMO's and HMO acquisitions.
Sheldon Lutz became Senior Vice President of Corporate Development in
November 1997. From February 1992 until 1997, Mr. Lutz was the Vice President of
Development for Columbia/HCA Healthcare Corporation responsible for acquisitions
and joint ventures and development of a marketwide joint venture model.
Tony Anderson became Treasurer in May 1997. From May 1995 to April 1997,
Mr. Anderson was the Vice President and Chief Financial Officer of Florida
Physician Services. From September 1993 to April 1995, he was Vice President and
Director of Internal Audit for Coastal. From February 1989 to August 1993, Mr.
Anderson was Controller for AKZO Coatings, Inc.
Ronald Garey became Controller in August 1996. Mr. Garey was the
International Finance Manager for Whirlpool Corporation from August 1995 to July
1996. From June 1993 to July 1995, he was the Corporate Controller of Innovet,
Inc. From July 1985 to May 1993, Mr. Garey was the Assistant Controller for Dole
Fresh Fruit International.
Sherry Pulliam became Director of Financial Operations and Assistant
Treasurer in November 1996. From February 1985 to December 1995, Ms. Pulliam
functioned in several different positions for Coastal such as, Financial
Operations Manager (from June 1994 to December 1995), Assistant Treasurer (from
July 1993 to May 1994), Vice President of Mergers and Acquisitions (from April
1992 to June 1993) and Vice President and Controller for Coastal Emergency
Services, Inc., the largest subsidiary of Coastal (from May 1988 to March 1992).
From March 1996 to October 1996 Ms. Pulliam was engaged as a Consultant in
Corporate Development for Community Care of America, Inc.
Glenn Cozen joined the Company in March 1997 and is the Vice President of
Development in the Western Region. Since November 1986, Mr. Cozen has been the
Chief Financial Officer at SCOI.
Joanna Robben joined the Company in June 1997 and is a Vice President of
Development in the Central Region. From 1995 to May 1997, Ms. Robben was Vice
President of Network Strategy & Management and Executive Director of Government
Programs for CIGNA Healthcare. From 1990 to 1995 Ms. Robben worked with First
Health Strategies, Inc. (formerly ALTA Health Strategies, Inc.), most recently
as Vice President, Provider Networks. From 1985 to 1990, Ms. Robben was
Director, Network Marketing for Partners National Health Plans. Ms. Robben is
also a registered physical therapist in private practice from 1982 to 1994.
Keith Bolton became Vice President of Ancillary Services in April 1997. Mr.
Bolton was the Vice President of Corporate Development from April 1995 to March
1997, for Onecare Health Industries, Inc. From July 1993 to March 1995, he was
the Regional Vice President for Surgical Health Corporation. From March 1992 to
June 1993, Mr. Bolton was the President and Chief Executive Officer of Southern
California Surgery Centers, a small consulting firm.
Beth A. Landel became Vice President of Ancillary Services in July 1997.
From June 1995 to July 1997, Ms. Landel was with HealthSouth Corporation where
she was a Regional Director of Corporate Development for
57
<PAGE>
the State of Florida and Maryland through Maine. From May 1994 to June 1995, Ms.
Landel was with Surgical Health Corporation and Physicians Health Corporation, a
PPM, as Regional Marketing and Managed Care Manager for the State of Florida.
From August 1992 to May 1994, Ms. Landel was Director of Managed Care for
Wellington Regional Medical Center, an acute hospital in the Universal Health
Services system.
Lee Bodendorfer joined the Company in April 1997 and is the Vice President
of Operations in the Eastern Region. Mr. Bodendorfer was the Executive Vice
President of Intellex Medical Management Systems, Inc. from February 1995 to
April 1997. From October 1993 to February 1995, he acted as Regional Practice
Administrator for Columbia/HCA. From June 1989 to October 1993, Mr. Bodendorfer
was the Managing Director for Melbourne Neurologic, P.A., a neurosurgical and
neurological group medical practice ('Melbourne'). During this period he also
served as President and Board Chairman for Partners in Rehabilitation, Inc., an
industrial rehabilitation and chronic pain management company and an affiliate
of Melbourne. During this time he also served as General Manager of South
Brevard Imaging, Ltd., a limited partnership MRI.
Randolph Farber joined the Company in September 1997 and is the Vice
President of Operations in the Western Region. From 1994 to 1997, Mr. Farber was
an Executive Director for American Oncology Resources. From 1993 to 1994, Mr.
Farber was Assistant Vice President, Provider Relations for Lifeguard Group
Health Care. From 1982 to 1993, Mr. Farber was the Assistant Director, Provider
Relations for CIGNA Healthplans of California.
Randal J. Farwell joined the Company in December 1996 and is the Vice
President of Development for the Eastern Region. From February 1996 to December
1996, Mr. Farwell was the Vice President of Marketing for PhyMatrix Corporation.
He was Vice President of Development for MedPartners from March 1995 to February
1996. From August 1993 to March 1995, Mr. Farwell was the Executive Director of
Marketing and Network Development for Florida Specialty Care Network, Ltd. Prior
to that, Mr. Farwell was the Director of Advertising and Promotions for Industry
Publishers Inc., a southern Florida medical business publication.
Brent E. Mellecker joined the Company in April 1997 and is a Vice President
of Development for the Central Region. From June 1995 to March 1997, Mr.
Mellecker was Vice President of Sales and Marketing for Combined Orthopaedic
Specialists. He was a Practice Consultant at Health Directions from December
1993 to June 1995. Prior to that, Mr. Mellecker was the Director of Business
Development at Same Day Surgery.
Andrea Seratte joined the Company in February 1997 and is the Vice
President of Operations for the Southwest Region. From February 1995 to March
1997, Ms. Seratte was the sole proprietor of SHARP Consulting, a healthcare
consulting firm. From September 1993 to February 1995, Ms. Seratte was the Vice
president of Operations for the Rehab Managed Care division of NovaCare, a
managed care company. From March 1993 to September 1993, she was the Vice
President of Finance for the Hospital Division of NovaCare.
Georges Daou became a director in September 1997. Mr. Daou is a founder of
DAOU Systems, Inc. and has served as Chairman of the Board and Chief Executive
Officer of such company since 1987. Mr. Daou sits on the boards of various
healthcare and community organizations, including the College of Healthcare
Management Executives and the Healthcare Information Managers Association.
Stewart G. Eidelson, M.D. became a director in October 1997. Dr. Eidelson
is a shareholder of, and since 1990 has been an orthopaedic surgeon at, OSA.
James M. Fox, M.D. became a director in November 1996. Dr. Fox was a
founding partner of, and since 1992 has been an orthopaedic surgeon at, SCOI.
Ann H. Lamont became a director in May 1996. Ms. Lamont is a managing
member of each of the general partner of Oak Investment Partners VI, Limited
Partnership ('Oak Partners') and Oak VI Affiliates Fund, Limited Partnership
('Oak VI'). Since September 1983, Ms. Lamont has been a general partner or
managing member of the general partner of four other venture capital
partnerships affiliated with Oak Partners and Oak VI. Ms. Lamont currently
serves as a director on the board of ViroPharma, Incorporated.
Donald J. Lothrop became a director in May 1996. Since July 1994, Mr.
Lothrop has been a General Partner of Delphi Ventures, a privately held venture
capital firm. From January 1991 to July 1994, Mr. Lothrop was a Partner at
Marquette Venture Partners, Inc., a privately held venture capital partnership.
Mr. Lothrop currently
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<PAGE>
serves as a director on the boards of Accordant Health Services, Inc.,
Affiliated Research Centers, Inc., EXOGEN, Inc., Kelson Physician Partners,
Inc., Pacific Dental Benefits, Presidium Inc. and PriCare, Inc.
NATIONAL PHYSICIAN ADVISORY BOARD
The Company has established a National Physician Advisory Board (the
'Advisory Board') which will provide oversight of certain matters including
responsibility for all patient care and clinical issues. The Advisory Board will
also have responsibility for providing guidance to the Company regarding the
development of its disease management system and protocols as well as all
professional issues. The Advisory Board will consist of seven to nine
musculoskeletal physicians from various parts of the country, including
physicians who are not affiliated with the Company.
The initial members of the Advisory Board are:
<TABLE>
<CAPTION>
PHYSICIAN PRACTICE
- ----------------------------------------------------------------------------------- --------
<S> <C>
James Esch, M.D.................................................................... Tri-City
Gilbert R. Meadows, M.D............................................................ STSC
Ranjan Sachdev, M.D................................................................ LVBMJ
Martin Silverstein, M.D............................................................ LOS
Donald Wiss, M.D................................................................... SCOI
</TABLE>
DIRECTOR COMPENSATION AND COMMITTEES
The directors currently receive $10,000 annual compensation for their
service on the Board of Directors, $2,000 for each meeting attended in person
and $1,000 for each meeting attended telephonically and are reimbursed for their
out-of-pocket expenses. Under the Company's Option Plan, non-employee directors
are eligible to receive option grants. See '--Stock Option Plan.'
The Board of Directors currently includes a Compensation Committee composed
of two directors, Ms. Lamont and Dr. Fox, and an Audit Committee composed of two
directors, Messrs. Daou and Lothrop. The Compensation Committee determines
compensation for executive officers of the Company and administers the Company's
Option Plan. The Audit Committee reviews the scope and results of audits and
internal accounting controls and all other tasks performed by the independent
public accountants of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the establishment of the Compensation Committee in February 1997,
the Board of Directors determined the compensation payable to the Company's
executive officers. Stock options have been granted to employees of the Company
and, at the end of fiscal 1996, the Board of Directors approved an incentive
bonus for Dr. Nagpal.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation paid by the Company to the President and Chief Executive Officer of
the Company during the fiscal year ending December 31, 1996 (the only executive
officer of the Company during such year).
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------- ------------
OTHER SECURITIES
FISCAL ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTION/SARS COMPENSATION
--------------------------- ------ ------ ----- ------------ ----------- ------------
($) ($) ($) (#) (S)
<S> <C> <C> <C> <C> <C> <C>
Naresh Nagpal, M.D. ............. 1996 225,000 67,500 -- -- --
President and Chief Executive
Officer
</TABLE>
59
<PAGE>
OPTION GRANTS IN 1996
There were no options granted to the President and Chief Executive Officer
during the fiscal year ended December 31, 1996.
STOCK OPTION PLAN
In order to attract and motivate employees, consultants and directors to
use their best efforts on behalf of the Company, the Company may, pursuant to
its Option Plan, grant to its employees, consultants, and directors options to
purchase an aggregate of 2,000,000 shares of Common Stock (subject to adjustment
in certain circumstances). If any options expire or are canceled or terminated
without being exercised, the Company may, in accordance with the terms of the
Option Plan, grant additional options with respect to those shares of Common
Stock underlying the unexercised portion of such expired, canceled or terminated
options.
The Option Plan may be administered by the Board of Directors or by a
committee of the Board of the Directors (the 'Committee,' and references to the
Committee shall mean the Board of Directors, if a committee is not appointed).
Grants of Common Stock may consist of (i) options intended to qualify as
incentive stock options ('ISOs') or (ii) nonqualified stock options that are not
intended so to qualify ('NSOs'). Except as set forth below, the term of any such
option is ten years. Options may be granted to any employees (including officers
and directors) of the Company, members of the Board of Directors who are not
employees, and consultants and advisers who perform services to the Company or
any of its subsidiaries.
The option price of any ISO granted under the Option Plan will not be less
than the fair market value of the underlying shares of Common Stock on the date
of grant; provided that the price of an ISO granted to a person who owns more
than 10% of the total combined voting power of all classes of stock of the
Company must be at least equal to 110% of the fair market value of Common Stock
on the date of grant and, in such case, the ISO's term may not exceed five
years. The option price of an NSO will be determined by the Committee in its
sole discretion, and may be greater than, equal to or less than the fair market
value of the underlying shares of Common Stock on the date of grant; provided
that, subsequent to the initial public offering of the Company's Common Stock,
the price of the underlying shares may not be less than fair market value. A
grantee may pay the option price (i) in cash, (ii) by delivering shares of
Common Stock already owned by the grantee or vested options held by the grantee,
which, in either case, have a fair market value on the date of exercise equal to
the option price or (iii) by any combination of (i) and (ii) above. With respect
to any options, the Committee may impose such vesting and other conditions as
the Committee may deem appropriate, all of which terms and conditions must be
set forth in an option agreement between the Company and the grantee. Options
may be exercised by the grantee at any time during his employment or retention
by the Company or any subsidiary thereof and within a specified period after
termination of the grantee's employment or retention.
In the event of a change of control (as defined in the Option Plan), all
grantees will be afforded an opportunity to exercise the portion of their
respective options that are then vested and exercisable. Thereafter, any
unexercised and any unvested portion of all outstanding options will be
automatically terminated.
All options issued under the Option Plan will be granted subject to any
applicable federal, state and local withholding requirements. At the time of
exercise, the grantee must remit to the Company an amount sufficient to satisfy
the total amount of any such taxes required to be withheld by the Company with
respect to such exercised options.
The Board of Directors may amend or terminate the Option Plan at any time;
provided that, under certain circumstances the approval of the stockholders of
the Company may be required. As of November 15, 1997, the Company has granted
options under the Option Plan to purchase an aggregate of 1,604,500 shares of
Common Stock, of which 10,000 have been exercised, 90,000 have been canceled and
70,000 were issued to physicians. The Option Plan will terminate on May 6, 2006,
unless earlier terminated by the Board of Directors or extended by the Board of
Directors with the approval of the stockholders.
60
<PAGE>
EMPLOYMENT AGREEMENT
The Company has entered into an employment agreement dated as of May 6,
1996, as amended, with Dr. Nagpal (the 'Nagpal Employment Agreement'). Base
compensation under the Nagpal Employment Agreement is $300,000 per year, subject
to increase by the Board of Directors. In addition, the Board of Directors may
award an annual bonus to Dr. Nagpal in an amount of up to 30% of his base salary
based on the attainment of certain benchmarks. The Company may terminate Dr.
Nagpal's employment at any time and for any reason; provided that, if his
employment is terminated without cause (as defined in such agreement) or as a
result of his becoming permanently disabled, the Company must pay Dr. Nagpal a
severance amount determined in accordance with a formula contained in the
agreement.
Under the Nagpal Employment Agreement, Dr. Nagpal is prohibited from
directly or indirectly competing with the Company during the term of his
employment with the Company and for an additional year thereafter or as long as
the Company is making severance payments to him, however, there can be no
assurance as to the enforceability of such Agreement. The restraint on
competition by Dr. Nagpal is geographically limited to any state in the United
States in which the Company or any of its subsidiaries conducts business or
specifically plans to conduct business at the time of the termination of his
employment with the Company. Under the terms of the Nagpal Employment Agreement,
Dr. Nagpal acknowledges that any proprietary information (as defined in such
agreement) that he may develop is the sole property of the Company and agrees
not to disclose to, or use for the benefit of, any person or entity (other than
the Company) any of such proprietary information whether or not developed by
him.
61
<PAGE>
CERTAIN TRANSACTIONS
In connection with its initial capitalization, the Company sold shares of
Common Stock and Series A Convertible Preferred Stock (the 'Series A Preferred
Stock') to each of the following persons and entities at a per share purchase
price of $0.01 and $1.00, respectively: (a) Oak Partners purchased 146,580 and
325,733 shares of Common Stock and Series A Preferred Stock, respectively; (b)
Oak VI purchased 3,420 and 7,600 shares of Common Stock and Series A Preferred
Stock, respectively; (c) Delphi Ventures purchased 147,347 and 327,438 shares of
Common Stock and Series A Preferred Stock, respectively; (d) Delphi
BioInvestments III, L.P. ('Delphi BioInvestments') purchased 2,653 and 5,895
shares of Common Stock and Series A Preferred Stock, respectively; (e) Dr.
Nagpal purchased 850,000 and 333,333 shares of Common Stock and Series A
Preferred Stock, respectively and (f) Scheer & Co. purchased 25,000 shares of
Common Stock. Upon consummation of the Offering, all outstanding shares of
Series A Preferred Stock will automatically convert into an equal number of
shares of Common Stock.
During the period beginning November 1996 and ending in March 1997, the
Company raised additional working capital funds by issuing additional shares of
preferred stock. On November 12, 1996, the Company issued an aggregate of
2,000,001 shares of Series B Convertible Preferred Stock, $0.01 par value (the
'Series B Preferred Stock'), to the following persons and entities in the
following amounts: Oak Partners, 651,467 shares; Oak VI, 15,200 shares; Delphi
Ventures, 654,877 shares; Delphi BioInvestments, 11,790 shares; and Dr. Nagpal,
666,667 shares. The investors paid an aggregate purchase price of $6,000,003 for
the Series B Preferred Stock. Immediately prior to the consummation of the
Offering, all outstanding shares of Series B Preferred Stock will automatically
convert into Common Stock. An additional $764,997 was raised by the Company from
the issuance of an aggregate of 254,999 shares of Series C Convertible Preferred
Stock, $0.01 par value (the 'Series C Preferred Stock'), on January 22, 1997 and
March 12, 1997 to certain of the SCOI physicians (including Dr. Fox, one of the
Company's directors), key employees and legal counsel of SCOI, an employee of
the Company, CGJR Health Care Private Equities, L.P., CGJR II, L.P. and CGJR/MF
III, L.P. Immediately prior to the consummation of the Offering, all outstanding
shares of Series C Preferred Stock will automatically convert into Common Stock.
On January 14, 1997, the Company obtained short-term loans in the aggregate
amount of $999,999 from Delphi Ventures, Delphi BioInvestments, Oak Partners,
Oak VI and Dr. Nagpal. In connection with such loans, the Company issued
warrants to the lenders to purchase an aggregate of 33,333 shares of Common
Stock, which warrants may be exercised at any time, in whole or in part, prior
to January 14, 2002 at an exercise price of $3.00 per share. The Company
borrowed an additional $866,667 (of which $130,000 has been repaid) from Dr.
Nagpal on January 10, 1997 and January 14, 1997. Each of the foregoing loans
bears interest at 14% per annum. On June 19, 1997, pursuant to a letter
agreement, the Company issued an aggregate of 188,072 shares of Series D
Convertible Preferred Stock, $0.01 par value (the 'Series D Preferred Stock'),
to Oak VI, Oak Partners, Delphi Ventures, Delphi BioInvestments, and Dr. Nagpal
in exchange for the cancellation of promissory notes in the aggregate principal
amount of $999,999, plus accrued interest, previously issued by the Company to
secure loans made by such investors to the Company.Immediately prior to the
consummation of the Offering, all outstanding shares of Series D Preferred Stock
will automatically convert into Common Stock.
On June 19, 1997, pursuant to a letter agreement, the Company issued an
aggregate of 533,335 shares of Series E Convertible Preferred Stock, $0.01 par
value (the 'Series E Preferred Stock'), to Oak VI, Oak Partners, Delphi
Ventures, Delphi BioInvestments, Dr. Nagpal, CGJR Health Care, CGJR II, and
CGJR/MF. The investors paid an aggregate purchase price of $3,200,010 for the
Series E Preferred Stock. Upon consummation of the Offering, all outstanding
shares of Series E Preferred Stock will automatically convert into Common Stock.
From March 1997 to November 1997, the Company entered into the HCFP Loan
Agreements with HCFP Funding. Each of the HCFP Loan Agreements is in the nature
of a revolving line of credit, with each such loan to be made against a
borrowing base equal to 85% of the qualified accounts receivable generated by
the subject Practice. Each HCFP Loan had an initial term of two years, subject
to renewals of one-year periods upon the mutual agreement of the parties, and
bears interest at the Base Rate (defined as 1.75% above the prime rate
designated by Fleet National Bank of Connecticut, N.A.), subject to increase
upon the occurrence of an event of default. In addition, upon the occurrence and
during the continuance of an event of default, the Company is prohibited from
declaring or paying cash dividends on its Common Stock. As security for
repayment of the HCFP Loans, the Company granted HCFP Funding a first priority
lien and security interest in its accounts receivable.
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<PAGE>
On June 30, 1997, the Company issued a secured term note in the aggregate
principal amount of $3,250,000 to HCFP Funding (the 'June HCFP Note'), which
bears interest at the Base Rate (defined as the prime rate designated by Fleet
National Bank of Connecticut plus 3.5%) (the 'Fleet Base Rate'), subject to
increase upon the occurrence of an event of default, with interest payable on
the last business day of each month for the first six months commencing July 31,
1997 through December 31, 1997. Commencing on January 31, 1998, the Company is
required to make 36 equal monthly installments of principal, plus accrued
interest at the Base Rate. The June HCFP Note is secured by a lien on
substantially all of the assets of the Company and $1.5 million of the Company's
obligations under the June HCFP Note are guaranteed by Dr. Nagpal, Delphi
Ventures III, L.P., Delphi BioInvestments III, L.P., Oak Investment Partners VI,
L.P. and Oak VI Affiliates Fund, L.P. In connection with such guarantees, the
Company issued warrants to purchase an aggregate of 13,332 shares of Common
Stock to such guarantors. In connection with the HCFP Note, the Company issued
warrants to purchase 40,000 shares (subject to increase) of Common Stock to HCFP
Funding at an exercise price of $0.01 per share. The warrants contain put rights
which give the holder the right to receive payment, based on a minimum put price
of $10.00 per share, for the value of these stock warrants at the earlier of the
effective date of the Company's initial public offering or January 15, 1998.
On August 1, 1997, the Company entered into the Comdisco Loan Agreement
pursuant to which Comdisco made the Comdisco Loan to the Company in the
principal amount of $6,000,000. The Comdisco Loan Agreement was subsequently
amended on November 14, 1997, to increase the amount of the Comdisco Loan. To
secure its obligations to Comdisco under the Comdisco Loan Agreement, the
Company granted to Comdisco a secured lien on all of the Company's tangible and
intangible personal property. The Comdisco Loan and the liens granted to
Comdisco (the 'Comdisco Liens') are subordinated in all respects to the current
and future indebtedness of the Company owing to HCFP Funding. The Comdisco Liens
rank pari passu with the liens granted to Cedar. The Comdisco Loan initially
bears interest at 14% per annum; provided, however, that if an initial public
offering of the Company's capital stock is not consummated on or prior to
December 31, 1997, the Comdisco Loan will, commencing January 1, 1998, bear
interest at 15% per annum. The Comdisco Loan may be prepaid, in whole or in
part, at any time, by the Company without penalty or premium. Within 45 days of
the effective date of an initial public offering of the capital stock of the
Company, the Company is obligated to prepay the Comdisco Loan in full. The
Comdisco Loan matures December 31, 2000. The Comdisco Loan Agreement prohibits
the Company from making or declaring any cash dividends or making any
distributions of any class of capital stock of the Company, except pursuant to
an employee repurchase plan or with the consent of Comdisco. Further, in
connection with the Comdisco Loan, the Company issued to Comdisco warrants to
purchase up to 150,000 shares of the Company's Series E Preferred Stock at a
price per share equal to $6.00; provided, however, that if an initial public
offering of the Company's capital stock is not consummated on or prior to
December 31, 1997, then the number of shares of Series E Preferred Stock
issuable upon exercise of the warrant increases to 160,000. Upon the completion
of the Company's initial public offering, such warrant becomes exercisable for a
like number of shares of Common Stock. In addition, pursuant to a Stock Purchase
Agreement dated as of August 18, 1997, the Company issued 41,667 shares of
Series E Preferred Stock to Comdisco for an aggregate purchase price of
$250,000.
On August 1, 1997, the Company entered into an agreement (the 'Master Lease
Agreement') with Comdisco pursuant to which Comdisco agreed to purchase and
lease certain equipment to the Company on the terms and conditions contained in
the Master Lease Agreement. In connection with the Master Lease Agreement, the
Company issued to Comdisco a warrant to purchase up to 5,000 shares of the
Company's Series E Preferred Stock at a price per share equal to $6.00. Upon the
completion of the Company's initial public offering, such warrant becomes
exercisable for a like number of shares of Common Stock.
On August 22, 1997, the Company entered into the Galtney Loan Agreement
with Galtney pursuant to which Galtney made the Galtney Loan to the Company in
the principal amount of $1,500,000. To secure its obligations to Galtney under
the Galtney Loan Agreement, the Company granted to Galtney a secured lien on all
of the Company's tangible and intangible personal property. The Galtney Loan and
the liens granted to Galtney ('Galtney Liens') are subordinated in all respects
to the current and future indebtedness of the Company owing to HCFP Funding. The
Galtney Liens rank pari passu with the liens granted to Comdisco. The Galtney
Loan initially bears interest at 14% per annum; provided, however, that if an
initial public offering of the Company's capital stock is not consummated on or
prior to December 31, 1997, the Galtney Loan will, commencing
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<PAGE>
January 1, 1998, bear interest at 15% per annum. The Galtney Loan may be
prepaid, in whole or in part, at any time, by the Company without penalty or
premium. Within 45 days of the effective date of an initial public offering of
the capital stock of the Company, the Company is obligated to prepay the Galtney
Loan in full. The Galtney Loan matures December 31, 2000. The Galtney Loan
Agreement prohibits the Company from making or declaring any cash dividends or
making any distributions of any class of capital stock of the Company, except
pursuant to an employee dividends repurchase plan or with the consent of
Galtney. Pursuant to the terms of the Galtney Loan Agreement, the outstanding
amount of the Galtney Loan is convertible into shares of Preferred Stock of the
Company at the option of Galtney after the Company completes a sale and issuance
of any shares of its Preferred Stock in connection with an equity financing (an
'Equity Financing') at any time after the earlier to occur of (i) a payment
default under the Galtney Loan Agreement or (ii) the failure of the Company to
consummate an initial public offering of its capital stock prior to December 31,
1997. Further, in connection with the Galtney Loan, the Company issued to
Galtney a warrant to purchase up to 37,500 shares of the Company's Series E
Preferred Stock at a price per share equal to $6.00; provided, however, that if
an initial public offering of the Company's capital stock is not consummated on
or prior to December 31, 1997, then the number of shares of Series E Preferred
Stock issuable upon exercise of the warrant increases to 40,000. Upon the
completion of the Company's initial public offering, such warrant becomes
exercisable for a like number of shares of Common Stock. In addition, pursuant
to a Stock Purchase Agreement dated as of July 31, 1997, the Company issued
166,667 shares of Series E Preferred Stock to Galtney, for an aggregate purchase
price of $1,000,000.
On September 9, 1997, the Company issued and sold $4,000,000 in aggregate
principal amount of its subordinated convertible debentures due August 31, 2000
(the 'Debentures') pursuant to the Convertible Debenture Purchase Agreement,
dated as of September 9, 1997 (the 'Debenture Purchase Agreement'). The
Debentures were purchased by Dr. Nagpal, Delphi Ventures, Delphi BioInvestments,
Oak Partners, Oak VI and Health Care Services-BMJ, LLC and H&Q Serv*is Ventures,
L.P., affiliates of Hambrecht & Quist, LLC. Pursuant to the terms of the
Debenture Purchase Agreement, the Debentures are subordinated in right of
payment to all indebtedness owing by the Company to HCFP Funding, the Comdisco
Loan and the Galtney Loan. The Debentures bear interest at 6% per annum and are
payable semi-annually on each December 31 and June 30. The unpaid principal
amount of the Debentures is due on August 31, 2000.
Except in very limited instances, the Company may not prepay the Debentures
prior to September 9, 1999. The Debentures are subject to prepayment at the
option of the holders of the Debentures upon the consummation of (i) a sale of
all or substantially all of the assets of the Company; (ii) a sale or transfer
of all or a majority of the outstanding Common Stock of the Company in any one
transaction or series of related transactions; or (iii) a merger or
consolidation of the Company with or into another entity. The Debentures are
convertible at any time at the option of the holders thereof into shares of
Common Stock at an initial conversion price equal to $7.20 per share. Pursuant
to the terms of the Debenture Purchase Agreement, the holders of the Debentures
have rights of first offer on future issuances of capital stock of the Company
or other securities convertible into capital stock of the Company. The Debenture
Purchase Agreement places limitations on indebtedness and liens and prohibits
the payment of dividends.
On October 14, 1997, the Company issued a secured term note in the
principal amount of $2,500,000 to HCFP Funding (the 'October HCFP Note'), which
bears interest at the Fleet Base Rate, subject to increase upon the occurrence
of an event of default, with interest payable on the last business day of each
month commencing October 31, 1997 through December 31, 1997. The entire
principal sum is due and payable on January 10, 1998. Pursuant to the terms of
the October HCFP Note, the Company is also obligated to pay a fee in the amount
of $300,000 to HCFP Funding on the maturity date. The October HCFP Note is
secured by a lien on substantially all of the assets of the Company.
On October 15, 1997, the Company issued promissory notes (the 'October
Notes') in the aggregate principal amount of $3,375,000 to Dr. Nagpal, Delphi
Ventures, Delphi BioInvestments, Oak Partners, Oak IV and Dr. Fox (collectively,
the 'October Note Holders'). The October Notes bear interest at the Fleet Base
Rate, subject to increase upon the occurrence of an event of default. The entire
principal sum is due and payable on January 13, 1998. In connection with the
October Notes, the Company issued warrants to purchase 67,500 shares of Common
Stock to the October Note Holders at an exercise price of $0.01 per share.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of November 15, 1997
regarding the beneficial ownership of the Common Stock of the Company as of the
date of this Prospectus and as adjusted to reflect the sale of the shares of
Common Stock offered hereby with respect to (i) each person known by the Company
to own beneficially more than 5% of the outstanding shares of Common Stock; (ii)
each of the Company's directors; and (iii) all directors and officers as a
group. Unless otherwise indicated, the address for each stockholder is c/o BMJ
Medical Management, Inc., 4800 North Federal Highway, Suite 101E, Boca Raton,
Florida 33431.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING(1) AFTER OFFERING(1)
-------------------- ----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ------------------------------------------------------------------ --------- ------- --------- -------
<S> <C> <C> <C> <C>
Delphi Ventures III, L.P.(2) ..................................... 185,555 1.6% 1,414,912(3) 6.9%
3000 Sand Hill Road, Building One, Suite 135,
Menlo Park, California 94025
Oak Investment Partners VI, L.P.(4) .............................. 185,555 1.6 1,414,913(5) 6.9
One Gorham Island
Westport, Connecticut 06880
Naresh Nagpal, M.D................................................ 1,001,805(6) 8.8 2,231,163(6)(7) 10.8
David H. Fater.................................................... 0 -- 15,000(8) *
Georges Daou...................................................... 25,000(9) * 25,000(9) *
Stewart G. Eidelson, M.D.......................................... 14,030(10) * 14,030(10) *
James M. Fox, M.D................................................. 403,208(11) 3.5 419,583(12) 2.0
Ann H. Lamont(4).................................................. 185,555(13) 1.6 1,414,913(5) 6.9
Donald J. Lothrop(2).............................................. 185,555(14) 1.6 1,414,912(3) 6.9
All officers and directors as a group (6 persons) (15)............ 1,790,153 15.6 5,509,601 26.7
</TABLE>
- ------------------
* Less than one percent.
(1) Applicable percentage of ownership is based on 11,445,331 shares of Common
Stock outstanding as of November 15, 1997 and 20,630,071 shares of Common
Stock outstanding upon consummation of the Offering. Beneficial ownership
is determined in accordance with the rules of the Commission and includes
voting and investment power with respect to securities. Securities subject
to options or warrants currently exercisable or exercisable within 60 days
of November 15, 1997 are deemed outstanding for purposes of computing the
percentage ownership of the person holding such options or warrants, but
are not deemed outstanding for purposes of computing the percentage of any
other person. Except for shares held jointly with a person's spouse or
subject to applicable community property laws, or as indicated in the
footnotes to this table, each stockholder identified in the table possesses
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by such stockholder.
(2) Includes (i) 2,653 shares of Common Stock owned by Delphi BioInvestments
and (ii) warrants to purchase 34,925.8 shares of Common Stock owned by the
stockholder and warrants to purchase 629.2 shares of Common Stock owned by
Delphi BioInvestments.
(3) Includes 1,207,616 shares of Preferred Stock owned by the stockholder and
21,741 shares of Preferred Stock owned by Delphi BioInvestments which
automatically convert into the same number of shares of Common Stock upon
completion of the Offering.
(4) Includes (i) 3,420 shares of Common Stock owned by Oak VI and (ii) warrants
to purchase 34,744.67 shares of Common Stock owned by the stockholder and
warrants to purchase 810.33 shares of Common Stock owned by Oak VI.
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<PAGE>
(5) Includes 1,201,329 shares of Preferred Stock owned by the stockholder and
28,029 shares of Preferred Stock owned by Oak VI all of which automatically
convert into the same number of shares of Common Stock upon completion of
the Offering.
(6) Includes (i) 18,750 shares of Common Stock reserved for issuance upon
exercise of presently-exercisable stock options and (ii) warrants to
purchase 35,555 shares of Common Stock. Dr. Nagpal's shares are held in two
trusts for his children, the Prianker Nagpal Family Trust and the Zubin
Nagpal Family Trust. Dr. Nagpal is the grantor of each trust and Dr.
Nagpal's wife is the sole trustee of each trust.
(7) Includes 1,229,358 shares of Preferred Stock owned by the stockholder which
automatically convert into the same number of shares of Common Stock upon
completion of the Offering.
(8) Consists of 15,000 shares of Common Stock that vest automatically upon
completion of the Offering.
(9) Consists of 25,000 Common Stock options which vest immediately.
(10) Consists of 14,030 shares of Common Stock issued pursuant to a Management
Services Agreement.
(11) Includes warrants to purchase 7,500 shares of Common Stock owned by the
stockholder.
(12) Includes 16,375 shares of Preferred Stock owned by the stockholder which
automatically convert into the same number of shares of Common Stock upon
completion of the Offering.
(13) Ms. Lamont, a director of the Company, is a managing member of each of the
general partner of Oak Investment and Oak VI. As such, Ms. Lamont may be
deemed to have an indirect pecuniary interest (within the meaning of Rule
16a-1 under the Exchange Act), in an indeterminate portion of the shares
beneficially owned by Oak Investment and Oak VI. All of the shares
indicated as owned by Ms. Lamont are owned beneficially by Oak Investment
and Oak VI and are included because of the affiliation of Ms. Lamont with
each of the partnerships. Ms. Lamont disclaims beneficial ownership of
these shares to the extent permitted under Rule 13d-3 under the Exchange
Act.
(14) Mr. Lothrop, a director of the Company, is a General Partner of Delphi
Ventures. As such, Mr. Lothrop may be deemed to have an indirect pecuniary
interest (within the meaning of Rule 16a-1 under the Exchange Act), in an
indeterminate portion of the shares beneficially owned by Delphi Ventures
and Delphi BioInvestments. All of the shares indicated as owned by Mr.
Lothrop are owned beneficially by Delphi Ventures and Delphi BioInvestments
and are included because of the affiliation of Mr. Lothrop with each of the
partnerships. Mr. Lothrop disclaims beneficial ownership of these shares to
the extent permitted under Rule 13d-3 under the Exchange Act.
(15) Includes beneficial ownership of an aggregate of 371,110 shares of Common
Stock and warrants to purchase Common Stock prior to the Offering and an
aggregate of 2,829,826 shares of Common Stock and warrants to purchase
Common Stock after the Offering attributable to the affiliation of Ms.
Lamont and Mr. Lothrop with the entities described in footnotes (11) and
(12) above.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the consummation of the Offering, the authorized capital stock of the
Company will consist of (i) 35,000,000 shares of Common Stock and (ii)
10,000,000 shares of preferred stock, par value $0.01 per share (the 'Preferred
Stock'), which are subject to future issuance as determined by the Board of
Directors of the Corporation.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
on which the holders of Common Stock are entitled to vote and do not have any
cumulative voting rights. Holders of Common Stock are entitled to receive such
dividends as may from time to time be declared by the Board of Directors of the
Company out of funds legally available therefor. Holders of Common Stock have no
preemptive, conversion, redemption or sinking fund rights. In the event of a
liquidation, dissolution or winding-up of the Company, holders of Common Stock
are entitled to share ratably in the assets of the Company, if any, remaining
after the payment of all debts and liabilities of the Company and the
liquidation preference of any outstanding class or series of preferred stock.
The outstanding shares of Common Stock are, and the shares of Common Stock
offered by the Company hereby when issued will be, fully paid and nonassessable.
The rights, preferences and privileges of holders of Common Stock are subject to
the Preferred Stock currently outstanding and any series of Preferred Stock
which the Company may issue in the future.
Prior to the Offering, there has been no public market for the Common
Stock. The Common Stock has been approved for quotation on Nasdaq under the
symbol BONS, subject to official notice of issuance. The transfer agent and
registrar for the Common Stock is Chemical Mellon Shareholder Services.
PREFERRED STOCK
As of November 1, 1997, the Company had five classes of authorized
Preferred Stock: (i) the Series A Preferred Stock; (ii) the Series B Preferred
Stock; (iii) the Series C Preferred Stock; (iv) the Series D Preferred Stock,
and (v) the Series E Preferred Stock. Each holder of Preferred Stock has the
right, at such holder's option, to convert any of his Preferred Stock into
Common Stock at the conversion price set forth in the Certificate of
Incorporation. Upon the consummation of the Offering, all outstanding shares of
Preferred Stock automatically convert into an equal number of shares of Common
Stock without any action on the part of the holders of such stock. Upon such
conversion, the holders of Preferred Stock are not entitled to payment of any
accrued but unpaid dividends.
The Board of Directors is authorized to provide for the issuance of
Preferred Stock in one or more series and to fix the number of shares
constituting any such series, the voting powers, designations, preferences and
relative, participating, optional or other special rights and qualifications,
limitations or restrictions thereof, including the dividend rights, redemption
privileges, conversion rights and liquidation preferences of the shares
constituting any series, without any further vote or action by the stockholders
of the Company. The issuance of Preferred Stock by the Board of Directors could
adversely affect the rights of holders of Common Stock. For example, the
issuance of Preferred Stock could result in a series of securities outstanding
that would have preferences over the Common Stock with respect to dividends and
in liquidation and that could (upon conversion or otherwise) enjoy all of the
rights appurtenant to Common Stock.
The authority possessed by the Board of Directors to issue Preferred Stock
could potentially be used to discourage attempts by others to obtain control of
the Company through merger, tender offer, proxy, consent or otherwise by making
such attempts more difficult to achieve or more costly. The Board of Directors
may issue Preferred Stock without stockholder approval and with voting and
conversion rights which could adversely affect the voting power of holders of
Common Stock. There are no agreements or understandings for the issuance of
Preferred Stock, and the Board of Directors has no present intent to issue
Preferred Stock.
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<PAGE>
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BY-LAWS
Certain provisions of the Certificate of Incorporation and By-laws of the
Company summarized below may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider in its best interest, including an attempt that might result in
the receipt of a premium over the market price for the shares held by
stockholders.
Classified Board of Directors
The Certificate of Incorporation provides for the Board of Directors to be
divided into three classes of directors serving staggered three-year terms. As a
result, approximately one-third of the Board of Directors will be elected each
year. Moreover, under Delaware Law, in the case of a corporation having a
classified board, stockholders may remove a director only for cause. This
provision, when coupled with the provision of the By-laws authorizing only the
Board of Directors to fill vacant directorships, will preclude a stockholder
from removing incumbent directors without cause and simultaneously gaining
control of the Board of Directors by filling the vacancies created by such
removal with its own nominees.
Special Meeting of Stockholders
The Certificate of Incorporation provides that special meetings of
stockholders of the Company may be called only by the Board of Directors, the
Chairman of the Board of Directors or the Chief Executive Officer. This
provision will make it more difficult for stockholders to take actions opposed
by the Board of Directors.
STOCKHOLDERS AGREEMENT
The Company entered into a Second Amended and Restated Stockholders
Agreement dated as of November 22, 1996, as amended (the 'Stockholders
Agreement'), with certain of its stockholders, including Oak Partners, Oak VI,
Delphi Ventures, Delphi BioInvestments, Dr. Nagpal and the SCOI physicians.
Under the Stockholders Agreement, the stockholders party thereto agreed to vote
their shares to appoint to the Company's Board of Directors certain designees of
such stockholders. The stockholders (other than the SCOI physicians) also have
the following rights and obligations under the Stockholders Agreement: (i) a
right of first refusal with respect to issuances of the Company's capital stock
or securities convertible into capital stock; and (ii) transfer restrictions.
Under the terms of the Stockholders Agreement, 700,000 shares of Common Stock
Dr. Nagpal received on May 6, 1996 are subject to vesting over a 40-month
period; however, the vesting schedule is subject to acceleration in the
following circumstances: (i) termination of Dr. Nagpal's employment without
cause prior to December 31, 1996 but prior to January 1, 1998, 157,500
additional shares vest; (ii) termination of Dr. Nagpal's employment without
cause prior to December 31, 1997 but prior to January 1, 1999, 105,000
additional shares vest; (iii) termination of Dr. Nagpal's employment as a result
of his death or permanent disability, 210,000 additional shares vest; (iv)
simultaneously with the effectiveness of a registration statement filed under
the Securities Act, 50% of the remaining unvested stock vests; and (v)
simultaneously with any sale of a majority of the capital stock or at least 50%
of the assets of the Company, all of the remaining unvested stock vests. In the
event of the termination of Dr. Nagpal's employment with the Company for any
reason, the Company has the right to repurchase from Dr. Nagpal all of the
shares of unvested stock at a purchase price equal to $0.01 per share. The
Stockholders Agreement terminates upon consummation of the Offering.
REGISTRATION RIGHTS
The beneficial owners of 5,227,241 shares of Common Stock have the right to
request that the Company effect the registration of any or all of such shares or
to include any or all of such shares in any registration statement to be filed
by the Company relating to the registration of Common Stock under the Securities
Act (other than registration statements on Form S-4 or Form S-8). Upon such
request, the Company is required to file a registration statement covering such
shares or to include such shares in such registration statement, as applicable,
except that, in the case of a requested registration, the Company is not
obligated to file any registration statement initiated pursuant to a request by
any such owner within 180 days of a prior registration by the Company and the
Company's obligations to effect any such registration is subject to other
limitations.
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<PAGE>
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Section 203 ('Section 203') of the Delaware General Corporation Law (the
'DGCL') prevents an 'interested stockholder' (defined in Section 203, generally,
as a person owning 15% or more of a corporation's outstanding voting stock) from
engaging in a 'business combination' (as defined in Section 203) with a
publicly-held Delaware corporation for three years following the date such
person became an interested stockholder unless (i) before such person became an
interested stockholder, the board of directors of the corporation approved
either the business combination or the transaction in which the interested
stockholder became an interested stockholder; (ii) upon consummation of the
transaction that resulted in the interested stockholder's becoming an interested
stockholder, the interested stockholder owns at least 85% of the voting stock of
the corporation outstanding at the time the transaction commenced (excluding
stock held by directors who are also officers of the corporation and by employee
stock plans that do not provide employees with the rights to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer); or (iii) following the transaction in which such
person became an interested stockholder, the business combination is approved by
the board of directors of the corporation and authorized at a meeting of
stockholders by the affirmative vote of the holders of two-thirds of the
outstanding voting stock of the corporation not owned by the interested
stockholder.
DIRECTORS' LIABILITY
The Certificate of Incorporation contains provisions that eliminate the
personal liability of its directors for monetary damages resulting from breaches
of their fiduciary duty other than liability for breaches of the duty of
loyalty, acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, violations under Section 174 of the
DGCL or any transaction from which the director derived an improper personal
benefit. The Company's By-laws contain provisions requiring the indemnification
of the Company's directors and officers to the fullest extent permitted by
Section 145 of the DGCL, including circumstances in which indemnification is
otherwise discretionary. The Company believes that these provisions are
necessary to attract and retain qualified persons as directors and officers.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
After giving effect to the shares of Common Stock offered hereby, the
Company will have outstanding 20,787,183 shares of Common Stock. Of these
shares, all of the shares of Common Stock sold in the Offering will be freely
tradeable without restriction under the Securities Act, except for any shares
purchased by 'affiliates,' as that term is defined under the Securities Act, of
the Company. The remaining 15,787,183 shares are 'restricted securities' within
the meaning of Rule 144 promulgated under the Securities Act. Of these
restricted shares, 5,526,501 shares will be eligible for the sale pursuant to
Rule 144 in 1997 and the balance of the restricted shares will be eligible for
sale at various times in 1998.
The Company, its directors and officers and certain other stockholders of
the Company, who upon completion of the Offering will own in the aggregate
shares of Common Stock, have agreed that they will not, without the
prior written consent of Hambrecht & Quist LLC, issue, sell, offer, contract to
sell, make any short sale, pledge, issue or sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of any shares of Common
Stock, or securities exhangeable for or convertible into or exercisable for any
rights to purchase or acquire any shares of Common Stock during the 180-day
period following the date of this Prospectus, except that such stockholders may
transfer securities pursuant to bona fide gifts and the Company may issue, and
grant options to purchase, shares of Common Stock under its current stock option
plan and may issue shares of Common Stock, in connection with certain
affiliation transactions, provided such shares are subject to the 180-day
lock-up agreement. See 'Underwriting.'
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including any person who may be deemed to be an
'affiliate' of the Company, is entitled to sell within any three month period
'restricted' shares beneficially owned by him or her in an amount that does not
exceed the greater of (i) 1% of the then outstanding shares of Common Stock or
(ii) the average weekly trading volume in shares of Common Stock during the four
calendar weeks preceding such sale, provided that at least one year has elapsed
since such shares were acquired from the Company or an affiliate of the Company.
Sales are also subject to certain requirements as to the manner of sale, notice
and the availability of current public information regarding the Company.
However, a person who has not been an 'affiliate' of the Company at any time
within three months prior to the sale is entitled to sell his or her shares
without regard to the volume limitations or other requirements of Rule 144,
provided that at least two years have elapsed since such shares were acquired
from the Company or an affiliate of the Company.
In general, under Rule 701 as currently in effect, any employee, officer,
director, consultant or advisor of the Company who purchased shares from the
Company pursuant to a written compensatory benefit plan or written contract
relating to compensation is eligible to resell such shares 90 days after the
effective date of the Offering in reliance upon Rule 144, but without the
requirement to comply with certain restrictions contained in such rule. Shares
of Common Stock obtained pursuant to Rule 701 may be sold by non-affiliates
without regard to the holding period, volume limitations, or information or
notice requirements of Rule 144, and by affiliates without regard to the holding
period requirements.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register all shares of Common Stock issuable under its Option
Plan, as well as certain of the shares of Common Stock previously issued under
its Option Plan. This registration statement is expected to be filed as soon as
practicable after the date of this Prospectus and is expected to become
effective immediately upon filing. Shares of Common Stock covered by this
registration statement will be eligible for sale in the pubic market after the
effective date of such registration statement, subject to Rule 144 limitations
applicable to affiliates of the Company. See 'Management Stock Option Plan.'
The Company has granted registration rights to certain of its stockholders.
See 'Description of Capital Stock--Registration Rights.'
Prior to the Offering, there has been no public market for the Common Stock
and it is impossible to predict with certainty the effect, if any, that market
sales of shares or the availability of such shares for sale will have on the
market price of the Common Stock. Nevertheless, sales of substantial amounts of
Common Stock in the public market may have an adverse impact on such market
price and could impair the Company's ability to raise capital through the sale
of its equity securities.
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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Hambrecht & Quist LLC,
Raymond James & Associates, Inc. and Volpe Brown Whelan & Company, LLC have
severally agreed to purchase from the Company the following respective number of
shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
Hambrecht & Quist LLC......................................................................
Raymond James & Associates, Inc............................................................
Volpe Brown Whelan & Company, LLC..........................................................
---------
Total................................................................................. 5,000,000
---------
---------
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company, its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers
may reallow, a concession not in excess of $ per share to certain
other dealers. After the initial public offering of the shares, the offering
price and other selling terms may be changed by the Representatives of the
Underwriters. The Representatives have informed the Company that the
Underwriters do not intend to conform sales to accounts over which they exercise
discretionary authority.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 750,000
additional shares of Common Stock at the initial public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus. To the
extent that the Underwriters exercise this option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of Common Stock to be purchased by it shown in the
above table bears to the total number of shares of Common Stock offered hereby.
The Company will be obligated, pursuant to the option, to sell shares to the
Underwriters to the extent the option is exercised. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of Common Stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.
The Company has agreed to pay the Underwriters a non-accountable expense
allowance of $ upon completion of the Offering.
Certain stockholders of the Company, including the executive officers and
directors, who will own in the aggregate shares of Common Stock after
the Offering, have agreed that they will not, without prior
71
<PAGE>
written consent of Hambrecht & Quist LLC, directly or indirectly, sell, offer,
contract to sell, transfer the economic risk of ownership in, make any short
sale, pledge or otherwise dispose of any shares of Common Stock or any
securities convertible into or exchangeable or exercisable for or any other
rights to purchase or acquire Common Stock beneficially owned by them during the
180-day period following the date of this Prospectus other than transfers
pursuant to bona fide gifts. In addition, the Company has agreed that, without
the prior written consent of Hambrecht & Quist LLC on behalf of the
Underwriters, the Company will not, directly or indirectly, sell, offer,
contract to sell, make any short sale, pledge, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of any shares of Common
Stock or any securities convertible into or exchangeable or exercisable for or
any rights to purchase or acquire Common Stock, or enter into any swap or other
agreement that transfers, in whole or in part, any of the economic consequences
or ownership of Common Stock, during the 180-day period following the date of
this Prospectus, except that the Company may issue, and grant options to
purchase, shares of Common Stock under its current stock option plan and may
issue shares of Common Stock in connection with certain affiliation
transactions, provided such shares are subject to the 180-day lock-up agreement.
Sales of such shares in the future could adversely affect the market price of
the Common Stock. Hambrecht & Quist LLC may, in its sole discretion, release any
of the shares subject to the lock-up agreements at any time without notice.
At the request of the Company, the Underwriters have reserved up to
shares of Common Stock for sale at the initial public offering price to
directors, officers, employees and persons with business relationships with the
Company, as well as others associated with such persons. The number of shares of
Common Stock available for sale to the general public will be reduced to the
extent such persons purchase the reserved shares. Any reserved shares not so
purchased will be offered by the Underwriters on the same basis as all other
shares offered hereby.
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiation between the Company and the Representatives. Among the factors to
be considered in determining the initial public offering price are prevailing
market and economic conditions, revenues and earnings of the Company, market
valuations of other companies engaged in activities similar to the Company,
estimates of the business potential and prospects of the Company, the present
state of the Company's business operations, the Company's management and other
factors deemed relevant.
Certain persons participating in this offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the Common Stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. A penalty bid means an arrangement that permits the Underwriters
to reclaim a selling concession from a syndicate member in connection with the
offering when shares of Common Stock sold by the syndicate member are purchased
in syndicate covering transactions. Such transaction may be effected on the
Nasdaq Stock Market, in the over-the-counter market, or otherwise. Such
stabilizing, if commenced, may be discontinued at any time.
On September 9, 1997, Health Care Services-BMJ, LLC and H&Q Serv*is
Ventures, L.P., affiliates of Hambrecht & Quist LLC, purchased $2.5 million
aggregate principal amount of the Company's Debentures as part of a financing in
which the Company sold $4.0 million aggregate principal amount of Debentures to
seven investors. See 'Certain Transactions--Equity and Debt Financings.'
72
<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon by
O'Sullivan Graev & Karabell, LLP, New York, New York. Certain legal matters will
be passed upon for the Underwriters by Cravath, Swaine & Moore, New York, New
York.
EXPERTS
The financial statements of the following entities appearing in this
Prospectus have been audited by Ernst & Young LLP, independent certified public
accountants, as set forth in their reports thereon also appearing elsewhere in
this Prospectus:
BMJ Medical Management, Inc.
Orthopaedic Associates of Bethlehem, Inc.
Southern California Orthopedic Institute Medical Group
South Texas Spinal Clinic, P.A.
Tri-City Orthopedic Surgery Medical Group, Inc.
Lauderdale Orthopaedic Surgeons
Fishman and Stashak, M.D.'s, P.A. d/b/a Gold Coast Orthopedics
Sun Valley Orthopaedic Surgeons
Orthopaedic Surgery Associates, P.A.
Broward Institute of Orthopedic Specialties, P.A.
Such financial statements have been included herein in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
73
<PAGE>
INDEX TO FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
FINANCIAL STATEMENTS OF BMJ MEDICAL MANAGEMENT, INC.
Report of Independent Certified Public Accountants......................................................... F-3
Balance Sheets at December 31, 1996 and September 30, 1997................................................. F-4
Statements of Operations for the Year Ended December 31, 1996 and the Nine Months Ended
September 30, 1996 (Unaudited) and 1997.................................................................. F-5
Statements of Stockholders' Equity for the Year Ended December 31, 1996 and the Nine Months Ended September
30, 1997................................................................................................. F-6
Statements of Cash Flows for the Year Ended December 31, 1996 and the Nine Months Ended September 30, 1996
(Unaudited) and 1997..................................................................................... F-7
Notes to Financial Statements.............................................................................. F-8
FINANCIAL STATEMENTS OF ORTHOPAEDIC ASSOCIATES OF BETHLEHEM, INC.
Report of Independent Auditors............................................................................. F-26
Balance Sheets at December 31, 1994 and 1995 and June 30, 1996............................................. F-27
Statements of Operations for the Years Ended December 31, 1994 and 1995 and the Six Months Ended June 30,
1996..................................................................................................... F-28
Statements of Stockholders' Equity for the Years Ended December 31, 1994 and 1995 and
the Six Months Ended June 30, 1996....................................................................... F-29
Statements of Cash Flows for the Years Ended December 31, 1994 and 1995 and the Six Months Ended June 30,
1996..................................................................................................... F-30
Notes to Financial Statements.............................................................................. F-31
FINANCIAL STATEMENTS OF SOUTHERN CALIFORNIA ORTHOPEDIC INSTITUTE MEDICAL GROUP
Report of Independent Auditors............................................................................. F-35
Balance Sheets at December 31, 1995 and October 31, 1996................................................... F-36
Statements of Operations and Changes in Partners' Capital for the Years Ended December 31, 1994 and 1995
and the Ten Months Ended October 31, 1996................................................................ F-37
Statements of Cash Flows for the Years Ended December 31, 1994 and 1995 and the Ten Months Ended October
31, 1996................................................................................................. F-38
Notes to Financial Statements.............................................................................. F-39
FINANCIAL STATEMENTS OF SOUTH TEXAS SPINAL CLINIC, P.A.
Report of Independent Auditors............................................................................. F-44
Balance Sheets at December 31, 1994 and 1995 and October 31, 1996.......................................... F-45
Statements of Operations for the Years Ended December 31, 1994 and 1995 and the Ten Months Ended October
31, 1996................................................................................................. F-46
Statements of Stockholders' Equity for the Years Ended December 31, 1994 and 1995 and
the Ten Months Ended October 31, 1996.................................................................... F-47
Statements of Cash Flows for the Years Ended December 31, 1994 and 1995 and the Ten Months Ended October
31, 1996................................................................................................. F-48
Notes to Financial Statements.............................................................................. F-49
FINANCIAL STATEMENTS OF TRI-CITY ORTHOPEDIC SURGERY MEDICAL GROUP, INC.
Report of Independent Certified Public Accountants......................................................... F-52
Balance Sheets at December 31, 1995 and 1996............................................................... F-53
Statements of Operations for the Years Ended December 31, 1995 and 1996.................................... F-54
Statements of Stockholders' Equity for the Years Ended December 31, 1995 and 1996.......................... F-55
Statements of Cash Flows for the Years Ended December 31, 1995 and 1996.................................... F-56
Notes to Financial Statements.............................................................................. F-57
</TABLE>
F-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<S> <C>
FINANCIAL STATEMENTS OF LAUDERDALE ORTHOPAEDIC SURGEONS
Report of Independent Certified Public Accountants......................................................... F-61
Balance Sheets at December 31, 1995 and 1996............................................................... F-62
Statements of Income and Change in Partners' Capital for the Years Ended December 31, 1995 and 1996........ F-63
Statements of Cash Flows for the Years Ended December 31, 1995 and 1996.................................... F-64
Notes to Financial Statements.............................................................................. F-65
FINANCIAL STATEMENTS OF FISHMAN AND STASHAK, M.D.'S, P.A. D/B/A GOLD COAST ORTHOPEDICS
Report of Independent Certified Public Accountants......................................................... F-69
Balance Sheets at December 31, 1995 and 1996............................................................... F-70
Statements of Income for the Years Ended December 31, 1995 and 1996........................................ F-71
Statements of Stockholders' Equity for the Years Ended December 31, 1995 and 1996.......................... F-72
Statements of Cash Flows for the Years Ended December 31, 1995 and 1996.................................... F-73
Notes to Financial Statements.............................................................................. F-74
FINANCIAL STATEMENTS OF SUN VALLEY ORTHOPAEDIC SURGEONS
Report of Independent Certified Public Accountants......................................................... F-78
Balance Sheet at December 31, 1996......................................................................... F-79
Statement of Operations and Changes in Partners' Capital for the Year Ended
December 31, 1996........................................................................................ F-80
Statement of Cash Flows for the Year Ended December 31, 1996............................................... F-81
Notes to Financial Statements.............................................................................. F-82
FINANCIAL STATEMENTS OF ORTHOPAEDIC SURGERY ASSOCIATES, P.A.
Report of Independent Certified Public Accountants......................................................... F-85
Balance Sheet at December 31, 1996......................................................................... F-86
Statement of Income for the Year Ended December 31, 1996................................................... F-87
Statement of Stockholders' Equity for the Year Ended December 31, 1996..................................... F-88
Statement of Cash Flows for the Year Ended December 31, 1996............................................... F-89
Notes to Financial Statements.............................................................................. F-90
FINANCIAL STATEMENTS OF BROWARD INSTITUTE OF ORTHOPAEDIC SPECIALTIES, P.A.
Report of Independent Certified Public Accountants......................................................... F-94
Balance Sheet at December 31, 1996......................................................................... F-95
Statement of Income for the Year Ended December 31, 1996................................................... F-96
Statement of Stockholders' Equity for the Year Ended December 31, 1996..................................... F-97
Statement of Cash Flows for the Year Ended December 31, 1996............................................... F-98
Notes to Financial Statements.............................................................................. F-99
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
BMJ Medical Management, Inc.
We have audited the accompanying balance sheets of BMJ Medical Management Inc.,
(the Company) as of December 31, 1996 and September 30, 1997, and the related
statements of operations, stockholders' equity, and cash flows for the year
ended December 31, 1996 and the nine month period ended September 30, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BMJ Medical Management, Inc. at
December 31, 1996 and September 30, 1997, and the results of its operations and
its cash flows for the year ended December 31, 1996 and the nine month period
ended September 30, 1997, in conformity with generally accepted accounting
principles.
ERNST & YOUNG, LLP
West Palm Beach, Florida
November 11, 1997
F-3
<PAGE>
BMJ MEDICAL MANAGEMENT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 1,439,000 $ 2,404,000
Accounts receivable.............................................................. 5,817,000 19,325,000
Due from physician groups........................................................ 426,000 --
Prepaid expenses and other current assets........................................ 29,000 42,000
------------ -------------
Total current assets........................................................ 7,711,000 21,771,000
Furniture, fixtures and equipment, net............................................. 2,142,000 3,877,000
Management services agreements, net of accumulated amortization of $30,000 at
December 31, 1996 and $254,000 at September 30, 1997............................. 3,790,000 14,302,000
Other assets....................................................................... 32,000 2,479,000
------------ -------------
Total assets....................................................................... $ 13,675,000 $ 42,429,000
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................. $ 149,000 $ 299,000
Accrued expenses................................................................. 366,000 2,456,000
Accrued salaries and benefits.................................................... 383,000 946,000
Due to physician groups.......................................................... 4,936,000 3,990,000
Shareholder notes payable........................................................ 40,000 894,000
Current portion of long-term debt and capital lease obligations.................. 18,000 2,208,000
------------ -------------
Total current liabilities................................................... 5,892,000 10,793,000
Long-term debt and capital lease obligations, less current portion................. 59,000 16,480,000
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock--Series A, $0.01 par value--999,999 shares
authorized, issued and outstanding............................................ 10,000 10,000
Convertible preferred stock--Series B, $0.01 par value--2,000,001 shares
authorized, issued and outstanding............................................ 20,000 20,000
Convertible preferred stock--Series C, $0.01 par value--254,999 shares
authorized, issued and outstanding............................................ -- 3,000
Convertible preferred stock--Series D, $0.01 par value--189,000 shares
authorized, 188,072 shares issued and outstanding............................. -- 2,000
Convertible preferred stock--Series E, $0.01 par value--1,300,025 shares
authorized, 741,669 shares issued and outstanding............................. -- 7,000
Convertible preferred stock Series A-1, B-1, D-1 and E-1, $0.01 par value--
4,489,025 shares authorized, none issued and outstanding...................... -- --
Common stock, $0.001 par value--15,000,000 shares authorized, 6,701,501 shares
issued and outstanding at December 31, 1996, 25,000,000 shares authorized,
10,048,482 shares issued and outstanding at September 30, 1997................ 7,000 10,000
Additional paid-in capital....................................................... 8,796,000 19,365,000
Accumulated deficit.............................................................. (1,109,000) (4,261,000)
------------ -------------
Total stockholders' equity......................................................... 7,724,000 15,156,000
------------ -------------
Total liabilities and stockholders' equity......................................... $ 13,675,000 $ 42,429,000
------------ -------------
------------ -------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
BMJ MEDICAL MANAGEMENT, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31 ENDED SEPTEMBER 30,
1996 ------------------------------
----------- 1996 1997
---- ----
(UNAUDITED)
<S> <C> <C> <C>
Practice revenues, net................................... $ 6,029,000 $ 674,000 $ 38,325,000
Less: amounts retained by physician groups............... 2,912,000 (336,000) (17,878,000)
----------- ------------ ------------
Management fee revenue................................... 3,117,000 338,000 20,447,000
Costs and expenses:
Medical support services............................... 2,844,000 343,000 17,934,000
General and administrative............................. 1,299,000 675,000 4,187,000
Depreciation and amortization.......................... 104,000 12,000 661,000
Interest expense (income), net......................... (21,000) (6,000) 817,000
----------- ------------ ------------
Total costs and expenses............................ 4,226,000 1,024,000 23,599,000
----------- ------------ ------------
Net loss................................................. $(1,109,000) $ (686,000) $ (3,152,000)
----------- ------------ ------------
----------- ------------ ------------
Net loss per share..................................... $ (0.09) $ (.06) $ (0.25)
----------- ------------ ------------
----------- ------------ ------------
Weighted average number of common shares outstanding..... 11,870,000 11,659,000 12,499,000
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
BMJ MEDICAL MANAGEMENT, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NUMBER SERIES A SERIES B SERIES C SERIES D SERIES E ADDITIONAL
OF PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED COMMON PAID-IN
SHARES STOCK STOCK STOCK STOCK STOCK STOCK CAPITAL
---------- --------- --------- --------- --------- --------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at inception (January
16, 1996).................. $ -- $ -- $ -- $ -- $ -- $ -- $ --
Initial issuance of
convertible preferred
stock...................... 3,000,000 10,000 20,000 -- -- -- -- 6,970,000
Issuance of common stock..... 1,175,000 -- -- -- -- -- 1,000 11,000
Issuance of common stock
in connection with
practice affiliation
agreements ................ 5,526,501 -- -- -- -- -- 6,000 1,815,000
Net loss..................... -- -- -- -- -- -- --
--------- --------- --------- --------- --------- ------- -----------
Balance at December 31,
1996....................... 10,000 20,000 -- -- -- 7,000 8,796,000
Issuance of convertible
preferred stock ........... 1,184,740 -- -- 3,000 2,000 7,000 -- 6,237,000
Issuance of common stock in
connection with practice
affiliation agreements..... 3,336,981 -- -- -- -- -- 3,000 3,687,000
Issuance of options to
purchase 460,000 shares of
common stock............... -- -- -- -- -- -- 391,000
Issuance of stock purchase
warrants for 254,165 shares
of common stock............ -- -- -- -- -- -- 254,000
Exercise of stock options.... 10,000
Net loss .................... -- -- -- -- -- -- --
--------- --------- --------- --------- --------- ------- -----------
Balance at September 30, 1997
........................... $10,000 $20,000 $ 3,000 $ 2,000 $ 7,000 $10,000 $19,365,000
--------- --------- --------- --------- --------- ------- -----------
--------- --------- --------- --------- --------- ------- -----------
<CAPTION>
ACCUMULATED
DEFICIT TOTAL
----------- -----------
<S> <C> <C>
Balance at inception (January
16, 1996).................. $ -- $ --
Initial issuance of
convertible preferred
stock...................... -- 7,000,000
Issuance of common stock..... -- 12,000
Issuance of common stock
in connection with
practice affiliation
agreements ................ -- 1,821,000
Net loss..................... (1,109,000 ) (1,109,000)
----------- -----------
Balance at December 31,
1996....................... (1,109,000 ) 7,724,000
Issuance of convertible
preferred stock ........... -- 6,249,000
Issuance of common stock in
connection with practice
affiliation agreements..... -- 3,690,000
Issuance of options to
purchase 460,000 shares of
common stock............... -- 391,000
Issuance of stock purchase
warrants for 254,165 shares
of common stock............ -- 254,000
Exercise of stock options....
Net loss .................... (3,152,000 ) (3,152,000)
----------- -----------
Balance at September 30, 1997
........................... $(4,261,000) $15,156,000
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
BMJ MEDICAL MANAGEMENT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, -------------------------
1996 1996 1997
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................................................... $(1,109,000) $ (686,000) $(3,152,000)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation......................................................... 74,000 5,000 414,000
Amortization of management services agreements and deferred
financing costs................................................... 30,000 7,000 247,000
Interest expense converted to preferred stock........................ -- -- 34,000
Compensation expense related to issuance of common stock options and
warrants.......................................................... -- -- 406,000
Changes in operating assets and liabilities:
Accounts receivable............................................... (449,000) -- (4,733,000)
Due from physician groups......................................... (426,000) (415,000) 426,000
Prepaid expenses and other current assets......................... 2,000 (27,000) 24,000
Accounts payable.................................................. 149,000 119,000 150,000
Accrued expenses.................................................. 366,000 211,000 2,090,000
Accrued salaries and benefits..................................... 383,000 120,000 563,000
----------- ---------- -----------
Net cash used in operating activities.................................. (980,000) (666,000) (3,531,000)
INVESTING ACTIVITIES
Purchases of furniture, fixtures and equipment......................... (697,000) (93,000) (559,000)
Payments for management services agreements............................ (206,000) -- (7,163,000)
Payments for deferred offering costs................................... -- -- (1,924,000)
Cash used for acquisition of non-cash assets of affiliated practices... (3,707,000) -- (10,406,000)
Payments for deposits and other assets................................. (22,000) -- (280,000)
----------- ---------- -----------
Net cash used in investing activities.................................. (4,632,000) (93,000) (20,332,000)
FINANCING ACTIVITIES
Proceeds from issuance of preferred stock.............................. 7,000,000 1,000,000 5,164,000
Proceeds from debt issuance............................................ -- -- 19,338,000
Payments on shrareholder notes payable................................. -- -- (130,000)
Proceeds from issuance of shareholder notes payable.................... 40,000 40,000 1,036,000
Proceeds from issuance of common stock................................. 11,000 12,000 --
Payment on capital lease............................................... -- -- (11,000)
Amounts due to physician groups........................................ -- -- (569,000)
----------- ---------- -----------
Net cash provided by financing activities.............................. 7,051,000 1,052,000 24,828,000
----------- ---------- -----------
Net increase in cash and cash equivalents.............................. 1,439,000 293,000 965,000
Cash and cash equivalents at beginning of period....................... -- -- 1,439,000
----------- ---------- -----------
Cash and cash equivalents at end of period............................. $ 1,439,000 $ 293,000 $ 2,404,000
----------- ---------- -----------
----------- ---------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid.......................................................... $ 9,000 $ 4,000 $ 633,000
----------- ---------- -----------
----------- ---------- -----------
Value of stock issued upon execution of management services
agreements........................................................... $ 1,822,000 $ 45,000 $ 3,690,000
----------- ---------- -----------
----------- ---------- -----------
Note issued upon execution of management services agreements........... $ -- $ -- $ 284,000
----------- ---------- -----------
----------- ---------- -----------
Noncash transactions from practice affiliations including accounts
receivable, management services agreements and due to/from
physicians........................................................... $ 4,905,000 $ 806,000 $ 3,597,000
----------- ---------- -----------
----------- ---------- -----------
Equipment under capital lease obligations.............................. $ 77,000 $ -- $ --
----------- ---------- -----------
----------- ---------- -----------
Short-term loans converted to preferred stock.......................... $ -- $ -- $ 1,000,000
----------- ---------- -----------
----------- ---------- -----------
Deferred financing cost related to the issuance of warrants............ $ -- $ -- $ 254,000
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
See accompanying notes.
F-7
<PAGE>
BMJ MEDICAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(INFORMATION PERTAINING TO SEPTEMBER 30, 1996 AND TO THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
BMJ Medical Management, Inc. (the Company), a Delaware corporation, is
engaged in operating and managing physician groups focusing exclusively on
musculoskeletal disease management, including ancillary services such as
ambulatory surgery centers, magnetic resonance imaging and rehabilitative
therapy. The Company manages physician groups under long-term management
services agreements (Management Services Agreements) with affiliated physician
groups located in various states. The Company may also acquire certain assets
under Asset Purchase Agreements, primarily accounts receivable, and furniture,
fixtures and equipment from these groups. The cost of these assets is determined
based on their appraised or net realizable value. The Company was incorporated
in Delaware in January 1996.
Under the Management Services Agreements, the Company provides a full range
of administrative services required for a physician group's day-to-day
nonmedical operations and employs substantially all of the nonmedical personnel
utilized by the group. The nonclinical services provided include, but are not
limited to, practice administration, practice support, data processing, business
office management including billing and collecting, marketing, accounting, the
provision of office space and equipment and the arrangement of group purchasing
discounts for medical and nonmedical supplies. The Company also assists the
physician group in the recruitment of additional physicians and negotiates
managed care contracts which must be approved by the group.
The terms of the Management Services Agreements are 40 years and
automatically renew for successive 5-year periods thereafter unless terminated
by one of the parties. As compensation for services provided by the Company, the
Company generally receives a percentage of the group's net collected revenue,
reimbursement of all nonmedical expenses of the practice incurred by the Company
in supporting the group, 66 2/3% of the cost savings the Company is able to
achieve through its purchasing power and a percentage of the profits from new
ancillary services.
The laws of many states, including some of the states in which the Company
presently has Management Services Agreements, prohibit business corporations
from practicing medicine or exercising control over the medical judgments or
decisions of physicians and from engaging in certain financial arrangements with
physicians. The Company intends that, pursuant to the Management Services
Agreements, it will not exercise any responsibility on behalf of affiliated
physicians that could be construed as affecting the practice of medicine.
Accordingly, the Company believes that its operations do not violate applicable
state laws relating to the corporate practice of medicine.
BASIS OF PRESENTATION
The Company does not consolidate the operating results and accounts of the
physician groups since it does not own or control the groups it manages. The
Company believes that the Management Services Agreements provide it with the
preponderance of the net profits of the medical services furnished by the
groups. Consequently, the Company presents physician groups' revenue less
amounts retained by the physician groups as management fee revenue in the
accompanying statements of operations.
PRACTICE REVENUES, NET
Practice revenues, net, represent the gross revenue earned from patients by
the physician groups and one ambulatory surgery center, net of contractual and
other adjustments and uncollectible amounts. Contractual adjustments typically
result from differences between the physician groups' established rates for
services and the amounts paid by government sponsored health care programs and
other insurers.
F-8
<PAGE>
BMJ MEDICAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
There are no material claims, disputes, or other unsettled matters that
exist to management's knowledge concerning third-party reimbursements. In
addition, management believes there are no retroactive adjustments that would be
material to the financial statements. The Company estimates that approximately
15% and 17% of practice revenues, net, were received under government sponsored
health care programs (principally, the Medicare and Medicaid programs) during
the year ended December 31, 1996 and the nine months ended September 30, 1997,
respectively. The physician groups have numerous agreements with managed care
and other organizations to provide physician services based on negotiated fee
schedules.
Laws and regulations governing the Medicare and Medicaid programs are
complex and subject to interpretation. The Company believes that it is in
compliance with all applicable laws and regulations and is not aware of any
pending or threatened investigations involving allegations of potential
wrongdoing. While no such regulatory inquiries have been made, compliance with
such laws and regulations can be subject to future government review and
interpretation as well as significant regulatory action including fines,
penalties, and exclusion from the Medicare and Medicaid programs.
MANAGEMENT FEE REVENUE
Management fee revenue represents practice and ambulatory surgery center
net revenue less amounts retained by the physician groups.
The Company's management fee revenue is comprised of three components: (i)
percentage of the physician groups' net collected revenue (generally ranging
from 10%-15%), plus (ii) 100% of the non-physician affiliated practice expenses
(generally ranging from 45%-55% of the physician groups' net collected revenue),
plus (iii) 66 2/3% of the cost savings the Company is able to achieve through
its purchasing power (generally related to medical malpractice insurance,
property and liability insurance, group benefits and certain major medical
supplies). The portion of the management fee revenue that represents a
percentage of net collected revenue is dependent upon the physician groups'
revenue which must be billed and collected.
Management fee revenue included in the accompanying statements of
operations is comprised of the following:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, ---------------------------
1996 1996 1997
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Component based upon percentage of physician
groups' net collected revenues.................. $1,079,000 $338,000 $ 3,547,000
Reimbursement of non-physician affiliated practice
expenses........................................ 2,038,000 -- 16,900,000
------------ ------------ -----------
Management fee revenue............................ $3,117,000 $338,000 $20,447,000
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
For the year ended December 31, 1996, three affiliated practices; Southern
California Orthopedic Institute Medical Group (SCOI), South Texas Spinal Clinic,
P.A. (STSC) and Lehigh Valley Bone, Muscle and Joint Group, LLC (LVBMJ)
comprised approximately 52%, 23%, and 25%, respectively, of management fee
revenue. For the nine months ended September 30, 1997, SCOI, STSC and Lauderdale
Orthopaedic Surgeons (LOS) comprised approximately 42%, 13%, and 11%,
respectively, of management fee revenue.
COSTS AND EXPENSES
Medical support services represent costs incurred by the Company relative
to the operations of the physician groups including non-physician personnel
salaries and benefits, medical supplies, malpractice insurance premiums,
building and equipment rental expense, general and administrative expenses,
supplies, maintenance and repairs, insurance, utilities and other indirect
expenses.
F-9
<PAGE>
BMJ MEDICAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
General and administrative expenses primarily represent the salaries of
corporate headquarters personnel, rent, travel, and other administrative
expenses.
CASH AND CASH EQUIVALENTS
Cash in excess of daily requirements invested in short-term investments
with maturities of three months or less is considered to be cash equivalents for
financial statement purposes. Deposits in banks may exceed the amount of
insurance provided on such deposits. The Company performs reviews of the credit
worthiness of its depository banks. The Company has not experienced any losses
on its deposits of cash.
ACCOUNTS RECEIVABLE
Accounts receivable principally represent receivables purchased from the
medical groups for medical services provided by the physician groups. Risk of
collection is borne by the physician groups and any amounts paid by the Company
for accounts receivable that are uncollected are reimbursed to the Company by
the physician groups.
FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment are stated at cost. Depreciation is
calculated using the straight-line method over the estimated useful lives of the
assets which range from three to seven years. Routine maintenance and repairs
are charged to expense as incurred and major renovations or improvements are
capitalized.
MANAGEMENT SERVICES AGREEMENTS
Management Services Agreements include consideration (cash, common stock or
other consideration) paid to the physician groups for entering into Management
Services Agreements, legal and accounting fees and other similar transaction
costs. The Management Services Agreements are for a term of 40 years and six
agreements are subject to rescission by a physician group on the seventh
anniversary. The Company amortizes the costs of entering into Management
Services Agreements over periods ranging from seven to 25 years. Shares issued
to physician practices that are subject to performance criteria are accounted
for as compensation.
The Company periodically reviews its intangible assets to assess
recoverability and a charge will be recognized in the statement of operations if
a permanent impairment is determined to have occurred. Recoverability of
intangibles is determined based on undiscounted future operating cash flows from
the related business unit or activity. The amount of impairment, if any, would
be measured based on discounted future operating cash flows using a discount
rate reflecting the Company's average cost of funds. The assessment of the
recoverability of intangible assets will be affected if estimated future
operating cash flows are not achieved. The Company does not believe that any
impairment has occurred at December 31, 1996 or September 30, 1997.
DUE TO/FROM PHYSICIAN GROUPS
Due from physician groups consists of non-interest bearing short-term
advances due to the Company.
Due to physician groups represents cash consideration related to the
Management Services Agreements that is payable without interest at the earlier
of the consummation of an Initial Public Offering of the Company's common stock
or the one year anniversary of the execution of the Management Services
Agreements as well as amounts due to the physician groups related to the ongoing
monthly purchases of accounts receivable.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-10
<PAGE>
BMJ MEDICAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
INTERIM FINANCIAL STATEMENTS
The interim financial statements as of September 30, 1996 and for the nine
month period then ended and the related disclosures are unaudited. In the
opinion of management, these statements have been prepared on the same basis as
the audited financial statements and include all normal and recurring
adjustments necessary for a fair presentation of the Company's financial
position, results of operations and cash flows. The results of operations for
the nine months ended September 30, 1997 are not necessarily indicative of the
results of operations that may be expected for the entire year ending December
31, 1997.
ACCOUNTING FOR STOCK BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees
primarily with an exercise price equal to the fair value of the shares on the
date of grant. The Company accounts for these stock option grants in accordance
with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees, and accordingly, generally recognizes no compensation
expense for stock options granted.
Under the Company's stock option plans, the Company may grant stock options
for a fixed number of shares to independent consultants and contractors
primarily with an exercise price equal to the fair value of the shares on the
date of grant. The Company accounts for these stock option grants using the fair
value method of FASB Statement No. 123 Accounting for Stock-Based Compensation.
The fair value for these options is estimated at the date of grant using a stock
option pricing model and recognized as compensation cost.
NET LOSS PER SHARE
For the year ended December 31, 1996, and the nine months ended September
30, 1996 and 1997, pursuant to the Securities and Exchange Commission's Staff
Accounting Bulletins, common shares and common equivalent shares issued at
prices below the estimated public offering price during the 12 months
immediately preceding the date of the proposed initial filing of the
registration statement, using the treasury stock method, have been included in
the calculation of common shares and common share equivalents as if they were
outstanding for all periods presented even when the effect is antidilutive.
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share.
SFAS No. 128, which applies to entities with publicly held common stock,
simplifies the standards for computing earnings per share previously required in
APB Opinion No. 15, Earnings per Share, and makes them comparable to
international earnings per share standards. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods; earlier adoption is not permitted. Management is
currently reviewing the provisions of SFAS No. 128, and does not believe that
adoption of this new accounting pronouncement will have a material impact on the
calculation and presentation of earnings per share due to the antidilutive
effect of the Company's common stock equivalents.
FINANCIAL INSTRUMENTS
The carrying amount of financial instruments including cash and cash
equivalents, accounts receivable, and accounts payable approximate fair value as
of December 31, 1996 and September 30, 1997. The carrying amounts of the
Company's borrowings approximate their fair value due to the recent issuance of
such borrowings which represents current market value.
2. PRACTICE AFFILIATIONS
Effective July 1, 1996, the Company entered into an affiliation transaction
with Lehigh Valley Bone, Muscle and Joint Group, L.L.C. a Pennsylvania limited
liability company (LVBMJ), under which the Company would receive as a management
fee 50% of the net collected revenues of LVBMJ and would be responsible for all
the clinic overhead expenses (medical support services). Under the terms of the
Amended and Restated Management
F-11
<PAGE>
BMJ MEDICAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. PRACTICE AFFILIATIONS--(CONTINUED)
Services Agreement between LVBMJ and the Company, effective July 1, 1997 (the
LVBMJ Management Services Agreement), the Company paid $320,000 in cash, issued
450,000 shares of common stock (effective July 1, 1996) recorded at $0.10 per
share and 68,031 shares of common stock (effective July 1, 1997) recorded at
$1.20 per share, based on independent valuations, and options to purchase 30,000
shares of common stock representing consideration of $126,637 in connection with
this transaction. Effective July 1, 1997, the Company and LVBMJ amended and
restated their agreement to adjust the management fee to 10% of net collected
revenues plus reimbursement of clinic overhead expenses. The aggregate
consideration of $461,186, including transaction costs of $14,549, has been
allocated as follows: furniture, fixtures and equipment--$50,000, and Management
Services Agreement--$411,186. The LVBMJ Management Services Agreement is being
amortized over 25 years. The LVBMJ Management Services Agreement provides that
the Company may be required to issue more shares of common stock as additional
consideration during 1998. The total number of shares to be issued will depend
on actual collections of the practice during a specified twelve month period.
The value of any subsequently issued shares will increase the cost of the LVBMJ
Management Services Agreement.
On November 22, 1996, the Company entered into an Asset Purchase Agreement
and a Management Services Agreement, effective November 1, 1996, (SCOI
Management Services Agreement) with Southern California Orthopedic Institute
Medical Group, California general partnership (SCOI), in exchange for $5,930,897
in cash and the issuance of 4,000,000 shares of common stock recorded at $0.35
per share, based on an independent valuation, representing consideration of
$1,400,000. The SCOI Management Services Agreement calls for management fees to
be earned by the Company equal to 3 1/3% of the net collected revenues until
certain conditions are met at which time the management fee will increase to
6 2/3% of net collected revenues until the filing of a preliminary prospectus
for the initial public offering of the Company's common stock with the
Securities and Exchange Commission at which time the management fee will
increase to 10% of the net collected revenues. For the period from November 1,
1996 through September 30, 1997, the Company recognized management fees for SCOI
of 3 1/3% of net collected revenues. The number of shares issued in connection
with this transaction, which exceed 3,000,000, are subject to recalculation
effective November 1, 1997 and payable at a future date upon review of the
calculation by the SCOI physicians. On April 1, 1997, the Company entered into a
Management Services Agreement with the Center for Orthopedic Surgery, Inc., a
California corporation (COSI), owned by SCOI physicians, in exchange for 550,000
shares of common stock recorded at $0.40 per share, based on an independent
valuation, representing consideration of $220,000. The number of shares issued
in connection with this transaction are also subject to recalculation at the
later of the SCOI recalculation or January 1, 1998. The aggregate consideration
of $7,671,999, including transaction costs of $121,102, has been allocated as
follows: net accounts receivable--$4,448,000, furniture, fixtures and
equipment--$1,441,920, supplies--$30,897, deposits--$10,080 and Management
Services Agreements--$1,741,102. The Management Services Agreements are being
amortized over 25 years. In accordance with the recalculation provisions, the
Company expects to issue approximately 900,000 additional shares of common stock
to SCOI physicians for both the SCOI and COSI recalculations, the exact amount
of which will be determined in the fourth quarter of 1997. These shares and
1,000,000 of the original 4,000,000 shares issued in November 1996 in connection
with the SCOI transaction represent consideration based upon performance and
will be accounted for as non-cash compensation expense. Accordingly, the Company
will incur a charge to earnings in the fourth quarter of 1997 ranging from
$10,000,000 to $13,000,000 relating to the resolution of this contingency and
the final settlement of the recalculation provisions.
On December 23, 1996, the Company entered into an Asset Purchase Agreement
and a Management Services Agreement, effective November 1, 1996, (STSC
Management Services Agreement) with South Texas Spinal Clinic, P.A., a Texas
professional association (STSC), in exchange for the issuance of 1,076,501
shares of common stock recorded at $0.35 per share, based on an independent
valuation, representing consideration of $376,775 and cash of $3,065,990. The
aggregate consideration of $3,484,231, including transaction costs of $41,466
has been allocated as follows: net accounts receivable--$1,703,826, furniture,
fixtures and equipment--
F-12
<PAGE>
BMJ MEDICAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. PRACTICE AFFILIATIONS--(CONTINUED)
$425,000, supplies--$21,328 and Management Services Agreement--$1,334,077. The
STSC Management Services Agreement permits STSC and individual physicians to
rescind the Affiliation Transaction on November 1, 2003. In the event of a
rescission of the transaction, the transaction will be unwound, with the assets
(other than the accounts receivable) acquired by the Company being returned to
STSC, and the purchase price paid therefore being returned to the Company. In
addition, the physician owners and the employed physicians, if any, who received
common stock of the Company in connection with the transaction will be required
to return such capital stock to the Company. The STSC Management Services
Agreement is being amortized over 7 years.
Effective April 1, 1997, the Company entered into an Asset Purchase
Agreement and a Management Services Agreement (Tri-City Management Services
Agreement) with Tri-City Orthopedic Surgery Medical Group, Inc., a California
corporation (Tri-City), and two of its affiliates in exchange for $948,200 in
cash, the issuance of 402,723 shares of common stock recorded at $0.40 per
share, based on an independent valuation, representing consideration of
$161,089. The aggregate consideration of $1,162,598, including transaction costs
of $53,309, has been allocated as follows: net accounts receivable--$519,000,
furniture, fixtures and equipment-- $167,590, Management Services
Agreement--$476,008. The Tri-City Management Services Agreement is being
amortized over 25 years.
Effective April 1, 1997, the Company entered into an Asset Purchase
Agreement and a Management Services Agreement (LOS Management Services
Agreement) with Lauderdale Orthopaedic Surgeons, a Florida partnership, in
exchange for $2,698,359 in cash and the issuance of 465,962 shares of common
stock recorded at $0.40 per share, based on an independent valuation,
representing consideration of $186,385. The aggregate consideration of
$3,020,124, including transaction costs of $135,380, has been allocated as
follows: accounts receivable--$2,000,000, furniture, fixtures and
equipment--$103,915 Management Services Agreement-- $916,209. The LOS Management
Services Agreement is being amortized over 25 years.
Effective June 1, 1997, the Company entered into an Asset Purchase
Agreement and a Management Services Agreement (GCO Management Services
Agreement) with Fishman and Stashak, M.D.'s, P.A. (GCO), a Florida professional
association, (d/b/a Gold Coast Orthopedics), Clive Segil, M.D. (Segil), a
California professional corporation, and H. Leon Brooks, M.D. (Brooks), a
California professional corporation, in exchange for an aggregate amount of
$3,769,172 in cash, the issuance of 394,504 shares of common stock recorded at
$1.15 per share, based on an independent valuation, representing consideration
of $453,680. The aggregate consideration of $4,535,479, including transaction
costs of $312,627, has been allocated as follows: accounts receivable--
$1,759,000, furniture, fixtures and equipment--$194,150, supplies--$3,650 and
Management Services Agreement--$2,578,679. The GCO Management Services Agreement
is being amortized over 25 years and the Management Services Agreements for
Segil and Brooks over 15 years. The GCO agreement provides that the Company may
be required to issue more shares of common stock as additional consideration
during 1998. The total number of shares to be issued will depend on actual
collections of the practice during a specified twelve month period. The value of
any subsequently issued shares will be allocated to the Management Service
Agreements.
Effective July 1, 1997, the Company entered into three separate Asset
Purchase Agreements and Management Services Agreements with Swanson Orthopedic
Medical Corporation, a professional corporation, Randy C. Watson, M.D., a
professional corporation and Lake Tahoe Sports Medicine Center, a medical
corporation, all located in South Lake Tahoe, California, in exchange for an
aggregate amount of $986,000 in cash and the issuance of 150,708 shares of
common stock recorded at $1.20 per share, based on an independent valuation,
representing consideration of $180,850. The aggregate consideration of
$1,431,806, including transaction costs of $264,956, has been allocated as
follows: accounts receivable--$726,000, furniture, fixtures
F-13
<PAGE>
BMJ MEDICAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. PRACTICE AFFILIATIONS--(CONTINUED)
and equipment--$67,200, supplies--$10,000, and Management Services
Agreement--$628,606. The Management Services Agreements are being amortized over
25 years.
Effective July 1, 1997, the Company entered into two separate Asset
Purchase Agreements and Management Services Agreements with Sun Valley
Orthopaedic Surgeons, an Arizona general partnership (Sun Valley) and Robert O.
Wilson, M.D., P.C., an Arizona professional corporation, both located in Sun
City, Arizona, in exchange for an aggregate amount of $616,125 in cash and the
issuance of 197,865 shares of common stock recorded at $1.20 per share, based on
an independent valuation, representing consideration of $237,438. Sun Valley has
the right to receive additional consideration if the fair market value of the
Company's common stock, as determined on July 1, 1998, is less than $6.50. The
additional consideration would be determined by multiplying the per share dollar
amount below $6.50 by 50,845 shares and would be payable in full in cash no
later than July 31, 1998. The aggregate consideration of $1,244,520, including
transaction costs of $121,478, has been allocated as follows: accounts
receivable--$457,000, furniture, fixtures and equipment--$67,500,
supplies--$7,000, deposits--$4,564, and Management Services Agreement--$708,456
(including the additional consideration of $269,479). The Management Services
Agreements are being amortized over 25 years.
Effective July 1, 1997, the Company entered into two separate Asset
Purchase Agreements and Management Services Agreements with Stockdale Podiatry
Group, Inc., a California professional corporation, and John C. Zimmerman,
D.P.M., both located in Bakersfield, California, in exchange for an aggregate
amount of $1,032,842 in cash, a contractual obligation to pay John C. Zimmerman,
M.D. $78,858 in cash at a future specified date and the issuance of 169,493
shares of common stock recorded at $1.20 per share, based on an independent
valuation, representing consideration of $203,392. The aggregate consideration
of $1,399,466, including transaction costs of $84,374, has been allocated as
follows: accounts receivable--$637,200, furniture, fixtures and equipment--
$85,207, supplies--$10,000, and Management Services Agreement--$667,059. The
Management Services Agreements are being amortized over 25 years.
Effective July 1, 1997, the Company entered into an Asset Purchase
Agreement and a Management Services Agreement (Kramer Management Services
Agreement) with Kramer & Maehrer, L.L.C., a Pennsylvania limited liability
company, in exchange for $45,981 in cash and the issuance of 72,600 shares of
common stock recorded at $1.20 per share, based on an independent valuation,
representing consideration of $87,120. The aggregate consideration of $136,127,
including transaction costs of $3,026, has been allocated as follows: furniture,
fixtures and equipment--$45,981, Management Services Agreement--$90,146. The
Kramer Management Services Agreement is being amortized over 25 years.
Effective July 1, 1997, the Company entered into an Asset Purchase
Agreement and a Management Services Agreement (SAB Management Services
Agreement) with San Antonio Bone and Joint Clinic, P.A., a Texas professional
association, in exchange for an aggregate amount of $288,978 in cash and the
issuance of 38,229 shares of common stock recorded at $1.20 per share, based on
an independent valuation, representing consideration of $45,875. The aggregate
consideration of $396,674, including transaction costs of $61,821, has been
allocated as follows: accounts receivable--$92,289, furniture, fixtures and
equipment--$175,801, supplies--$649, and Management Services
Agreement--$127,935. The SAB Management Services Agreement is being amortized
over 25 years.
Effective August 1, 1997, the Company entered into an Asset Purchase
Agreement and a Management Services Agreement (PM & R Management Services
Agreement) with Physical Medicine and Rehabilitation Associates, Inc., a Florida
corporation, in exchange for $830,166 in cash and the issuance of 126,923 shares
of common stock recorded at $2.00 per share, based on an independent valuation,
representing consideration of $253,846. The aggregate consideration of
$1,206,581, including transaction costs of $122,569, has been allocated as
follows: accounts receivable--$465,000, furniture, fixtures and
equipment--$165,000, deposits--$5,166, and Management Services
Agreement--$571,415. The PM & R Management Services Agreement is being amortized
over 25 years.
F-14
<PAGE>
BMJ MEDICAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. PRACTICE AFFILIATIONS--(CONTINUED)
Effective August 1, 1997, the Company entered into separate Asset Purchase
Agreements with Broward Orthopaedic Specialists, Inc., a Florida corporation
(Broward), Terence Matthews, M.D. P.A., Wylie Scott, M.D. P.A. and Mitchell S.
Seavey, M.D. and a Management Services Agreement with Broward (Broward
Management Services Agreement), in exchange for $3,938,996 in cash, a promissory
note issued to Dr. Seavey for $283,502 and the issuance of 625,768 shares of
common stock recorded at $2.00 per share, based on an independent valuation,
representing consideration of $1,251,536. The aggregate consideration of
$5,781,707, including transaction costs of $307,673, has been allocated as
follows: accounts receivable--$1,685,000, furniture, fixtures and
equipment--$420,000 and Management Services Agreement--$3,676,707. The Broward
Management Services Agreement is being amortized over 25 years.
Effective August 1, 1997, the Company entered into an Asset Purchase
Agreement and a Management Services Agreement (Abrahams Management Services
Agreement) with Michael A. Abrahams, M.D. P.A., a Florida professional
association, in exchange for $620,004 in cash and the issuance of 95,384 shares
of common stock recorded at $2.00 per share, based on an independent valuation,
representing consideration of $190,768. The aggregate consideration of $857,388,
including transaction costs of $46,616, has been allocated as follows: accounts
receivable--$285,000, furniture, fixtures and equipment--$47,500, and Management
Services Agreement--$524,888. The Abrahams Management Services Agreement is
being amortized over 25 years.
Effective September 1, 1997, the Company entered into an Asset Purchase
Agreement and a Management Services Agreement (Beitler Management Services
Agreement) with Jeffrey Beitler, M.D. P.A., a Florida professional corporation,
in exchange for $275,000 in cash and the issuance of 36,492 shares of common
stock recorded at $2.25 per share, based on an independent valuation,
representing consideration of $82,107. The aggregate consideration of $377,107,
including transaction costs of $20,000, has been allocated as follows: accounts
receivable--$200,000, furniture, fixtures and equipment--$35,000, and Management
Services Agreement--$142,107. The Beitler Management Services Agreement is being
amortized over 25 years.
In October 1997, the Company entered into an Asset Purchase Agreement and a
Management Services Agreement (OSA Management Services Agreement) with
Orthopaedic Surgery Associates, P.A., a Florida professional corporation (OSA)
in exchange for $4,396,250 in cash, issuance of a promissory note for
$2,377,701, bearing interest at 8.5%, and the issuance of 310,546 shares of
common stock recorded at $3.35 per share, based on an independent valuation,
representing consideration of $1,040,329. The aggregate consideration of
$8,147,379 including transaction costs of $333,099, has been allocated as
follows: accounts receivable-- $2,000,000, furniture, fixtures and
equipment--$500,000, and Management Services Agreement--$5,647,379. The OSA
Management Services Agreement is being amortized over 25 years.
In October 1997, the Company entered into an Asset Purchase Agreement and a
Management Services Agreement (LOM Management Services Agreement) with
Lighthouse Orthopaedic Management Group, Inc (LOM), a Florida corporation, in
exchange for the issuance of promissory notes for $3,899,930, bearing interest
at 8.5% and the issuance of 271,908 shares of common stock recorded at $3.35 per
share, based on the independent valuation, representing consideration of
$910,892. The aggregate consideration of $5,029,130, including transaction costs
of $218,308, has been allocated as follows: accounts receivable--$1,300,000
furniture, fixtures, and equipment--$250,000, and Management Services
Agreement--$3,479,130. The LOM Management Services Agreement is being amortized
over 25 years.
In October 1997, the Company entered into an Asset Purchase Agreement and a
Management Services Agreement (BIOS Management Services Agreement) with Broward
Institute of Orthopaedic Specialties, P.A., a Florida professional association
(BIOS), in exchange for $119,311 in cash, the issuance of promissory notes for
$3,396,252, bearing interest at 8%, and the issuance of 255,237 shares of common
stock recorded at $3.35 per share, based on an independent valuation,
representing consideration of $855,044. The aggregate consideration of
$4,387,357, including transaction costs of $16,750, has been allocated as
follows: advances--$800,000,
F-15
<PAGE>
BMJ MEDICAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. PRACTICE AFFILIATIONS--(CONTINUED)
furniture, fixtures, and equipment--$281,197, supplies--$61,189,
deposits--$37,966 and Managements Services Agreement--$3,207,005. The BIOS
Management Services Agreement is being amortized over 25 years.
In October 1997, the Company entered into a Management Services Agreement
(Valley Management Services Agreement) with Valley Sports & Arthritis Surgeons,
P.C., a Pennsylvania professional corporation (Valley), in exchange for a
promissory note of $897,727, bearing interest at 8.5% and the issuance of
503,250 shares of common stock recorded at $3.35 per share, based on an
independent valuation, representing consideration of $1,685,888. The aggregate
consideration of $2,583,615 has been allocated as follows: accounts
receivable--$630,000, furniture, fixtures, and equipment--$120,833,
supplies--$35,000, and Managements Services Agreement--$1,797,782. The Valley
Management Services Agreement is being amortized over 25 years.
In October 1997, the Company acquired Orthopaedic Management Network, Inc.,
an Arizona corporation, in exchange for $63,000 in cash, the assumption of
$809,332 in accounts payable and accrued liabilities and the issuance of 57,036
shares of common stock recorded at $3.35 per share, based on independent
valuation, representing consideration of $191,071. The aggregate purchase price
of $1,063,403 has been allocated to a Management Services Agreement which is
being amortized over 25 years.
Effective November 1, 1997, the Company entered into a Management Services
Agreement with New Jersey Orthopedic Associates, P.A., a New Jersey professional
association. Additionally, the Company entered into an Asset Purchase Agreement
with Orthopedic Associates of New Jersey, a New Jersey professional association.
The aggregate consideration consisted of $1,029,194 in cash, issuance of a
promissory note for $411,680, bearing interest at 8.0%, and the issuance of
95,002 shares of common stock recorded at $5.00 per share representing
consideration of $475,010. The aggregate consideration of $1,915,884 has been
allocated as follows: furniture, fixtures and equipment--$75,000, and Management
Services Agreement--$1,840,884. The Management Services Agreement is being
amortized over 25 years.
The Management Services Agreements are subject to termination in the event
of (i) bankruptcy of the Company or the medical practice; (ii) default in any
material respect in the performance of either parties' obligations under the
Management Services Agreement; (iii) representations and warranties made by
either party are untrue or misleading in any material respect; (iv) the medical
practice is excluded from the Medicare or Medicaid programs; or (v) either party
determines that the structure of the Management Services Agreement violates any
state or federal laws or regulations existing at such time and that an amendment
to the Management Services Agreement will be unable to correct such defect. Upon
termination of the Management Services Agreement, the transaction will be
unwound with the assets (other than accounts receivable) acquired by the Company
being returned to the physician group and the purchase price paid, therefore,
being returned to the Company.
The cost to enter into the Management Services Agreements and acquire the
assets, including transaction costs, was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Cost of acquiring the Management Services Agreements........... $ 3,820,000 $ 14,556,000
Accounts receivable............................................ 6,152,000 14,977,000
Furniture, fixtures and equipment.............................. 1,867,000 3,492,000
Other.......................................................... 62,000 103,000
------------ -------------
Total................................................... $ 11,901,000 $ 33,128,000
------------ -------------
------------ -------------
</TABLE>
F-16
<PAGE>
BMJ MEDICAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Office, computer, and telephone equipment....................... $ 999,000 $ 2,105,000
Medical equipment............................................... 659,000 1,265,000
Furniture and fixtures.......................................... 558,000 806,000
Construction-in-progress, ambulatory surgery centers............ -- 189,000
Less: accumulated depreciation.................................. 74,000 488,000
------------ -------------
Furniture, fixtures and equipment, net.......................... $2,142,000 $ 3,877,000
------------ -------------
------------ -------------
</TABLE>
4. AMOUNTS DUE TO PHYSICIAN GROUPS
Amounts due to physician groups at December 31, 1996 and September 30, 1997
consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------- -------------
<S> <C> <C>
Amounts due for patient receivables, net........................ $ 1,064,000 $ 1,241,000
Amounts due as consideration for management services agreements,
excluding promissory notes, due upon closing of initial public
offering...................................................... 3,872,000 2,749,000
------------- -------------
$ 4,936,000 $ 3,990,000
------------- -------------
------------- -------------
</TABLE>
5. PROFESSIONAL LIABILITY
The Company and its affiliated physician practices are insured with respect
to medical malpractice risks on either an occurrence-rate or a claims-made
basis. Management is not aware of any claims against it or its affiliated
physician practices which might have a material impact on the Company's
financial position or results of operations.
6. LEASES
The Company is obligated under operating and capital lease agreements for
offices and certain equipment which have terms ranging from three to ten years
and are considered reimbursable to the Company under the terms of the
Agreements. In some circumstances, these lease arrangements are with entities
owned or controlled by physician stockholders. Future minimum payments under
noncancelable capital and operating leases with lease terms in excess of one
year at September 30, 1997, are summarized as follows:
<TABLE>
<CAPTION>
CAPITAL
OPERATING EQUIPMENT
LEASES LEASES
---------- ---------
<S> <C> <C>
1998................................................................ $1,485,000 $20,750
1999................................................................ 1,305,000 20,750
2000................................................................ 1,077,000 20,750
2001................................................................ 947,000 20,750
2002................................................................ 568,000 1,700
Thereafter.......................................................... 3,477,000 --
---------- ---------
Total minimum lease obligations..................................... $8,859,000 84,700
----------
----------
Less amount representing interest................................... 19,000
---------
Present value of minimum lease obligations.......................... $65,700
---------
---------
</TABLE>
Rent expense for the year ended December 31, 1996 and the nine months ended
September 30, 1996 and 1997 under all operating leases was approximately
$602,000, $90,000 and $1,333,000, respectively.
F-17
<PAGE>
BMJ MEDICAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. LEASES--(CONTINUED)
The Company has assumed leases between the affiliated medical practices and
entities controlled by equity owners in the related practices. Amounts charged
to expense for these leases were $193,000 for the year ended December 31, 1996,
$73,000 and $894,000 for the nine months ended September 30, 1996 and 1997,
respectively. The commitments under these leases are included above.
On August 1, 1997, in connection with a $5,000,000 loan (see Note 10) the
Company entered into an agreement (the Master Lease Agreement) with the lender
pursuant to which the lender agreed to purchase and lease certain equipment to
the Company on the terms and conditions contained in the Master Lease Agreement.
No transactions have occurred with respect to the Master Lease Agreement as of
November 30, 1997. In connection with the Master Lease Agreement, the Company
issued to the lender a warrant to purchase up to 5,000 shares of the Company's
Series E Preferred Stock at a price per share equal to $6.00. This warrant is
exercisable for a period of 7 years or 3 years from the effective date of the
Company's initial public offering, whichever is longer. The fair value per share
for this warrant based on the Black-Scholes valuation method is $1.03. In
November 1997, the Master Lease Agreement was increased and an additional 10,000
warrants were issued for the purchase of Series E Preferred Stock at a price per
share equal to $6.00.
7. STOCK OPTION PLAN
On May 6, 1996, and subsequently amended on May 30, 1997, the Company's
Board of Directors approved the 1996 Stock Option Plan (the Option Plan), which
provides for the granting of options to purchase up to 2,000,000 shares of the
Company's common stock. Both incentive stock options and nonqualified stock
options may be issued under the provisions of the Option Plan. Employees of the
Company and any future subsidiaries, members of the Board of Directors,
independent consultants and contractors and the physicians employed by the
medical groups with which the Company is affiliated through the Agreements are
eligible to participate in the Option Plan, which will terminate no later than
May 6, 2006. The granting and vesting of options under the Option Plan are
authorized by the Company's Board of Directors or a committee of the Board of
Directors. Under the terms of the Option Plan, incentive stock options vest pro
rata over four years, except for options covering 15,000 shares which vest at
the completion of an initial public offering of the Company's common stock and
have an exercise price of $0.35 per share, the fair value of the Company's
common stock as determined by an independent valuation, and expire ten years
from the date of grant. The exercise price of the options granted is generally
the fair market value at the date of grant. None of the incentive stock options
were exercisable as of December 31, 1996.
During 1997, the Company granted stock options to employees for the
purchase of 460,000 common shares at exercise prices ranging from $0.01 to $2.00
per share. In accordance with the provisions of the option plan, the options
vest over a four year period. During 1997, the Company modified the vesting
terms of the options such that these options vest immediately, resulting in
compensation expense of $391,000 based on a fair value ranging from $0.35 to
$2.25 per share as determined by independent valuations.
Pro forma information regarding net income and earnings per share has been
determined as if the Company had accounted for its employee stock options under
the fair value method of FASB Statement No. 123, Accounting for Stock-Based
Compensation. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1996 and the nine months ended September 30,
1997: risk-free interest rate of 6%; dividend yield of 0%; volatility factor of
the expected market price of the Company's common stock of .68; and a
weighted-average expected option life of four years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because
F-18
<PAGE>
BMJ MEDICAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. STOCK OPTION PLAN--(CONTINUED)
changes in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
Information regarding these option plans is as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Options outstanding at inception...................................... -- $ --
Granted............................................................. 155,000 0.19
Exercised........................................................... -- --
Canceled............................................................ -- --
---------
Options outstanding at December 31, 1996.............................. 155,000 0.19
Granted............................................................. 1,178,000 0.42
Exercised........................................................... (10,000) 0.01
Canceled............................................................ (90,000) 0.28
---------
Options outstanding at September 30, 1997............................. 1,233,000 $ 0.39
--------- --------
--------- --------
Exercisable at December 31, 1996...................................... --
---------
---------
Exercisable at September 30, 1997..................................... 468,750
---------
---------
Reserved for future option grants at September 30, 1997............... 757,000
---------
---------
Weighted average fair value of options granted during 1996............ $ 0.14
--------
--------
Weighted average fair value of options granted during 1997............ $ 0.71
--------
--------
</TABLE>
The following table sets forth information about stock options outstanding
at September 30, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
NUMBER OUTSTANDING REMAINING AVERAGE NUMBER EXERCISABLE
RANGE OF EXERCISE AS OF SEPTEMBER CONTRACTUAL EXERCISE AS OF SEPTEMBER
PRICES 30, 1997 LIFE PRICE 30, 1997
- ------------------ ------------------ ----------- ----------- ------------------
<S> <C> <C> <C> <C>
$0.01 155,000 9.0 $0.01 151,250
$0.25-$0.60 1,063,000 9.6 $0.44 317,500
$2.00 15,000 9.9 $2.00 --
------------------ --- ----------- ----------
$0.01-$2.00 1,233,000 9.5 $0.39 468,750
------------------ ----------
------------------ ----------
</TABLE>
The pro forma effects of adopting SFAS No. 123's fair value based method
for the nine months ended September 30, 1996 and the year ended December 31,
1996 were not materially different from the corresponding APB Opinion No. 25
intrinsic value methodology because the options granted in 1996 were primarily
issued near year end and the fair value of the Company's stock, as determined by
an independent valuation, was $0.35 as of December 31, 1996. Accordingly, pro
forma stock-based compensation in 1996 is substantially less than would result
from a full year's compensation expense amortization and a higher valuation of
the common stock. The effects of applying SFAS No. 123 during 1996 and the nine
month period ended September 30, 1997 are not likely to be representative of the
effects on pro forma net income for future years because the vesting of options
will cause additional incremental expense to be recognized in future periods.
Effects of applying SFAS No. 123
F-19
<PAGE>
BMJ MEDICAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. STOCK OPTION PLAN--(CONTINUED)
during the year ended December 31, 1996 is not materially different from the APB
No. 25 methodology. The Company's pro forma information for the nine months
ended September 30, 1997 follows:
<TABLE>
<S> <C>
Pro forma net loss.......................................... $3,222,000
----------
----------
Pro forma net loss per share................................ $ 0.26
----------
----------
</TABLE>
Additionally, the FASB has added to its agenda a project regarding certain
APB No. 25 issues, including such things as incorporating the SFAS No. 123 grant
date definition into APB No. 25, readdressing the criteria under broad-based
plans qualifying for noncompensatory accounting and defining what constitutes
employees. The resolution of these issues could result in modification in the
Company's accounting for stock-based compensation arrangements.
Shares of common stock reserved for future issuance at September 30, 1997
is as follows:
<TABLE>
<S> <C>
Options..................................................... 1,990,000
Convertible preferred stock................................. 9,233,049
Warrants.................................................... 254,165
Convertible debentures...................................... 555,555
----------
12,032,769
----------
----------
</TABLE>
8. STOCKHOLDERS' EQUITY
On May 6, 1996, the Company issued 1,175,000 shares of $.001 par value
common stock for cash consideration of $0.01 per share, which resulted in
proceeds to the Company of approximately $12,000.
On May 6, 1996, the Company issued 999,999 shares of Series A convertible
preferred stock with a par value of $0.01 for $1.00 per share, which resulted in
proceeds to the Company of $999,999. On November 12, 1996, the Company issued
2,000,001 shares of Series B convertible preferred stock with a par value of
$0.01 for $3.00 per share, which resulted in proceeds to the Company of
$6,000,003.
On January 29, 1997 and March 12, 1997, the Company raised approximately
$765,000 in connection with the issuance of an aggregate of 254,999 shares of
Series C convertible preferred stock, with a par value of $0.01 per share.
On June 19, 1997, the Company issued 188,072 shares of Series D convertible
preferred stock with a par value of $0.01 for $5.50 per share as repayment of a
$1,000,000 loan plus accrued interest that had been made to the Company by
certain stockholders on January 14, 1997. In connection with the original loan,
the stockholders received warrants to purchase 33,333 shares of the Company's
common stock at a price of $3.00 per share, exercisable through January 14,
2002, resulting in deferred financing costs of approximately $2,400 based on the
Black-Scholes valuation method. The unamortized portion of this amount was
charged to interest expense when the loan was converted.
On June 19, July 31 and August 18, 1997, the Company issued an aggregate of
741,669 shares of Series E convertible preferred stock with a par value of $0.01
for $6.00 per share in exchange for $4,450,000.
All classes of convertible preferred stock have the right to share in any
dividends declared and paid or set aside for the common stock of the Company,
pro rata, in accordance with the number of shares of common stock into which
such shares of preferred stock are then convertible; liquidation preference of
the original issuance price per share; and voting rights equal to the number of
shares of common stock into which the preferred stock is then convertible. All
classes of preferred shares are convertible into common shares at a ratio of 1:1
and are automatically convertible upon the occurrence of a fully underwritten
public offering of shares of the Company's common stock. Upon such automatic
conversion, the holders of the convertible preferred stock are not entitled to
F-20
<PAGE>
BMJ MEDICAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. STOCKHOLDERS' EQUITY--(CONTINUED)
payment of any accrued but unpaid dividends. As more fully described in Note 10,
certain of the Company's debt agreements prohibit the Company from declaring or
paying dividends.
The Company is a party to a stockholders agreement dated as of November 22,
1996 (the Stockholders Agreement), with its President, certain stockholders and
the SCOI physicians. Under the Stockholders Agreement, the stockholders agreed
to vote their shares to appoint to the Company's board of directors certain
designees of such stockholders. The stockholders (other than the SCOI
physicians) also have the right of first refusal with respect to issuances of
the Company's capital stock or securities convertible into capital stock and are
subject to various restrictions on transfers of the Company's securities. Under
the terms of the Stockholders Agreement, the 700,000 shares of common stock that
the Company's President acquired for cash on May 6, 1996, are subject to vesting
over a 40-month period subject to acceleration in certain circumstances. In the
event of the termination of the President's employment with the Company for any
reason, the Company has the right to repurchase from the President all of the
shares of unvested stock at a purchase price equal to $0.01 per share. The
Stockholders Agreement terminates at the completion of an initial public
offering of the Company's common stock.
9. INCOME TAXES
The Company accounts for income taxes under FASB Statement No. 109,
Accounting for Income Taxes. Deferred income tax assets and liabilities are
determined based upon differences between the financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's net deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $ 284,000 $ 1,684,000
Accrued compensation.................................... 174,000 190,000
Deferred revenue........................................ -- 120,000
Other................................................... -- 30,000
------------ -------------------
Deferred tax assets....................................... 458,000 2,024,000
Less valuation allowance.................................. 432,000 1,637,000
------------ -------------------
Total deferred tax assets................................. 26,000 387,000
Deferred tax liabilities:
Tax over book depreciation.............................. (11,000) (193,000)
Amortization of intangible assets....................... (15,000) (194,000)
------------ -------------------
Total deferred tax liabilities............................ (26,000) (387,000)
------------ -------------------
Net deferred taxes........................................ $ -- $ --
------------ -------------------
------------ -------------------
</TABLE>
SFAS No. 109 requires a valuation allowance to reduce the deferred tax
assets reported if, based on the weight of the evidence, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
After consideration of all the evidence, both positive and negative, management
has determined that a $432,000 and $1,637,000 valuation allowance at December
31, 1996 and September 30, 1997, respectively, is necessary to reduce the
deferred tax assets to the amount that will more than likely not be realized.
The change in
F-21
<PAGE>
BMJ MEDICAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES--(CONTINUED)
the valuation allowance for the current period is $1,205,000. On November 11,
1996, the Company had an ownership change as defined by Internal Revenue code
section 382 which caused the utilization of the net operating loss and tax
credits, at that time, to be limited to approximately $100,000 per year relating
to approximately $600,000 of the net operating losses at December 31, 1996. At
December 31, 1996 and September 30, 1997, the Company has available net
operating loss carryforwards of $682,000 and $3,678,000, which expire in the
years 2011 and 2012, respectively.
The reconciliation of income tax computed at the U.S. federal statutory
rate to income tax expense is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, --------------------------
1996 1996 1997
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Tax at U.S. statutory rate.......................................... (34.00%) (34.00%) (34.00%)
State taxes, net of federal benefit................................. (4.62%) (2.82%) (4.60%)
Non-deductible items................................................ 0.25% 0.25% 0.16%
Change in valuation allowance....................................... 38.92% 38.92% 38.24%
Other............................................................... (0.55%) (2.35%) 0.20%
------- ----------- -----------
0.00% 0.00% (0.00%)
------- ----------- -----------
------- ----------- -----------
</TABLE>
10. BORROWINGS
Borrowings consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
---- ----
<S> <C> <C>
Borrowing under senior revolving lines of credit................ $ -- $ 4,589,000
Senior secured term note, payable in monthly installments of
$90,000 through December 2000, plus interest at prime plus
3.5% (12% at September 30, 1997).............................. -- 3,250,000
Subordinated debt, payable in monthly installments of $229,000
through December 2000, including interest at 14% until January
1, 1998, increasing to 15% thereafter......................... -- 6,500,000
Subordinated convertible debentures, due August 31, 2000, plus
interest, payable semiannually at 6%.......................... -- 4,000,000
Promissory notes to physician due January 31, 1999, plus
interest at 9%................................................ -- 283,000
Shareholder notes payable....................................... 40,000 894,000
Obligation under capital lease.................................. 77,000 66,000
------------ ------------
117,000 19,582,000
Less current portion............................................ 58,000 3,102,000
------------ ------------
$ 59,000 $ 16,480,000
------------ ------------
------------ ------------
</TABLE>
In January 1997, the Company obtained short-term loans in the aggregate
amount of $999,999 from certain stockholders, including its President. In
connection with such loans, the Company issued warrants to such stockholders to
purchase an aggregate of 33,333 shares of Common Stock at an exercise price of
$3.00 per share, and are immediately exercisable for a period of five years. The
fair value of the warrants based on the Black-Scholes valuation method is $0.07
per share. In June 1997, such loans were converted into 188,072 shares of Series
D Preferred Stock. Also, in January 1997, the Company issued two promissory
notes to the Company's
F-22
<PAGE>
BMJ MEDICAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. BORROWINGS--(CONTINUED)
President totaling $867,000. The notes bear interest at a rate of 14% and are
due on December 31, 1997. At September 30, 1997, the balance outstanding was
$894,000, plus accrued interest of $92,000.
From March 1997 to September 30, 1997, the Company entered into a series of
credit agreements with its senior lender secured by the accounts receivable
acquired from each of the affiliated physician groups. The Company may borrow up
to an aggregate limit of $14,000,000, subject to a borrowing base of 85% of
eligible accounts receivable. Outstanding loans bear interest at the prime rate
plus 1.75% (10 1/4% at September 30, 1997) and mature at various dates ranging
from March 1999 to July 1999. The credit agreements require the Company to
maintain a prescribed level of tangible net worth and place limitations on
indebtedness, liens and investments, and prohibit the payment of dividends. At
September 30, 1997, $4,589,000 was outstanding under these agreements, the
maximum allowable under the borrowing base restriction. In October 1997, the
Company entered into additional credit agreements with its senior lender to
increase its aggregate borrowing limit to $17,000,000, subject to the same
terms. The $3,000,000 increase in the credit agreement matures in October 1999.
On June 30, 1997, the Company obtained a senior credit facility to fund
practice affiliations with its senior lender secured by a lien on substantially
all of the assets of the Company. The Company may borrow up to $3,250,000 for
Practice Affiliations, of which $3,250,000 is outstanding as of September 30,
1997. The loan bears interest at the prime rate plus 3.5% (12% at September 30,
1997). Interest only is payable through December 31, 1997, at which time the
loan converts to a term loan repayable in 36 monthly installments. In addition,
in September 1997 the Company issued the senior lender warrants to purchase
40,000 shares of the Company's common stock for nominal cash consideration. The
warrants contain put rights which give the holders the right to receive payment,
based on a minimum put price of $10 per share, for the value of these stock
warrants at the earlier of the effective date of the Company's initial public
offering or January 15, 1998. The warrants are exercisable for 10 years. Under
this facility, $1,500,000 of the Company's obligations are guaranteed by the
Company's President and other stockholders, and in connection therewith the
Company issued warrants to purchase an aggregate of 13,332 shares of common
stock for nominal cash consideration and are exercisable for a period of five
years. The fair value per share based on the Black-Scholes valuation method is
$2.24.
On August 1, 1997 and August 22, 1997, the Company entered into
subordinated loan agreements, with two different lenders, in the principal
amounts of $5,000,000 (the $5 million loan) and $1,500,000 (the $1.5 million
loan). The loans are secured by liens on all of the Company's tangible and
intangible personal property. The loans mature on December 31, 2000, however,
within 45 days subsequent to the effective date of an initial public offering of
the Company's common stock, the Company is obligated to prepay the loans in
full. These loans and the liens granted to the respective lenders are
subordinated in all respects to the current and future indebtedness of the
Company under the senior credit facility described above. The loans initially
bear interest at 14% per annum, provided, however, that if an initial public
offering of the Company's capital stock is not consummated on or prior to
December 31, 1997, the loans will, commencing January 1, 1998, bear interest at
15% per annum.
In connection with the $5 million and $1.5 million loans the Company issued
warrants to purchase up to 125,000 and 37,500 shares, respectively, of the
Company's Series E Preferred Stock at a price per share equal to $6.00;
provided, however, if an initial public offering of the Company's stock is not
consummated on or prior to December 31, 1997, the number of shares of Series E
Preferred Stock issuable upon exercise of the warrants increases to 133,333 and
40,000, respectively. These warrants are immediately exercisable for a period of
10 years or 5 years, respectively from the effective date of the Company's
initial public offering whichever is earlier. The fair value per share of these
warrants based on the Black-Scholes valuation method is $3.77. In addition,
pursuant to stock purchase agreements dated as of July 31, 1997 and August 18,
1997, the Company issued 166,667 and 41,667 shares, respectively, of Series E
Preferred Stock to the lenders for an aggregate purchase price of $1,250,000.
F-23
<PAGE>
BMJ MEDICAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. BORROWINGS--(CONTINUED)
The $1.5 million loan is convertible into shares of preferred stock of the
Company at the option of the lender after the Company completes a sale and
issuance of any shares of its preferred stock in connection with an equity
financing at any time after the earlier to occur of (i) a payment default under
the loan agreement or (ii) the failure of the Company to consummate an initial
public offering of its capital stock prior to December 31, 1997. The conversion
price will be equal to the purchase price per share paid by the purchasers in
such equity financings.
On September 9, 1997, the Company issued and sold $4,000,000 in aggregate
principal amount of its subordinated convertible debentures due August 31, 2000
(the 'Debentures') pursuant to the Convertible Debenture Purchase Agreement,
dated as of September 9, 1997 (the 'Debenture Purchase Agreement'). The
Debentures were purchased by the Company's President, certain stockholders and
certain of the Company's underwriters. Pursuant to the terms of the Debenture
Purchase Agreement, the Debentures are subordinated in right of payment to all
indebtedness of the Company under the loans described above. The Debentures bear
interest at 6% per annum and are payable semi-annually on each December 31 and
June 30. The unpaid principal amount of the Debentures is due on August 31,
2000.
Except in very limited instances, the Company may not prepay the Debentures
prior to September 9, 1999. The Debentures are subject to prepayment at the
option of the holders of the Debentures upon the consummation of (i) a sale of
all or substantially all of the assets of the Company; (ii) a sale or transfer
of all or a majority of the outstanding common stock of the Company in any one
transaction or series of related transactions: or (iii) a merger or
consolidation of the Company with or into another entity. The Debentures are
convertible at any time at the option of the holders thereof into shares of
common stock at an initial conversion price equal to $7.20 per share subject to
reduction in the event that the Company sells its common stock for a price less
than $7.20 per share. Should such sale occur, the initial conversion price will
be reduced to the lower sale price. Pursuant to the terms of the Debenture
Purchase Agreement, the holders of the Debentures have rights of first offer on
future issuances of capital stock of the Company or other securities convertible
into capital stock of the Company (except with respect to a public offering of
shares of the Company's common stock). The Debenture Purchase Agreement places
limitations on indebtedness and liens and prohibits the payment of dividends.
On October 14, 1997, the Company obtained short-term financing in the form
of a secured term note from its senior lender, to fund practice affiliations in
an aggregate amount of $2,500,000. The note is secured by a lien on
substantially all of the assets of the Company. Outstanding loans bear interest
at the prime rate plus 3.5% (12% at October 31, 1997). Interest only is payable
through December 31, 1997 and the entire principal amount is due and payable on
January 10, 1998. In connection with this loan agreement, the Company will pay
to the lender a fee in the amount of $300,000 on the maturity date which was
recorded on October 14, 1997 as debt-issuance cost and is being amortized over
the term of the debt.
On October 15, 1997, the Company obtained short-term bridge financing in
the aggregate amount of $3,375,000 from certain stockholders, including its
President, to fund practice affiliations. In connection with these loans, the
Company issued warrants to such stockholders to purchase an aggregate of 67,500
shares of Common Stock at an exercise price of $0.01 per share and are
immediately exercisable for a period of 5 years. The fair value per warrant
based on the Black-Scholes valuation method is $3.34 per share. Outstanding
loans bear interest at the prime rate plus 3.5%. (12% at October 31, 1997). The
principal amounts and accrued interest are due and payable on January 10, 1998.
During October and November 1997, in connection with several practice
affiliations, the Company issued promissory notes that in the aggregate total
$11,314,197. These outstanding promissory notes bear interest ranging from 6% to
11%. Substantially all of these promissory notes are due and payable either on
the date of the Company's completion of an initial public offering or at various
maturity dates ranging from December 31, 1997 to March 31, 1998.
F-24
<PAGE>
BMJ MEDICAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. BORROWINGS--(CONTINUED)
On November 14, 1997, the Company entered into an additional subordinated
loan agreement in the principal amount of $1,000,000 (the $1 million loan) with
the lender of the $5 million loan. The $1 million loan is due on December 1,
2000 and contains the same terms as the $5 million loan. A warrant to purchase
25,000 shares of the Company's Series E Preferred Stock that increases to 26,667
shares if an initial public offering of the Company's stock is not consummated
on or prior to December 31, 1997 was issued to the lender. The fair value of the
warrant based on the Black-Scholes valuation method is $3.20 per share.
Under the terms of all the credit agreements and credit facilities with the
senior lender, the subordinated loan agreements and the subordinated convertible
debentures, the Company is prohibited from declaring or paying any cash dividend
or making any distribution on any class of stock, except pursuant to an employee
repurchase plan or with the consent of the lender.
11. COMMITMENTS
The Company has an employment agreement dated as of May 6, 1996, as
amended, with its President (the Employment Agreement). Base compensation under
the Employment Agreement is $300,000 per year, subject to increase by the Board
of Directors. In addition, the Board of Directors may award an annual bonus to
the President in an amount of up to 30% of his base salary based on the
attainment of certain benchmarks. The Company may terminate the President's
employment at any time and for any reason; provided that, if his employment is
terminated without cause (as defined in such agreement) or as a result of his
becoming permanently disabled, the Company must pay the President a severance
amount determined in accordance with a formula contained in the agreement.
12. CERTAIN RISKS AND UNCERTAINTIES
As explained in Notes 2 and 10, the Company affiliated with five additional
physician practices subsequent to September 30, 1997. In connection with these
affiliation transactions, the Company issued promissory notes to certain
physicians aggregating approximately $11,314,000 and borrowed approximately
$5,875,000 from certain stockholders and its senior lender. These notes and
borrowings are due in varying amounts from December 31, 1997 through March 31,
1998.
On September 16, 1997, the Company filed a registration statement with the
Securities and Exchange Commission to offer 5,000,000 authorized and unissued
shares of Common Stock to the public. The proceeds of this offering are
anticipated to be used to repay the indebtedness when it matures. In the event
the offering is not completed, management of the Company has developed a plan
which will enable it to meet its obligations as they come due. This plan
includes the following:
(i) $3,900,000 of the indebtedness due to certain stockholders will be
converted into additional shares of preferred stock:
(ii) The senior lender has agreed to postpone payment of the
$2,800,000 note (including the $300,000 fee due at maturity) until January
1, 1999 for a quarterly financing fee of $300,000;
(iii) Commitments have been obtained from certain stockholders to
provide additional capital sufficient to pay the physician notes as they
mature;
(iv) Additional borrowing capacity has been obtained in the aggregate
amount of approximately $1,650,000 and,
(v) Curtailment of development activities including a restructuring of
operational activities.
In addition, the Company continues to pursue negotiations to obtain
additional debt or equity capital and believes it has obtained sufficient
financing commitments through January 1, 1999.
F-25
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Orthopaedic Associates of Bethlehem, Inc.
We have audited the accompanying balance sheets of Orthopaedic Associates of
Bethlehem, Inc. (OAB) as of December 31, 1994 and 1995 and June 30, 1996 and the
related statements of operations, stockholders' equity, and cash flows for the
years ended December 31, 1994 and 1995 and for the six months ended June 30,
1996. These financial statements are the responsibility of OAB's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of OAB at December 31, 1994 and
1995 and June 30, 1996 and the results of its operations and cash flows for the
years ended December 31, 1994 and 1995, and the six months ended June 30, 1996
in conformity with generally accepted accounting principles.
ERNST & YOUNG, LLP
Philadelphia, Pennsylvania
May 28, 1997, except for Note 13,
as to which the date is August 14, 1997
F-26
<PAGE>
ORTHOPAEDIC ASSOCIATES OF BETHLEHEM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash....................................................................... $ 47,854 $ 3,698 $119,572
Accounts receivable, net................................................... 366,831 377,416 412,186
Other current assets....................................................... 131,411 160,354 110,934
-------- -------- --------
Total current assets......................................................... 546,096 541,468 642,692
Deferred tax asset........................................................... 15,000 54,100 16,800
Furniture and equipment, net................................................. 172,391 153,908 132,963
Other assets................................................................. 190,014 190,014 190,014
-------- -------- --------
Total assets................................................................. $923,501 $939,490 $982,469
-------- -------- --------
-------- -------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable............................................................... $ -- $173,000 $203,000
Capital lease obligations, current portion................................. 33,989 36,332 37,101
Accounts payable........................................................... 29,027 66,158 48,780
Accrued expenses........................................................... 125,383 44,684 45,166
Deferred tax liability, current portion.................................... 135,000 171,200 169,000
-------- -------- --------
Total current liabilities.................................................... 323,399 491,374 503,047
Capital lease obligation, noncurrent portion................................. 114,225 78,068 59,591
Commitments and contingencies
Stockholders' equity:
Common stock, $1 par value, 30,000 shares authorized; 4,166 shares
issued.................................................................. 4,166 4,166 4,166
Additional paid-in capital................................................. 112,079 112,079 112,079
Retained earnings.......................................................... 369,632 375,364 425,147
Treasury stock, 1996 and 1995--833 shares at cost.......................... -- (121,561) (121,561)
-------- -------- --------
Total stockholders' equity................................................... 485,877 370,048 419,831
-------- -------- --------
Total liabilities and stockholders' equity................................... $923,501 $939,490 $982,469
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes.
F-27
<PAGE>
ORTHOPAEDIC ASSOCIATES OF BETHLEHEM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
------------------------ ENDED
1994 1995 JUNE 30, 1996
---------- ---------- -------------
<S> <C> <C> <C>
Practice revenues, net................................................. $2,527,957 $2,992,950 $ 1,540,205
Other income........................................................... 34,342 47,372 87,779
---------- ---------- -------------
Total revenues......................................................... 2,562,299 3,040,322 1,627,984
Costs and expenses:
Physician and other provider services................................ 1,553,725 1,639,675 720,358
Medical support services............................................. 893,595 1,012,713 577,503
Depreciation and amortization........................................ 42,183 42,049 20,945
Interest............................................................. 11,122 11,848 11,767
Rent................................................................. 28,575 39,353 66,602
Rent-related party................................................... 291,852 291,852 145,926
---------- ---------- -------------
Total costs and expenses............................................... 2,821,052 3,037,490 1,543,101
---------- ---------- -------------
(Loss) income before income taxes...................................... (258,753) 2,832 84,883
Income tax benefit (expense)........................................... 100,900 2,900 (35,100)
---------- ---------- -------------
Net (loss) income...................................................... $ (157,853) $ 5,732 $ 49,783
---------- ---------- -------------
---------- ---------- -------------
</TABLE>
See accompanying notes.
F-28
<PAGE>
ORTHOPAEDIC ASSOCIATES OF BETHLEHEM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
------ ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993.......................... $3,333 $ 49,167 $ 527,485 $ -- $ 579,985
Issuance of common stock.......................... 833 62,912 -- -- 63,745
Net loss.......................................... -- -- (157,853) -- (157,853)
------ ---------- --------- --------- ---------
Balance, December 31, 1994.......................... 4,166 112,079 369,632 -- 485,877
Net income........................................ -- -- 5,732 -- 5,732
Treasury stock acquired........................... -- -- -- (121,561) (121,561)
------ ---------- --------- --------- ---------
Balance, December 31, 1995.......................... 4,166 112,079 375,364 (121,561) 370,048
Net income........................................ -- -- 49,783 -- 49,783
------ ---------- --------- --------- ---------
Balance, June 30, 1996.............................. $4,166 $ 112,079 $ 425,147 $(121,561) $ 419,831
------ ---------- --------- --------- ---------
------ ---------- --------- --------- ---------
</TABLE>
See accompanying notes.
F-29
<PAGE>
ORTHOPAEDIC ASSOCIATES OF BETHLEHEM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
---------------------- JUNE 30,
1994 1995 1996
--------- --------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income.......................................................... $(157,853) $ 5,732 $ 49,783
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization............................................ 42,183 42,049 20,945
Loss on disposal of equipment............................................ 5,115 -- --
Provision for deferred taxes............................................. (100,900) (2,900) 35,100
Changes in operating assets and liabilities:
Receivables........................................................... 78,537 (10,585) (34,770)
Other assets.......................................................... 7,357 (28,943) 49,420
Accounts payable...................................................... 17,787 37,131 (17,378)
Accrued expenses...................................................... 76,954 (80,699) 482
--------- --------- ----------
Net cash (used in) provided by operating activities........................ (30,820) (38,215) 103,582
INVESTING ACTIVITIES:
Purchases of furniture and equipment, net.................................. (23,898) (23,566) --
Collection of advances to shareholders..................................... 68,950 -- --
--------- --------- ----------
Net cash provided by (used in) investing activities........................ 45,052 (23,566) --
FINANCING ACTIVITIES:
Issuance of common stock................................................... 63,745 -- --
Purchase of treasury stock................................................. -- (121,561) --
Borrowings on line of credit............................................... -- 173,000 30,000
Payment on capital lease................................................... (31,786) (33,814) (17,708)
--------- --------- ----------
Net cash provided by financing activities.................................. 31,959 17,625 12,292
--------- --------- ----------
Net increase (decrease) in cash............................................ 46,191 (44,156) 115,874
Cash, beginning of period.................................................. 1,663 47,854 3,698
--------- --------- ----------
Cash, end of period........................................................ $ 47,854 $ 3,698 $119,572
--------- --------- ----------
--------- --------- ----------
SUPPLEMENTARY DISCLOSURES:
Interest paid.............................................................. $ 11,122 $ 11,848 $ 11,767
Income taxes paid.......................................................... $ -- $ -- $ --
</TABLE>
See accompanying notes.
F-30
<PAGE>
ORTHOPAEDIC ASSOCIATES OF BETHLEHEM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
AND JUNE 30, 1996
1. DESCRIPTION OF THE BUSINESS
Orthopaedic Associates of Bethlehem, Inc. (OAB) is an orthopedic physician
practice which serves the Bethlehem, Pennsylvania area. OAB was organized as a
professional corporation under the laws of the Commonwealth of Pennsylvania (See
Note 13). All of OAB's issued and outstanding stock are owned by its practicing
orthopedic physicians.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Practice Revenues, Net
Practice revenues, net is recorded as services are rendered at established
rates net of provision for bad debts and contractual adjustments. Contractual
adjustments arise due to the terms of certain reimbursement and managed care
contracts. Such adjustments represent the difference between charges at
established rates and estimated amounts to be reimbursed to OAB and are
recognized when the services are rendered.
Revenues from the Medicare and Medicaid programs accounted for
approximately 35% and 5%, respectively, of OAB's net operating revenues. Laws
and regulations governing the Medicare and Medicaid programs are complex and
subject to interpretation. OAB believes that it is in compliance with all
applicable laws and regulations and is not aware of any pending or threatened
investigations involving allegations of potential wrongdoing. While no such
regulatory inquiries have been made, compliance with such laws and regulations
can be subject to future government review and interpretation as well as
significant regulatory action including fines, penalties, and exclusion from the
Medicare and Medicaid programs.
Furniture and Equipment
Furniture and equipment are stated at cost, less accumulated depreciation,
and are depreciated using the straight-line method over the estimated useful
lives of the assets, ranging from 5 to 7 years. Equipment under capital lease
obligations is amortized on the straight-line method over the shorter period of
the lease term or the estimated useful life of the equipment. Such amortization
is included in depreciation and amortization in the financial statements.
Concentration of Credit Risk
OAB grants credit without collateral to its patients, most of whom are
local residents and are insured under third-party payor agreements. Management
believes credit risk associated with accounts receivable is minimal.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Costs and Expenses
Physician and other provider services costs are comprised primarily of
compensation and fees paid to physician and other health care providers.
Medical support services costs include all indirect costs associated with
the management and operations of the practice and all direct costs associated
with medical supplies and pharmaceuticals expenses.
F-31
<PAGE>
ORTHOPAEDIC ASSOCIATES OF BETHLEHEM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Accounts receivable................................................ $619,647 $671,558 $717,865
Less allowances for contractual adjustments and uncollectibles..... 252,816 294,142 305,679
-------- -------- --------
Accounts receivable, net........................................... $366,831 $377,416 $412,186
-------- -------- --------
-------- -------- --------
</TABLE>
4. FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Furniture and equipment............................................ $229,438 $253,003 $253,003
Furniture and equipment--capital leases............................ 180,000 180,000 180,000
-------- -------- --------
409,438 433,003 433,003
Less: Accumulated depreciation..................................... 201,047 207,095 210,040
Accumulated amortization...................................... 36,000 72,000 90,000
-------- -------- --------
$172,391 $153,908 $132,963
-------- -------- --------
-------- -------- --------
</TABLE>
5. OTHER ASSETS
Other assets consist of the amount advanced by OAB to three shareholders
for the purchase of life insurance. OAB is not the beneficiary of these
policies; however, the proceeds have been assigned to OAB to the extent of these
premiums paid. No interest is accrued on these loans.
6. NOTES PAYABLE
OAB has an unsecured $250,000 line of credit arrangement with a bank. At
June 30, 1996 and December 31, 1995, $203,000 and $173,000, respectively, was
outstanding under the line of credit. Interest is payable monthly at a variable
rate of interest (8.25% and 8.50% at June 30, 1996 and December 31, 1995,
respectively). Principal is payable upon demand. Repayment of the line of credit
is unconditionally guaranteed by the stockholders of OAB.
7. CAPITAL LEASE
OAB has a capital lease obligation, collateralized by the leased equipment,
with scheduled payments as of June 30, 1996 as follows:
<TABLE>
<S> <C>
1996........................................................................................ $21,024
1997........................................................................................ 42,048
1998........................................................................................ 42,048
---------
105,120
Less amount representing interest........................................................... (8,428)
---------
$96,692
---------
---------
</TABLE>
F-32
<PAGE>
ORTHOPAEDIC ASSOCIATES OF BETHLEHEM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. RELATED PARTY TRANSACTIONS
A. Lease Agreement
In June 1989, OAB entered into a ten-year sublease lease agreement with
Shoenersville Road Realty for the rental of office space. Under the lease
agreement OAB has the option to lease the office space for an additional term of
ten years. Rental payments required under the lease are subject to a fair market
rental value adjustment. The partners of Shoenersville Road Realty are also the
stockholders of OAB. Rental expense totaled $145,926 for the six months ended
June 30, 1996 and $291,852 for both of the years ended December 31, 1995 and
1994.
Future minimum rental payments under this operating lease as of June 30,
1996 are as follows:
<TABLE>
<S> <C>
1996........................................................................................ $145,926
1997........................................................................................ 291,852
1998........................................................................................ 291,852
1999........................................................................................ 145,926
---------
$875,556
---------
---------
</TABLE>
B. Stock Redemption
In 1995, OAB agreed to pay one of its physician stockholders $121,561 for
833 shares of common stock. This redemption represented approximately 20% of the
then outstanding shares and 20% of the stockholders' equity at the date of the
redemption.
9. INCOME TAXES
Significant components of deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Deferred tax liabilities:
Cash to accrual adjustment............................................... $ 263,100 $ 269,700 $ 254,400
--------- --------- ---------
--------- --------- ---------
Deferred tax assets:
Net operating loss carryforwards......................................... $ 26,500 $ 66,700 $ 29,400
Cash to accrual adjustment............................................... 116,600 85,900 72,800
--------- --------- ---------
Total deferred tax assets.................................................. $ 143,100 $ 152,600 $ 102,200
--------- --------- ---------
--------- --------- ---------
Net deferred taxes......................................................... $(120,000) $(117,100) $(152,200)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Significant components of income tax (expense) benefit attributable to
continuing operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, SIX MONTHS
------------------ ENDED
1994 1995 JUNE 30, 1996
-------- ------ -------------
<S> <C> <C> <C>
Current............................................................ $ -- $ -- $ --
Deferred........................................................... 100,900 2,900 (35,100)
-------- ------ -------------
Income tax (expense) benefit....................................... $100,900 $2,900 $ (35,100)
-------- ------ -------------
-------- ------ -------------
</TABLE>
OAB's tax rate differs from the expected tax rate due principally to state
income taxes. State income tax (expense) benefits were $11,000, $4,400 and
$(5,400) for the years ended December 31, 1994 and 1995 and the six months ended
June 30, 1996, respectively.
F-33
<PAGE>
ORTHOPAEDIC ASSOCIATES OF BETHLEHEM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES--(CONTINUED)
For the six months ended June 30, 1996 OAB has estimated income tax
(expense) benefit and net deferred taxes assuming that they have utilized
$78,000 and $65,000 in operating loss carryforwards for federal and state income
reporting purposes. At June 30, 1996 OAB has available federal and state
operating loss carryforwards of $73,000 and $60,000, respectively, which expire
in 2010 and 1998, respectively.
10. BENEFIT PLANS
OAB sponsors a defined contribution profit-sharing plan covering all
employees who meet prescribed eligibility requirements. Expenses amounted to
$165,000 and $129,000 in 1995 and 1994, respectively. This plan was terminated
effective December 31, 1995.
Effective January 1, 1996, OAB established a 401(k) plan for which OAB
matches a percentage of employee contributions. Expenses for the 401(k) plan
amounted to $25,818 for the six months ended June 30, 1996.
11. CONTINGENCIES
OAB is involved in various legal proceedings in the ordinary course of
business. OAB does not believe that the disposition of such legal proceedings
and disputes will have a material adverse effect on the financial position and
results of operation of OAB.
12. MALPRACTICE INSURANCE
OAB maintains professional liability coverage on behalf of its physicians
on an occurrence basis.
13. SUBSEQUENT EVENTS
Effective July 1, 1996, the physician stockholders of OAB transferred
substantially all operations of OAB to Lehigh Valley Bone, Muscle and Joint
Group, LLC (LVBMJ). LVBMJ is a limited liability company owned by the physician
stockholders of OAB, formed specifically to operate the transferred medical
practice. Additionally, on July 1, 1996, OAB changed its legal structure from a
professional corporation to a general purpose corporation and continues to
perform limited medical advisory services.
Effective July 1, 1996, the Company entered into an Affiliation Transaction
with LVBMJ. Under the terms of the Amended and Restated Management Services
Agreement between LVBMJ and the Company effective July 1, 1997 (the LVBMJ
Management Services Agreement), BMJ Medical Management, Inc. (BMJ) issued an
aggregate of 518,031 shares of common stock, recorded at $0.10 per share,
representing consideration of $51,803 and options to purchase 30,000 shares of
common stock at an exercise price of $0.25 per share.
On September 5, 1997, OAB sold to BMJ (a related party) its furniture and
equipment and transferred its rights and interest under equipment and office
space leases for $254,000. Proceeds of the sale were used to repay OAB's line of
credit. Based on the collection of accounts receivable balances and the
realization of other assets available, OAB has discharged substantially all its
other remaining liabilities. OAB has distributed substantially all of its
remaining stockholders' equity in the form of dividends and compensation.
F-34
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Southern California Orthopedic Institute Medical Group,
a California General Partnership
We have audited the accompanying balance sheets of Southern California
Orthopedic Institute Medical Group, a California General Partnership (SCOI) as
of December 31, 1995 and October 31, 1996, and the related statements of
operations and changes in partners' capital, and cash flows for each of the two
years in the period ended December 31, 1995 and for the ten months ended October
31, 1996. These financial statements are the responsibility of SCOI's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SCOI at December 31, 1995 and
October 31, 1996, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1995 and for the ten months
ended October 31, 1996 in conformity with generally accepted accounting
principles.
ERNST & YOUNG, LLP
Los Angeles, California
May 23, 1997
F-35
<PAGE>
SOUTHERN CALIFORNIA ORTHOPEDIC INSTITUTE MEDICAL GROUP,
A CALIFORNIA GENERAL PARTNERSHIP
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1995 1996
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................ $ 251,345 $ 720,158
Patient accounts receivable, net................................................... 4,558,438 4,778,825
Due from partners and affiliates, net.............................................. 41,231 --
Prepaid expenses and other current assets.......................................... 140,523 266,826
------------ -----------
Total current assets................................................................. 4,991,537 5,765,809
Furniture, fixtures and equipment, net 709,814 586,997
Other assets......................................................................... 337,038 310,080
------------ -----------
Total assets......................................................................... $6,038,389 $ 6,662,886
------------ -----------
------------ -----------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable................................................................... $ 120,398 $ 125,022
Due to partners and affiliates, net................................................ -- 284,773
Accrued expenses and other current liabilities..................................... 287,204 284,229
Current portion of long-term debt.................................................. 228,627 --
Deferred income.................................................................... 85,090 85,090
------------ -----------
Total current liabilities............................................................ 721,319 779,114
Deferred income...................................................................... 219,820 134,733
Accrued malpractice insurance claims................................................. 1,500,000 1,917,000
------------ -----------
2,441,139 2,830,847
Commitments and contingencies
Partners' capital.................................................................... 3,597,250 3,832,039
------------ -----------
Total liabilities and partners' capital.............................................. $6,038,389 $ 6,662,886
------------ -----------
------------ -----------
</TABLE>
See accompanying notes.
F-36
<PAGE>
SOUTHERN CALIFORNIA ORTHOPEDIC INSTITUTE MEDICAL GROUP,
A CALIFORNIA GENERAL PARTNERSHIP
STATEMENTS OF OPERATIONS AND CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------- OCTOBER 31,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Practice revenues, net.............................................. $19,230,632 $20,025,718 $17,907,084
Other income........................................................ 149,318 153,923 162,512
----------- ----------- -----------
Total revenues...................................................... 19,379,950 20,179,641 18,069,596
Costs and expenses:
Physician and other provider services............................. 10,008,410 11,307,996 9,069,544
Medical support services.......................................... 7,406,706 7,621,997 6,846,899
Depreciation...................................................... 313,595 308,826 253,500
Interest.......................................................... 70,511 39,126 8,462
Rent.............................................................. 275,077 261,906 204,511
Rent--related party............................................... 1,615,678 1,666,243 1,451,891
----------- ----------- -----------
Total costs and expenses............................................ 19,689,977 21,206,094 17,834,807
----------- ----------- -----------
Net (loss) income................................................... (310,027) (1,026,453) 234,789
Beginning partners' capital......................................... 4,739,090 4,429,063 3,597,250
Capital contributions............................................... -- 194,640 --
----------- ----------- -----------
Ending partners' capital............................................ $ 4,429,063 $ 3,597,250 $ 3,832,039
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes.
F-37
<PAGE>
SOUTHERN CALIFORNIA ORTHOPEDIC INSTITUTE MEDICAL GROUP,
A CALIFORNIA GENERAL PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------- OCTOBER 31,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income................................................... $ (310,027) $(1,026,453) $ 234,789
Adjustments to reconcile net (loss) income to net cash provided by
(used in) operating activities:
Depreciation...................................................... 313,595 308,826 253,500
Amortization of deferred income................................... -- (93,432) (85,087)
Changes in operating assets and liabilities:
Patient accounts receivable.................................... (142,784) 287,667 (220,387)
Prepaid expenses and other assets.............................. (58,197) (17,215) (99,345)
Accounts payable............................................... 1,262 (85,930) 4,624
Accrued expenses and other current liabilities................. 441,688 518,480 414,025
----------- ----------- -----------
Net cash provided by (used in) operating activities................. 245,537 (108,057) 502,119
INVESTING ACTIVITIES:
Changes in due to/from partners and affiliates...................... 166,056 (171,832) 326,004
Purchases of furniture, fixtures and equipment...................... (85,220) (39,331) (130,683)
----------- ----------- -----------
Net cash provided by (used in) investing activities................. 80,836 (211,163) 195,321
FINANCING ACTIVITIES:
Payments on long-term debt.......................................... (287,386) (316,503) (228,627)
Proceeds received for covenant not to compete....................... -- 398,342 --
Capital contributions............................................... -- 194,640 --
----------- ----------- -----------
Net cash (used in) provided by financing activities................. (287,386) 276,479 (228,627)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents................ 38,987 (42,741) 468,813
Cash and cash equivalents at beginning of period.................... 255,099 294,086 251,345
----------- ----------- -----------
Cash and cash equivalents at end of period.......................... $ 294,086 $ 251,345 $ 720,158
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes.
F-38
<PAGE>
SOUTHERN CALIFORNIA ORTHOPEDIC INSTITUTE MEDICAL GROUP,
A CALIFORNIA GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996
1. DESCRIPTION OF THE BUSINESS
Southern California Orthopedic Institute Medical Group, a California
General Partnership (SCOI), is an orthopedic physician practice which serves
patients in Southern California. SCOI is organized as a general partnership
comprising individuals and professional corporations under the laws of the State
of California.
On November 1, 1996, SCOI agreed in principle to sell substantially all of
its assets (primarily patient accounts receivable and furniture, fixtures and
equipment) to BMJ Medical Management, Inc. (BMJ) and concurrent therewith
entered into a management services agreement (see Note 12 'Subsequent Event').
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Practice revenues, net consist of fees for services provided by the medical
group under contracts with health maintenance organizations and for services
rendered to patients covered under Medicare, Medi-Cal and private insurance.
Revenue is reported on the accrual basis in the period in which services are
provided at the amounts expected to be realized from Medicare, Medi-Cal, managed
care and other insurance programs.
Laws and regulations governing the Medicare and Medi-Cal programs are
complex and subject to interpretation. SCOI believes that it is in compliance
with all applicable laws and regulations and is not aware of any pending or
threatened investigations involving allegations of potential wrongdoing. While
no such regulatory inquiries have been made, compliance with such laws and
regulations can be subject to future government review and interpretation as
well as significant regulatory action including fines, penalties, and exclusion
from the Medicare and Medi-Cal programs.
Costs and Expenses
Physician and other provider services costs primarily comprise compensation
and fees paid to physicians and other health care providers and include medical
supplies and pharmaceutical expenses.
Medical support services costs include all indirect costs associated with
the management and operations of the practice.
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment, including leasehold improvements, are
stated at cost, and are depreciated using the straight-line method over the
estimated useful lives of the assets, ranging from five to seven years.
Health and Dental Insurance
SCOI maintains a self-insured medical and dental plan for its employees.
Unpaid claims accruals, including claims incurred but not reported, are based on
the estimated ultimate cost of settlement, including claim settlement expense,
in accordance with SCOI's past experience. SCOI has a stop-loss insurance
contract to cover employee health claims in excess of an annual aggregate limit
based on monthly aggregate factors determined by the insurance company and the
number of employees covered ($430,062; $349,894, and $250,304 for the years
ended December 31, 1994 and 1995 and the ten months ended October 31, 1996,
respectively). Effective October 1, 1996, SCOI purchased commercial coverage for
employee health claims. At December 31, 1995 and October 31, 1996, SCOI did not
have significant claims outstanding.
F-39
<PAGE>
SOUTHERN CALIFORNIA ORTHOPEDIC INSTITUTE MEDICAL GROUP,
A CALIFORNIA GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Cash Equivalents
Cash equivalents include money market funds and certificates of deposit
with a maturity of three months or less when purchased.
Allocations to Partners
Income and distributions to physician partners are made based upon a
formula as defined in Schedule 4.1 of the SCOI partnership agreement. The
formula generally allocates income based on net cash collections attributable to
each physician partner, net of allocated and direct expenses. Notwithstanding
the formula, physician partners receive a guaranteed minimum based on a
percentage of total collections. Distributions to partners totaling $7,575,129,
$9,745,019 and $7,692,077 for the two years ended December 31, 1995 and the ten
months ended October 31, 1996, respectively, were included in physician and
other provider services in the statements of operations and changes in partners'
capital.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Financial Instruments
The carrying amounts of financial instruments as reported in the
accompanying balance sheets approximate their fair value primarily due to the
short-term nature of such financial instruments.
Concentrations of Credit Risk
Financial instruments which potentially subject SCOI to concentrations of
credit risk consist primarily of cash and cash equivalents and accounts
receivable. Concentration of credit risk with respect to accounts receivable are
limited, except with respect to programs under contract with the federal and
state governments, due to the large number of payors comprising SCOI's customer
base. As of October 31, 1996, SCOI had no significant concentrations of credit
risk.
3. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following at:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1995 1996
------------ -----------
<S> <C> <C>
Gross patient accounts receivable.......................................... $7,723,438 $ 8,099,825
Less allowances for contractual adjustments and uncollectible accounts..... 3,165,000 3,321,000
------------ -----------
$4,558,438 $ 4,778,825
------------ -----------
------------ -----------
</TABLE>
F-40
<PAGE>
SOUTHERN CALIFORNIA ORTHOPEDIC INSTITUTE MEDICAL GROUP,
A CALIFORNIA GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment consist of the following at:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1995 1996
------------ -----------
<S> <C> <C>
Furniture, fixtures and equipment.......................................... $2,193,237 $ 2,137,488
Less accumulated depreciation.............................................. 1,483,423 1,550,491
------------ -----------
$ 709,814 $ 586,997
------------ -----------
------------ -----------
</TABLE>
5. LONG-TERM DEBT
Long-term debt comprises two loans for the purchase of furniture, fixtures
and equipment. The loans bear interest at 9.69% and are payable in 60 monthly
installments of $29,627 with final maturity in August 1996. The loans were
secured by SCOI's property and equipment.
Interest costs paid during the years ended December 31, 1994 and 1995 and
the ten months ended October 31, 1996, totaled $70,511, $39,126, and $8,462,
respectively.
6. LEASE COMMITMENTS
SCOI leases various equipment, clinic and office space under non-cancelable
operating leases expiring between 1997 and 2006 with related and independent
parties (see Note 11 'Related Parties'). Certain leases contain renewal options
and annual escalation clauses. Obligations under equipment and facility leases
with unrelated parties were assumed by BMJ in connection with the sale of SCOI's
assets on November 1, 1996 (see Note 12 'Subsequent Event'). At October 31,
1996, future minimum lease payments are as follows:
<TABLE>
<S> <C>
1997..................................................................................... $1,805,636
1998..................................................................................... 1,790,849
1999..................................................................................... 1,718,358
2000..................................................................................... 1,599,342
2001..................................................................................... 1,599,342
Therafter................................................................................ 8,297,649
------------
Total minimum lease payments............................................................. $16,811,176
------------
------------
</TABLE>
7. INCOME TAXES
SCOI is organized as a partnership under the Internal Revenue Code and
applicable California Franchise Tax Code. As a result, in lieu of corporate
income tax, SCOI's taxable income is passed through to the partners and taxed at
the partner level. Accordingly, no provision or liability for income tax has
been reflected in the financial statements.
8. BENEFIT PLANS
SCOI sponsors a defined contribution plan (the Plan) for employees who meet
the minimum length of service and age requirements. The Plan was adopted on
January 1, 1996. Eligible employees may contribute up to 19% of their
compensation in the Plan year. SCOI may, at its discretion, match a portion of
employee contributions up to 4% of an employee's compensation. SCOI is
responsible for the administration of the Plan as the Plan administrator and
trustee. SCOI's contributions totaled $9,831 for the ten months ended October
1996.
F-41
<PAGE>
SOUTHERN CALIFORNIA ORTHOPEDIC INSTITUTE MEDICAL GROUP,
A CALIFORNIA GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. CONTINGENCIES
SCOI is involved in various legal proceedings in the ordinary course of
business. SCOI does not believe that the disposition of such legal proceedings
and disputes will have a material adverse effect on the financial position and
results of operations of SCOI.
SCOI procures professional liability coverage on behalf of its physicians
on a claims made basis up to $1,000,000 per claim and $3,000,000 annual
aggregate per physician. The insurance contracts specify that coverage is
available only during the term of each insurance contract and cover only those
claims reported while the policies are in force. An estimate of losses for
incurred but unreported claims is recorded based upon historical experience.
Management of SCOI intends to renew the existing claims made policy annually and
expects to be able to obtain such coverage. If coverage is not renewed, SCOI
intends to purchase extended reporting period endorsements to provide
professional liability coverage for losses incurred prior to, but reported
subsequent to, the termination of the claims made policies. SCOI's policy has
been renewed through December 31, 1997.
10. DEFERRED INCOME
In July 1992, SCOI sold its rehabilitation and therapy business to
HealthSouth Rehabilitation Center of Van Nuys Limited Partnership (HealthSouth)
for cash. In connection with the sale, the Partnership and its physicians
entered into a covenant-not-to-compete for seven years ending July 31, 1999 for
$700,000, payable in 84 equal monthly installments. Consideration received is
recorded as revenue over the term of the agreement. On January 20, 1995,
HealthSouth elected to prepay its remaining obligations under the covenant
totaling $390,000. This amount has been recorded as deferred income on SCOI's
balance sheets and is amortized over the remaining term of the covenant.
11. RELATED PARTIES
Due to partners and affiliates includes undistributed guaranteed payments
totaling $162,699 and $475,000 at December 31, 1995 and October 31, 1996,
respectively. SCOI has notes receivable from several partners for capital
contributions. Such notes bear interest at prime rate plus one percent and
totaled $191,618 and $102,810, at December 31, 1995 and October 31, 1996,
respectively. SCOI also made advances to the Center for Orthopedic Surgery, Inc.
(COSI), an affiliated organization owned by certain physician partners. COSI is
an outpatient surgery center due to begin operations in May 1997. Amounts
outstanding at December 31, 1995 and October 31, 1996 were $12,312 and $87,417,
respectively.
SCOI leases its main facility and office space under a non-cancelable
operating lease from FDP Development, Inc. (FDP), an affiliate owned by the
partners of SCOI. The lease expires in July 2006 and provides for annual
adjustments based on the increases in the Consumer Price Index. Rental costs
paid to FDP totaled $1,615,678, $1,666,243, and $1,451,891, for the years ended
December 31, 1994 and 1995, and the ten months ended October 31, 1996,
respectively. SCOI maintains a security deposit with FDP in the amount of
$300,000 at December 31, 1995 and October 31, 1996.
12. SUBSEQUENT EVENTS
On November 1, 1996, SCOI sold its patient accounts receivable balances,
furniture, fixtures and equipment, and other minor assets to BMJ, a Delaware
corporation engaged in operating and financing physician groups focused
exclusively on musculoskeletal disease management. The carrying value of the
patient accounts receivable balances and property and equipment was $4,778,825
and $583,755, respectively. BMJ also assumed certain equipment and office lease
obligations with total future minimum lease payments of $553,460 at November 1,
1996, which are in turn subleased to SCOI. Total consideration for the sale was
$5,930,897 based on a preliminary estimate of the carrying values of the assets
sold at October 31, 1996, and is subject to purchase
F-42
<PAGE>
SOUTHERN CALIFORNIA ORTHOPEDIC INSTITUTE MEDICAL GROUP,
A CALIFORNIA GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
12. SUBSEQUENT EVENTS--(CONTINUED)
price adjustments. $3,706,897 (the sales price of property and equipment and 50%
of the estimated carrying value of the receivable balances) was received in
cash. The balance of the consideration is based on actual collections of the
receivable balances and is due upon the earlier of an initial offering of BMJ's
common stock or November 1, 1997. SCOI realized a gain of $858,165 on the sale
of property and equipment.
Concurrent with the sale, SCOI entered into a 40 year management services
agreement (the Agreement) with BMJ on November 1, 1996. After the initial term,
the Agreement renews automatically for successive additional five year terms,
unless terminated by either party with 6 months written notice. As an incentive
for entering into the Agreement, the physician owners of the Company received
4,000,000 common shares in BMJ with an estimated fair value of $1,400,000. At
the earlier of an initial public offering of BMJ's common shares or November 1,
1998, the number of shares will be adjusted in accordance with a prescribed
formula based in part on SCOI's net cash collections in relation to other
medical groups managed by BMJ. Under the Agreement, BMJ will provide financial
management, information systems, marketing and public relations, risk
management, and administrative support for claims processing, utilization review
and quality control services. As compensation for these services, SCOI will
reimburse BMJ for the costs of such services in addition to a management fee
based on a percentage of collections of patient revenues generated after
November 1, 1996 (reduced by the medical equipment master lease payments) and
66-2/3% of professional practice cost savings as defined in the Agreement.
F-43
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
South Texas Spinal Clinic, P.A.
We have audited the accompanying balance sheets of South Texas Spinal Clinic,
P.A. (STSC) as of December 31, 1994 and 1995 and October 31, 1996, and the
related statements of operations, stockholders' equity, and cash flows for the
years ended December 31, 1994 and 1995 and the ten months ended October 31,
1996. These financial statements are the responsibility of STSC's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of STSC at December 31, 1994 and
1995 and the ten months ended October 31, 1996 in conformity with generally
accepted accounting principles.
ERNST & YOUNG, LLP
San Antonio, Texas
June 5, 1997
F-44
<PAGE>
SOUTH TEXAS SPINAL CLINIC, P.A.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- OCTOBER 31,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.............................................................. $ 56,205 $ 41,642 $ 430,452
Accounts receivable, net.......................................... 2,497,993 2,535,945 1,688,980
Prepaid expenses and other current assets......................... 18,680 23,705 21,809
----------- ----------- -----------
Total current assets................................................ 2,572,878 2,601,292 2,141,241
Furniture, fixtures, and equipment, net............................. 554,099 476,263 416,047
Other assets........................................................ 31,016 55,200 32,925
----------- ----------- -----------
Total assets........................................................ $ 3,157,993 $ 3,132,755 $ 2,590,213
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................................. $ 125,000 $ 125,000 $ 104,166
Capital lease obligation, current portion......................... -- 3,153 3,464
Accounts payable.................................................. 132,733 91,904 515,287
Accounts payable--related party................................... -- 5,372 --
Accrued expenses and other current liabilities.................... 11,531 13,312 17,490
----------- ----------- -----------
Total current liabilities........................................... 269,264 238,741 640,407
Long-term debt, less current portion................................ 208,333 83,333 --
Capital lease obligation, less current portion...................... -- 6,442 3,530
Stockholders' equity:
Common stock, no par; 100,000 shares authorized; 2,500 shares
issued and outstanding......................................... 1,000 1,000 1,000
Retained earnings................................................. 2,679,396 2,803,239 1,945,276
----------- ----------- -----------
Total stockholders' equity.......................................... 2,680,396 2,804,239 1,946,276
----------- ----------- -----------
Total liabilities and stockholders' equity.......................... $ 3,157,993 $ 3,132,755 $ 2,590,213
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes.
F-45
<PAGE>
SOUTH TEXAS SPINAL CLINIC, P.A.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED
DECEMBER 31, OCTOBER 31,
------------------------ ------------
1994 1995 1996
---------- ---------- ------------
<S> <C> <C> <C>
Practice revenues, net..................................... $6,973,761 $7,748,203 $6,027,164
Costs and expenses:
Physician and other provider services.................... 4,681,361 5,578,510 5,257,398
Medical support services................................. 971,812 1,060,037 1,073,446
Depreciation............................................. 88,065 90,012 74,914
Interest................................................. 36,956 27,529 13,375
Rent..................................................... 125,770 150,168 118,491
Rent-related party....................................... 711,892 718,104 347,503
---------- ---------- ------------
Total costs and expenses................................... 6,615,856 7,624,360 6,885,127
---------- ---------- ------------
Net income (loss).......................................... $ 357,905 $ 123,843 $ (857,963)
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
See accompanying notes.
F-46
<PAGE>
SOUTH TEXAS SPINAL CLINIC, P.A.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------------
NUMBER ADDITIONAL RETAINED
OF SHARES AMOUNT PAID-IN EARNINGS TOTAL
--------- ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993......................... 2,500 $1,000 $ -- $2,321,491 $2,322,491
Repurchase and retirement of common stock.......... -- -- -- -- --
Issuance of common stock........................... -- -- -- -- --
Net income......................................... -- -- -- 357,905 357,905
--------- ------ ---------- ---------- ----------
Balance at December 31, 1994......................... 2,500 1,000 -- 2,679,396 2,680,396
Repurchase and retirement of common stock.......... -- -- -- -- --
Issuance of common stock........................... -- -- -- -- --
Net income......................................... -- -- -- 123,843 123,843
--------- ------ ---------- ---------- ----------
Balance at December 31, 1995......................... 2,500 1,000 -- 2,803,239 2,804,239
Repurchase and retirement of common stock.......... -- -- -- -- --
Issuance of common stock........................... -- -- -- -- --
Net loss........................................... -- -- -- (857,963) (857,963)
--------- ------ ---------- ---------- ----------
Balance at October 31, 1996.......................... 2,500 $1,000 $ -- $1,945,276 $1,946,276
--------- ------ ---------- ---------- ----------
--------- ------ ---------- ---------- ----------
</TABLE>
See accompanying notes.
F-47
<PAGE>
SOUTH TEXAS SPINAL CLINIC, P.A.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED
DECEMBER 31, OCTOBER 31,
---------------------- ------------
1994 1995 1996
--------- --------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................................ $ 357,905 $ 123,843 $ (857,963)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation........................................................... 88,065 90,012 74,914
Changes in operating assets and liabilities:
Accounts receivable................................................. (214,029) (37,952) 846,965
Deferred charges and other assets................................... (52,734) (29,209) 24,171
Accounts payable.................................................... 96,391 (40,829) 423,383
Accrued expenses and other liabilities.............................. 4,363 7,153 (1,194)
--------- --------- ------------
Net cash provided by operating activities................................ 279,961 113,018 510,276
INVESTING ACTIVITIES
Purchases of property and equipment...................................... (5,608) (12,176) (14,698)
Property and equipment under capital lease............................... -- 9,595 (2,601)
--------- --------- ------------
Net cash used in investing activities.................................... (5,608) (2,581) (17,299)
FINANCING ACTIVITY
Payments on notes payable to banks....................................... (245,000) (125,000) (104,167)
--------- --------- ------------
Net cash used in financing activity...................................... (245,000) (125,000) (104,167)
--------- --------- ------------
Net increase (decrease) in cash.......................................... 29,353 (14,563) 388,810
Cash and cash equivalents at beginning of year........................... 26,852 56,205 41,642
--------- --------- ------------
Cash and cash equivalents at end of year................................. $ 56,205 $ 41,642 $ 430,452
--------- --------- ------------
--------- --------- ------------
</TABLE>
See accompanying notes.
F-48
<PAGE>
SOUTH TEXAS SPINAL CLINIC, P.A.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 AND 1995 AND
TEN MONTHS ENDED OCTOBER 31, 1996
1. DESCRIPTION OF THE BUSINESS
South Texas Spinal Clinic, P.A. (STSC) is an orthopedic physician practice
which services San Antonio, Texas, and the surrounding communities. STSC is
organized as a professional corporation (S corporation) under the laws of the
state of Texas.
Effective November 1, 1996, STSC entered into an agreement to sell
substantially all of the assets of STSC and enter into a management services
agreement with BMJ Medical Management, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenue is recorded at estimated net amounts to be received from
third-party payors and others for services rendered.
Laws and regulations governing the Medicare program are complex and subject
to interpretation. STSC believes that it is in compliance with all applicable
laws and regulations and is not aware of any pending or threatened
investigations involving allegations of potential wrongdoing. While no such
regulatory inquiries have been made, compliance with such laws and regulations
can be subject to future government review and interpretation as well as
significant regulatory action including fines, penalties, and exclusion from the
Medicare program.
Furniture, Fixtures, and Equipment
Furniture, fixtures, and equipment are stated at cost, less accumulated
depreciation, and are depreciated using the straight-line method over the
estimated useful lives of the assets, ranging from five (5) to twenty (20)
years.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Presentation of Expenses
Physician and other provider services costs are composed primarily of
compensation and fees paid to physician and other health care providers and
include medical supplies and pharmaceutical expenses.
Medical support services costs include all indirect costs associated with
the management and operations of the practice.
F-49
<PAGE>
SOUTH TEXAS SPINAL CLINIC, P.A.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. ACCOUNTS RECEIVABLE AND NET REVENUE
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
------------------------ -----------
1994 1995 1996
---------- ---------- -----------
<S> <C> <C> <C>
Gross patient accounts receivable........................... $3,122,491 $3,169,931 $ 2,711,718
Less allowances for contractual adjustments and
uncollectibles............................................ 624,498 633,986 1,022,738
---------- ---------- -----------
$2,497,993 $2,535,945 $ 1,688,980
---------- ---------- -----------
---------- ---------- -----------
Net revenue consists of the following:
<CAPTION>
DECEMBER 31, OCTOBER 31,
------------------------ -----------
1994 1995 1996
---------- ---------- -----------
<S> <C> <C> <C>
Gross patient revenue....................................... $8,717,201 $9,685,260 $10,045,273
Less contractual adjustments and uncollectibles............. 1,743,440 1,937,052 4,018,109
---------- ---------- -----------
$6,973,761 $7,748,208 $ 6,027,164
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
4. FURNITURE, FIXTURES, AND EQUIPMENT
Furniture, fixtures, and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
-------------------- -----------
1994 1995 1996
-------- -------- -----------
<S> <C> <C> <C>
Furniture, fixtures, and equipment................................. $674,272 $676,117 $ 690,815
Equipment under capital leases..................................... -- 10,330 10,330
-------- -------- -----------
674,272 686,447 701,145
Less accumulated depreciation and amortization..................... 120,173 210,184 285,098
-------- -------- -----------
$554,099 $476,263 $ 416,047
-------- -------- -----------
-------- -------- -----------
</TABLE>
5. NOTES PAYABLE
Notes payable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
-------------------- -----------
1994 1995 1996
-------- -------- -----------
<S> <C> <C> <C>
Note payable to bank with maturity date of August 26, 1997, with a
variable interest rate based upon the Prime rate as described in
the note agreement at each monthly payment date. (effective rate
of 8.5%, 9.5% and 9.25%, at December 31, 1994 and 1995 and
October 31, 1996, respectively).................................. $333,333 $208,333 $ 104,166
Less current maturities............................................ 125,000 125,000 104,166
-------- -------- -----------
$208,333 $ 83,333 $ --
-------- -------- -----------
-------- -------- -----------
</TABLE>
The note payable to the bank is collateralized by the assets of STSC. The
note payable requires STSC to comply with certain covenants. Actual interest
payments were $36,956, $27,246, and $12,583 during the years ended December 31,
1994, 1995, and the ten months ended October 31, 1996, respectively.
6. LEASE COMMITMENTS
STSC leases various equipment, clinic and office space, and office
buildings under operating leases and certain computer and medical equipment
under capital leases. Rent expenses charged to operations totaled approximately
$837,662, $868,272, and $460,623 during the years ended December 31, 1994, 1995,
and the ten months ended October 31, 1996, respectively.
F-50
<PAGE>
SOUTH TEXAS SPINAL CLINIC, P.A.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. LEASE COMMITMENTS--(CONTINUED)
The lease commitments for the two months ending December 31, 1996 and for
the next five years ending December 31 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL LEASES CAPITAL LEASES
LEASES PRINCIPAL INTEREST
--------- -------------- --------------
<S> <C> <C> <C>
1996......................................................... $ 77,778 $ 550 $129
1997......................................................... 471,963 3,526 547
1998......................................................... 442,126 2,916 138
1999......................................................... 419,015 -- --
2000......................................................... 402,237 -- --
2001......................................................... 388,524 -- --
</TABLE>
7. INCOME TAXES
STSC has historically not incurred significant tax liabilities for federal
income taxes. STSC has been organized as an S corporation and, accordingly,
income tax liabilities are the responsibility of the respective owners.
8. BENEFIT PLANS
STSC maintains a defined contribution plan for employees who meet the
minimum length of service and age requirements. Under the plan, STSC makes
contributions equal to 50% up to a maximum of 5% of the employee's contribution.
STSC is responsible for the administration of the plan as the plan administrator
and trustee. STSC's contributions totaled $216,660, $21,329, and $15,177 in the
years ended December 31, 1994, 1995, and the ten-month period ended October 31,
1996, respectively.
9. CONTINGENCIES
STSC is involved in various legal proceedings in the ordinary course of
business. STSC does not believe that the disposition of such legal proceedings
and disputes will have a material adverse effect on the financial position and
results of operations of STSC.
STSC procures professional liability coverage on behalf of its physicians
on a claims-made basis. The insurance contracts specify that coverage is
available only during the term of each insurance contract. Management of STSC
intends to renew the existing claims-made policy annually and expects to be able
to obtain such coverage. Whenever coverage is not renewed, STSC purchases an
extended reporting period endorsement to provide professional liability coverage
for losses incurred prior to, but reported subsequent to, the termination of the
claims-made policies.
10. RELATED PARTY TRANSACTIONS
STSC leases office space from Meadows Enterprises, an entity under common
ownership. Monthly rental expense is $29,498. Rental expenses for the periods
ending December 31, 1994, December 31, 1995, and October 31, 1996 were $294,842,
$361,104, and $311,653, respectively.
Meadows, Dennis, Denno, G.P., an entity under common ownership, provides
certain furniture, fixtures, and equipment for use in STSC's operations. STSC
pays rents to Meadows, Dennis, Denno, G.P. in excess of fair market value. Total
payments made during the years ended December 31, 1994, 1995, and the ten-month
period ended October 31, 1996 were $417,050, $357,000, and $35,850,
respectively.
F-51
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Tri-City Orthopedic Surgery
Medical Group, Inc.
We have audited the accompanying balance sheets of Tri-City Orthopedic Surgery
Medical Group, Inc. (Tri-City) as of December 31, 1995 and 1996, and the related
statements of operations, stockholders' equity (deficit), and cash flows for the
years then ended. These financial statements are the responsibility of
Tri-City's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tri-City at December 31, 1995
and 1996, and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
ERNST & YOUNG, LLP
West Palm Beach, Florida
May 17, 1997
F-52
<PAGE>
TRI-CITY ORTHOPEDIC SURGERY
MEDICAL GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 65,569 $ --
Accounts receivable, net................................................................ 544,056 538,503
Prepaid expenses and other current assets............................................... 31,520 30,976
-------- --------
Total current assets...................................................................... 641,145 569,479
Furniture, fixtures and equipment, net.................................................... 182,010 160,418
-------- --------
Total assets.............................................................................. $823,155 $729,897
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................ $ 50,703 $ 56,967
Accrued shareholders' salaries.......................................................... 245,398 182,159
Accrued expenses and other current liabilities.......................................... 183,404 222,960
Current portion of notes payable........................................................ 32,369 19,150
Deferred income taxes................................................................... 98,546 83,324
-------- --------
Total current liabilities................................................................. 610,420 564,560
Notes payable, less current portion....................................................... 22,058 2,908
Stockholders' equity:
Common stock, $10 par value--2,500 shares authorized, 360 shares issued and outstanding
in 1995 and 1996..................................................................... 3,600 3,600
Retained earnings....................................................................... 187,077 158,829
-------- --------
Total stockholders' equity................................................................ 190,677 162,429
-------- --------
Total liabilities and stockholders' equity................................................ $823,155 $729,897
-------- --------
-------- --------
</TABLE>
See accompanying notes
F-53
<PAGE>
TRI-CITY ORTHOPEDIC SURGERY
MEDICAL GROUP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------------
1995 1996
----------- -----------
<S> <C> <C>
Practice revenues, net........................................................ $ 3,643,823 $ 3,477,532
Costs and expenses:
Physician and other provider services....................................... 2,084,397 1,701,682
Medical support services.................................................... 1,546,366 1,460,504
Depreciation................................................................ 39,604 31,867
Interest.................................................................... 4,827 2,884
Rent--related party......................................................... 323,959 324,065
----------- -----------
Total costs and expenses...................................................... 3,999,153 3,521,002
----------- -----------
Loss before income taxes.................................................... (355,330) (43,470)
Income tax benefit.......................................................... 150,005 15,222
----------- -----------
Net loss...................................................................... $ (205,325) $ (28,248)
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
F-54
<PAGE>
TRI-CITY ORTHOPEDIC SURGERY
MEDICAL GROUP, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- TOTAL
NUMBER RETAINED STOCKHOLDERS'
OF SHARES AMOUNT EARNINGS EQUITY
---------- ------ --------- -------------
<S> <C> <C> <C> <C>
Balance at January 1, 1995...................................... 360 $3,600 $ 392,402 $ 396,002
Net loss...................................................... -- -- (205,325) (205,325)
--- ------ --------- -------------
Balance at December 31, 1995.................................... 360 3,600 187,077 190,677
Net loss...................................................... -- -- (28,248) (28,248)
--- ------ --------- -------------
Balance at December 31, 1996.................................... 360 3,600 158,829 162,429
--- ------ --------- -------------
--- ------ --------- -------------
</TABLE>
See accompanying notes.
F-55
<PAGE>
TRI-CITY ORTHOPEDIC SURGERY
MEDICAL GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1995 1996
--------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss................................................................................... $(205,325) $(28,248)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation............................................................................. 39,604 31,867
Income tax benefit....................................................................... (150,005) (15,222)
Changes in operating assets and liabilities:
Accounts receivable................................................................... 351,843 5,553
Prepaid expenses and other current assets............................................. (5,921) 544
Accounts payable...................................................................... 1,664 6,264
Accrued expenses and other current liabilities........................................ 43,761 (23,683)
--------- --------
Net cash provided by (used in) operating activities........................................ 75,621 (22,925)
INVESTING ACTIVITY:
Purchases of furniture, fixtures and equipment............................................. (11,288) (10,275)
--------- --------
Net cash used in investing activity........................................................ (11,288) (10,275)
FINANCING ACTIVITIES:
Payments on notes payable.................................................................. (30,178) (32,369)
--------- --------
Net cash used in financing activities...................................................... (30,178) (32,369)
--------- --------
Net increase (decrease) in cash and
cash equivalents......................................................................... 34,155 (65,569)
Cash and cash equivalents at beginning of year............................................. 31,414 65,569
--------- --------
Cash and cash equivalents at end of year................................................... $ 65,569 $ --
--------- --------
--------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest..................................................................... $ 4,827 $ 2,884
--------- --------
--------- --------
</TABLE>
See accompanying notes.
F-56
<PAGE>
TRI-CITY ORTHOPEDIC SURGERY
MEDICAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
1. DESCRIPTION OF THE BUSINESS
Tri-City Orthopedic Surgery Medical Group, Inc. (Tri-City) was incorporated
as a C corporation on October 26, 1972 under the laws of the State of
California. Tri-City specializes in providing orthopedic medical and surgical
services and related medical and ancillary services in San Diego County.
Tri-City receives payment for patient services from the federal government
primarily under the Medicare program, state governments under their respective
Medicaid programs, health maintenance organizations, preferred provider
organizations and other private insurers, and directly from patients.
On April 1, 1997, Tri-City entered into a management services agreement
with BMJ Medical Management, Inc. and agreed to sell substantially all of its
assets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenue is recorded at estimated net amounts to be received from third
party payors and others for services rendered.
Laws and regulations governing the Medicare and Medi-Cal programs are
complex and subject to interpretation. Tri-City believes that it is in
compliance with all applicable laws and regulations and is not aware of any
pending or threatened investigations involving allegations of potential
wrongdoing. While no such regulatory inquiries have been made, compliance with
such laws and regulations can be subject to future government review and
interpretation as well as significant regulatory action including fines,
penalties, and exclusion from the Medicare and Medi-Cal programs.
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are stated at cost, less accumulated
depreciation, and are depreciated using the straight-line method over the
estimated useful lives of the assets, ranging from five to ten years.
Income Taxes
Tri-City accounts for income taxes under FASB Statement No. 109, Accounting
for Income Taxes. Deferred income tax assets and liabilities are determined
based upon differences between financial reporting and tax losses of assets and
liabilities and are measured using the enacted tax rates that will be in effect
when the differences are expected to reverse.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
Costs and Expenses
Physician and other provider services costs are comprised primarily of
compensation and fees paid to physicians and other health care providers.
Medical support services costs include all indirect costs associated with
the management and operations of the practice and all direct costs associated
with medical supplies and pharmaceutical expenses.
F-57
<PAGE>
TRI-CITY ORTHOPEDIC SURGERY
MEDICAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1995 1996
-------- --------
<S> <C> <C>
Gross patient accounts receivable............................................... $942,225 $889,189
Less allowances for contractual adjustments and uncollectibles.................. 398,169 350,686
-------- --------
$544,056 $538,503
-------- --------
-------- --------
</TABLE>
4. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- --------
<S> <C> <C>
Furniture, fixtures and equipment............................................... $211,229 $221,403
Automobiles..................................................................... 224,819 224,819
Leasehold improvements.......................................................... 15,331 15,432
-------- --------
451,379 461,654
Less accumulated depreciation and amortization.................................. 269,369 301,236
-------- --------
$182,010 $160,418
-------- --------
-------- --------
</TABLE>
5. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- -------
<S> <C> <C>
Bank promissory note, secured by an automobile, bearing interest at 4.90%,
principal and interest payable monthly at $734.50 through April 9, 1998......... $19,396 $11,354
Bank promissory note, secured by an automobile, bearing interest at 7.75%,
principal and interest payable monthly at $2,182.44 through May 31, 1997........ 35,031 10,704
------- -------
54,427 22,058
Less current portion.............................................................. 32,369 19,150
------- -------
$22,058 $ 2,908
------- -------
------- -------
</TABLE>
At December 31, 1996, annual principal payments on notes payable are as
follows:
<TABLE>
<S> <C>
1997............................................................................... $19,150
1998............................................................................... 2,908
-------
$22,058
-------
-------
</TABLE>
On December 23, 1996, Tri-City entered into an unsecured line of credit
arrangement with a bank which matures on March 30, 1998. The line of credit
permits borrowings up to $150,000 and is guaranteed by the
F-58
<PAGE>
TRI-CITY ORTHOPEDIC SURGERY
MEDICAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. NOTES PAYABLE--(CONTINUED)
shareholders of Tri-City. Interest on the line of credit is payable monthly at
prime plus 1%, with the entire principal due at maturity. As of December 31,
1996, Tri-City had not drawn against the line of credit. On January 3, 1997 and
January 17, 1997, Tri-City drew $100,000 and $50,000, respectively, on the line
of credit.
6. LEASE COMMITMENTS
Tri-City leases various equipment, clinic and office space under operating
leases with a related party, Tri-City Orthopedic Building Partners (TCOBP), on a
month to month basis. Rent expense charged to operations totaled approximately
$324,000 during both 1995 and 1996.
Tri-City also leases an office building under a noncancelable lease with
TCOBP with future minimum rental commitments at December 31, 1996 as follows:
<TABLE>
<S> <C>
1997............................................................................ $ 228,936
1998............................................................................ 228,000
1999............................................................................ 228,000
2000............................................................................ 228,000
2001............................................................................ 228,000
Thereafter...................................................................... 3,021,000
----------
$4,161,936
----------
----------
</TABLE>
7. INCOME TAXES
The components of the income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
--------- --------
<S> <C> <C>
Current........................................................................ $ -- $ --
Deferred....................................................................... (150,005) (15,222)
--------- --------
Total.......................................................................... $(150,005) $(15,222)
--------- --------
--------- --------
</TABLE>
F-59
<PAGE>
TRI-CITY ORTHOPEDIC SURGERY
MEDICAL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES--(CONTINUED)
Deferred income taxes reflected the net tax effects of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of Tri-City's net deferred income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
--------- --------
<S> <C> <C>
Deferred tax assets:
Depreciation................................................................. $ 241 $ 1,978
Charitable contributions..................................................... 2,304 2,943
NOL carryforward............................................................. 7,477 3,371
--------- --------
Deferred tax assets.......................................................... 10,022 8,292
Less valuation allowance..................................................... -- --
--------- --------
Total deferred tax assets...................................................... 10,022 8,292
Deferred tax liabilities:
Net cash to accrual conversion................................................. (108,568) (91,616)
--------- --------
Total deferred tax liabilities................................................. (108,568) (91,616)
--------- --------
Total net deferred taxes....................................................... $ (98,546) $(83,324)
--------- --------
--------- --------
</TABLE>
At December 31, 1996, Tri-City has available net operating loss
carryforwards of $8,212, which expire in the years 2009 and 2011.
8. BENEFIT PLANS
Tri-City maintains a defined contribution plan under the provisions of
Section 401(k) of the Internal Revenue Code. Employees who meet the minimum
length of service and age requirements are eligible for participation. Tri-City
is responsible for the administration of the plan as the plan administrator and
trustee. Under the provisions of the plan, contributions by Tri-City are
discretionary. Tri-City did not make any contributions to the plan in 1995 or
1996.
9. CONTINGENCIES
Tri-City procures professional liability coverage on behalf of its
physicians on a claims made basis. The insurance contracts specify that coverage
is available only during the term of each insurance contract and cover only
those claims reported while the policies are in force. An estimate of losses for
incurred but unreported claims is recorded based upon historical experience.
Management of Tri-City intends to renew the existing claims made policy annually
and expects to be able to obtain such coverage. If coverage is not renewed,
Tri-City intends to purchase extended reporting period endorsements to provide
professional liability coverage for losses incurred prior to, but reported
subsequent to, the termination of the claims made policies.
10. SUBSEQUENT EVENT
In March 1997, Tri-City issued 60 shares of common stock to an orthopedic
physician who joined the practice.
F-60
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Partners
Lauderdale Orthopaedic Surgeons
We have audited the accompanying balance sheets of Lauderdale Orthopaedic
Surgeons (LOS) as of December 31, 1995 and 1996, and the related statements of
income and changes in partners' capital, and cash flows for the years then
ended. These financial statements are the responsibility of LOS' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of LOS at December 31, 1995 and
1996, and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
ERNST & YOUNG, LLP
West Palm Beach, Florida
May 21, 1997
F-61
<PAGE>
LAUDERDALE ORTHOPAEDIC SURGEONS
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................................................ $ 35,426 $ 108,900
Investments available for sale...................................................... 55,929 77,796
Accounts receivable, net............................................................ 2,134,318 2,354,577
Prepaid expenses and other current assets........................................... 30,214 25,650
---------- ----------
Total current assets.................................................................. 2,255,887 2,566,923
Furniture, fixtures and equipment, net................................................ 177,058 143,695
Other assets.......................................................................... 877 585
---------- ----------
Total assets.......................................................................... $2,433,822 $2,711,203
---------- ----------
---------- ----------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Patients refunds.................................................................... $ 402,073 $ 471,328
Accounts payable.................................................................... 138,328 78,645
Accrued expenses and other current liabilities...................................... 344,285 295,831
Current portion of long-term debt................................................... 100,000 100,000
---------- ----------
Total current liabilities............................................................. 984,686 945,804
Long-term debt, less current portion.................................................. 150,000 50,000
Commitments and contingencies.........................................................
Partners' capital..................................................................... 1,299,136 1,715,399
---------- ----------
Total liabilities and partners' capital............................................... $2,433,822 $2,711,203
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
F-62
<PAGE>
LAUDERDALE ORTHOPAEDIC SURGEONS
STATEMENTS OF INCOME AND CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------
1995 1996
---------- ----------
<S> <C> <C>
Practice revenues, net.......................................................... $5,980,594 $6,365,320
Other income.................................................................... 11,610 39,555
---------- ----------
Total revenue................................................................... 5,992,204 6,404,875
Costs and expenses:
Physician and other provider services......................................... 3,458,807 3,696,522
Medical support services...................................................... 1,606,300 1,771,864
Medical support services--related party....................................... 100,015 96,761
Depreciation.................................................................. 68,279 58,930
Interest...................................................................... 30,666 18,253
Rent.......................................................................... 135,042 151,053
Rent--related party........................................................... 206,000 212,867
---------- ----------
Total costs and expenses........................................................ 5,605,109 6,006,250
---------- ----------
Net income...................................................................... 387,095 398,625
---------- ----------
Partners' capital, beginning of year............................................ 894,995 1,299,136
Increase in unrealized gain on available for sale investments................... 17,046 17,638
---------- ----------
Partners' capital, end of year.................................................. $1,299,136 $1,715,399
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
F-63
<PAGE>
LAUDERDALE ORTHOPAEDIC SURGEONS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1995 1996
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income................................................................................ $ 387,095 $ 398,625
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation............................................................................ 68,279 58,930
Changes in operating assets and liabilities:
Accounts receivable.................................................................. (794,618) (220,259)
Prepaid expenses and other current assets............................................ (2,557) 4,564
Patients refunds..................................................................... 402,073 69,255
Accounts payable..................................................................... 35,895 (59,683)
Accrued expenses and other current
liabilities........................................................................ 45,950 (48,452)
--------- ---------
Net cash provided by operating activities................................................. 142,117 202,980
INVESTING ACTIVITIES:
Purchases of furniture, fixtures and equipment............................................ (7,174) (25,274)
Purchases of investments available for sale............................................... (7,605) (4,232)
--------- ---------
Net cash used in investing activities..................................................... (14,779) (29,506)
FINANCING ACTIVITIES
Payments on note payable to bank.......................................................... (100,000) (100,000)
--------- ---------
Net cash used in financing activities..................................................... (100,000) (100,000)
--------- ---------
Net increase in cash...................................................................... 27,338 73,474
Cash at beginning of year................................................................. 8,088 35,426
--------- ---------
Cash at end of year....................................................................... $ 35,426 $ 108,900
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-64
<PAGE>
LAUDERDALE ORTHOPAEDIC SURGEONS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
1. DESCRIPTION OF THE BUSINESS
Lauderdale Orthopaedic Surgeons (LOS) is an orthopedic physician practice
which serves patients in Broward County, Florida. LOS is organized as a
partnership under the laws of the state of Florida.
On April 1, 1997, LOS agreed in principle to a management services
agreement with BMJ Medical Management, Inc. and agreed to sell substantially all
of its assets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenue is recorded at estimated net amounts to be received from third
party payors and others for services rendered.
Laws and regulations governing the Medicare program are complex and subject
to interpretation. LOS believes that it is in compliance with all applicable
laws and regulations and is not aware of any pending or threatened
investigations involving allegations of potential wrongdoing. While no such
regulatory inquiries have been made, compliance with such laws and regulations
can be subject to future government review and interpretation as well as
significant regulatory action including fines, penalties, and exclusion from the
Medicare program.
Investments Available for Sale
Investments available for sale are carried at fair market value, with
resulting unrealized holding gains and losses reported as a separate component
of partners' capital. Realized gains and losses and declines in value judged to
be other-than-temporary on investments available for sale are included in other
income. The cost of securities sold is based on the specific identification
method. Interest and dividends on investments classified as available-for-sale
are included in other income.
Concentration of Credit Risk
LOS grants credit without collateral to its patients, most of whom are
local residents and are insured under third-party payor agreements. Management
believes credit risk associated with accounts receivable is minimal.
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment, including leasehold improvements, are
stated at cost, less accumulated depreciation, and are depreciated using the
straight line method over the estimated useful lives of the assets, ranging from
5 to 20 years.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
F-65
<PAGE>
LAUDERDALE ORTHOPAEDIC SURGEONS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Costs and Expenses
Physician and other provider services costs are comprised primarily of
compensation and fees paid to physicians and other health care providers.
Medical support services costs include all indirect costs associated with
the management and operations of the practice and all direct costs associated
with medical supplies and pharmaceutical expenses.
Financial Instruments
The carrying amounts of financial instruments as reported in the
accompanying balance sheets approximate their fair value primarily due to the
short-term nature of such financial instruments.
3. INVESTMENTS AVAILABLE FOR SALE
Investments available for sale consist of the following:
<TABLE>
<CAPTION>
GROSS
UNREALIZED FAIR
COST GAINS VALUE
------- ---------- -------
<S> <C> <C> <C>
December 31, 1995:
Corporate equities.................................................. $31,273 $ 24,656 $55,929
------- ---------- -------
------- ---------- -------
December 31, 1996:
Corporate equities.................................................. $35,505 $ 42,291 $77,796
------- ---------- -------
------- ---------- -------
</TABLE>
In accordance with Statement of Financial Accounting Standard No. 115,
Accounting for Certain Investments in Debt and Equity Securities, unrealized
holding gains on available-for-sale securities of $24,656 and $42,291 are
included as a separate component of partners' capital at December 31, 1995 and
1996, respectively.
Gross realized gains and losses from the sale of investments available for
sale were not material for the years ended December 31, 1995 and 1996.
4. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Gross patient accounts receivable........................... $ 4,662,946 $ 5,300,172
Less allowances for contractual adjustments and
uncollectibles............................................ 2,528,628 2,945,595
----------- -----------
$ 2,134,318 $ 2,354,577
----------- -----------
----------- -----------
</TABLE>
F-66
<PAGE>
LAUDERDALE ORTHOPAEDIC SURGEONS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
--------- ---------
<S> <C> <C>
Furniture, fixtures and equipment............................... $ 487,241 $ 462,847
Leasehold improvements.......................................... 522,678 527,179
Less accumulated depreciation and amortization.................. 832,861 846,331
--------- ---------
$ 177,058 $ 143,695
--------- ---------
--------- ---------
</TABLE>
6. LONG TERM DEBT
Long term debt consists of a note payable to a bank bearing interest at the
bank's prime lending rate plus 1.25% (9.75% and 9.5% as of December 31, 1995 and
1996, respectively), with monthly payments of $8,333 plus interest, maturing
June 30, 1998. Maturities of the note are $100,000 for 1997 and $50,000 for
1998. The note is secured by substantially all of the assets of LOS and is
guaranteed by three of the partners. The note was paid in full in May 1997. LOS
paid approximately $31,000 and $18,000 of interest in 1995 and 1996,
respectively.
7. LEASE COMMITMENTS
LOS leases various equipment, clinic and office space under operating
leases. Future minimum rental commitments under noncancelable operating leases
(with an initial or remaining term in excess of one year) at December 31, 1996
are approximately as follows (including leases with related parties):
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
- ------------
<S> <C>
1997........................................................ $ 335,000
1998........................................................ 296,000
1999........................................................ 218,000
2000........................................................ 218,000
2001........................................................ 145,000
------------
$1,212,000
------------
------------
</TABLE>
8. INCOME TAXES
LOS was formed as a partnership under the Federal Internal Revenue Code. As
a result, in lieu of corporate income tax, LOS' taxable income is passed through
to the partners and taxed at the partner level. Accordingly, no provision or
liability for income tax has been reflected in the financial statements.
9. CONTINGENCIES
LOS procures professional liability coverage on behalf of its physicians on
a claims made basis. The insurance contracts specify that coverage is available
only during the term of each insurance contract and cover only those claims
reported while the policies are in force. An estimate of losses for incurred but
unreported claims is recorded based upon historical experience. Management of
LOS intends to renew the existing claims made policy annually and expects to be
able to obtain such coverage. If coverage is not renewed, LOS intends to
purchase extended reporting period endorsements to provide professional
liability coverage for losses incurred prior to, but reported subsequent to, the
termination of the claims made policies.
F-67
<PAGE>
LAUDERDALE ORTHOPAEDIC SURGEONS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. RELATED PARTY TRANSACTIONS
LOS leases medical office space from an entity controlled by one of the
partners. The lease expires in 2001 and contains renewal options. Rent expense
incurred under the lease was approximately $206,000 and $213,000 for the years
ended December 31, 1995 and 1996, respectively.
Under the terms of a management agreement, LOS incurs expenses to an entity
controlled by the partners for diagnostic equipment rental and other overhead
charges. Expenses incurred under this contract were approximately $100,000 and
$97,000 for the years ended December 31, 1995 and 1996, respectively.
F-68
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Fishman and Stashak, M.D.'s, P.A.
d/b/a Gold Coast Orthopedics
We have audited the accompanying balance sheets of Fishman and Stashak, M.D.'s,
P.A. d/b/a Gold Coast Orthopedics (Gold Coast) as of December 31, 1995 and 1996,
and the related statements of income, stockholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of Gold
Coast's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Gold Coast at December 31, 1995
and 1996, and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
ERNST & YOUNG, LLP
West Palm Beach, Florida
July 9, 1997
F-69
<PAGE>
FISHMAN AND STASHAK, M.D.'S, P.A.
D/B/A GOLD COAST ORTHOPEDICS
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ -- $ --
Accounts receivable, net............................................................ 1,586,752 1,756,545
Advance to stockholder.............................................................. 4,606 --
Prepaid expenses.................................................................... 43,606 74,748
---------- ----------
Total current assets.................................................................. 1,634,964 1,831,293
Furniture, fixtures and equipment, net................................................ 171,194 141,298
---------- ----------
Total assets.......................................................................... $1,806,158 $1,972,591
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................... $ 24,935 $ 33,605
Accrued consulting fee.............................................................. -- --
Due to BMJ Medical Management, Inc.................................................. -- --
Due to stockholder.................................................................. 18,893 --
Accrued compensation................................................................ 130,732 101,209
Accrued professional liability insurance............................................ 130,271 166,131
Accrued profit sharing plan contribution............................................ 50,000 --
Current portion of long-term debt................................................... 141,118 146,080
---------- ----------
Total current liabilities............................................................. 495,949 447,025
Long-term debt........................................................................ 279,232 230,357
Stockholders' equity:
Common stock, $1 par value--1,000 shares authorized, 600 shares issued and
outstanding
in 1995, 1996 and 1997........................................................... 600 600
Retained earnings................................................................... 1,030,377 1,294,609
---------- ----------
Total stockholders' equity............................................................ 1,030,977 1,295,209
---------- ----------
Total liabilities and stockholders' equity............................................ $1,806,158 $1,972,591
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
F-70
<PAGE>
FISHMAN AND STASHAK, M.D.'S, P.A.
D/B/A GOLD COAST ORTHOPEDICS
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1996
---------- ----------
<S> <C> <C>
Practice revenues, net................................................................ $3,236,573 $3,433,831
Costs and expenses:
Physician and other provider services............................................... 1,414,343 1,785,478
Medical support services............................................................ 1,290,412 1,204,912
Management service fee.............................................................. -- --
Depreciation........................................................................ 40,823 33,163
Interest............................................................................ 44,821 30,940
Rent................................................................................ 121,454 115,106
---------- ----------
Total costs and expenses.............................................................. 2,911,853 3,169,599
---------- ----------
Net income............................................................................ $ 324,720 $ 264,232
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
F-71
<PAGE>
FISHMAN AND STASHAK, M.D.'S, P.A.
D/B/A GOLD COAST ORTHOPEDICS
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------- TOTAL
NUMBER RETAINED STOCKHOLDERS'
OF SHARES AMOUNT EARNINGS EQUITY
--------- ------ ---------- -------------
<S> <C> <C> <C> <C>
Balance at January 1, 1995...................................... 600 $600 $ 705,657 $ 706,257
Net income.................................................... -- -- 324,720 324,720
--------- ------ ---------- -------------
Balance at December 31, 1995.................................... 600 600 1,030,377 1,030,977
Net income.................................................... -- -- 264,232 264,232
--------- ------ ---------- -------------
Balance at December 31, 1996.................................... 600 $600 $1,294,609 $ 1,295,209
--------- ------ ---------- -------------
--------- ------ ---------- -------------
</TABLE>
See accompanying notes.
F-72
<PAGE>
FISHMAN AND STASHAK, M.D.'S, P.A.
D/B/A GOLD COAST ORTHOPEDICS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1995 1996
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................................................. $ 324,720 $ 264,232
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation............................................................................. 40,823 33,163
Bonus paid with note payable............................................................. 200,000 --
Changes in operating assets and liabilities:
Accounts receivable................................................................... (179,258) (169,793)
Prepaid expenses...................................................................... (38,835) (31,142)
Accounts payable...................................................................... (32,127) 8,670
Accrued consulting fee................................................................ -- --
Due to BMJ Medical Management, Inc. .................................................. -- --
Accrued compensation.................................................................. 119,270 (29,523)
Accrued professional liability insurance.............................................. (157,201) 35,860
Accrued profit sharing plan contribution.............................................. 50,000 (50,000)
--------- ---------
Net cash provided by operating activities.................................................. 327,392 61,467
INVESTING ACTIVITIES
Advance to stockholder..................................................................... (8,000) --
Payments received on advance to stockholder................................................ 3,394 4,606
Purchases of furniture, fixtures and equipment............................................. (73,269) (3,267)
--------- ---------
Net cash (used in) provided by investing activities........................................ (77,875) 1,339
FINANCING ACTIVITIES
Distributions to stockholders.............................................................. -- --
Payments on due to stockholder............................................................. (75,000) (100,893)
Proceeds of loan from stockholder.......................................................... 82,000
Proceeds of related party advance.......................................................... 55,000
Payments on related party advance.......................................................... (55,000)
Proceeds from long-term debt............................................................... 100,000 157,500
Payments on long-term debt................................................................. (274,517) (201,413)
--------- ---------
Net cash used in financing activities...................................................... (249,517) (62,806)
--------- ---------
Net change in cash and cash equivalents.................................................... -- --
Cash and cash equivalents at beginning of period........................................... -- --
--------- ---------
Cash and cash equivalents at end of period................................................. $ -- $ --
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest..................................................................... $ 46,932 $ 30,940
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-73
<PAGE>
FISHMAN AND STASHAK, M.D.'S, P.A.
D/B/A GOLD COAST ORTHOPEDICS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND JUNE 30, 1997 (UNAUDITED)
1. DESCRIPTION OF THE BUSINESS
Fishman and Stashak, M.D.'s, P.A. d/b/a Gold Coast Orthopedics (Gold Coast)
was organized on April 16, 1990 under the laws of the State of Florida. Gold
Coast specializes in providing orthopedic medical and surgical services and
related medical and ancillary services in Palm Beach County. Gold Coast receives
payment for patient services primarily from private insurers, health maintenance
organizations, preferred provider organizations, the federal government
primarily under the Medicare program, state governments under their respective
Medicaid programs, and directly from patients.
Effective June 1, 1997, Gold Coast and BMJ Medical Management, Inc. (BMJ)
executed a Management Services Agreement (the Agreement). The Agreement provides
that BMJ will be the exclusive provider of all management and administrative
services utilized by Gold Coast through June 1, 2037, in exchange for a
management fee based on 15% of Gold Coast's net collected revenue.
In July 1997, Gold Coast entered into an Asset Purchase Agreement with BMJ
whereby Gold Coast sold all of its accounts receivable, diagnostic and
therapeutic medical equipment, and office equipment to BMJ for approximately
$2.9 million. Furthermore, BMJ will pay Gold Coast for amounts received in
excess of $950,000 on Gold Coast's June 1, 1997 accounts receivable through June
30, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Gold Coast considers highly liquid investments with original maturities of
three months or less to be cash equivalents.
Concentration of Credit Risk
Gold Coast grants credit without collateral to its patients, most of whom
are local residents that are insured under third-party payor agreements.
Management believes the credit risk associated with accounts receivable is
minimal.
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are stated at cost, less accumulated
depreciation, and are depreciated using the straight-line method over the
estimated useful lives of the assets, ranging from four to fifteen years.
Financial Instruments
The fair value of Gold Coast's financial instruments (primarily long-term
debt) are estimated using discounted cash flow analyses, based on Gold Coast's
current incremental borrowing rates for similar types of borrowing arrangements.
The carrying amounts of financial instruments as reported in the accompanying
balance sheets approximate their fair value.
Revenue Recognition
Revenue is recorded at estimated net amounts to be received from
third-party payors and others for services rendered.
Revenues from the Medicare program accounted for approximately 10% of Gold
Coast's net practice revenues, net for the years ended December 31, 1995 and
1996. Laws and regulations governing the Medicare program are complex and
subject to interpretation. Gold Coast believes that it is in compliance with all
applicable laws and regulations and is not aware of any pending or threatened
investigations involving allegations of potential wrongdoing. While no such
regulatory inquiries have been made, compliance with such laws and regulations
can be subject to future government review and interpretation as well as
significant regulatory action including fines, penalties, and exclusion from the
Medicare program.
F-74
<PAGE>
FISHMAN AND STASHAK, M.D.'S, P.A.
D/B/A GOLD COAST ORTHOPEDICS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Costs and Expenses
Physician and other provider services costs are comprised primarily of
compensation and fees paid to physicians and other health care providers.
Medical support services costs include all indirect costs associated with
the management and operations of the practice and all direct costs associated
with medical supplies and pharmaceutical expenses.
Income Taxes
Gold Coast is taxed under the provisions of Subchapter S of the Internal
Revenue Code, which generally provides that in lieu of corporate taxes, the
stockholders shall be taxed on Gold Coast's taxable income in accordance with
their ownership interests. As a result, the accompanying financial statements
include no provision for income taxes.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
3. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---------- ----------
<S> <C> <C>
Gross patient accounts receivable............................. $3,783,563 $3,992,148
Less allowances for contractual adjustments and
uncollectibles.............................................. 2,196,811 2,235,603
---------- ----------
$1,586,752 $1,756,545
---------- ----------
---------- ----------
</TABLE>
4. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- --------
<S> <C> <C>
Furniture and fixtures............................................ $ 91,924 $ 91,924
Equipment......................................................... 138,918 141,940
Automobiles....................................................... 10,441 10,441
Leasehold improvements............................................ 96,489 96,489
-------- --------
337,772 340,794
Less accumulated depreciation and amortization.................... 166,578 199,496
-------- --------
$171,194 $141,298
-------- --------
-------- --------
</TABLE>
5. LONG-TERM DEBT
Long-Term debt is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
$350,000 promissory note payable to a bank, bearing interest at a fixed rate
of 8.50%, principal and interest payable monthly through December 1998,
secured by substantially all of the assets of Gold Coast.................... $ 286,514 $ 199,373
</TABLE>
F-75
<PAGE>
FISHMAN AND STASHAK, M.D.'S, P.A.
D/B/A GOLD COAST ORTHOPEDICS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. LONG-TERM DEBT--(CONTINUED)
<TABLE>
<S> <C> <C>
$142,988 promissory note payable to a bank, bearing interest at a fixed rate
of 9.75%, principal and interest payable monthly through November 1998,
secured by substantially all of the assets of Gold Coast.................... 115,654 79,859
$100,000 revolving line-of-credit arrangement with a bank, bearing interest at
prime plus 1% (9.25% at December 31, 1996), interest payable monthly,
principal due in 24 monthly installments commencing thirty days following
the cancellation of the arrangement, secured by substantially all of the
assets of Gold Coast, the arrangement requires Gold Coast to maintain its
primary operating account at the bank....................................... -- 97,205
$200,000 noninterest bearing promissory note payable to a former stockholder,
principal due in monthly installments through January 1996, secured by the
accounts receivable of Gold Coast, guaranteed by the stockholders of Gold
Coast....................................................................... 18,182 --
----------- -----------
420,350 376,437
Less current portion.......................................................... 141,118 146,080
----------- -----------
$ 279,232 $ 230,357
----------- -----------
----------- -----------
</TABLE>
At December 31, 1996, annual principal payments on long-term debt are as
follows:
<TABLE>
<S> <C>
1997.......................................................... $146,080
1998.......................................................... 133,152
Thereafter.................................................... 97,205
--------
$376,437
--------
--------
</TABLE>
In July 1997, Gold Coast repaid the outstanding balance on the revolving
line-of-credit arrangement.
6. DUE TO STOCKHOLDER
The President of Gold Coast, who is also a 50% stockholder, advanced
approximately $94,000 to Gold Coast prior to January 1, 1994. The amount was
payable to the stockholder on demand, was unsecured and bore interest at 8%.
Gold Coast repaid approximately $75,000 and $19,000 in 1995 and 1996,
respectively.
The Treasurer of Gold Coast, who is also a 50% stockholder, made unsecured
advances totaling approximately $82,000 to Gold Coast during 1996 which bore
interest at 6.25% and were due on demand. Gold Coast repaid these advances
during 1996.
7. LEASE COMMITMENTS
Gold Coast leases office space under a noncancelable operating lease, which
contains an escalation clause. Rent expense charged to operations totalled
approximately $95,000 during both 1995 and 1996.
F-76
<PAGE>
FISHMAN AND STASHAK, M.D.'S, P.A.
D/B/A GOLD COAST ORTHOPEDICS
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. LEASE COMMITMENTS--(CONTINUED)
Future minimum rental commitments at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997.......................................................... $ 94,714
1998.......................................................... 94,714
1999.......................................................... 94,714
2000.......................................................... 94,714
2001.......................................................... 94,714
Thereafter.................................................... 426,213
--------
$899,783
--------
--------
</TABLE>
8. RELATED PARTY TRANSACTIONS
In February 1995, a physician employee and then stockholder of Gold Coast
terminated his employment with Gold Coast. In connection with this termination,
Gold Coast agreed to pay the physician a final bonus of $200,000, pursuant to
the physician's employment agreement. This bonus is included in physician and
other provider services expense in the 1995 statement of income and was paid
over an eleven-month period pursuant to a noninterest bearing promissory note.
At December 31, 1995, approximately $18,000 of this note was outstanding and the
balance was repaid in full during 1996.
9. BENEFIT PLANS
Gold Coast maintains a defined contribution plan under the provisions of
Section 401(k) of the Internal Revenue Code. Employees who meet the minimum
length of service and age requirements are eligible for participation. Gold
Coast is responsible for the administration of the plan as the plan
administrator and trustee. Under the provisions of the plan, contributions by
Gold Coast are discretionary. Gold Coast made contributions of $50,000 and
$45,000 to the plan in 1995 and 1996, respectively.
10. CONTINGENCIES
Gold Coast is involved in various legal proceedings in the ordinary course
of business. Gold Coast does not believe that the disposition of such legal
proceedings and disputes will have a material adverse effect on the financial
position or results of operations of Gold Coast. Gold Coast procures
professional liability coverage on behalf of its physicians on a claims-made
basis. The insurance contracts specify that coverage is available only during
the term of each insurance contract and cover only those claims reported while
the policies are in force. An estimate of losses for incurred but unreported
claims is recorded based upon historical experience. Management of Gold Coast
intends to renew the existing claims-made policy annually and expects to be able
to obtain such coverage.
F-77
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Partners
Sun Valley Orthopaedic Surgeons,
an Arizona General Partnership
We have audited the accompanying balance sheet of Sun Valley Orthopaedic
Surgeons, an Arizona General Partnership (Sun Valley) as of December 31, 1996,
and the related statements of operations and changes in partners' capital and
cash flows for the year then ended. These financial statements are the
responsibility of Sun Valley's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sun Valley at December 31,
1996, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
ERNST & YOUNG, LLP
Orlando, Florida
July 18, 1997
F-78
<PAGE>
SUN VALLEY ORTHOPAEDIC SURGEONS,
AN ARIZONA GENERAL PARTNERSHIP
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
ASSETS
Current assets:
Cash.............................................................................................. $137,982
Accounts receivable, net.......................................................................... 512,267
Due from related parties.......................................................................... 183,062
Inventories....................................................................................... 9,500
Prepaid expenses and other current assets......................................................... 24,949
------------
Total current assets................................................................................ 867,760
Furniture, fixtures and equipment, net.............................................................. 34,935
Other assets........................................................................................ 7,515
Due from related parties............................................................................ 48,781
------------
Total assets........................................................................................ $958,991
------------
------------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable.................................................................................. $ 23,665
Accrued expenses and other current liabilities.................................................... 14,273
Due to bank under line of credit.................................................................. 100,000
------------
Total current liabilities........................................................................... 137,938
Due to related parties.............................................................................. 31,174
Commitments and contingencies.......................................................................
Partners' capital................................................................................... 789,879
------------
Total liabilities and partners' capital............................................................. $958,991
------------
------------
</TABLE>
See accompanying notes.
F-79
<PAGE>
SUN VALLEY ORTHOPAEDIC SURGEONS,
AN ARIZONA GENERAL PARTNERSHIP
STATEMENT OF OPERATIONS AND CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Practice revenues,net............................................................................... $2,467,989
Other revenue....................................................................................... 22,798
Other revenue from related party.................................................................... 12,005
------------
Total revenue....................................................................................... 2,502,792
Costs and expenses:
Physician and other provider services............................................................. 1,456,127
Medical support services.......................................................................... 1,044,879
Depreciation...................................................................................... 26,912
Interest.......................................................................................... 10,873
Other............................................................................................. 1,452
------------
Total costs and expenses............................................................................ 2,540,243
------------
Net loss............................................................................................ (37,451)
Beginning partners' capital......................................................................... 827,330
------------
Ending partners' capital............................................................................ $ 789,879
------------
------------
</TABLE>
See accompanying notes.
F-80
<PAGE>
SUN VALLEY ORTHOPAEDIC SURGEONS,
AN ARIZONA GENERAL PARTNERSHIP
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
OPERATING ACTIVITIES
Net loss............................................................................................ $ (37,451)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation...................................................................................... 26,912
Changes in operating assets and liabilities:
Accounts receivable, net....................................................................... 14,298
Due from related parties....................................................................... 18,518
Inventories.................................................................................... (500)
Prepaid expenses and other current assets...................................................... (8,658)
Accounts payable............................................................................... 2,393
Accrued expenses and other current liabilities................................................. 819
------------
Net cash provided by (used in) operating activities................................................. 16,331
INVESTING ACTIVITIES
Purchases of furniture, fixtures and equipment...................................................... (7,404)
Repayments of amounts due from partners and affiliates.............................................. 48,492
------------
Net cash provided by investing activities........................................................... 41,088
FINANCING ACTIVITIES
Amounts received on line of credit.................................................................. 25,000
Repayments of line of credit........................................................................ (44,000)
Repayments of amounts due to related parties........................................................ (39,500)
------------
Net cash (used in) provided by financing activities................................................. (58,500)
------------
(Decrease) increase in cash......................................................................... (1,081)
Cash, beginning of period........................................................................... 139,063
------------
Cash, end of period................................................................................. $ 137,982
------------
------------
SUPPLEMENTAL CASH FLOWS INFORMATION
Interest paid....................................................................................... $ 10,873
------------
------------
</TABLE>
See accompanying notes.
F-81
<PAGE>
SUN VALLEY ORTHOPAEDIC SURGEONS,
AN ARIZONA GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. DESCRIPTION OF THE BUSINESS
Sun Valley Orthopaedic Surgeons, an Arizona General Partnership, (Sun
Valley) is a general partnership of individual physicians and an Arizona
professional corporation, and is engaged in the business of providing orthopedic
medical and surgical services and related medical and ancillary services to
patients in Maricopa County, Arizona. Sun Valley is organized as a general
partnership under the laws of the State of Arizona.
On July 1, 1997, Sun Valley agreed in principle to sell substantially all
of its assets to and enter into a management services agreement with BMJ Medical
Management, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net Patient Service Revenue
Practice revenues, net are reported at the estimated realizable amounts due
from patients, third-party payors and others for medical services rendered.
During 1996, approximately 60% of practice revenues, net were received under
Medicare and Medicare-related programs.
Laws and regulations governing the Medicare program are complex and subject
to interpretation. Sun Valley believes that it is in compliance with all
applicable laws and regulations and is not aware of any pending or threatened
investigations involving allegations of potential wrongdoing. While no such
regulatory inquiries have been made, compliance with such laws and regulations
can be subjecct to future government review and interpretation as well as
significant regulatory action including fines, penalties, and exclusion from the
Medicare program.
Inventories
Inventories, which consist of medical and office supplies are stated at
current cost, which approximates market value, utilizing the first-in, first-out
method.
Concentration of Credit Risk
Sun Valley grants credit without collateral to its patients, most of whom
are local residents, who are insured under third-party payor agreements.
Management believes the credit risk associated with accounts receivable is
minimal.
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment, including leasehold improvements, are
stated at cost, less accumulated depreciation, and are depreciated using the
straight-line method over the estimated useful lives of the assets, ranging from
5 to 10 years.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
F-82
<PAGE>
SUN VALLEY ORTHOPAEDIC SURGEONS,
AN ARIZONA GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Costs and Expenses
Physician and other provider services costs are comprised primarily of
compensation and fees paid to physicians and other health care providers.
Medical support services costs include all indirect costs associated with
the management and operations of the practice and all direct costs associated
with medical supplies and pharmaceutical expenses.
3. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following as of December 31, 1996:
<TABLE>
<S> <C>
Gross patient accounts receivable.......................................................... $ 613,880
Less allowances for contractual adjustments and uncollectibles............................. 101,613
---------
$ 512,267
---------
---------
</TABLE>
4. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment consists of the following as of December
31, 1996:
<TABLE>
<S> <C>
Furniture, fixtures and equipment.......................................................... $ 176,784
Leasehold improvements..................................................................... 40,025
Less accumulated depreciation.............................................................. 181,874
---------
$ 34,935
---------
---------
</TABLE>
5. LINE OF CREDIT
As of December 31, 1996, Sun Valley has a line of credit with a bank in the
amount of $100,000. The line of credit bears interest at the bank's prime rate
plus 1.5% (the bank's prime rate was 8.5% at December 31, 1996). Sun Valley paid
approximately $11,000 in interest during 1996. There was no unused amount
available under the line-of-credit as of December 31, 1996.
6. LEASE COMMITMENTS
Sun Valley leases various equipment, clinic and office space under
operating leases. Future minimum rental commitments under noncancelable
operating leases (with an initial or remaining term in excess of one year) at
December 31, 1996 are as follows:
<TABLE>
<S> <C>
Year ending December 31,
1997...................................................................................... $152,961
1998...................................................................................... 153,626
1999...................................................................................... 70,364
2000...................................................................................... 41,296
--------
$418,247
--------
--------
</TABLE>
F-83
<PAGE>
SUN VALLEY ORTHOPAEDIC SURGEONS,
AN ARIZONA GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES
Sun Valley is organized as a partnership pursuant to Subchapter K of the
Internal Revenue Code. As a result, in lieu of corporate income tax, Sun
Valley's taxable income is passed through to the partners and taxed at the
partner level. Accordingly, no provision or liability for income tax has been
reflected in the financial statements.
8. CONTINGENCIES
Sun Valley is a general partnership organized under the laws of the State
of Arizona. Each of the individual physicians in Sun Valley is personally
responsible for and has obtained insurance coverage for professional liability.
Accordingly, no provision or liability for incurred but not reported claims has
been reflected in the financial statements of Sun Valley.
9. RELATED PARTY TRANSACTIONS
As of December 31, 1996, one physician partner had been paid $135,743 in
excess of the amounts due to him for the physician services provided. This
amount is included in due from related parties as of December 31, 1996.
Sun Valley has advanced amounts to a professional corporation that
specializes in osteoporosis and epidurals that is wholly-owned by a physician
partner. Interest on the advance accrues at 8%. As of December 31, 1996, the
amount due Sun Valley, including accrued interest, is $43,485. Sun Valley
recorded interest income for the year ended December 31, 1996 in the amount of
$12,000.
F-84
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Orthopaedic Surgery Associates, P.A.
We have audited the accompanying balance sheet of Orthopaedic Surgery
Associates, P.A. (OSA) as of December 31, 1996, and the related statements of
income, stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of OSA's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Orthopaedic Surgery Associates,
P.A. at December 31, 1996, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
ERNST & YOUNG, LLP
West Palm Beach, Florida
October 10, 1997
F-85
<PAGE>
ORTHOPAEDIC SURGERY ASSOCIATES, P.A.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
DECEMBER 31, -------------
1996
------------ (UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................................................. $ 26,590 $ --
Accounts receivable, net.......................................................... 1,382,082 1,503,826
Prepaid expenses.................................................................. 34,216 61,305
------------ -------------
Total current assets................................................................ 1,442,888 1,565,131
Furniture, fixtures and equipment, net.............................................. 1,792,079 1,712,627
Loan receivable--OSA Investments, PA, net of discount of $265,176 and $255,232 as
of September 30, 1997.......................................................... 64,488 74,432
Other............................................................................... 5,000 5,000
------------ -------------
Total assets........................................................................ $3,304,455 $ 3,357,190
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses.................................................................. $ 150,427 $ 108,370
Due to BMJ Medical Management, Inc................................................ -- 55,893
Note payable...................................................................... 500,000 500,000
Current portion of capital lease obligations...................................... 66,901 72,465
------------ -------------
Total current liabilities........................................................... 717,328 736,728
Long-term capital lease obligations, less current portion........................... 1,318,957 1,263,889
Stockholders' equity:
Common stock, $1 par value--500 shares authorized, issued and outstanding......... 500 500
Additional paid-in capital........................................................ 1,090,450 1,090,450
Retained earnings................................................................. 177,220 265,623
------------ -------------
Total stockholders' equity.......................................................... 1,268,170 1,356,573
------------ -------------
Total liabilities and stockholders' equity.......................................... $3,304,455 $ 3,357,190
------------ -------------
------------ -------------
</TABLE>
See accompanying notes.
F-86
<PAGE>
ORTHOPAEDIC SURGERY ASSOCIATES, P.A.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
YEAR ENDED ------------------------
DECEMBER 31, 1996 1996 1997
----------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Practice revenues, net............................................ $ 7,520,949 $6,210,772 $7,356,636
Other income...................................................... 12,107 12,107 89,284
----------------- ---------- ----------
Total revenue..................................................... 7,533,056 6,222,879 7,445,920
Costs and expenses:
Physician and other provider services........................... 3,175,685 2,532,582 2,417,162
Medical support services........................................ 3,489,020 2,824,749 4,297,136
Management service fee.......................................... -- -- 55,893
Depreciation.................................................... 90,369 62,892 97,234
Interest........................................................ 91,458 22,433 123,216
Rent............................................................ 244,128 219,055 366,876
Amortization of discount on loan receivable..................... 265,176 265,176 --
----------------- ---------- ----------
Total costs and expenses.......................................... 7,355,836 5,926,887 7,357,517
----------------- ---------- ----------
Net income........................................................ $ 177,220 $ 295,992 $ 88,403
----------------- ---------- ----------
----------------- ---------- ----------
</TABLE>
See accompanying notes.
F-87
<PAGE>
ORTHOPAEDIC SURGERY ASSOCIATES, P.A.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL TOTAL
NUMBER PAID-IN RETAINED STOCKHOLDERS'
OF SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------ ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996....................... 500 $500 $ -- $ -- $ 500
Contribution of capital........................ -- -- 1,090,450 -- 1,090,450
Net income..................................... -- -- -- 177,220 177,220
--- ------ ---------- ---------- --------------
Balance at December 31, 1996..................... 500 $500 $1,090,450 $ 177,220 $1,268,170
Net income (Unaudited)........................... -- -- -- 88,403 88,403
--- ------ ---------- ---------- --------------
Balance at September 30, 1997 (Unaudited)........ 500 $500 $1,090,450 $ 265,623 $1,356,573
--- ------ ---------- ---------- --------------
--- ------ ---------- ---------- --------------
</TABLE>
See accompanying notes.
F-88
<PAGE>
ORTHOPAEDIC SURGERY ASSOCIATES, P.A.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ------------------------
1996 1996 1997
------------ ----------- ---------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................................. $ 177,220 $ 295,992 $ 88,403
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Amortization of discount on loan receivable.......................... 265,176 265,176 --
Depreciation......................................................... 90,369 62,892 97,234
Changes in operating assets and liabilities:
Accounts receivable............................................... (1,382,082) (1,715,768) (121,744)
Prepaid expenses.................................................. (39,216) (34,768) (27,089)
Due to BMJ Medical Management, Inc................................ -- -- 55,893
Accrued liabilities............................................... 998,864 1,107,034 (42,057)
------------ ----------- ---------
Net cash provided by (used in) operating activities.................... 110,331 (24,442) 50,640
INVESTING ACTIVITIES
Purchases of furniture, fixtures and equipment......................... (277,649) (117,594) (17,782)
Loan receivable........................................................ (306,592) (329,664) (9,944)
------------ ----------- ---------
Net cash used in investing activities.................................. (584,241) (447,258) (27,726)
FINANCING ACTIVITIES
Contribution of capital................................................ 500 500 --
Proceeds from borrowing under notes payable............................ 500,000 500,000 --
Payments on capital leases payable..................................... -- -- (49,504)
------------ ----------- ---------
Net cash provided by(used in) financing activities..................... 500,500 500,500 (49,504)
------------ ----------- ---------
Net increase(decrease) in cash......................................... 26,590 28,800 (26,590)
Cash at beginning of period............................................ -- -- 26,590
------------ ----------- ---------
Cash at end of period.................................................. $ 26,590 $ 28,800 --
------------ ----------- ---------
------------ ----------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest................................................. $ 91,458 $ 22,433 $ 123,216
------------ ----------- ---------
------------ ----------- ---------
Noncash transactions:
Equipment under capital lease obligations.............................. $ 1,331,000 $ 1,318,813 $ --
------------ ----------- ---------
------------ ----------- ---------
Equipment financed by loan payable-related party....................... $ 250,650 $ 150,650 $ --
------------ ----------- ---------
------------ ----------- ---------
Conversion of debt to equity........................................... $ 1,090,450 $ 1,090,450 $ --
------------ ----------- ---------
------------ ----------- ---------
</TABLE>
F-89
See accompanying notes.
<PAGE>
ORTHOPAEDIC SURGERY ASSOCIATES, P.A.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. DESCRIPTION OF THE BUSINESS
Orthopaedic Surgery Associates, P.A. (OSA) was organized under the laws of
the State of Florida and specializes in providing orthopedic medical and
surgical services and related medical and ancillary services in Palm Beach
County, Florida. OSA receives payment for patient services primarily from
private insurers, health maintenance organizations, preferred provider
organizations, the federal government primarily under the Medicare program,
state governments under their respective Medicaid programs, and directly from
patients.
On October 16, 1997, certain assets and liabilities of OSA were acquired by
BMJ Medical Management, Inc. (BMJ) in exchange for 282,254 shares of BMJ common
stock, cash of $4,496,250 and a promissory note for $2,450,465. In connection
therewith, OSA entered into a 40-year management service agreement with BMJ,
whereby BMJ will provide substantially all nonmedical services to the practice
in exchange for a management fee based on 12.5% of OSA's net collected revenue.
On March 1, 1997, OSA changed its name to Orthopaedic Surgery Associates,
Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
OSA's accounting records are maintained on the basis of cash receipts and
cash disbursements for income-tax purposes. The accompanying financial
statements have been prepared on the accrual basis and thus reflect accounts
receivable, prepaid expenses, and liabilities that are not recorded in the
accounting records.
Concentration of Credit Risk
OSA grants credit without collateral to its patients, most of whom are
local residents and are insured under third-party payor agreements. Management
believes credit risk associated with accounts receivable is minimal.
Furniture,Fixtures and Equipment
Furniture, fixtures and equipment are stated at cost, less accumulated
depreciation, and are depreciated using the straight-line method over the
estimated useful lives of the assets, ranging from 5 to 40 years. Amortization
expense for assets under capital leases is included in accumulated depreciation.
Financial Instruments
The fair value of OSA's financial instruments (primarily long and
short-term capital lease obligations and debt) are estimated using discount cash
flow analyses, based on OSA's current incremental borrowing rates for similar
types of borrowing arrangements. The carrying amounts of financial instruments
as reported in the accompanying balance sheet approximate their fair value.
Revenue Recognition
Practice revenues, net are based on established billing rates, less
allowances for contractual adjustments for patients covered by Medicare,
Medicaid and various other discount arrangements. Payments received under these
programs and arrangements, which generally are based on predetermined rates, are
generally less than OSA's customary charges, and the differences are recorded as
contractual adjustments or policy discounts at the time the related service is
rendered.
Laws and regulations governing the Medicare and Medicaid programs are
complex and subject to interpretation. Compliance with such laws and regulations
can be subject to future government review and interpretation as well as
significant regulatory action, including fines, penalties, and exclusion from
the Medicare and Medicaid programs. OSA believes that it is in compliance with
all applicable laws and regulations. OSA is not aware of any pending or
threatened investigations involving allegations of potential wrongdoing.
F-90
<PAGE>
ORTHOPAEDIC SURGERY ASSOCIATES, P.A.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Costs and Expenses
Physician and other provider services costs are comprised primarily of
compensation and fees paid to physicians and other health care providers.
Income Taxes
OSA is taxed under the provisions of Subchapter S of the Internal Revenue
Code (IRC), which generally provides that in lieu of corporate taxes, the
stockholders shall be taxed on OSA's taxable income in accordance with their
ownership interests. As a result, the accompanying financial statements include
no provision for income taxes.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Interim Financial Statements
The interim financial statements as of September 30, 1997 and for the nine
months ended September 30, 1997 and 1996 are unaudited. In the opinion of
management, these statements have been prepared on the same basis as the audited
financial statements and include all normal and recurring adjustments necessary
for a fair presentation of OSA's financial position, results of operations and
cash flows. The interim data disclosed in these notes to the financial
statements is also unaudited. The results of operations for the nine months
ended September 30, 1997 are not necessarily indicative of the results of
operations that may be expected for the entire year ending December 31, 1997.
3. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment consist of the following at December 31,
1996:
<TABLE>
<S> <C>
Assets under capital leases:
Land...................................................... $ 372,300
Building and leasehold improvements....................... 1,119,350
Furniture, fixtures and office equipment.................. 39,905
Medical equipment......................................... 142,985
----------
1,674,540
----------
----------
Owned assets:
Building and leasehold improvements....................... 96,657
Furniture, fixtures and offfice equipment................. 45,997
Medical equipment......................................... 62,437
----------
1,879,631
Less accumulated depreciation............................... (87,552)
----------
$1,792,079
----------
----------
</TABLE>
4. NOTE PAYABLE
The note payable is a $500,000 line of credit which was due on August 22,
1997 bearing interest at the prime rate, 8.5% at December 31, 1996. The line of
credit is secured by substantially all of the assets of OSA. Effective August
22, 1997, OSA extended the $500,000 line of credit maturity date to November 22,
1997.
In October 1997, OSA repaid the outstanding balance on the line of credit.
F-91
<PAGE>
ORTHOPAEDIC SURGERY ASSOCIATES, P.A.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. COMMITMENTS AND CONTINGENCIES
OSA has employment agreements with four physician-stockholders which
provide for, among other things, various insurance coverages and base pay for
one physician-stockholder. Future payments required to be made to physicians
approximate $360,000 in 1997 and $100,000 in 1998, subject to certain
adjustments. Management cannot estimate future adjustments under these
provisions.
Effective July 1, 1997, OSA entered into an employment agreement with a
physician for the payment of a base salary. Future payments required to be made
to the physician approximate: 1997--$80,000, 1998-- $160,000, 1999--$160,000,
2000--$80,000, subject to certain adjustments. Management cannot estimate the
number of hours of service to be performed during the contract term, future
adjustments under these provisions. Effective August 1, 1997, OSA entered into a
12-month physician employment agreement for the payment of $200 for each
documented hour of service performed on behalf of OSA. Management cannot
estimate future adjustments under these provisions. These contracts are for
various time periods and may be terminated by mutual agreement or upon the
occurrence of other specified events such as death and disability.
OSA leases office space and equipment under noncancelable operating leases,
two of which contain an escalation clause. Rent expense charged to operations
totaled approximately $244,000 during 1996.
Future minimum rental commitments under noncancelable operating leases at
December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997............................................................................ $ 215,839
1998............................................................................ 218,890
1999............................................................................ 229,835
2000............................................................................ 241,327
2001............................................................................ 223,833
----------
$1,129,724
----------
----------
</TABLE>
Future minimum capital lease obligations at December 31, 1996 are as
follows:
<TABLE>
<S> <C>
1997............................................................................ $ 187,918
1998............................................................................ 189,916
1999............................................................................ 186,691
2000............................................................................ 176,073
2001............................................................................ 160,363
Thereafter...................................................................... 1,583,399
----------
2,484,360
Interest........................................................................ (1,098,502)
Less current amount............................................................. (66,901)
----------
$1,318,957
----------
----------
</TABLE>
Effective June 1996, OSA entered into a medical office building capital
lease with OSA Investments, PA, (OSAI), a related party. The lease payment is
equal to OSAI's mortgage payment for the building and the term of the lease is
concurrent with the mortgage term.
Effective August 1, 1997, OSA entered into an equipment lease for $228,000
for a 12-month period.
OSA procures professional liability coverage on behalf of its physicians on
a claims made basis. The insurance contracts specify that coverage is available
only during the term of each insurance contract and cover only those claims
reported while the policies are in force. An estimate of losses for incurred but
unreported claims is recorded based upon historical experience. Management of
OSA intends to renew the existing claims made policy annually and expects to be
able to obtain such coverage. If coverage is not renewed, OSA intends to
F-92
<PAGE>
ORTHOPAEDIC SURGERY ASSOCIATES, P.A.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
purchase extended reporting period endorsements to provide professional
liability coverage for losses incurred prior to, but reported subsequent to, the
termination of the claims made policies.
OSA is involved in litigation regarding a medical malpractice dispute.
Legal counsel and management are unable to reasonably predict the ultimate
outcome of the dispute at this time; however, the estimated range of potential
loss is $200,000 to $2,000,000. At the time the claim was made, OSA had
malpractice insurance coverage of $500,000. OSA has not recorded any liability
related to this matter.
6. PROFIT SHARING PLAN
OSA maintains a profit sharing plan (the Plan) under the provisions of
Section 401(k) of the IRC. Employees who meet the minimum length of service and
age requirements are eligible for participation. OSA is responsible for the
administration of the Plan as the plan administrator and OSA's stockholders are
trustees. Under the provisions of the Plan, contributions by OSA are
discretionary. OSA made contributions of approximately $83,000 to the Plan in
1996.
7. LOAN RECEIVABLE - OSA INVESTMENTS, P.A.
During 1996 OSA recorded a loan receivable from OSAI for $329,664. The loan
receivable is non-interest bearing and is expected to be repaid from the
proceeds of the future sale of the medical office building owned by OSAI and
leased to OSA. The loan has been discounted to reflect an imputed interest rate
of 8% per annum over the life of the lease, which is 20 years.
8. SUBSEQUENT EVENTS
In October 1997, OSA declared and distributed stockholders' distributions
of approximately $1,000,000.
F-93
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Broward Institute of Orthopaedic
Specialties, P.A.
We have audited the accompanying balance sheet of Broward Institute of
Orthopaedic Specialties, P.A. (BIOS) as of December 31, 1996, and the related
statements of income, stockholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of BIOS' management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Broward Institute of
Orthopaedic Specialties, P.A. at December 31, 1996, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
ERNST & YOUNG, LLP
West Palm Beach, Florida
September 5, 1997
F-94
<PAGE>
BROWARD INSTITUTE OF ORTHOPAEDIC SPECIALTIES, P.A.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------ SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................................................. $ 428,530 $ 260,236
Accounts receivable, net.......................................................... 1,875,907 2,233,546
Prepaid expenses.................................................................. 41,845 7,822
------------ -------------
Total current assets................................................................ 2,346,282 2,501,604
Furniture, fixtures and equipment, net.............................................. 49,301 141,690
Other, net.......................................................................... 13,338 11,453
------------ -------------
Total assets........................................................................ $2,408,921 $ 2,654,747
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................. $ 187,555 $ 102,304
Due to stockholders............................................................... 80,000 --
Accrued liabilities............................................................... 619,197 131,412
Current portion of notes payable.................................................. 267,000 305,117
------------ -------------
Total current liabilities........................................................... 1,153,752 538,833
Notes payable, less current portion................................................. 249,871 --
Stockholders' equity:
Common stock, $0.01 par value--1,000 shares authorized,
80 shares issued and outstanding............................................. 1 1
Additional paid-in capital........................................................ 23,999 23,999
Retained earnings................................................................. 981,298 2,091,914
------------ -------------
Total stockholders' equity.......................................................... 1,005,298 2,115,914
------------ -------------
Total liabilities and stockholders' equity.......................................... $2,408,921 $ 2,654,747
------------ -------------
------------ -------------
</TABLE>
See accompanying notes.
F-95
<PAGE>
BROWARD INSTITUTE OF ORTHOPAEDIC SPECIALTIES, P.A.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ------------------------
1996 1996 1997
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Practice revenues, net................................................. $8,325,413 $6,435,529 $6,538,068
Other income........................................................... 37,164 34,486 16,528
------------ ---------- ----------
Total revenue.......................................................... 8,362,577 6,470,015 6,554,596
Costs and expenses:
Physician and other provider services................................ 3,823,617 3,081,265 2,467,566
Medical support services............................................. 3,892,487 2,513,944 2,589,578
Depreciation and amortization........................................ 13,259 7,774 8,346
Interest............................................................. 68,129 52,001 24,958
Rent................................................................. 397,094 287,361 353,532
------------ ---------- ----------
Total costs and expenses............................................... 8,194,586 6,342,345 5,443,980
------------ ---------- ----------
Net income............................................................. $ 167,991 $ 127,670 $1,110,616
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
See accompanying notes.
F-96
<PAGE>
BROWARD INSTITUTE OF ORTHOPAEDIC SPECIALTIES, P.A.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL TOTAL
NUMBER PAID IN RETAINED STOCKHOLDERS'
OF SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------ ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995........................ 80 $1 $ 23,999 $ 813,307 $ 837,307
Net income.......................................... -- -- -- 167,991 167,991
-- --
---------- ---------- --------------
Balance at December 31, 1996........................ 80 $1 $ 23,999 $ 981,298 $1,005,298
Net income (Unaudited).............................. -- -- -- 1,110,616 1,110,616
-- --
---------- ---------- --------------
Balance at September 30, 1997 (Unaudited)........... 80 $1 $ 23,999 $2,091,914 $2,115,914
-- -- ---------- ---------- --------------
-- -- ---------- ---------- --------------
</TABLE>
See accompanying notes.
F-97
<PAGE>
BROWARD INSTITUTE OF ORTHOPAEDIC SPECIALTIES, P.A.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR
ENDED
DECEMBER NINE MONTHS ENDED
31, SEPTEMBER 30,
--------- --------------------------
1996 1996 1997
--------- ---------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.............................................................. $ 167,991 $ 127,670 $1,110,616
Adjustments to reconcile net income to net cash provided by operating
activites:
Depreciation.......................................................... 9,297 4,803 5,377
Amortization.......................................................... 3,962 2,971 2,969
Changes in operating assets and liabilities:
Accounts receivable................................................ (411,504) (437,792) (357,639)
Deposits........................................................... (3,435) 3,057 30,588
Accounts payable................................................... 114,599 78,271 (85,251)
Accrued expenses................................................... 220,303 (170,751) (487,785)
--------- ---------- ------------
Net cash provided by (used in) operating activities..................... 101,213 (50,269) 218,875
INVESTING ACTIVITIES
Purchases of furniture, fixtures and equipment.......................... (31,210) (31,210) (95,415)
--------- ---------- ------------
Net cash used in investing activities................................... (31,210) (31,210) (95,415)
FINANCING ACTIVITIES
Payments on borrowings from stockholder debt............................ -- (80,000) --
Additional borrowings on notes payable.................................. (167,139) 129,250 (291,754)
--------- ---------- ------------
Net cash provided by (used in) financing activities..................... (167,139) 49,250 (291,754)
--------- ---------- ------------
Net decrease in cash.................................................... (97,136) (32,229) (168,294)
Cash at beginning of period............................................. 525,666 525,666 428,530
--------- ---------- ------------
Cash at end of period................................................... $ 428,530 $ 493,437 $ 260,236
--------- ---------- ------------
--------- ---------- ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest.................................................. $ 68,127 $ 52,001 $ 24,958
--------- ---------- ------------
--------- ---------- ------------
</TABLE>
See accompanying notes.
F-98
<PAGE>
BROWARD INSTITUTE OF ORTHOPEDIC SPECIALTIES, P.A.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. DESCRIPTION OF THE BUSINESS
Broward Institute of Orthopedic Specialties, P.A. (BIOS) was organized
under the laws of the State of Florida and specializes in providing orthopedic
medical and surgical services and related medical and ancillary services in
Broward County. BIOS receives payment for patient services primarily from
private insurers, health maintenance organizations, preferred provider
organizations, the federal government primarily under the Medicare program,
state governments under their respective Medicaid programs, and directly from
patients.
On October 31, 1997, certain assets and liabilities of BIOS were acquired
by BMJ Medical Management, Inc. (BMJ) in exchange for 260,237 shares of BMJ
common stock, cash of $119,311 and promissory notes for $3,396,252. In
connection therewith, BIOS entered into a 40-year management services agreement
with BMJ, whereby BMJ will provide substantially all nonmedical services to the
practice.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
BIOS' accounting records are maintained on the basis of cash receipts and
cash disbursments for income-tax purposes. The accompanying financial statements
have been prepared on the accrual basis and thus reflect accounts receiveable,
prepaid expenses, and liabilities that are not recorded in the accounting
records.
Concentration of Credit Risk
BIOS grants credit without collateral to its patients, most of whom are
local residents and are insured under third-party payor agreements. Management
believes credit risk associated with accounts receivable is minimal.
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are stated at cost, less accumulated
depreciation, and are depreciated using the straight-line method over the
estimated useful lives of the assets, ranging from five to seven years.
Financial Instruments
The fair value of BIOS' financial instruments (primarily long and
short-term debt) are estimated using discounted cash flow analyses, based on
BIOS' current incremental borrowing rates for similar types of borrowing
arrangements. The carrying amounts of financial instruments as reported in the
accompanying balance sheet approximate their fair value.
Revenue Recognition
Practice revenues, net are based on established billing rates, less
allowances for contractual adjustments for patients covered by Medicare,
Medicaid and various other discount arrangements. Payments received under these
programs and arrangements, which generally are based on predetermined rates, are
less than BIOS' customary charges, and the differences are recorded as
contractual adjustments or policy discounts at the time the related service is
rendered.
Laws and regulations governing the Medicare and Medicaid programs are
complex and subject to interpretation. Compliance with such laws and regulations
can be subject to future government review and interpretation as well as
significant regulatory action including fines, penalties, and exclusion from the
Medicare and Medicaid programs. BIOS believes that it is in compliance with all
applicable laws and regulations. BIOS is not aware of any pending or threatened
investigations involving allegations of potential wrongdoing.
F-99
<PAGE>
BROWARD INSTITUTE OF ORTHOPEDIC SPECIALTIES, P.A.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Costs and Expenses
Physician and other provider services costs are comprised primarily of
compensation and fees paid to phyisicians and other health care providers.
Income Taxes
BIOS is taxed under the provisions of Subchapter S of the Internal Revenue
Code, which generally provides that in lieu of corporate taxes, the stockholders
shall be taxed on BIOS' taxable income in accordance with their ownership
interests. As a result, the accompanying financial statements include no
provision for income taxes.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities as of the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from the estimates.
Interim Financial Statements
The interim financial statements as of September 30, 1997 and for the nine
months ended September 30, 1997 and 1996 are unaudited. In the opinion of
management, these statements have been prepared on the same basis as the audited
financial statements and include all normal and recurring adjustments necessary
for a fair presentation of BIOS financial position, results of operations and
cash flows. The interim data disclosed in these notes to the financial
statements is also unaudited. The results of operations for the nine months
ended September 30, 1997 are not necessarily indicative of the results of
operations that may be expected for the entire year ending December 31, 1997.
3. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment consist of the following at December 31,
1996:
<TABLE>
<S> <C>
Furniture and fixtures............................................................. $25,203
Equipments......................................................................... 33,934
-------
Less accumulated depreciation...................................................... 59,137
(9,836)
-------
$49,301
-------
-------
</TABLE>
4. NOTES PAYABLE
Notes payable consits of the following at December 31, 1996:
<TABLE>
<S> <C>
$800,000 promissory note payable, bearing interest at a variable rate of prime
plus .25% (8.75% at December 31, 1996), principal payments of $267,000 during
each of the first two years and interest payable monthly through October 1999,
secured by substantially all of the assets of BIOS.............................. $516,871
Less current portion.............................................................. (267,000)
--------
$249,871
--------
--------
</TABLE>
F-100
<PAGE>
BROWARD INSTITUTE OF ORTHOPEDIC SPECIALTIES, P.A.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
4. NOTES PAYABLE--(CONTINUED)
On July 9, 1997, BIOS borrowed $25,740 under a promissory note with a bank,
at a variable interest rate of prime plus .25%, interest payable monthly,
principal due November 1, 1999, secured by substantially all of the assets of
BIOS.
5. DUE TO STOCKHOLDERS
The stockholders of BIOS, advanced $80,000 to BIOS prior to January 1,
1996, due on demand, unsecured and bearing interest at 8%. BIOS repaid $80,000
in 1997.
6. LEASE COMMITMENT
BIOS leases office space and equipment under non-cancelable operating
leases, two of which contain an escalation clause. Rent expense charged to
operation totaled approximately $397,000 during 1996.
Furniture minimum rental commitments at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997.............................................................................. $ 94,714
1998.............................................................................. 94,714
1999.............................................................................. 94,714
2000.............................................................................. 94,714
2001.............................................................................. 94,714
Thereafter........................................................................ 424,213
--------
$899,783
--------
--------
</TABLE>
7. BENEFIT PLANS
BIOS maintains a defined contribution plan under the provisions of Section
401(k) of the Internal Revenue Code. Employees who meet the minimum length of
service and age requirements are eligible for participation. BIOS is responsible
for the administration of the plan as the plan administrator and BIOS'
stockholders are trustees of the plan. Under the provision of the plan,
contributions by BIOS are discretionary. BIOS made no contributions to the plan
in 1996.
8. COMMITMENTS AND CONTINGENCIES
BIOS features professional liability coverage on behalf of its physicians
on a claims made basis. The insurance contracts specify that coverage is
available only during the term of each insurance contract and cover only those
claims reported while the policies are in force. An estimate of losses of
incurred but unreported claims is recorded based upon historical experience.
Management of BIOS intends to renew the existing claims made policy annually and
expects to be able to obtain such coverage. If coverage is not renewed, BIOS
intends to purchase extended reporting period endorsements to provide
professional liability coverage for losses incurred prior to, but reported
subsequent to, the termination of the claims made policies.
F-101
<PAGE>
- ------------------------------------------------------------
- ------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATES AS
OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information........................ 2
Prospectus Summary............................ 3
Risk Factors.................................. 6
The Company................................... 15
Use of Proceeds............................... 20
Dividend Policy............................... 20
Capitalization................................ 21
Dilution...................................... 22
Pro Forma Financial Information............... 23
Selected Financial Information................ 31
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 32
Business...................................... 36
Management.................................... 56
Certain Transactions.......................... 62
Principal Stockholders........................ 65
Description of Capital Stock.................. 67
Shares Eligible for Future Sale............... 70
Underwriting.................................. 71
Legal Matters................................. 73
Experts....................................... 73
Index to Financial Statements................. F-1
</TABLE>
------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
5,000,000 SHARES
BMJ MEDICAL
MANAGEMENT, INC.
COMMON STOCK
-----------------------
PROSPECTUS
-----------------------
HAMBRECHT & QUIST
RAYMOND JAMES &
ASSOCIATES, INC.
VOLPE BROWN WHELAN & COMPANY
, 1997
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimated
except the Securities and Exchange Commission registration fee, the National
Association of Security Dealers, Inc. filing fee and the Nasdaq National Market
listing fee.
<TABLE>
<S> <C>
SEC registration fee................................................................................... $15,682
NASD filing fee........................................................................................ 5,675
Nasdaq National Market listing fee..................................................................... *
Blue sky fees and expenses............................................................................. *
Printing and engraving expenses........................................................................ *
Legal fees and expenses................................................................................ *
Accounting fees and expenses........................................................................... *
Transfer agent and registrar fees...................................................................... *
Miscellaneous.......................................................................................... *
-------
Total............................................................................................. $ *
-------
-------
</TABLE>
- ------------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to Section 102(b)(7) of the Delaware General Corporation Law (the
'DGCL'), Article VI of the BMJ Medical Management, Inc. (the 'Company' or the
'Registrant') Restated Certificate of Incorporation (the 'Certificate of
Incorporation') (filed as Exhibit 3.1 to this Registration Statement) eliminates
the liability of the Company's directors to the Company or its stockholders,
except for liabilities related to breach of duty of loyalty, actions not in good
faith and certain other liabilities.
Section 145 of the DGCL provides for indemnification by the Company of its
directors and officers. In addition, Article IX, Section 1 of the Company's
By-laws (filed as Exhibit 3.2 to this Registration Statement) requires the
Company to indemnify any current or former director or officer to the fullest
extent permitted by the DGCL. In addition, the Company has entered into
indemnity agreements with its directors (a form of which is filed as Exhibit
10.1 to this Registration Statement) which obligate the Company to indemnify
such directors to the fullest extent permitted by the DGCL. The Company also
maintains officers' and directors' liability insurance, which insures against
liabilities that officers and directors of the Company may incur in such
capacities.
Reference is made to the form of Underwriting Agreement filed as Exhibit
1.1 to this Registration Statement, which provides for indemnification of the
directors and officers of the Company signing the Registration Statement and
certain controlling persons of the Company against certain liabilities,
including those arising under the Securities Act, in certain instances by the
Underwriters.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since May 1996 the Company has issued unregistered securities to investors
and to physicians and certain other individuals in connection with the
affiliation transactions with the medical practices (the 'Affiliation
Transactions'). Each such issuance was made in reliance upon the exemption from
the registration requirements of the Securities Act of 1933, as amended,
contained in Section 4(2) of the Securities Act or Rule 701 promulgated under
the Securities Act on the basis that such transactions did not involve a public
offering.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.--(CONTINUED)
1. On May 6, 1996, pursuant to a Stock Purchase Agreement, the Company
issued an aggregate of 1,175,000 shares of Common Stock, $0.001 par value per
share (the 'Common Stock') and 999,999 shares of the Company's Series A
Convertible Preferred Stock, $0.01 par value (the 'Series A Preferred Stock'),
for an aggregate purchase price of $1,011,749 to Naresh Nagpal, M.D. ('Dr.
Nagpal'), Oak VI Affiliates Fund, Limited Partnership ('Oak VI'), Oak Investment
Partners VI, Limited Partnership ('Oak Partners'), Delphi Ventures III, L.P.
('Delphi Ventures'), Delphi BioInvestments III, L.P. ('Delphi BioInvestments')
and Scheer & Company, Inc. ('Scheer').
2. On June 1, 1996, pursuant to the terms of an Incentive Stock Option
Agreement, the Company granted Scott Cielewich an option to purchase 50,000
shares of Common Stock, with an exercise price of $0.01 per share.
3. On June 10, 1996, pursuant to an Incentive Stock Option Agreement, the
Company granted Caridad LaPlace an option to purchase 5,000 shares of Common
Stock with an exercise price of $0.01 per share.
4. On July 1, 1996, the Company issued 450,000 shares of Common Stock
pursuant to a Management Services Agreement and Restricted Stock Agreements to
Lehigh Valley Bone, Muscle and Joint ('LVBMJ') and the following physicians
affiliated with LVBMJ: Thomas Sauer, M.D., Ranjan Sachdev, M.D., Joseph
Garbarino, M.D., John Williams, M.D. and Peter W. Kozicky, M.D.
5. On September 23, 1996, pursuant to an Incentive Stock Option Agreement,
the Company granted Ronald Garey an option to purchase 30,000 shares of Common
Stock with an exercise price of $0.25 per share.
6. On November 1, 1996, pursuant to an Incentive Stock Option Agreement,
the Company granted Deborah Flytuta an option to purchase 5,000 shares of Common
Stock with an exercise price of $0.25 per share.
7. On November 4, 1996, pursuant to an Incentive Stock Option Agreement,
the Company granted Sherry Pulliam an option to purchase 25,000 shares of Common
Stock with an exercise price of $0.25 per share.
8. On November 12, 1996, pursuant to a Stock Purchase Agreement, the
Company issued 2,000,001 shares of its Series B Convertible Preferred Stock,
$0.01 par value (the 'Series B Preferred Stock'), for an aggregate purchase
price of $6,000,003 to Dr. Nagpal, Oak VI, Oak Partners, Delphi Ventures, and
Delphi BioInvestments.
9. On November 22, 1996, pursuant to a Management Services Agreement and
Restricted Stock Agreements, the Company issued 4,000,000 shares of Common Stock
to the following physicians (or their respective corporations) and employees
affiliated with Southern California Orthopedic Institute Medical Group ('SCOI'):
Pamela Westlin, Glenn Cozen, James M. Fox, M.D., Inc., the Friedman Family
Trust, Wilson Del Pizzo, M.D., Inc., Stephen Snyder, M.D., Richard Ferkel, M.D.,
Todd Moldawer, M.D., Gregory Hanker, M.D., Herbert Dennis Huddleston, M.D.,
Inc., A. Elizabeth Bloze, M.D., Todd Molnar, M.D., Trevor P. Lynch, M.D., a
medical corporation, Saul M. Bernstein, M.D., Inc., Steven Schopler, M.D.,
Ronald Karzel, M.D., Hrair Darakjian, M.D., Jonathan Jaivan, M.D., Donald Wiss,
M.D., Patricia McKeever, M.D., and David Auerbach, M.D.
10. On December 2, 1996, pursuant to an Incentive Stock Option Agreement,
the Company granted Randal Farwell an option to purchase 40,000 shares of Common
Stock with an exercise price of $0.35 per share.
11. On December 23, 1996, the Company issued 1,076,501 shares of Common
Stock to physicians affiliated with South Texas Spinal Clinic ('STSC') in
accordance with the terms of a Management Services Agreement and Restricted
Stock Agreements.
12. On January 1, 1997, pursuant to a Non-qualified Stock Option Agreement,
the Company granted Dr. Nagpal an option to purchase 150,000 shares of Common
Stock with an exercise price of $0.01 per share.
13. On January 1, 1997, pursuant to an Incentive Stock Option Agreement,
the Company granted G. Steven Ensinger an option to purchase 25,000 shares of
Common Stock with an exercise price of $0.35 per share.
14. On January 2, 1997, the Company issued 10,000 shares of Common Stock to
Scott Cielewich upon exercise of the vested portion of his option (which was
granted on June 1, 1996).
II-2
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.--(CONTINUED)
15. On January 14, 1997, the Company issued warrants to purchase an
aggregate of 33,333 shares of Common Stock at an exercise price of $3.00 per
share to Dr. Nagpal, Delphi BioInvestments, Delphi Ventures, Oak VI and Oak
Partners in connection with a bridge loan from such persons to the Company.
16. On January 29, 1997, pursuant to a Stock Purchase Agreement, the
Company issued 183,332 shares of Series C Convertible Preferred Stock, $0.01 par
value (the 'Series C Preferred Stock'), for an aggregate purchase price of
$549,996 to certain of the SCOI physicians, Glenn Cozen and the Saphier and
Heller Retirement Trust.
17. On January 30, 1997, pursuant to an Incentive Stock Option Agreement,
the Company granted Pamela Westlin an option to purchase 22,000 shares of Common
Stock with an exercise price of $0.35 per share.
18. On January 30, 1997, pursuant to an Incentive Stock Option Agreement,
the Company granted Cindy Lesonsky an option to purchase 8,000 shares of Common
Stock with an exercise price of $0.35 per share.
19. On February 1, 1997, pursuant to an Incentive Stock Option Agreement,
the Company granted David Fater an option to purchase 140,000 shares of Common
Stock with an exercise price of $0.35 per share.
20. On February 1, 1997, pursuant to an Incentive Stock Option Agreement,
the Company granted Andrea Seratte an option to purchase 40,000 shares of Common
Stock with an exercise price of $0.35 per share.
21. On March 1, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Glenn Cozen an option to purchase 75,000 shares of Common Stock
with an exercise price of $0.35 per share.
22. On March 7, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Caridad LaPlace an option to purchase 2,000 shares of Common
Stock with an exercise price of $0.50 per share.
23. On March 12, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Robert Cox an option to purchase 40,000 shares of Common Stock
with an exercise price of $0.50 per share.
24. On March 12, 1997, pursuant to a Stock Purchase Agreement, the Company
issued an aggregate of 71,667 shares of Series C Preferred Stock for an
aggregate purchase price of $215,001 to the following persons and entities:
Andrea Seratte, CGJR Health Care Services Private Equities, L.P. ('CGJR Health
Care'), CGJR II, L.P. ('CGJR II'), and CGJR MF/III, L.P. ('CGJR/MF').
25. On April 1, 1997, the Company issued 550,000 shares of Common Stock to
the SCOI physicians who collectively own Center for Orthopedic Surgery, Inc.
('COSI').
26. On April 1, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Brent Mellecker an option to purchase 40,000 shares of Common
Stock with an exercise price of $0.50 per share.
27. On April 1, 1997, the Company issued 402,723 shares of Common Stock to
the following physicians affiliated with Tri-City Orthopaedic Surgery Medical
Group, Inc. ('Tri-City'): Neville Alleyne, M.D., James Esch, M.D., James
Helgager, M.D., Norman Kane, M.D., Richard Muir, M.D., Leonard Ozerkis, M.D.,
and Jacob Sharp, M.D.
28. On April 14, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Keith Bolton an option to purchase 50,000 shares of Common Stock
with an exercise price of $0.50 per share.
29. On April 14, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Lee Bodendorfer an option to purchase 30,000 shares of Common
Stock with an exercise price of $0.50 per share.
30. On April 15, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Pamela Montgomery an option to purchase 20,000 shares of Common
Stock with an exercise price of $0.50 per share.
31. On April 30, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted M. Anthony Anderson an option to purchase 25,000 shares of
Common Stock with an exercise price of $0.50 per share.
32. On May 1, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Meg Finnegan an option to purchase 20,000 shares of Common Stock
with an exercise price of $0.50 per share.
II-3
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.--(CONTINUED)
33. On May 1, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Norman Lapin an option to purchase 40,000 shares of Common Stock
with an exercise price of $0.50 per share.
34. On May 6, 1997 pursuant to a Management Services Agreement and
Restricted Stock Agreements, the Company issued an aggregate of 478,348 shares
of Common Stock. Such stock was issued in accordance with the following: (a) an
aggregate of 445,962 shares to the following physicians affiliated with
Lauderdale Orthopaedic Surgeons ('LOS'): Martin Silverstein, M.D., Michael
Weiss, M.D., Michael Ruddy, M.D., Raul Aparicio, M.D., Verano Hermida, M.D. and
Paul Greenman, D.P.M., Practice Solutions, (b) an aggregate of 27,613 shares to
LOS' broker and attorney and (c) 4,773 shares to LOS' accountant, Kenneth A.
Ortner, P.A.
35. On May 6, 1997, pursuant to Restricted Stock Agreements, the Company
issued 5,000 shares of Common Stock to each of the following physicians
affiliated with LOS: Martin Silverstein, M.D., Michael Weiss, M.D., Michael
Ruddy, M.D., and Raul Aparicio, M.D.
36. On June 1, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Sandra Britton an option to purchase 6,000 shares of Common
Stock with an exercise price of $0.50 per share.
37. On June 1, 1997, the Company issued 59,693 shares of Common Stock to
Clive Segil, M.D., under the terms of a Management Services Agreement and
Restricted Stock Agreement.
38. On June 1, 1997, pursuant to a Management Services Agreement and
Restricted Stock Agreement, the Company issued 84,197 shares of Common Stock to
H. Leon Brooks, M.D, a sole practitioner.
39. On June 1, 1997, pursuant to a Non-qualified Stock Option Agreement,
the Company granted James Hofmann, M.D. an option to purchase 20,000 shares of
Common Stock with an exercise price of $0.25 per share.
40. On June 1, 1997, pursuant to a Non-qualified Stock Option Agreement,
the Company granted Christopher Dankmeyer, M.D. an option to purchase 10,000
shares of Common Stock with an exercise price of $0.25 per share.
41. On June 2, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Dana Reynolds an option to purchase 30,000 shares of Common
Stock with an exercise price of $0.50 per share.
42. On June 19, 1997, pursuant to a Stock Purchase Agreement, the Company
issued 188,072 shares of Series D Convertible Preferred Stock, $0.01 par value
(the 'Series D Preferred Stock') to Oak VI, Oak Partners, Delphi Ventures,
Delphi BioInvestments and Dr. Nagpal in exchange for promissory notes in the
principal amount of $999,999 plus accrued interest previously delivered by the
Company to the foregoing.
43. On June 19, 1997, the Company issued an aggregate of 533,335 shares of
its Series E Convertible Preferred Stock, $0.01 par value (the 'Series E
Preferred Stock'), for an aggregate purchase price of $3,200,010 to Dr. Nagpal,
Oak VI, Oak Partners, Delphi Ventures, Delphi BioInvestments, CGJR Health Care,
CGJR II and CGJR/MF.
44. On June 23, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Joanna Robben an option to purchase 75,000 shares of Common
Stock with an exercise price of $0.50 per share.
45. On June 30, 1997, the Company issued warrants to purchase 40,000 shares
of Common Stock to HCFP Funding, Inc. ('HCFP Funding') in connection with a
senior secured loan in the aggregate principal amount of $3,250,000 from HCFP
Funding to the Company and issued warrants to purchase an aggregate of 13,332
shares of Common Stock to the following persons in connection with the guarantee
of the loan by such persons: Dr. Nagpal, Delphi Ventures, Delphi BioInvestments,
Oak Partners and Oak VI.
46. On July 1, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Denise Truese an option to purchase 5,000 shares of Common Stock
with an exercise price of $0.50 per share.
47. On July 1, 1997, the Company issued 45,108 shares of Common Stock to
John Zimmerman, D.P.M. under the terms of a Management Services Agreement and
Restricted Stock Agreement.
II-4
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.--(CONTINUED)
48. On July 1, 1997, the Company issued 97,500 shares of Common Stock to
Dr. Nagpal upon conversion of his 1996 accrued compensation and cash bonus for
the fiscal year ended December 31, 1996, payable by the Company to him.
49. On July 1, 1997, the Company issued a total of 150,708 shares of Common
Stock to Randy C. Watson, M.D., Keith R. Swanson, M.D. and Stephen P. Abelow,
M.D., who are affiliated with Surgical Associates of Lake Tahoe, L.P. under the
terms of three Management Services Agreements and three Restricted Stock
Agreements.
50. On July 1, 1997, pursuant to the terms of a Management Services
Agreement and Restricted Stock Agreements, the Company issued an aggregate of
124,385 shares of Common Stock to the following physicians affiliated with
Stockdale Podiatry Group, Inc.: Michelle Kraft, D.P.M., Lee Marek, D.P.M., Mark
L. Hamilton, D.P.M. and Mark F. Miller, D.P.M.
51. On July 3, 1997, pursuant to a Management Services Agreement and
Restricted Stock Agreements, the Company issued 265,725 shares of Common Stock
to the following physicians, one broker and one attorney affiliated with Fishman
& Stashak, M.D.'s, P.A. (dba Gold Coast Orthopedics), Eric S. Fishman, M.D.,
Gerald T. Stashak, M.D., Mark A. Rubenstein, M.D., Chaim Arlosoroff, M.D., David
J. Menkhaus and Les S. Alt.
52. On July 8, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Nancy Strayer an option to purchase 10,000 shares of Common
Stock with an exercise price of $0.50 per share.
53. On July 14, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted David Ellwanger an option to purchase 125,000 shares of Common
Stock with an exercise price of $0.50 per share.
54. On July 21, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Beth Landel an option to purchase 35,000 shares of Common Stock
with an exercise price of $0.50 per share.
55. On July 24, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted David Coffler an option to purchase 8,000 shares of Common Stock
with an exercise price of $0.50 per share.
56. On July 31, 1997, the Company issued 166,667 shares of Series E
Preferred Stock to Cedar Ventures, LLC (f/k/a HIS Ventures, LLC), an affiliate
of Galtney Corporate Services, Inc. ('Galtney'), for an aggregate purchase price
of $1,000,000.
57. On August 1, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Randy Farber an option to purchase 30,000 shares of Common Stock
with an exercise price of $0.50 per share.
58. On August 1, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Steven Ensinger an option to purchase 15,000 shares of Common
Stock with an exercise price of $0.60 per share.
59. On August 1, 1997, the Company issued 40,058 shares of Common Stock to
Robert Wilson, M.D. under the terms of a Management Services Agreement and
Restricted Stock Agreement.
60. On August 1, 1997, the Company issued warrants to purchase an aggregate
of 130,000 shares of Series E Preferred Stock, to Comdisco, Inc. ('Comdisco') in
connection with the execution of a (i) Master Lease Agreement and (ii)
Subordinated Loan and Security Agreement pursuant to which Comdisco made a
subordinated loan to the Company in the aggregate principal amount of
$5,000,000.
61. On August 1, 1997, the Company issued 157,807 shares of Common Stock to
the following physicians affiliated with Sun Valley Orthopaedic Surgeons under
the terms of a Management Services Agreement and Restricted Stock Agreements:
Jon Gelsey, M.D., Martin Sterusky, M.D. and Robert Waldrip, M.D.
62. On September 17, 1997, the Company issued 95,384 shares of Common Stock
to Michael Abrahams, M.D. under the terms of a Management Services Agreement and
Restricted Stock Agreement.
63. On August 4, 1997, pursuant to an Incentive Stock Option Agreement, the
Company granted Helen Arnzen an option to purchase 5,000 shares of Common Stock
with an exercise price of $0.50 per share.
II-5
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.--(CONTINUED)
64. On August 9, 1997, pursuant to an Amended and Restated Management
Services Agreement and Restricted Stock Agreements, the Company issued 68,031
shares of Common Stock to the following physicians affiliated with LVBMJ: Thomas
Sauer, M.D., Ranjan Sachdev, M.D., Joseph Garbarino, M.D., John Williams, M.D.
and Peter W. Kozicky, M.D.
65. On August 18, 1997, pursuant to a Stock Purchase Agreement, the Company
issued 41,667 shares of Series E Preferred Stock to Comdisco for an aggregate
purchase price of $250,000.
66. On August 21, 1997, pursuant to an Incentive Stock Option Agreement,
the Company granted Lisa Arnold an option to purchase 5,000 shares of Common
Stock with an exercise price of $0.60 per share.
67. On August 21, 1997, pursuant to an Incentive Stock Option Agreement,
the Company granted Marc Guthart an option to purchase 7,000 shares of Common
Stock with an exercise price of $0.60 per share.
68. On August 22, 1997, the Company issued warrants to purchase an
aggregate of 37,500 shares of Series E Preferred Stock to Galtney in connection
with a Subordinated Loan from Galtney to the Company.
69. On August 26, 1997, pursuant to a Management Services Agreement and
Restricted Stock Agreements, the Company issued 656,902 shares of Common Stock
to the following physicians, one attorney and one broker affiliated with Broward
Orthopedic Specialties, Inc.: Kalman Blomberg, M.D., Michael Reilly, M.D., Alan
Rootman, M.D., Jeffrey Cantor, M.D., John Fernandez, M.D., Terence Matthews,
M.D., Steven Naide, M.D., Mitchell Seavey, M.D., David Menkhaus and Les Alt.
70. On August 26, 1997, pursuant to an Incentive Stock Option Agreement,
the Company granted Andrew Heeman an option to purchase 5,000 shares of Common
Stock with an exercise price of $2.00 per share.
71. On September 4, 1997, the Company issued 38,229 shares of Common Stock
to Eradio Arredondo, M.D. under the terms of a Management Services Agreement and
Restricted Stock Agreement.
72. On September 5, 1997, the Company issued 72,600 shares of Common Stock
to Kramer & Maehrer, LLC under the terms of a Management Services Agreement and
Restricted Stock Agreement.
73. On September 9, 1997, the Company issued and sold $4,000,000 in
aggregate principal amount of its subordinated convertible debentures due 2000
to the following: Dr. Nagpal, Delphi Ventures, Delphi BioInvestments, Oak
Partners, Oak VI, and Health Care Services-BMJ, LLC and HGQ Serv*is Ventures,
L.P. affiliates of Hambrecht & Quist, LLC. which are convertible into shares of
Common Stock at an initial conversion price equal to $7.20 per share.
74. On September 9, 1997, the Company issued 36,492 shares of Common Stock
to Jeffrey Beitler, M.D. under the terms of a Management Services Agreement and
Restricted Stock Agreement.
75. On September 12, 1997, pursuant to the terms of a Management Services
Agreement and Restricted Stock Agreements, the Company issued an aggregate of
126,923 shares of Common Stock to the following physicians affiliated with
Physical Medicine and Rehabilitation Associates, Inc.: Marc Levinson, M.D.,
Joseph Alshon, M.D., Daniel Picard, M.D., Jonathan Tarrash, M.D. and Max
Gilbert, M.D.
76. On October 3, 1997, pursuant to the terms of a Restricted Stock
Agreement, the Company issued an aggregate of 503,250 shares of Common Stock to
the following physicians affiliated with Valley Sports and Arthritis Surgeons:
George Arangio, M.D., Thomas DiBenedetto, M.D., Neal Stansbury, M.D., David
Sussman, M.D. and Prodromos Ververeli, M.D.
77. On October 15, 1997, pursuant to the terms of a Note Agreement, as
amended, the Company issued warrants to purchase an aggregate of 67,500 shares
of the Company's Common Stock to the following: Dr. Nagpal, Delphi Ventures,
Delphi Bio Investments, Oak Partners, Oak VI and Dr. Fox.
78. On October 16, 1997, pursuant to the terms of a Management Services
Agreement and Restricted Stock Agreements, the Company issued an aggregate of
282,254 shares of Common Stock to the following physicians affiliated with OSA:
Dr. Eidelson, John VanHouten, M.D., Robert Zann, M.D., Eric Shapiro, M.D., Edgar
Handal, M.D. and Brandon Luskin, M.D.
II-6
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.--(CONTINUED)
79. On October 26, 1997, pursuant to the terms of Restricted Stock
Agreements, the Company issued an aggregate of 57,036 shares of Common Stock to
the following physicians affiliated with Orthopaedic Management Network, Inc.:
Gustavo Armendariz, M.D., Philip Bowman, M.D., Roberto Carreon, M.D., Thomas
Carter, M.D., Richard Collins, M.D., Dennis Crandall, M.D., Jody Daggett, M.D.,
Richard Daley, J.D., Jack Davis, M.D., Sherwood Duhon, M.D., Thomas Erickson,
M.D., Norman Fee, M.D., Jonathan Fox, M.D., Charles Gauntt, M.D., Lawrence
Green, M.D., Mark Greenfield, M.D., Dan Heller, M.D., Peter Herwick, M.D.,
Robert Johnson, M.D., Robert Kasa, M.D., Douglas Kelly, M.D., Stuart Kozinn,
M.D., Richard Lane, M.D., John Mahon, M.D., Bruce Mallin, M.D., Bert McKinnon,
M.D., Stephen Milliner, M.D., Gerald Moczynski, M.D., Neil Motzkin, M.D., Paul
Palmer, M.D., William Quinlan, M.D., Vincent Russo, M.D., Ronald Sandler, M.D.,
Saul Schreiber, M.D., Irwin Shapiro, M.D., Victor Tseng, M.D., Larry Verhulst,
M.D., John Whisler, M.D., Robert White, M.D., Ralph Wilson, M.D., Mark Zachary,
M.D. and Jon Zoltan, M.D.
80. On October 28, 1997, pursuant to the terms of a Management Services
Agreement and Restricted Stock Agreements, the Company issued an aggregate of
52,972 shares of Common Stock to the following physician affiliated with LOAS:
Bruce Young, M.D., Dominic Kleinhenz, M.D., William McKay, M.D., George
Kolettis, M.D. and Thomas Goberville, M.D.
81. On October 31, 1997, pursuant to the terms of a Management Services
Agreement and Restricted stock Agreements, the Company issued an aggregate of
260,237 shares of Common Stock to the following physicians affiliated with BIOS:
David A. Krant, M.D., Jeffrey B. Worth, M.D., Jeffrey A. Crastnopol, M.D., Marc
Z. Hammerman, M.D., Gary B. Schwartz, M.D., Marshall E. Stauber, M.D., Thomas A.
Hoffeld, M.D. and Phillip E. Greenbarg, M.D.
II-7
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<C> <C> <S>
**1.1 -- Form of Underwriting Agreement.
**3.1 -- Form of Amended and Restated Certificate of Incorporation of the Registrant.
*3.2 -- By-laws of the Registrant.
*4.1 -- Bone, Muscle and Joint, Inc. 1996 Stock Option Plan.
**5 -- Opinion of O'Sullivan Graev & Karabell, LLP (including the consent of such firm) regarding
legality of securities being offered.
*10.1 -- Stock Purchase Agreement dated as of May 6, 1996 among the Company, Dr. Nagpal, Oak VI, Oak
Partners, Delphi Ventures and Delphi BioInvestments.
*10.2 -- Stock Purchase Agreement dated November 12, 1996 among the Company, Dr. Nagpal, Oak VI, Oak
Partners, Delphi Ventures, and Delphi BioInvestments.
*10.3 -- Stock Purchase Agreement dated January 29, 1997 among the Company, certain physicians affiliated
with SCOI, Glenn Cozen and the Saphier and Heller Law Corporation Retirement Trust.
*10.4 -- Stock Purchase Agreement dated March 12, 1997, among the Company, Andrea Seratte, CGJR Health
Care, CGJR II and CGJR/MF.
**10.5 -- Stock Purchase Agreement dated June 19, 1997, among the Company, Dr. Nagpal, Oak VI, Oak
Partners, Delphi Ventures, Delphi BioInvestments, CGJR Health Care, CGJR II and CGJR/MF.
**10.6 -- Stock Purchase Agreement dated July 31, 1997, between the Company and Cedar Ventures, LLC (f/k/a
HIS Ventures, LLC).
**10.7 -- Stock Purchase Agreement dated August 18, 1997, between the Company and Comdisco.
**10.8 -- Second Term Note dated June 30, 1997, issued by the Company to HCFP Funding.
*10.9 -- Form of Loan and Security Agreement dated March 28, 1997, between the Company and HCFP Funding.
**10.10 -- Subordinated Loan and Security Agreement dated as of August 1, 1997, as amended, between the
Company and Comdisco.
**10.11 -- Master Lease Agreement dated August 1, 1997 between Comdisco and the Company.
**10.12 -- Subordinated Loan and Security Agreement dated as of August 22, 1997 between the Company and
Galtney.
**10.13 -- Convertible Debenture Purchase Agreement dated as of September 9, 1997 among the Company, Dr.
Nagpal, Delphi Ventures, Delphi BioInvestments, Oak VI, Oak Partners, Health Care Services--BMJ,
LLC and HGQ Serv*is Ventures, L.P.
*10.14 -- 8% Promissory Note in the aggregate principal amount of $700,000 issued by the Company and
payable to the order of Dr. Nagpal, dated January 10, 1997.
*10.15 -- 8% Promissory Note in the aggregate principal amount of $167,000 issued by the Company and
payable to the order of Dr. Nagpal, dated January 10, 1997.
*10.16 -- Second Amended and Restated Stockholders Agreement, dated as of November 22, 1996, among the
Company, Dr. Nagpal, Delphi Ventures, Delphi BioInvestments, Oak Partners, Oak VI, Scheer and the
stockholders named therein.
*10.17 -- Employment Agreement between the Company and Dr. Nagpal, dated May 6, 1996.
*10.18 -- Amended and Restated Management Services Agreement, effective as of July 1, 1997, among the
Company, LVBMJ amd certain physicians affiliated with LVBMJ.
*10.19 -- Asset Purchase Agreement, effective as of July 1, 1997, between the Company and OAB.
*10.20 -- Amended and Restated Restricted Stock Agreement, dated as of September 9, 1997, among the
Company, LVBMJ and certain physicians affiliated with LVBMJ.
*10.21 -- Management Services Agreement, effective as of November 1, 1996, as amended, between the Company
and STSC.
**10.22 -- Asset Purchase Agreement, dated as of November 1, 1996, between the Company and STSC.
</TABLE>
II-8
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.--(CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<C> <C> <S>
*10.23 -- Restricted Stock Agreement, dated as of December 23, 1996, between the Company, STSC and certain
physicians affiliated with STSC.
*10.24 -- Stockholder Non-Competition Agreement, dated as of December 23, 1996, among the Company, STSC and
the STSC physicians.
*10.25 -- Management Services Agreement, effective as of April 1, 1997, as amended, among the Company,
Tri-City and the indemnifying persons identified therein.
*10.26 -- Asset Purchase Agreement, dated as of April 1, 1997, between the Company and Tri-City.
*10.27 -- Restricted Stock Agreement, dated as of April 1, 1997, as amended, among the Company, Tri-City
and certain physicians affiliated with Tri-City.
*10.28 -- Stockholder Non-Competition Agreement, dated as of April 1, 1997, among the Company, Tri-City and
certain physicians affiliated with Tri-City.
*10.29 -- Management Services Agreement, effective as of November 1, 1996, as amended, between the Company
and SCOI.
*10.30 -- Asset Purchase Agreement, effective as of November 1, 1996, between the Company and SCOI.
*10.31 -- Restricted Stock Agreement, effective as of November 1, 1996, among the Company, SCOI, certain
physicians affiliated with SCOI, Delphi Ventures, Delphi BioInvestments, Oak VI and Oak Partners.
*10.32 -- Stockholder Non-Competition Agreement, effective November 1, 1996, among the Company, SCOI and
certain physicians affiliated with SCOI.
*10.33 -- Management Services Agreement, effective April 1, 1997, as amended, among the Company, LOS and
certain physicians affiliated with LOS.
*10.34 -- Asset Purchase Agreement, effective as of April 1, 1997, between the Company and LOS.
*10.35 -- Restricted Stock Agreement, dated as of May 6, 1997, as amended, among the Company, LOS and
certain physicians affiliated with LOS.
*10.36 -- Stockholder Non-Competition Agreement effective as of April 1, 1997, among the Company, LOS and
certain physicians affiliated with LOS.
*10.37 -- Management Services Agreement, effective as of July 1, 1997, as amended, among the Company, Sun
Valley and the indemnifying persons thereto.
*10.38 -- Asset Purchase Agreement, effective as of July 1, 1997, between the Company and Sun Valley.
*10.39 -- Restricted Stock Agreement, dated as of July 1, 1997, among the Company, Sun Valley and certain
physicians affiliated with Sun Valley.
*10.40 -- Stockholder Non-Competition Agreement, dated as of July 1, 1997, among the Company, Sun Valley
and certain physicians affiliated with Sun Valley.
*10.41 -- Management Services Agreement, effective as of June 1, 1997, as amended, among the Company, Gold
Coast and the physicians affiliated with Gold Coast.
*10.42 -- Asset Purchase Agreement, effective as of June 1, 1997, as amended, between the Company and Gold
Coast.
*10.43 -- Restricted Stock Agreement, effective June 1, 1997, as amended, among the Company and certain
physicians affiliated with Gold Coast.
*10.44 -- Stockholder Non-Competition Agreement, dated August 8, 1997, among the Company and certain
physicians affiliated with Gold Coast.
*10.45 -- Amendatory Agreement dated as of July 3, 1997, between the Company and Gold Coast.
*10.46 -- Note Purchase Agreement dated as of October 15, 1997, among the Company, Dr. Nagpal, Dr. Fox,
Delphi Ventures, Delphi Bio Investments, Oak Partners and Oak VI.
**10.47 -- Management Services Agreement, effective as of September 1, 1997, between the Company and OSA.
**10.48 -- Asset Purchase Agreement, effective as of September 1, 1997, between the Company and OSA.
</TABLE>
II-9
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.--(CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<C> <C> <S>
**10.49 -- Restricted Stock Agreement,dated as of October 16, 1997, among the Company, OSA and certain
physicians affiliated with OSA.
**10.50 -- Stockholder Non-Competition Agreement dated as of October 16, 1997, among the Company and certain
physicians affiliated with OSA.
**10.51 -- Management Services Agreement, effective as of September 1, 1997, between the Company and BIOS.
**10.52 -- Asset Purchase Agreement, effective as of September 1, 1997, between the Company and BIOS.
**10.53 -- Restricted Stock Agreement dated as of October 31, 1997, among the Company, BIOS and certain
physicians affiliated with BIOS.
**10.54 -- Stockholder Non-Competition Agreement dated as of October 31, 1997, among the Company and certain
physicians affiliated with BIOS.
**10.55 -- Management Services Agreement effective as of September 1, 1997, between the Company and LOAS.
**10.56 -- Asset Purchase Agreements effective as of September 1, 1997, between the Company and certain
affiliates of LOAS.
**10.57 -- Restricted Stock Agreement dated as of October 28, 1997, among the Company, LOAS and certain
physicians affiliated with LOAS.
**10.58 -- Amended and Restated Practice Management Services Agreement dated as of September 26, 1997, among
the Company and certain physicians affiliated with Orthopaedic Management Network, Inc.
**10.59 -- Restricted Stock Agreement dated as of September 26, 1997, among the Company and certain
physicians affiliated with Orthopaedic Management Network, Inc.
**10.60 -- Agreement and Plan of Reorganization and Merger dated as of October 6, 1997, among the Company,
OMNI Acquisition Corporation, Orthopaedic Management Network, Inc. and the shareholders'
representative named therein.
*10.61 -- Tri-Party Agreement dated as of December 31, 1996, between the Company and SCOI.
**10.62 -- Management Services Agreement effective as of September 1, 1997, among the Company, VSI and VSAS.
**10.63 -- Asset Purchase Agreement effective as of October 3, 1997, between the Company and VSI.
**10.64 -- Restricted Stock Agreement dated as of October 3, 1997, among the Company, VSI and certain
affiliated with VSI.
**10.65 -- Stockholder Non-Competition Agreement dated as of October 3, 1997, among the Company and certain
physicians affiliated with VSAS.
**10.66 -- Stock Purchase Agreement dated as of August 3, 1997, among the Company, VSI and the stockholders
listed therein.
**10.67 -- Registration Rights Agreement dated as of August 1, 1997, among the Company, Comdisco and
Galtney.
**10.68 -- Registration Rights Agreement dated as of September 9, 1997, among the Company, Health Care
Services-BMJ, LLC and H&Q Serv*is Ventures L.P.
**10.69 -- Registration Rights Agreement dated as of September 15, 1997, between the Company and Healthcare
Financial Partners, Inc.
**10.70 -- Third Amended and Restate Registration Rights Agreement dated as of September 30, 1997, among the
Company, Dr. Nagpal, Delphi Ventures III, L.P., Delphi Bioinvestments III, L.P., Oak Investment
Partners VI, Limited Partnership, Oak VI Affiliated Fund, Limited Partnership, L.P., CGJR Health
Care Services Private Equities, L.P., CGJR II, L.P., CGJR/MF III, L.P. and HIS Ventures, LLC.
**11.1 -- Schedule of Calculation of Earnings Per Share.
**21 -- List of Subsidiaries.
**23.1 -- Consent of O'Sullivan Graev & Karabell, LLP (to be included as part of its opinion to be filed as
Exhibit 5 hereto).
</TABLE>
II-10
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.--(CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<C> <C> <S>
**23.2 -- Consent of Ernst & Young LLP, independent certified public accountants.
*24 -- Powers of Attorney.
**27 -- Financial Data Schedule.
</TABLE>
- ------------------------
* Previously filed.
** Filed herewith.
(b) Financial Statement Schedules
All schedules are omitted because they are inapplicable or the
requested information is shown in the consolidated financial statements
or related notes.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the DGCL, the Certificate of Incorporation and By-laws,
or otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than payment by the Registrant
of expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-11
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF BOCA
RATON, STATE OF FLORIDA ON THE 2ND DAY OF DECEMBER, 1997.
BMJ MEDICAL MANAGEMENT, INC.
By: /s/ Naresh Nagpal
--------------------------------
Name: Naresh Nagpal, M.D.
Title: President and Chief
Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED ON THE 2ND DAY OF DECEMBER,
1997, BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <S>
/s/ NARESH NAGPAL President, Chief Executive Officer and
- -------------------------------------- Director (Principal Executive Officer)
Naresh Nagpal, M.D.
/s/ DAVID H. FATER Executive Vice President, Chief Financial
-------------------------------------- Officer and Director (Principal Financial
David H. Fater and Accounting Officer)
Director
--------------------------------------
Georges Daou
Director
--------------------------------------
Stewart G. Eidelson, M.D.
* Director
--------------------------------------
Ann H. Lamont
* Director
--------------------------------------
Donald J. Lothrop
* Director
--------------------------------------
James M. Fox, M.D.
*By: /s/David H. Fater
--------------------------------------
David H. Fater, Attorney-in-Fact
</TABLE>
II-12
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- -----------
<C> <C> <S> <C>
**1.1 -- Form of Underwriting Agreement.
**3.1 -- Form of Amended and Restated Certificate of Incorporation of the Registrant.
*3.2 -- By-laws of the Registrant.
*4.1 -- Bone, Muscle and Joint, Inc. 1996 Stock Option Plan.
**5 -- Opinion of O'Sullivan Graev & Karabell, LLP (including the consent of such firm)
regarding legality of securities being offered.
*10.1 -- Stock Purchase Agreement dated as of May 6, 1996 among the Company, Dr. Nagpal, Oak VI,
Oak Partners, Delphi Ventures and Delphi BioInvestments.
*10.2 -- Stock Purchase Agreement dated November 12, 1996 among the Company, Dr. Nagpal, Oak VI,
Oak Partners, Delphi Ventures, and Delphi BioInvestments.
*10.3 -- Stock Purchase Agreement dated January 29, 1997 among the Company, certain physicians
affiliated with SCOI, Glenn Cozen and the Saphier and Heller Law Corporation Retirement
Trust.
*10.4 -- Stock Purchase Agreement dated March 12, 1997, among the Company, Andrea Seratte, CGJR
Health Care, CGJR II and CGJR/MF.
**10.5 -- Stock Purchase Agreement dated June 19, 1997, among the Company, Dr. Nagpal, Oak VI,
Oak Partners, Delphi Ventures, Delphi BioInvestments, CGJR Health Care, CGJR II and
CGJR/MF.
**10.6 -- Stock Purchase Agreement dated July 31, 1997, between the Company and HIS Ventures,
LLC.
**10.7 -- Stock Purchase Agreement dated August 18, 1997, between the Company and Comdisco.
**10.8 -- Second Term Note dated June 30, 1997, issued by the Company to HCFP Funding.
*10.9 -- Form of Loan and Security Agreement dated March 28, 1997, between the Company and HCFP
Funding.
**10.10 -- Subordinated Loan and Security Agreement dated as of August 1, 1997, as amended,
between the Company and Comdisco.
**10.11 -- Master Lease Agreement dated August 1, 1997 between Comdisco and the Company.
**10.12 -- Subordinated Loan and Security Agreement dated as of August 22, 1997 between the
Company and Galtney.
**10.13 -- Convertible Debenture Purchase Agreement dated as of September 9, 1997 among the
Company, Dr. Nagpal, Delphi Ventures, Delphi BioInvestments, Oak VI, Oak Partners,
Health Care Services--BMJ, LLC and HGQ Serv*is Ventures, L.P.
*10.14 -- 8% Promissory Note in the aggregate principal amount of $700,000 issued by the Company
and payable to the order of Dr. Nagpal, dated January 10, 1997.
*10.15 -- 8% Promissory Note in the aggregate principal amount of $167,000 issued by the Company
and payable to the order of Dr. Nagpal, dated January 10, 1997.
*10.16 -- Second Amended and Restated Stockholders Agreement, dated as of November 22, 1996,
among the Company, Dr. Nagpal, Delphi Ventures, Delphi BioInvestments, Oak Partners,
Oak VI, Scheer and the stockholders named therein.
*10.17 -- Employment Agreement between the Company and Dr. Nagpal, dated May 6, 1996.
*10.18 -- Amended and Restated Management Services Agreement, effective as of July 1, 1997, among
the Company, LVBMJ and certain physicians affiliated with LVBMJ.
*10.19 -- Asset Purchase Agreement, effective as of July 1, 1997, between the Company and OAB.
*10.20 -- Amended and Restated Restricted Stock Agreement, dated as of September 9, 1997, among
the Company, LVBMJ and certain physicians affiliated with LVBMJ.
**10.21 -- Management Services Agreement, effective as of November 1, 1996, as amended, between
the Company and STSC.
**10.22 -- Asset Purchase Agreement, dated as of November 1, 1996, between the Company and STSC.
**10.23 -- Restricted Stock Agreement, dated as of December 23, 1996, between the Company, STSC
and certain physicians affiliated with STSC.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- -----------
<C> <C> <S> <C>
*10.24 -- Stockholder Non-Competition Agreement, dated as of December 23, 1996, among the
Company, STSC and the STSC physicians.
*10.25 -- Management Services Agreement, effective as of April 1, 1997, as amended, among the
Company, Tri-City and the indemnifying persons identified therein.
*10.26 -- Asset Purchase Agreement, dated as of April 1, 1997, between the Company and Tri-City.
*10.27 -- Restricted Stock Agreement, dated as of April 1, 1997, as amended, among the Company,
Tri-City and certain physicians affiliated with Tri-City.
*10.28 -- Stockholder Non-Competition Agreement, dated as of April 1, 1997, among the Company,
Tri-City and certain physicians affiliated with Tri-City.
*10.29 -- Management Services Agreement, effective as of November 1, 1996, as amended, between
the Company and SCOI.
*10.30 -- Asset Purchase Agreement, effective as of November 1, 1996, between the Company and
SCOI.
*10.31 -- Restricted Stock Agreement, effective as of November 1, 1996, among the Company, SCOI,
certain physicians affiliated with SCOI, Delphi Ventures, Delphi BioInvestments, Oak VI
and Oak Partners.
*10.32 -- Stockholder Non-Competition Agreement, effective November 1, 1996, among the Company,
SCOI and certain physicians affiliated with SCOI.
*10.33 -- Management Services Agreement, effective April 1, 1997, as amended, among the Company,
LOS and certain physicians affiliated with LOS.
*10.34 -- Asset Purchase Agreement, effective as of April 1, 1997, between the Company and LOS.
*10.35 -- Restricted Stock Agreement, dated as of May 6, 1997, as amended, among the Company, LOS
and certain physicians affiliated with LOS.
*10.36 -- Stockholder Non-Competition Agreement effective as of April 1, 1997, among the Company,
LOS and certain physicians affiliated with LOS.
*10.37 -- Management Services Agreement, effective as of July 1, 1997, as amended, among the
Company, Sun Valley and the indemnifying persons thereto.
*10.38 -- Asset Purchase Agreement, effective as of July 1, 1997, between the Company and Sun
Valley.
*10.39 -- Restricted Stock Agreement, dated as of July 1, 1997, among the Company, Sun Valley and
certain physicians affiliated with Sun Valley.
*10.40 -- Stockholder Non-Competition Agreement, dated as of July 1, 1997, among the Company, Sun
Valley and certain physicians affiliated with Sun Valley.
*10.41 -- Management Services Agreement, effective as of June 1, 1997, as amended, among the
Company, Gold Coast and the physicians affiliated with Gold Coast.
*10.42 -- Asset Purchase Agreement, effective as of June 1, 1997, as amended, between the Company
and Gold Coast.
*10.43 -- Restricted Stock Agreement, effective June 1, 1997, as amended, among the Company and
certain physicians affiliated with Gold Coast.
*10.44 -- Stockholder Non-Competition Agreement, dated August 8, 1997, among the Company and
certain physicians affiliated with Gold Coast.
*10.45 -- Amendatory Agreement dated as of July 3, 1997, between the Company and Gold Coast.
*10.46 -- Note Purchase Agreement dated as of October 15, 1997, among the Company, Dr. Nagpal,
Dr. Fox, Delphi Ventures, Delphi Bio Investments, Oak Partners and Oak VI.
**10.47 -- Management Services Agreement, effective as of September 1, 1997, between the Company
and OSA.
**10.48 -- Asset Purchase Agreement, effective as of September 1, 1997, between the Company and
OSA.
**10.49 -- Restricted Stock Agreement,dated as of October 16, 1997, among the Company, OSA and
certain physicians affiliated with OSA.
**10.50 -- Stockholder Non-Competition Agreement dated as of October 16, 1997, among the Company
and certain physicians affiliated with OSA.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- -----------
<C> <C> <S> <C>
**10.51 -- Management Services Agreement, effective as of September 1, 1997, between the Company
and BIOS.
**10.52 -- Asset Purchase Agreement, effective as of September 1, 1997, between the Company and
BIOS.
**10.53 -- Restricted Stock Agreement dated as of October 31, 1997, among the Company, BIOS and
certain physicians affiliated with BIOS.
**10.54 -- Stockholder Non-Competition Agreement dated as of October 31, 1997, among the Company
and certain physicians affiliated with BIOS.
**10.55 -- Management Services Agreement effective as of September 1, 1997, between the Company
and LOAS.
**10.56 -- Asset Purchase Agreements effective as of September 1, 1997, between the Company and
certain affiliates of LOAS.
**10.57 -- Restricted Stock Agreement dated as of October 28, 1997, among the Company, LOAS and
certain physicians affiliated with LOAS.
**10.58 -- Form of Amended and Restated Practice Management Services Agreement dated as of
September 26, 1997, among the Company and certain physicians affiliated with
Orthopaedic Management Network, Inc.
**10.59 -- Restricted Stock Agreement dated as of September 26, 1997, among the Company and
certain physicians affiliated with Orthopaedic Management Network, Inc.
**10.60 -- Agreement and Plan of Reorganization and Merger dated as of October 6, 1997, among the
Company, OMNI Acquisition Corporation, Orthopaedic Management Network, Inc. and the
shareholders' representative named therein.
*10.61 -- Tri-Party Agreement dated as of December 31, 1996, between the Company and SCOI.
**10.62 -- Management Services Agreement effective as of September 1, 1997, among the Company, VSI
and VSAS.
**10.63 -- Asset Purchase Agreement effective as of October 3, 1997, between the Company and VSI.
**10.64 -- Restricted Stock Agreement dated as of October 3, 1997, among the Company, VSI and
certain affiliated with VSI.
**10.65 -- Stockholder Non-Competition Agreement dated as of October 3, 1997, among the Company
and certain physicians affiliated with VSAS.
**10.66 -- Stock Purchase Agreement dated as of August 3, 1997, among the Company, VSI and the
stockholders listed therein.
**10.67 -- Registration Rights Agreement dated as of August 1, 1997, among the Company, Comdisco
and Galtney.
**10.68 -- Registration Rights Agreement dated as of September 9, 1997, among the Company, Health
Care Services-BMJ, LLC and H&Q Serv*is Ventures L.P.
**10.69 -- Registration Rights Agreement dated as of September 15, 1997, between the Company and
Healthcare Financial Partners, Inc.
**10.70 -- Third Amended and Restate Registration Rights Agreement dated as of September 30, 1997,
among the Company, Dr. Nagpal, Delphi Ventures III, L.P., Delphi Bioinvestments III,
L.P., Oak Investment Partners VI, Limited Partnership, Oak VI Affiliated Fund, Limited
Partnership, L.P., CGJR Health Care Services Private Equities, L.P., CGJR II, L.P.,
CGJR/MF III, L.P. and HIS Ventures, LLC.
**11.1 -- Schedule of Calculation of Earnings Per Share.
**21 -- List of Subsidiaries.
**23.1 -- Consent of O'Sullivan Graev & Karabell, LLP (to be included as part of its opinion to
be filed as Exhibit 5 hereto).
**23.2 -- Consent of Ernst & Young LLP, independent certified public accountants.
*24 -- Powers of Attorney.
**27 -- Financial Data Schedule.
</TABLE>
- ------------------------
* Previously filed.
** Filed herewith.
<PAGE>
BMJ Medical Management, Inc.
5,000,000 Shares1
Common Stock
UNDERWRITING AGREEMENT
_____ __, 1997
HAMBRECHT & QUIST LLC
RAYMOND JAMES & ASSOCIATES, INC.
VOLPE BROWN WHELAN & COMPANY, LLC
c/o Hambrecht & Quist LLC
230 Park Avenue, 21st Floor
New York, NY 10169
Ladies and Gentlemen:
BMJ Medical Management, Inc. a Delaware corporation (herein called the
Company), proposes to issue and sell 5,000,000 shares of its authorized but
unissued Common Stock, $.001 par value (herein called the Common Stock) (said
5,000,000 shares of Common Stock being herein called the Underwritten Stock).
The Company proposes to grant to the Underwriters (as hereinafter defined) an
option to purchase up to 750,000 additional shares of Common Stock (herein
called the Option Stock and with the Underwritten Stock herein collectively
called the Stock). The Common Stock is more fully described in the Registration
Statement and the Prospectus hereinafter mentioned.
The Company hereby confirms the agreements made with respect to the
purchase of the Stock by the several underwriters, for whom you are acting,
named in Schedule I hereto (herein collectively called the Underwriters, which
term shall also include any underwriter purchasing Stock pursuant to Section
3(b) hereof). You represent and warrant that you have been authorized by each of
the other Underwriters to enter into this Agreement on its behalf and to act for
it in the manner herein provided.
1. Registration Statement. The Company has filed with the Securities
and Exchange Commission (herein called the Commission) a registration statement
on Form S-1 (No. 333-35759), including the related preliminary prospectus, for
the registration under the Securities Act of 1933, as amended (herein called the
Securities Act), of the Stock. Copies of such registration statement and of each
amendment thereto, if any, including the related preliminary prospectus (meeting
the requirements of Rule 430A of the rules and regulations of the Commission)
heretofore filed by the Company with the Commission have been delivered to you.
The term Registration Statement as used in this agreement shall mean
such registration statement, including all exhibits and financial statements,
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, in the form in which it became effective, and
any registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the Stock (herein called a Rule
462(b) registration statement), and, in the event of any amendment thereto after
the effective date of such registration statement (herein called the Effective
Date), shall also mean (from and after the effectiveness of such amendment) such
registration statement as so amended (including any Rule 462(b) registration
statement). The term Prospectus as used in this Agreement shall mean the
prospectus relating to the Stock first filed with the Commission pursuant to
Rule 424(b) and Rule 430A (or if no such filing is required, as included in the
Registration Statement) and, in the event of any supplement or amendment to such
prospectus after the Effective Date, shall also mean (from and after the filing
with the Commission of such supplement or the effectiveness of such amendment)
such prospectus as so supplemented or amended. The term Preliminary Prospectus
as used in this Agreement shall mean each preliminary prospectus included in
such registration statement prior to the time it becomes effective.
The Registration Statement has been declared effective under the
Securities Act, and no post-effective amendment to the Registration Statement
has been filed as of the date of this Agreement. The Company has caused to be
delivered to you copies of each Preliminary Prospectus and has consented to the
use of such copies for the purposes permitted by the Securities Act.
2. Representations and Warranties of the Company.
- --------
(1) Plus an option to purchase from the Company up to 750,000 additional
shares to cover over-allotments.
<PAGE>
2
(a) The Company hereby represents and warrants as follows:
(i) Each of the Company and its subsidiaries has been duly incorporated
and is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has full corporate power and authority to own
or lease its properties and conduct its business as described in the
Registration Statement and the Prospectus and as being conducted, and is duly
qualified as a foreign corporation and in good standing in all jurisdictions in
which the character of the property owned or leased or the nature of the
business transacted by it makes qualification necessary, except where the
failure to be so qualified would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business, business
prospects, properties or results of operations of the Company and its
subsidiaries, taken as a whole. (a "Material Adverse Effect").
(ii) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any material
adverse change in the business, properties, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole, whether or not
arising from transactions in the ordinary course of business, other than as set
forth in the Registration Statement and the Prospectus, and since such dates,
except in the ordinary course of business, neither the Company nor any of its
subsidiaries has entered into any material transaction not referred to in the
Registration Statement and the Prospectus.
(iii) The Registration Statement and the Prospectus comply, and on the
Closing Date (as hereinafter defined) and any later date on which Option Stock
is to be purchased, the Prospectus will comply, in all material respects, with
the provisions of the Securities Act and the rules and regulations of the
Commission thereunder; on the Effective Date, the Registration Statement did not
contain any untrue statement of a material fact and did not omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading; and, on the Effective Date the Prospectus did
not and, on the Closing Date and any later date on which Option Stock is to be
purchased, will not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that none of the rep resentations and warranties in this
subparagraph (iii) shall apply to statements in, or omissions from, the
Registration Statement or the Prospectus made in reliance upon and in conformity
with information herein or otherwise furnished in writing to the Company by or
on behalf of the Underwriters for use in the Registration Statement or the
Prospectus.
(iv) The Company has the requisite corporate power and authority to
enter into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company and is
a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except (1) as such enforceability may be limited by
nowor hereafter (A) applicable bankruptcy, insolvency, moratorium,
reorganization, fraudulent conveyance or similar laws in effect which affect the
enforcement of creditors' rights generally and (B) general principles of equity,
regardless of whether enforceability is considered in a proceeding at law or in
equity; and (2) as rights to indemnity and contribution may be limited under
applicable law; the performance of this Agreement and the consummation of the
transactions herein contemplated will not result in a breach or violation of any
of the terms and provisions of, or constitute a default under, (i) any material
bond, debenture, note or other evidence of indebtedness, or under any material
lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other material agreement or instrument to which the Company is a
party or by which it or any of its properties may be bound, (ii) the charter or
bylaws of the Company, or (iii) any law, order, rule, regulation, writ,
injunction, judgment or decree of any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company or its
properties. No consent, approval, authorization or order of or qualification
with any court, government or governmental agency or body, domestic or foreign,
having jurisdiction over the Company or its properties is required for the
execution and delivery of this Agreement and the consummation by the Company of
the transactions herein contemplated, except as may be required under the
Securities Act or under state or other securities or Blue Sky laws, all of which
requirements have been satisfied in all material respects.
(v) There is not any pending or, to the best of the Company's
knowledge, threatened action, suit, claim or proceeding against the Company or
any of the Company's properties, assets or rights before any court, government
or governmental agency or body, domestic or foreign, having jurisdiction over
the Company or over its officers or properties or otherwise which (i) if
adversely decided, would (x) result in a material adverse change in the
operations, business, financial condition, results of operations or business
prospects of the
<PAGE>
3
Company and its subsidiaries, taken as a whole, or (y) would materially and
adversely affect the Company's properties, assets or rights, (ii) if adversely
decided, would prevent consummation of the transactions contemplated hereby, or
(iii) is required to be disclosed in the Registration Statement or Prospectus
and is not so disclosed; and there are no agreements, contracts, leases or
documents of the Company required to be described or referred to in the
Registration Statement or Prospectus or to be filed as exhibits to the
Registration Statement by the Securities Act or the Rules and Regulations which
have not been accurately described in all material respects or referred to in
the Registration Statement or Prospectus or filed as exhibits to the
Registration Statement.
(vi) The Stock, when issued and sold to the Underwriters as provided
herein, will be duly and validly issued, fully paid and nonassessable and
conforms to the description thereof in the Prospectus. No further approval or
authority of the stockholders or the Board of Directors of the Company will be
required for the issuance and sale of the Stock as contemplated herein.
(vii) Ernst & Young, LLP, which has examined the financial statements
of the Company, together with the related schedules and notes, as of September
30, 1997 and December 31, 1996 filed with the Commission as a part of the
Registration Statement, which are included in the Prospectus, are independent
accountants within the meaning of the Securities Act and the Rules and
Regulations; the audited financial statements of the Company, together with the
related schedules and notes, and the unaudited financial information, forming
part of the Registration Statement and Prospectus, fairly present in all
material respects the financial position and the results of operations of the
Company at the dates and for the periods to which they apply; and all audited
financial statements of the Company, together with the related schedules and
notes, and the unaudited consolidated financial information, filed with the
Commission as part of the Registration Statement, have been prepared in
accordance with generally accepted accounting principles ("GAAP") consistently
applied throughout the periods involved except as may be otherwise stated
therein. The selected and summary financial and statistical data included in the
Registration Statement present fairly in all material respects the information
shown therein and have been compiled on a basis consistent with the audited
financial statements presented therein. No other financial statements or
schedules are required to be included in the Registration Statement.
(viii) Except as set forth in the Registration Statement and
Prospectus, (A) the Company has valid title to all properties and assets
described in the Prospectus as owned by it, free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest, other than such as
would not have a Material Adverse Effect,[(B) the agreements to which the
Company is a party described in the Prospectus are valid agreements, enforceable
against the Company (as applicable) and, to the Company's knowledge, by the
Company against the other parties thereto, except as the enforcement thereof may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles and, to their knowledge, the other contracting
party or parties thereto are not in material breach or material default under
any of such agreements, and (C) the Company has valid and enforceable leases for
all properties described in the Prospectus as leased by it, except as the
enforcement, thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.](2) Except as
set forth in the Registration Statement and Prospectus, the Company owns or
leases all such properties as are necessary to its operations as now conducted
or as proposed to be conducted, except where the failure to own or lease such
properties would not have a Material Adverse Effect.
(ix) The Company has timely filed all necessary federal, state and
foreign income and franchise tax returns and have paid all taxes shown thereon
as due, except for such taxes or tax assessments, if any, as are being contested
in good faith and as to which adequate reserves, to the extent required by GAAP,
have been provided; and there is no tax deficiency that has been or, to the best
of the Company's knowledge, is reasonably likely to be asserted against the
Company that would have a Material Adverse Effect; and all tax liabilities are
adequately provided for on the books of the Company.
(x) The Company and its subsidiaries maintain insurance with recognized
insurers of the types and in the amounts generally adequate for their respective
business and consistent with insurance coverage maintained by similar companies
in similar businesses, including, but not limited to, insurance covering real
- --------
(2) We did not take this comment.
<PAGE>
4
and personal property owned or leased by the Company against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect; the Company has not been
refused any insurance coverage sought or applied for; and the Company has no
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a Material Adverse Effect.
(xi) Neither the Company nor any of its subsidiaries is currently
involved in any material labor dispute, nor, to the knowledge of the Company, is
any material labor dispute threatened which, if such dispute were to occur,
would be reasonably likely to result in a Material Adverse Effect. No collective
bargaining agreement exists with any of the Company's employees and, to the
Company's knowledge, no such agreement it imminent.
(xii) Neither the Company nor any of its subsidiaries is an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended, and the rules and regulations
thereunder.
(xiii) The Company has not distributed and will not distribute prior to
the later of (A) the Closing Date and (B) completion of the distribution of the
Stock any offering material in connection with the offering and sale of the
Stock other than any Preliminary Prospectuses, the Prospectus, the Registration
Statement and other materials, if any, permitted by the Securities Act.
(xiv) The Company has not, at any time, (A) made any unlawful
contribution to any candidate for foreign office or failed to disclose fully any
contribution in violation of law, or (B) made any payment to any federal or
state governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments required or permitted by the
laws of the United States or any jurisdiction thereof.
(xv) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Stock.
(xvi) Each officer, director and beneficial owner of shares of Common
Stock has agreed in writing that such person will not, for a period of one
hundred eighty (180) days after the date of the Propsectus, sell, offer,
contract to sell, grant any option to purchase, or otherwise transfer or dispose
of, any shares of Common Stock or any securities convertible into or exercisable
or exchangeable for Common Stock, otherwise than (A) as a bona fide gift or
gifts, provided by the donee or donees thereof agree in writing to be bound by
this restriction, or (B) with the prior written consent of Hambrecht & Quist LLC
on behalf of the Underwriters. Furthermore, such person will also agree and
consent to the entry of stop transfer instructions with the Company's transfer
agent against the transfer of the securities held by such person except in
compliance with this restriction. The Company has provided to counsel for the
Underwriters a complete and accurate list of all security holders of the Company
and the number and type of securities held by each security holder. The Company
has delivered to counsel for the Underwriters true, accurate and complete copies
of all of the agreements pursuant to which its officers, directors and
stockholders have agreed not to, sell, offer, contract to sell, grant any option
to purchase, or otherwise transfer or dispose of, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
(herein called the Lock-Up Agreements) presently in effect.
(xvii) Except as set forth in the Registration Statement and
Prospectus, (A) the Company is in compliance with all rules, laws and
regulations relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment (herein called
Environmental Laws) which are applicable to its business, except to the extent
that any failure to so comply would not have a Material Adverse Effect, (B) the
Company has received no notice from any governmental authority or third party of
an asserted claim under Environmental Laws, which claim is required to be
disclosed in the Registration Statement, and (C) no property which is owned,
leased or occupied by the Company has been designated as a Superfund site
pursuant to the Comprehensive Response, Compensation, and Liability Act of 1980,
as amended (42 U.S.C. Section 9601, et seq.), or otherwise designated as a
contaminated site under applicable state or local law.
(xviii) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (A) transactions are executed
in accordance with management's general or specific
<PAGE>
5
authorizations, (B) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets, (C) access to assets is
permitted only in accordance with management's general or specific
authorization, and (D) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(xix) There are no outstanding loans, advances (except normal advances
for business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
which are required to be disclosed in the Registration Statement or Prospectus
and are not so disclosed.
(xx) Prior to the Closing Date the Stock to be issued and sold by the
Company will be authorized and approved for quotation on the Nasdaq National
Market upon official notice of issuance.
(xxi) Except as set forth in the Registration Statement and Prospectus,
the Company is in compliance with all laws, Federal, state and local, applicable
to its business and has received all necessary licenses and approvals including
but not limited to the staff leasing laws of the State of Texas [cite for the
statute].
(xxii) Neither the Company nor any of its subsidiaries or the Existing
Practices or any of their respective officers and directors has engaged in any
activities that are prohibited under federal Medicare and Medicaid statutes
(which include but are not limited to 42 U.S.C.ss.ss. 1320a-7, 1302a-7(a) and
1320a-7b), the federal CHAMPUS statute, the Federal False Claims Act (31
U.S.C.ss. 3729), or the regulations promulgated pursuant to such federal
statutes, or related state or local statutes or regulations or which are
prohibited by rules of professional conduct.
(xxiii) The activities and operations of the Company and its
subsidiaries and the Existing Practices comply with the federal Medicare and
Medicaid statutes regarding health professional self-referrals, 42 U.S.C.ss.
1395nn and 42 U.S.C.ss. 1396b, and the regulations promulgated pursuant to such
statutes, and all similar state or local self-referral statutes and regulations
in effect in each state in which each of the Existing Practices is located.
3. Purchase of the Stock by the Underwriters.
(a) On the basis of the representations and warranties and subject to
the terms and conditions herein set forth, the Company agrees to issue and sell
5,000,000 shares of the Underwritten Stock to the several Underwriters and each
of the Underwriters agrees to purchase from the Company the respective aggregate
number of shares of Underwritten Stock set forth opposite its name in Schedule
I. The price at which such shares of Underwritten Stock shall be sold by the
Company and purchased by the several Underwriters shall be $___ per share. In
making this Agreement, each Underwriter is contracting severally and not
jointly; except as provided in paragraphs (b) and (c) of this Section 3, the
agreement of each Underwriter is to purchase only the respective number of
shares of the Underwritten Stock specified in Schedule I.
(b) If for any reason one or more of the Underwriters shall fail or
refuse (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 8 or 9 hereof) to purchase and
pay for the number of shares of the Stock agreed to be purchased by such
Underwriter or Underwriters, the Company shall immediately give notice thereof
to you, and the non-defaulting Underwriters shall have the right within 24 hours
after the receipt by you of such notice to purchase, or procure one or more
other Underwriters to purchase, in such proportions as may be agreed upon
between you and such purchasing Underwriter or Underwriters and upon the terms
herein set forth, all or any part of the shares of the Stock which such
defaulting Underwriter or Underwriters agreed to purchase. If the non-defaulting
Underwriters fail so to make such arrangements with respect to all such shares,
the number of shares of the Stock which each non-defaulting Underwriter is
otherwise obligated to purchase under this Agreement shall be automatically
increased on a pro rata basis to absorb the remaining shares which the
defaulting Underwriter or Underwriters agreed to purchase; provided, however,
that the non-defaulting Underwriters shall not be obligated to purchase the
shares which the defaulting Underwriter or Underwriters agreed to purchase if
the aggregate number of such shares of the Stock exceeds 10% of the total number
of shares of the Stock which all Underwriters agreed to purchase hereunder. If
the total number of shares of the Stock which the defaulting Underwriter or
Underwriters agreed to purchase shall not be purchased or absorbed in accordance
with the two preceding sentences, the Company shall have the right, within 24
hours next succeeding the 24-hour period above referred to, to make arrangements
with other underwriters or purchasers satisfactory to you for purchase of such
shares and portion on the
<PAGE>
6
terms herein set forth. In any such case, either you or the Company shall have
the right to postpone the Closing Date determined as provided in Section 5
hereof for not more than seven business days after the date originally fixed as
the Closing Date pursuant to said Section 5 in order that any necessary changes
in the Registration Statement, the Prospectus or any other documents or
arrangements may be made. If neither the non-defaulting Underwriters nor the
Company shall make arrangements within the 24-hour periods stated above for the
purchase of all the shares of the Stock which the defaulting Underwriter or
Underwriters agreed to purchase hereunder, this Agreement shall be terminated
without further act or deed and without any liability on the part of the Company
to any non-defaulting Underwriter and without any liability on the part of any
non-defaulting Underwriter to the Company. Nothing in this paragraph (b), and no
action taken hereunder, shall relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants
herein contained, and subject to the terms and conditions herein set forth, the
Company grants an option to the several Underwriters to purchase, severally and
not jointly, up to 750,000 shares in the aggregate of the Option Stock from the
Company at the same price per share as the Underwriters shall pay for the
Underwritten Stock. Said option may be exercised only to cover over-allotments
in the sale of the Underwritten Stock by the Underwriters and may be exercised
in whole or in part at any time (but not more than once) on or before the
thirtieth day after the date of this Agreement upon written or facsimile notice
by you to the Company setting forth the aggregate number of shares of the Option
Stock as to which the several Underwriters are exercising the option. Delivery
of certificates for the shares of Option Stock, and payment therefor, shall be
made as provided in Section 5 hereof. The number of shares of the Option Stock
to be purchased by each Underwriter shall be the same percentage of the total
number of shares of the Option Stock to be purchased by the several Underwriters
as such Underwriter is purchasing of the Underwritten Stock, as adjusted by you
in such manner as you deem advisable to avoid fractional shares.
4. Offering by Underwriters.
(a) The terms of the initial public offering by the Underwriters of the
Stock to be purchased by them shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price after the
closing of the initial public offering and increase or decrease the concessions
and discounts to dealers as they may determine.
(b) The information set forth in the last paragraph on the front cover
page, the last paragraph of page 2 of the Prospectus and under "Underwriting" in
the Registration Statement, any Preliminary Prospectus and the Prospectus
relating to the Stock filed by the Company (insofar as such information relates
to the Underwriters) constitutes the only information furnished by the
Underwriters to the Company for inclusion in the Registration Statement, any
Preliminary Prospectus, and the Prospectus, and you on behalf of the respective
Underwriters represent and warrant to the Company that the statements made
therein are correct.
5. Delivery of and Payment for the Stock.
(a) Delivery of certificates for the shares of the Underwritten Stock
and the Option Stock (if the option granted by Section 3(c) hereof shall have
been exercised not later than 10:00 A.M., New York City time, on the date two
business days preceding the Closing Date), and payment therefor, shall be made
at the office of Cravath, Swaine & Moore, 825 Eighth Avenue, New York, New York
l00l9, at 10:00 a.m., New York City time, on the fourth business day after the
date of this Agreement, or at such time on such other day, not later than seven
full business days after such fourth business day, as shall be agreed upon in
writing by the Company and you. The date and hour of such delivery and payment
(which may be postponed as provided in Section 3(b) hereof) are herein called
the Closing Date.
(b) If the option granted by Section 3(c) hereof shall be exercised
after 10:00 a.m., New York City time, on the date two business days preceding
the Closing Date, delivery of certificates for the shares of Option Stock, and
payment therefor, shall be made at the office of Cravath, Swaine & Moore, 825
Eighth Avenue, New York, New York l0019 at 10:00 a.m., New York City time, on
the third business day after the exercise of such option.
(c) Payment for the Stock purchased from the Company shall be made to
the Company by wire transfer in immediately available funds. Such payment shall
be made upon delivery of certificates for the Stock to you for the respective
accounts of the several Underwriters against receipt therefor signed by you.
Certificates for the Stock to be delivered to you shall be registered in such
name or names and shall be in such denominations as you may request at least one
business day before the Closing Date, in the case of Underwritten Stock, and at
least one business day prior to the purchase thereof, in the case of the Option
Stock. Such certificates will be made available to the Underwriters for
inspection, checking and packaging at the offices of Lewco Securities
Corporation, 2 Broadway, New York, New
<PAGE>
7
York 10004 on the business day prior to the Closing Date or, in the case of the
Option Stock, by 3:00 p.m., New York time, on the business day preceding the
date of purchase.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
for shares to be purchased by any Underwriter whose check shall not have been
received by you on the Closing Date or any later date on which Option Stock is
purchased for the account of such Underwriter. Any such payment by you shall not
relieve such Underwriter from any of its obligations hereunder.
6. Further Agreements of the Company. The Company covenants and agrees
as follows:
(a) The Company will (i) prepare and timely file with the Commission
under Rule 424(b) a Prospectus containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A and
(ii) not file any amendment to the Registration Statement or supplement to the
Prospectus of which you shall not previously have been advised and furnished
with a copy or to which you shall have reasonably objected in writing, [unless
the Company is otherwise advised by counsel that the Company is legally required
to file such amendment or supplement] or which is not in compliance with the
Securities Act or the rules and regulations of the Commission.
(b) The Company will promptly notify each Underwriter in the event of
(i) the request by the Commission for amendment of the Registration Statement or
for supplement to the Prospectus or for any additional information, (ii) the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement, (iii) the institution or notice of intended institution
of any action or proceeding for that purpose, (iv) the receipt by the Company of
any notification with respect to the suspension of the qualification of the
Stock for sale in any jurisdiction, or (v) the receipt by it of notice of the
initiation or threatening of any proceeding for such purpose. The Company will
make every reasonable effort to prevent the issuance of such a stop order and,
if such an order shall at any time be issued, to obtain the withdrawal thereof
at the earliest possible moment.
(c) The Company will (i) on or before the Closing Date, deliver to you
a signed copy of the Registration Statement as originally filed and of each
amendment thereto filed prior to the time the Registration Statement becomes
effective and, promptly upon the filing thereof, a signed copy of each
post-effective amendment, if any, to the Registration Statement (together with,
in each case, all exhibits thereto unless previously furnished to you) and will
also deliver to you, for distribution to the Underwriters, a sufficient number
of additional conformed copies of each of the foregoing (but without exhibits)
so that one copy of each may be distributed to each Underwriter, (ii) as
promptly as possible deliver to you and send to the several Underwriters, at
such office or offices as you may designate, as many copies of the Prospectus as
you may reasonably request, and (iii) thereafter from time to time during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, likewise send to the Underwriters as many additional
copies of the Prospectus and as many copies of any supplement to the Prospectus
and of any amended prospectus, filed by the Company with the Commission, as you
may reasonably request for the purposes contemplated by the Securities Act.
(d) If at any time during the period in which a prospectus is required
by law to be delivered by an Underwriter or dealer any event relating to or
affecting the Company, or of which the Company shall be advised in writing by
you, shall occur as a result of which it is necessary, in the opinion of counsel
for the Company or of counsel for the Underwriters, to supplement or amend the
Prospectus in order to make the Prospectus not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser of the Stock,
the Company will forthwith prepare and file with the Commission a supplement to
the Prospectus or an amended prospectus so that the Prospectus as so
supplemented or amended will not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances existing at the time such Prospectus
is delivered to such purchaser, not misleading. If, after the initial public
offering of the Stock by the Underwriters and during such period, the
Underwriters shall propose to vary the terms of offering thereof by reason of
changes in general market conditions or otherwise, you will advise the Company
in writing of the proposed variation, and, if in the opinion either of counsel
for the Company or of counsel for the Underwriters such proposed variation
requires that the Prospectus be supplemented or amended, the Company will
forthwith prepare and file with the Commission a supplement to the Prospectus or
an amended prospectus setting forth such variation. The Company authorizes the
Underwriters and all dealers to whom any of the Stock may be sold by the several
Underwriters to use the Prospectus, as from time to time amended or
supplemented, in connection with the sale of the Stock in accordance with the
applicable provisions of the Securities Act and the applicable rules and
regulations thereunder for such period.
(e) Prior to the filing thereof with the Commission, the Company will
submit to you, for your information, a copy of any post-effective amendment to
the Registration Statement and any supplement to the Prospectus or any
<PAGE>
8
amended prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you, in the
qualification of the Stock for offer and sale under the securities or blue sky
laws of such jurisdictions as you may designate and, during the period in which
a prospectus is required by law to be delivered by an Underwriter or dealer, in
keeping such qualifications in good standing under said securities or blue sky
laws; provided, however, that the Company shall not be obligated to file any
general consent to service of process or to qualify as a foreign corporation in
any jurisdiction in which it is not so qualified, or take any other action that
would subject it to general service of process or to taxation in respect of
doing business. The Company will, from time to time, prepare and file such
statements, reports, and other documents as are or may be required to continue
such qualifications in effect for so long a period as you may reasonably request
for distribution of the Stock.
(g) During a period of five years commencing with the date hereof, the
Company will furnish to you, and to each Underwriter who may so request in
writing, copies of all periodic and special reports furnished to stockholders of
the Company and of all information, documents and reports filed with the
Commission.
(h) Not later than the 45th day following the end of the fiscal quarter
first occurring after the first anniversary of the Effective Date, the Company
will make generally available to its security holders an earnings statement in
accordance with Section 11(a) of the Securities Act and Rule 158 thereunder.
(i) The Company agrees to pay all costs and expenses incident to the
performance of its obligations under this Agreement, including all costs and
expenses incident to (i) the preparation, printing and filing with the
Commission and the National Association of Securities Dealers, Inc. (the NASD)
of the Registration Statement, any Preliminary Prospectus and the Prospectus,
(ii) the furnishing to the Underwriters of copies of any Preliminary Prospectus
and of the several documents required by paragraph (c) of this Section 6 to be
so furnished, (iii) the preparation, printing and filing of all supplements and
amendments to the Prospectus referred to in paragraph (d) of this Section 6,
(iv) the furnishing to you and the Underwriters of the reports and information
referred to in paragraph (g) of this Section 6 and (v) the printing and issuance
of stock certificates, including the transfer agent's fees.
(j) The Company agrees to reimburse you, for the account of the several
Underwriters, for blue sky fees and related disbursements (including counsel
fees and disbursements and cost of printing memoranda for the Underwriters) paid
by or for the account of the Underwriters or their counsel in qualifying the
Stock under state securities or blue sky laws and the filing fee of the NASD.
(k) The Company hereby agrees that, without the prior written consent
of Hambrecht & Quist LLC on behalf of the Underwriters, the Company will not,
for a period of 180 days following the commencement of the public offering of
the Stock by the Underwriters, directly or indirectly, (i) sell, offer, contract
to sell, grant any option to purchase, or otherwise transfer or dispose of, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock. The foregoing sentence shall not apply to (A) the
Stock to be sold to the Underwriters pursuant to this Agreement, (B) shares of
Common Stock issued by the Company upon the exercise of options granted under
the stock option plan of the Company (the Option Plan) or upon the exercise of
warrants outstanding as of the date hereof, all as described in the footnote to
the table under the caption "Capitalization" in the Preliminary Prospectus, (C)
options to purchase Common Stock granted under the Option Plan, and (D) Common
Stock issued by the Company in connection with certain affiliation transactions,
provided that any such transferee agrees to be bound by the terms of the lock-up
agreement described in Section 9(j) herein.
(l) If at any time during the 25-day period after the Registration
Statement becomes effective any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion the
market price for the Stock has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of, and disseminate a press
release or other public statement, reasonably satisfactory to you, responding to
or commenting on such rumor, publication or event.
(m) The Company has in the past conducted its affairs, and will in the
future conduct its affairs, in such a manner to ensure that the Company was not
and will not be an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, and the rules and regulations thereunder.
<PAGE>
9
7. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person (including each partner or officer thereof) who controls any
Underwriter within the meaning of Section 15 of the Securities Act from and
against any and all losses, claims, damages or liabilities, joint or several, to
which such indemnified parties or any of them may become subject under the
Securities Act, or the common law or otherwise, and the Company agrees to
reimburse each such Underwriter and controlling person for any legal or other
expenses (including, except as otherwise hereinafter provided, reasonable fees
and disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (ii) any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus or the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto) or the omission or alleged omission
to state therein a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that (1) the indemnity agreements of the Company
contained in this paragraph (a) shall not apply to any such losses, claims,
damages, liabilities or expenses if such statement or omission was made in
reliance upon and in conformity with information furnished as herein stated or
otherwise furnished in writing to the Company by or on behalf of any Underwriter
for use in any Preliminary Prospectus or the Registration Statement or the
Prospectus or any such amendment thereof or supplement thereto and (2) the
indemnity agreement contained in this paragraph (a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any such losses, claims, damages, liabilities or
expenses purchased the Stock which is the subject thereof (or to the benefit of
any person controlling such Underwriter) if at or prior to the written
confirmation of the sale of such Stock a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
and the untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented) unless the failure is the result of noncompliance by
the Company with paragraph (c) of Section 6 hereof. The indemnity agreements of
the Company contained in this paragraph(a) and the representations and
warranties of the Company contained in Section 2 hereof shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any indemnified party and shall survive the delivery of and payment
for the Stock.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its officers who signs the Registration Statement on his
own behalf or pursuant to a power of attorney, each of its directors, each other
Underwriter and each person (including each partner or officer thereof) who
controls the Company or any such other Underwriter within the meaning of Section
15 of the Securities Act, from and against any and all losses, claims, damages
or liabilities, joint or several, to which such indemnified parties or any of
them may become subject under the Securities Act, the Exchange Act, or the
common law or otherwise and to reimburse each of them for any legal or other
expenses (including, except as otherwise hereinafter provided, reasonable fees
and disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement) or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or (ii) any untrue statement or alleged untrue statement
of a material fact contained in the Prospectus (as amended or as supplemented if
the Company shall have filed with the Commission any amendment thereof or
supplement thereto) or the omission or alleged omission to state therein a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, if such statement
or omission was made in reliance upon and in conformity with information
furnished as herein stated or otherwise furnished in writing to the Company by
or on behalf of such indemnifying Underwriter for use in the Registration
Statement or the Prospectus or any such amendment thereof or supplement thereto.
The indemnity agreement of each Underwriter contained in this paragraph (b)
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall survive
the delivery of and payment for the Stock.
(c) Each party indemnified under the provision of paragraphs (a) and
(b) of this Section 7 agrees that, upon
<PAGE>
10
the service of a summons or other initial legal process upon it in any action or
suit instituted against it or upon its receipt of written notification of the
commencement of any investigation or inquiry of, or proceeding against, it in
respect of which indemnity may be sought on account of any indemnity agreement
contained in such paragraphs, it will promptly give written notice (herein
called the Notice) of such service or notification to the party or parties from
whom indemnification may be sought hereunder. No indemnification provided for in
such paragraphs shall be available to any party who shall fail so to give the
Notice if the party to whom such Notice was not given was unaware of the action,
suit, investigation, inquiry or proceeding to which the Notice would have
related and was prejudiced by the failure to give the Notice, but the omission
so to notify such indemnifying party or parties of any such service or
notification shall not relieve such indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution or
otherwise than on account of such indemnity agreement. Any indemnifying party
shall be entitled at its own expense to participate in the defense of any
action, suit or proceeding against, or investigation or inquiry of, an
indemnified party. Any indemnifying party shall be entitled, if it so elects
within a reasonable time after receipt of the Notice by giving written notice
(herein called the Notice of Defense) to the indemnified party, to assume (alone
or in conjunction with any other indemnifying party or parties) the entire
defense of such action, suit, investigation, inquiry or proceeding, in which
event such defense shall be conducted, at the expense of the indemnifying party
or parties, by counsel chosen by such indemnifying party or parties and
reasonably satisfactory to the indemnified party or parties; provided, however,
that (i) if the indemnified party or parties reasonably determine that there may
be a conflict between the positions of the indemnifying party or parties and of
the indemnified party or parties in conducting the defense of such action, suit,
investigation, inquiry or proceeding or that there may be legal defenses
available to such indemnified party or parties different from or in addition to
those available to the indemnifying party or parties, then counsel for the
indemnified party or parties shall be entitled to conduct the defense to the
extent reasonably determined by such counsel to be necessary to protect the
interests of the indemnified party or parties and (ii) in any event, the
indemnified party or parties shall be entitled to have counsel chosen by such
indemnified party or parties participate in, but not conduct, the defense. If,
within a reasonable time after receipt of the Notice, an indemnifying party
gives a Notice of Defense and the counsel chosen by the indemnifying party or
parties is reasonably satisfactory to the indemnified party or parties, the
indemnifying party or parties will not be liable under paragraphs (a) through
(c) of this Section 7 for any legal or other expenses subsequently incurred by
the indemnified party or parties in connection with the defense of the action,
suit, investigation, inquiry or proceeding, except that (A) the indemnifying
party or parties shall bear the legal and other expenses incurred in connection
with the conduct of the defense as referred to in clause (i) of the proviso to
the preceding sentence and (B) the indemnifying party or parties shall bear such
other expenses as it or they have authorized to be incurred by the indemnified
party or parties. If, within a reasonable time after receipt of the Notice, no
Notice of Defense has been given, the indemnifying party or parties shall be
responsible for any legal or other expenses incurred by the indemnified party or
parties in connection with the defense of the action, suit, investigation,
inquiry or proceeding.
(d) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 7, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraph (a) or (b) of this Section 7 (i) in such
proportion as is appropriate to reflect the relative benefits received by each
indemnifying party from the offering of the Stock or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each indemnifying party in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, or actions in respect thereof, as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Underwriters shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Stock received by
the Company and the total underwriting discount received by the Underwriters, as
set forth in the table on the cover page of the Prospectus, bear to the
aggregate public offering price of the Stock. Relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by each indemnifying party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this paragraph
(d). The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities, or actions in respect thereof, referred to in the first
sentence of this paragraph (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigation, preparing to defend or defending against any action or claim
which is the subject of this paragraph (d). Notwithstanding the provisions of
<PAGE>
11
this paragraph (d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discount applicable to the Stock purchased by such
Underwriter. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this paragraph (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 7).
(e) The Company will not, without the prior written consent of each
Underwriter, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not such Underwriter or any
person who controls such Underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act is a party to such claim,
action, suit or proceeding) unless such settlement, compromise or consent
includes an unconditional release of such Underwriter and each such controlling
person from all liability arising out of such claim, action, suit or proceeding.
(f) In addition to its other obligations under this Section 7, the
indemnifying parties, hereby agree to reimburse on a quarterly basis any
indemnified party for all reasonable legal and other expenses incurred in
connection with investigating or defending any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in paragraph (a) or
(b), as applicable, of this Section 7, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the obligations under
this Section 7(f) and the possibility that such payments might later be held to
be improper; provided, however, that (i) to the extent any such payment is
ultimately held to be improper, the persons receiving such payments shall
promptly refund them and (ii) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any refund, when and
if due.
8. Termination. This Agreement may be terminated by you at any time
prior to the Closing Date by giving written notice to the Company if after the
date of this Agreement trading in the Common Stock shall have been suspended, or
if there shall have occurred (i) the engagement in hostilities or an escalation
of major hostilities by the United States or the declaration of war or a
national emergency by the United States on or after the date hereof, (ii) any
outbreak of hostilities or other national or international calamity or crisis or
change in economic or political conditions if the effect of such outbreak,
calamity, crisis or change in economic or political conditions in the financial
markets of the United States would, in the Underwriters' reasonable judgment,
make the offering or delivery of the Stock impracticable, (iii) suspension of
trading in securities generally or a material adverse decline in value of
securities generally on the New York Stock Exchange, the American Stock
Exchange, the Nasdaq National Market, or limitations on prices (other than
limitations on hours or numbers of days of trading) for securities on either
such exchange or system, [(iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of, or
commencement of any proceeding or investigation by, any court, legislative body,
agency or other governmental authority which in the Underwriters' reasonable
opinion materially and adversely affects or will materially or adversely affect
the business or operations of the Company,]3 (v) declaration of a banking
moratorium by either federal or New York State authorities or (vi) the taking of
any action by any federal, state or local government or agency in respect of its
monetary or fiscal affairs which in the Underwriters' reasonable opinion has a
material adverse effect on the securities markets in the United States. If this
Agreement shall be terminated pursuant to this Section 8, there shall be no
liability of the Company to the Underwriters and no liability of the
Underwriters to the Company; provided, however, that in the event of any such
termination the Company agrees to indemnify and hold harmless the Underwriters
from all costs or expenses incident to the performance of the obligations of the
Company under this Agreement, including all costs and expenses referred to in
paragraphs (i) and (j) of Section 6 hereof.
9. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Stock shall be subject to the
performance by the Company of all its obligations to be performed hereunder at
or prior to the Closing Date or any later date on which Option Stock is to be
purchased, as the case may be, and to the following further conditions:
- --------
(3) We did not take this comment.
<PAGE>
12
(a) The Registration Statement shall have become effective; and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings therefor shall be pending or, to the Company's knowledge,
threatened by the Commission.
(b) The legality and sufficiency of the sale of the Stock hereunder and
the validity and form of the certificates representing the Stock, all
corporate proceedings and other legal matters incident to the foregoing,
and the form of the Registration Statement and of the Prospectus (except
as to the financial statements contained therein), shall have been
approved at or prior to the Closing Date by Cravath, Swaine & Moore,
counsel for the Underwriters.
(c) You shall have received (i) from O'Sullivan Graev & Karabell, LLP,
counsel for the Company, addressed to the Underwriters and dated the
Closing Date, covering the matters set forth in Annex A hereto; (ii) from
Proskauer Rose & Goetz Mendelsohn, special health care counsel for the
Company, addressed to the Underwriters and dated the Closing Date,
covering the matters set forth in Annex B hereto; and (iii) if Option
Stock is purchased at any date after the Closing Date, additional opinions
from each such counsel, addressed to the Underwriters and dated such later
date, confirming that the statements expressed as of the Closing Date in
such opinions remain valid as of such later date.
(d) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus were true
and correct and neither the Registration Statement nor the Prospectus
omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, respectively, not
misleading, (ii) since the Effective Date, no event has occurred which
should have been set forth in a supplement or amendment to the Prospectus
which has not been set forth in such a supplement or amendment, (iii)
since the respective dates as of which information is given in the
Registration Statement in the form in which it originally became effective
and the Prospectus contained therein, there has not been any material
adverse change or any development involving a prospective material adverse
change in or affecting the business, properties, financial condition or
results of operations of the Company and its subsidiaries, taken as a
whole, whether or not arising from transactions in the ordinary course of
business, and, since such dates, except in the ordinary course of
business, neither the Company nor any of its subsidiaries has entered into
any material transaction not referred to in the Registration Statement in
the form in which it originally became effective and the Prospectus
contained therein, (iv) neither the Company nor any of its subsidiaries
has any material contingent obligations which are not disclosed in the
Registration Statement and the Prospectus, (v) there are not any pending
or known threatened legal proceedings to which the Company or any of its
subsidiaries is a party or of which property of the Company or any of its
subsidiaries is the subject which are material and which are not disclosed
in the Registration Statement and the Prospectus, (vi) there are not any
franchises, contracts, leases or other documents which are required to be
filed as exhibits to the Registration Statement which have not been filed
as required, (vii) the representations and warranties of the Company
herein are true and correct in all material respects as of the Closing
Date or any later date on which Option Stock is to be purchased, as the
case may be, [and (viii) there has not been any material change in the
market for securities in general or in political, financial or economic
conditions from those reasonably foreseeable as to render it impracticable
in your reasonable judgment to make a public offering of the Stock, or a
material adverse change in market levels for securities in general (or
those of companies in particular) or financial or economic conditions
which render it inadvisable to proceed.](4)
(e) You shall have received on the Closing Date and on any later date
on which Option Stock is purchased a certificate, dated the Closing Date
or such later date, as the case may be, and signed by the President and
the Chief Financial Officer of the Company, stating that the respective
signers of said certificate have carefully examined the Registration
Statement in the form in which it originally became effective and the
Prospectus contained therein and any supplements or amendments thereto,
and that the statements included in clauses (i) through (vii) of paragraph
(d) of this Section 9 are true and correct.
(f) You shall have received from Ernst & Young LLC, a letter or
letters, addressed to the Underwriters and dated the Closing Date and any
later date on which Option Stock is purchased, confirming that they are
independent public accountants with respect to the Company within the
meaning of the Securities Act and the applicable published rules and
regulations thereunder and based upon the procedures described in their
letter delivered to you concurrently with the execution of this Agreement
(herein called the Original
- --------
(4) We have raised your comment with H&Q's legal department and we are
waiting for their reply.
<PAGE>
13
Letter), but carried out to a date not more than [three](5) business days
prior to the Closing Date or such later date on which Option Stock is
purchased (i) confirming, to the extent true, that the statements and
conclusions set forth in the Original Letter are accurate as of the
Closing Date or such later date, as the case may be, and (ii) setting
forth any revisions and additions to the statements and conclusions set
forth in the Original Letter which are necessary to reflect any changes in
the facts described in the Original Letter since the date of the Original
Letter or to reflect the availability of more recent financial statements,
data or information. The letters shall not disclose any change, or any
development involving a prospective change, in or affecting the business
or properties of the Company or any of its subsidiaries which, in your
sole judgment, makes it impractical or inadvisable to proceed with the
public offering of the Stock or the purchase of the Option Stock as
contemplated by the Prospectus.
(g) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several
jurisdictions, or other evidence satisfactory to you, of the qualification
referred to in paragraph (f) of Section 6 hereof.
(h) Prior to the Closing Date, the Stock to be issued and sold by the
Company shall have been duly authorized and approved for quotation on the
Nasdaq National Market.
(i) On or prior to the Closing Date, you shall have received from all
directors, officers, and beneficial holders of more than 5% of the
outstanding Common Stock stockholders agreements, in form reasonably
satisfactory to Hambrecht & Quist LLC, stating that without the prior
written consent of Hambrecht & Quist LLC on behalf of the Underwriters,
such person or entity will not, for a period of 180 days following the
commencement of the public offering of the Stock by the Underwriters,
directly or indirectly, (i), sell, offer, contract to sell, grant any
option to purchase, or otherwise transfer or dispose of, any shares of
Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, otherwise than as a bona fide gift or
gifts, provided that the donee or donees thereof agree in writing to be
bound by this restriction.
All the agreements, opinions, certificates and letters mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Cravath, Swaine & Moore, counsel for the Underwriters,
shall be satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company. Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company; provided,
however, that (i) in the event of such termination, the Company agrees to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company under this Agreement,
including all costs and expenses referred to in paragraphs (i) and (j) of
Section 6 hereof, and (ii) if this Agreement is terminated by you because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein, to fulfill any of the conditions herein, or to comply with any
provision hereof other than by reason of a default by any of the Underwriters,
the Company will reimburse the Underwriters severally upon demand for all
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
that shall have been incurred by them in connection with the transactions
contemplated hereby.
10. Conditions of the Obligation of the Company. The obligation of the
Company to deliver the Stock shall be subject to the conditions that (a) the
Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 10 shall not
be fulfilled, this Agreement may be terminated by the Company by giving notice
to you. Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company; provided,
however, that in the event of any such termination the Company agrees to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company under this Agreement,
including all costs and expenses referred to in paragraphs (i) and (j) of
Section 6 hereof.
11. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of the Company
- --------
(5) Will confirm with E&Y.
<PAGE>
14
and the several Underwriters and, with respect to the provisions of Section 7
hereof, the several parties (in addition to the Company and the several
Underwriters) indemnified under the provisions of said Section 7, and their
respective personal representatives, successors and assigns. Nothing in this
Agreement is intended or shall be construed to give to any other person, firm or
corporation any legal or equitable remedy or claim under or in respect of this
Agreement or any provision herein contained. The term "successors and assigns"
as herein used shall not include any purchaser, as such purchaser, of any of the
Stock from any of the several Underwriters.
12. Notices. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to Hambrecht & Quist LLC, 230 Park Avenue,
21st Floor, New York, NY 10169; and if to the Company, shall be mailed,
telegraphed or delivered to it at its office 4800 North Federal Highway, Suite
1040, Boca Raton, Florida 33431, Attention: President. All notices given by
telegraph shall be promptly confirmed by letter.
13. Miscellaneous. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or their respective directors or officers, and (c) delivery and
payment for the Stock under this Agreement; provided, however, that if this
Agreement is terminated prior to the Closing Date, the provisions of paragraph
(k) of Section 6 hereof shall be of no further force or effect.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
<PAGE>
15
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York.
Please sign and return to the Company the enclosed duplicates of this
letter, whereupon this letter will become a binding agreement between the
Company and the several Underwriters in accordance with its terms.
Very truly yours,
BMJ MEDICAL MANAGEMENT, INC.
By __________________________
[Name]
[Title]
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
HAMBRECHT & QUIST LLC
RAYMOND JAMES & ASSOCIATES, INC.
VOLPE BROWN WHELAN & COMPANY, LLC
By Hambrecht & Quist LLC
By __________________________
Managing Director
Acting on behalf of the several Underwriters,
including themselves, named in Schedule I hereto.
<PAGE>
16
SCHEDULE I
UNDERWRITERS
Underwriters Number of
------------ Shares to be
Purchased
------------
Hambrecht & Quist LLC..................................
Raymond James & Associates Inc.........................
Volpe Brown Whelan & Company, LLC......................
------------
Total......................................... 5,000,000
============
<PAGE>
[FORM OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION]
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
BMJ MEDICAL MANAGEMENT, INC.
------------------
Pursuant to Section 103, Section 242 and
Section 245 of the General Corporation Law
of the State of Delaware
-------------------
The undersigned, being the duly elected President and Chief
Executive Officer of BMJ Medical Management, Inc., a Delaware corporation (the
"Corporation"), hereby certifies as follows:
FIRST: The present name of the Corporation is "BMJ Medical
Management, Inc." The date of filing of the original Certificate of
Incorporation of the Corporation with the Secretary of State of the State of
Delaware was January 17, 1996, under the name of Integrated Oncology Services
Corporation.
SECOND: This Amended and Restated Certificate of Incorporation
was duly adopted in accordance with Sections 242 and 245 of the Delaware General
Corporation Law, and amends and restates the provisions of the present Amended
and Restated Certificate of Incorporation of the Corporation dated June 18,
1997, as amended by the Certificate of Amendment dated September 12, 1997.
THIRD: The Amended and Restated Certificate of Incorporation
of the Corporation is hereby amended and restated to read in its entirety as set
forth on Exhibit A attached hereto.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
as of the ___ day of December, 1997.
------------------------------
Naresh Nagpal, M.D.
President and Chief Executive
Officer
ATTEST:
- ------------------------------
David H. Fater
Secretary
<PAGE>
EXHIBIT A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
BMJ MEDICAL MANAGEMENT, INC.
-----------------------------
ARTICLE I
The name of the corporation (herein called the "Corporation") is BMJ
MEDICAL MANAGEMENT, INC.
ARTICLE II
The address of the registered office of the Corporation in the State of
Delaware is 1013 Centre Road, Wilmington, Delaware, New Castle, 19805. The name
of the registered agent of the Corporation at such address is The Prentice-Hall
Corporation System, Inc.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware (the "Delaware Statute").
ARTICLE IV
The total number of shares of stock which the Corporation shall have
authority to issue is 45,000,000 shares, consisting of (a) 10,000,000 shares of
Preferred Stock, par value $.01 per share (the "Preferred Stock") and (b)
35,000,000 shares of Common Stock, par value $.001 per share (the "Common
Stock"). The Preferred Stock and the Common Stock shall have the rights and
preferences and limitations set forth below in this Article IV.
2
<PAGE>
A. Preferred Stock
Preferred Stock may be issued from time to time in one or more series, each
of such series to have such terms as stated in the resolutions providing for the
establishment of such series adopted by the Board of Directors of the
Corporation as hereinafter provided. Except as otherwise expressly stated in the
resolution or resolutions providing for the establishment of a series of
Preferred Stock, any shares of Preferred Stock which may be redeemed, purchased
or acquired by the Corporation may be reissued except as otherwise expressly
provided by law. Different series of Preferred Stock shall not be construed to
constitute different classes of stock for the purpose of voting by classes
unless expressly provided in the resolution or resolutions providing for the
establishment thereof.
Authority is hereby expressly granted to the Board of Directors of the
Corporation to issue, from time to time, shares of Preferred Stock in one or
more series, and, in connection with the establishment of any such series by
resolution or resolutions, to determine and fix such voting powers, full or
limited, or no voting powers, and such other powers, designations, preferences
and relative, participating, optional and other rights, and the qualifications,
limitations and restrictions thereof, including, without limitation, dividend
rights, conversion rights, redemption privileges and liquidation preferences, as
shall be stated in such resolution or resolutions, all to the fullest extent
permitted by the Delaware Statute. Without limiting the generality of the
foregoing, the resolutions or resolutions providing for the establishment of any
series of Preferred Stock may, to the extent permitted by law, provide that such
series shall be superior to, rank equally with or be junior to the Preferred
Stock of any other series. Except as otherwise expressly provided in the
resolution or resolutions providing for the establishment of any series of
Preferred Stock, no vote of the holders of shares of Preferred Stock or Common
Stock shall be a prerequisite to the issuance of any shares of any series of the
Preferred Stock authorized by and complying with the conditions of this
Certificate of Incorporation.
B. Common Stock
Except as otherwise provided herein or required by applicable law, all
shares of Common Stock shall be identical in all respects and shall entitle the
holders thereof to the same powers and rights, subject to the same
qualifications, limitations and restrictions thereof. The holders of Common
Stock shall be entitled to one vote per share in voting on the election of
directors and on all other matters on which stockholders of the Corporation are
entitled to vote.
3
<PAGE>
ARTICLE V
The Board of Directors shall consist of a total of not less than three nor
more than fifteen members, and shall be and is divided into three classes,
designated Class I, Class II and Class III. Each class shall consist, as nearly
as may be possible, of one-third of the total number of directors constituting
the entire Board of Directors, with the term of office of the directors of one
class expiring each year. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; provided, however, the directors elected to Class I as of
December 1, 1997 shall serve for a term ending on the date of the annual meeting
next following the end of the calendar year 1998, the directors elected to Class
II as of December 1, 1997 shall serve for a term ending on the date of the
annual meeting next following the end of the calendar year 1999, and the
directors elected to Class III as of December 1, 1997 shall serve for a term
ending on the date of the annual meeting next following the end of the calendar
year 2000. Each director shall hold office until the annual meeting for the year
in which his term expires and until such director's successor shall be elected
and qualified, subject, however, to such director's earlier death, resignation,
disqualification or removal from office. In the event of any change in the
authorized number of directors, the Board of Directors shall apportion any newly
created directorships among, or reduce the number of directorships in, such
class or classes as shall, so far as possible, equalize the number of directors
in each class. Any vacancy in the Board of Directors resulting from any increase
in the number of directors and any other vacancy occurring in the Board of
Directors may be filled by the Board of Directors acting by a majority of the
directors then in office, although less than a quorum, or by the sole remaining
director, and any director so elected to fill a vacancy shall hold office for a
term that shall coincide with the term of the class to which such director shall
have been elected and until such director's successor is duly elected and
qualified (subject, however to such director's earlier death, resignation,
disqualification or removal from office). In no event shall a decrease in the
number of directors shorten the term of any incumbent director.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filing of
vacancies and other features of such directorships shall be governed by the
terms of this Certification of Incorporation or the resolution or resolutions
adopted by the Board of Directors pursuant to Article FOURTH applicable thereto,
and such directors so elected shall not be divided into classes pursuant to this
Article SIXTH unless expressly provided by such terms.
4
<PAGE>
ARTICLE VI
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware Statute, or (iv) for
any transaction from which the director derived any improper personal benefit.
If the Delaware Statute is amended after the date of incorporation of the
Corporation to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the Delaware Statute, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
ARTICLE VII
In furtherance and not in limitation of the powers conferred by the laws of
the State of Delaware, the Board of Directors is expressly authorized and
empowered to make, alter, amend or repeal the By-laws in any manner not
inconsistent with the laws of the State of Delaware or this Certificate of
Incorporation.
ARTICLE VIII
Special meetings of the stockholders of the Corporation for any purpose or
purposes may be called at any time by the Board of Directors, the Chairman of
the Board of Directors or the President. Special meetings of stockholders of the
Corporation may not be called by any other person or persons.
ARTICLE IX
Whenever a compromise or arrangement is proposed between the Corporation
and its creditors or any class of them and/or between the Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for the Corporation under the provisions of
Section 291 of the Delaware
5
<PAGE>
Statute or on the application of trustees in dissolution or of any receiver or
receivers appointed for the Corporation under the provisions of Section 279 of
the Delaware Statute, order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or class
of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree on any compromise or arrangement and to
any reorganization of the Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of the Corporation, as the case may be,
and also on the Corporation.
ARTICLE X
The Corporation elects not to be governed by Section 203 of the General
Corporation Law of the State of Delaware.
* * * *
6
<PAGE>
[LETTERHEAD OF O'SULLIVAN GRAEV & KARABELL, LLP]
November 21, 1997
BMJ Medical Management, Inc.
4800 North Federal Highway
Suite 1040
Boca Raton, Florida 33431
BMJ Medical Management, Inc.
5,750,000 Shares of Common Stock, $.001 Par Value
-------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel for BMJ Medical Management, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing of
the Registration Statement of the Company on Form S-1 (File No. 333-35759), as
amended (as so amended, the "Registration Statement"), under the Securities Act
of 1933, as amended (the "Securities Act"), relating to 5,750,000 shares of its
Common Stock, $.001 par value (the "Common Stock") (including 750,000 shares
reserved for issuance pursuant to the Underwriters' over-allotment option) (such
shares of Common Stock are referred to as the "Shares"). Capitalized terms used
but not defined herein shall have the respective meanings ascribed to them in
the Registration Statement.
In that connection, we have examined originals, or copies, certified
or otherwise identified to our satisfaction, of such documents, corporate
records and other instruments as we have deemed necessary for the purposes of
rendering the opinions set forth below. As to certain questions of fact material
to the opinions contained herein, we have relied upon certificates or statements
of officers of the Company and certificates of public officials. In such
examination, we have assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals and the conformity to authentic
originals of all documents submitted to us as certified or photostatic copies.
Based upon the foregoing, we are of the opinion as follows:
1. The Company is a validly existing corporation under the laws of
the State of Delaware.
2. The Shares have been duly authorized and, when issued and sold as
contemplated by the Registration Statement and the Underwriting
<PAGE>
Agreement to be entered into among the Company, Hambrecht & Quist
LLC, Raymond James & Associates, Inc. and Volpe Brown Whelan &
Company, LLC, as representatives of the several Underwriters, will
be validly issued, fully paid and nonassessable.
We are admitted to the Bar of the State of New York and we express no
opinion as to the laws of any other jurisdiction other than the Delaware General
Corporation Law.
We hereby consent to such use of our name under the heading "Legal
Matters" in the Prospectus forming a part of the Registration Statement and to
the use of this opinion for filing with the Registration Statement as Exhibit 5
thereto.
Very truly yours,
/s/ O'Sullivan Graev & Karabell, LLP
<PAGE>
June 19, 1997
Bone, Muscle and Joint, Inc.
4800 N. Federal Highway
Suite 104D
Boca Raton, Florida 33431
Conversion Agreement
--------------------
Dear Sirs:
Reference is made to the Note Agreement dated as of January 14, 1997, (as
amended, the "Note Agreement"), among Bone, Muscle and Joint, Inc. (the
"Company"), and the undersigned (each of the undersigned being referred to
herein as a "Noteholder"). Capitalized terms used but not defined herein have
the meanings ascribed thereto in the Note Agreement.
Pursuant to the terms of the Note Agreement, the principal amount of the
Notes (together with all accrued interest thereon) is due and payable in full on
July 1, 1997. This Agreement is intended to memorialize the understanding
reached by the parties hereto in May 1997 with respect to the conversion of the
aggregate $999,999 principal amount outstanding under the Notes and the accrued
interest thereon into shares of Series D Convertible Preferred Stock, $.01 par
value (the "Series D Preferred Stock"), of the Company at a conversion price of
$5.50 per share, or an aggregate of 188,072 shares (the "Shares") of Series D
Preferred Stock. Pursuant to such oral agreement amongst the parties hereto,
interest on the principal amount of the Notes would continue to accrue until the
actual date on which the parties executed this Agreement and the Company issued
the Shares.
NOW THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and intending to be legally bound hereby, the parties
hereto agree as follows:
1. Note Conversion. The aggregate principal amount owing under each Note
and all interest accrued thereon (collectively, the "Outstanding Amount") is
hereby converted into the right to receive (a) that number of Shares set forth
opposite the name of the applicable Noteholder on Schedule I attached hereto
(such number being determined by taking the Outstanding Amount divided by $5.50
and rounding downward to the nearest whole number) and (b) the Cash Payment (as
hereinafter defined).
2. Delivery of Shares and Cash Payment; Release. Simultaneously with the
execution and delivery of this Agreement, the Company shall deliver to each of
the Noteholders a
<PAGE>
certificate representing that number of Shares set forth opposite such
Noteholder's name on Schedule I, registered in the name of such Noteholder and
dated the date hereof. In addition, the Company shall deliver to each Noteholder
a check payable to such Noteholder in an amount (the "Cash Payment") equal to
the remainder of the Outstanding Amount not converted into a whole share of
Series D Preferred Stock. Delivery to each Noteholder of the Shares and the Cash
Payment to be received by such Noteholder hereunder shall be made against
receipt by the Company of the original Note issued to such Noteholder, marked
"Paid in Full". The Noteholders hereby agree that upon delivery by the Company
of the certificates representing the Shares, the Company shall be released of
all of its obligations under the Note Agreement.
3. Representations and Warranties of Noteholders. Each Noteholder hereby
severally represents and warrants to the Company as follows:
(a) Authorization. The execution, delivery and performance by such
Noteholder of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all requisite action on
the part of such Noteholder, and this Agreement has been duly executed and
delivered by such Noteholder and constitutes the valid and binding
obligation of such Noteholder, enforceable in accordance with its terms,
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or similar laws relating to or affecting
the rights and remedies of creditors and debtors and equitable principles
generally, regardless of whether such principles are considered in a
proceeding at equity or at law. The execution, delivery and performance of
this Agreement and compliance with the provisions hereof by such Noteholder
will not (i) violate in any material respect any law or statute or order,
judgment or decree of any court, administrative agency or other
governmental body applicable to such Noteholder or its or his properties or
assets or (ii) conflict in any material respect with or result in any
material breach of any of the terms or provisions or constitute (with due
notice or lapse of time, or both) a default under the organizational
document of such Noteholder or any note, indenture, mortgage, lease
agreement or other material agreement, contract or instrument to which such
Noteholder is a party or by which such Noteholder or any of such
Noteholder's properties or assets may be bound or affected.
(b) Accredited Investor. Such Noteholder is an "accredited investor"
(as such term is defined in Rule 501 of Regulation D promulgated under the
Securities Act of 1933, as amended (the "Securities Act")).
(c) Noteholder Intent. Such Noteholder is acquiring the Shares for its
or his own account, for investment
-2-
<PAGE>
and not with a view to, or for resale in connection with, any distribution
thereof, nor with any present intention of distributing or reselling the
same or any part thereof in any transactions that would be in violation of
the Securities Act or any state securities or "blue-sky" laws.
(d) Restricted Securities. Such Noteholder understands (i) that the
Shares will not be registered under the Securities Act or any state
securities or "blue-sky" laws by reason of their issuance in a transaction
exempt from the registration requirements of the Securities Act or any
state securities or "blue-sky" laws, (ii) that the Shares must be held
indefinitely unless a subsequent disposition thereof is registered under
the Securities Act or any state securities or "blue-sky" laws or is exempt
from such registration, (iii) that the Company is under no obligation to so
register any shares of its common stock, except as provided in the Second
Amended and Restated Registration Rights Agreement dated as of March 12,
1997, among the Company and the Investors named therein and (iv) that the
certificate(s) evidencing the shares of Series D Preferred Stock will be
imprinted with a legend that prohibits the transfer substantially as set
forth in Section 5(b) hereof unless they are registered or such
registration is not required.
(e) Rule 144. Such Noteholder understands that the exemption from
registration afforded by Rule 144 (the provisions of which are known to
such Noteholder) promulgated under the Securities Act ("Rule 144") depends
on the satisfaction of various conditions and that, if applicable, Rule 144
may only afford the basis for sales under certain circumstances only in
limited amounts.
(f) Access to Information; Experience. Such Noteholder has been
furnished with or has had access during the course of this transaction to
all information necessary to enable such Noteholder to evaluate the merits
and risks of an investment in the Company and such Noteholder has had an
opportunity to discuss with representatives of the Company the business and
financial affairs of the Company. Such Noteholder has conducted its or his
own investigation and analysis of the business and its or his investment in
the Shares and is not relying on the Company's business plan or any
information or opinions contained therein in making its or his decision to
purchase the Shares. Such Noteholder has substantial experience in
evaluating and investing in private placement transactions of securities in
companies similar to the Company such that the Noteholder is capable of
evaluating the merits and the risks of its or his investment in the Company
and has the capacity to protect such Noteholder's own interests in making
this investment in the Company. Such Noteholder can afford to suffer a
complete loss of its or his investment in the Shares.
-3-
<PAGE>
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Noteholders as follows:
(a) Organization. The Company is a company duly organized, validly
existing and in good standing under the laws of the State of Delaware. The
Company has all requisite corporate power and authority to own and lease
its properties, to carry on its business as presently conducted and to
carry out the transactions contemplated hereby.
(b) Capitalization. The authorized capital stock of the Company
immediately upon consummation of the transactions contemplated hereby shall
consist of:
(i) 20,000,000 shares of common stock, $.001 par value (the
"Common Stock"), of which (A) 7,702,464 shares will be validly issued
and outstanding, fully paid and nonassessable; (B) 2,000,000 shares
will be reserved for issuance to senior management employees pursuant
to the Company's 1996 Stock Option Plan (the "Stock Option Plan"); and
(C) 3,976,406 shares will be reserved for issuance upon conversion of
the Preferred Stock; and
(ii) 8,633,049 shares of preferred stock, $.01 par value (the
"Preferred Stock"), of the Company, of which (A) 999,999 shares will
be designated Series A Convertible Preferred Stock (the "Series A
Preferred Stock") and all of such shares will be validly issued and
outstanding, fully paid and nonassessable; (B) 999,999 shares will be
designated Series A-1 Preferred Stock and all of such shares will be
reserved for issuance upon conversion of the Series A Preferred Stock;
(C) 2,000,001 shares will be designated Series B Convertible Preferred
Stock (the "Series B Preferred Stock") and all of such shares will be
validly issued and outstanding, fully paid and nonassessable; (D)
2,000,001 shares will be designated Series B-1 Preferred Stock and all
of such shares will be reserved for issuance upon conversion of the
Series B Preferred Stock pursuant to Section 6 of Article IV of the
Amended and Restated Certificate of Incorporation; (E) 254,999 shares
will be designated Series C Convertible Preferred Stock (the "Series C
Preferred Stock") and all of such shares will be validly issued and
outstanding, fully paid and nonassessable; (F) 189,000 shares will be
designated Series D Preferred Stock and 188,072 of such shares will be
validly issued and outstanding, fully paid and nonassessable; (G)
-4-
<PAGE>
189,000 shares will be designated Series D-1 Preferred Stock and all
of such shares will be reserved for issuance upon conversion of the
Series D Preferred Stock pursuant to Section 6 of Article IV of the
Amended and Restated Certificate of Incorporation; (H) 1,000,025
shares will be designated Series E Convertible Preferred Stock (the
"Series E Preferred Stock") and 533,335 of such shares will be validly
issued and outstanding, fully paid and nonassessable; (G) 1,000,025
shares will be designated Series E-1 Preferred Stock and all of such
shares will be reserved for issuance upon conversion of the Series E
Preferred Stock pursuant to Section 6 of Article IV of the Amended and
Restated Certificate of Incorporation.
(iii) Except for Common Stock and Preferred Stock issuable (A)
upon conversion of shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock
and Series E Preferred Stock, (B) upon exercise of the warrants to
purchase an aggregate of 33,333 shares of the Company's Common Stock
issued to the Noteholders, (C) pursuant to the Stock Option Plan, and
(D) upon the consummation of the transactions contemplated hereby,
there will be no (x) outstanding warrants, options, agreements,
convertible securities or other commitments or instruments pursuant to
which the Company is or may become obligated to issue or sell any
shares of capital stock or other securities of the Company or (y)
preemptive or similar rights to purchase or otherwise acquire shares
of capital stock of the Company pursuant to any provision of law, the
Amended and Restated Certificate of Incorporation or By-laws of the
Company or any agreement to which the Company is party or otherwise,
other than the Second Amended and Restated Stockholders Agreement
dated as of November 22, 1996 (the "Stockholders Agreement"), among
the Company, the Noteholders and the other parties thereto.
(c) Authorization. The execution, delivery and performance by the
Company of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all requisite corporate
action on the part of the Company, and this Agreement has been duly
executed and delivered by the Company and constitutes the valid and binding
obligation of the Company, enforceable in accordance with its terms, except
as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or similar laws relating to or affecting
the rights and remedies of creditors and debtors, and equitable principles
generally, regardless of whether such principles are considered in a
proceeding at equity or at law. The execution, delivery and performance of
this Agreement and compliance with the provisions hereof by the Company
will not (i) violate in any material respect any law or statute or order,
judgment or decree of any court, administrative agency or other
governmental body applicable to the Company or its properties or assets or
(ii) conflict in any material respect with or result in any material breach
of any of the terms or provisions or constitute (with due notice or lapse
of time, or both) a default under the Amended and Restated Certificate of
Incorporation or By-laws of the Company or any material note, indenture,
mortgage, lease agreement or other material agreement, contract or
instrument to which the Company is a party or by which it or any of its
properties or assets may be bound or affected.
-5-
<PAGE>
(d) Consents or Approvals Required. Except for (i) the filing of any
notice which may be required under applicable Federal or state securities
law (which, if required, has been or shall be filed on a timely basis as
may be so required) and (ii) the approval of certain stockholders of the
Company (which approval has been obtained), no authorization, consent,
approval or other order of, or declaration to or filing with, any
governmental agency or body or other person or entity is required for the
valid authorization, execution, delivery and performance by the Company of
this Agreement.
(e) Authorization of Shares. The issuance, sale and delivery of the
Shares have been duly authorized by all requisite corporate action of the
Company and when issued, sold and delivered in accordance with the terms of
this Agreement, the Shares will be validly issued and outstanding, fully
paid and nonassessable and will not be subject to preemptive or other
similar rights of the stockholders of the Company or others, except those
set forth in the Stockholders Agreement and certain Management Services
Agreements between the Company and certain of the affiliated medical
practices.
5. Transfer of Securities.
(a) Restrictions on Transfer. Each Noteholder acknowledges that the Shares
have not been registered under the Securities Act, that such shares are being
issued pursuant to an exemption from registration under the Securities Act and
that such shares constitute "restricted securities" under Rule 144. Accordingly,
the Shares held by the Noteholders shall not be sold, transferred, assigned,
pledged, encumbered or otherwise disposed of (each, a "Transfer") except upon
the conditions specified in this Section 5, which conditions are intended to
ensure compliance with the provisions of the Securities Act and this Agreement.
(b) Restrictive Legends. Each certificate for shares of Series D Preferred
Stock held by the Noteholders and each certificate for any such securities
issued to subsequent transferees of any such certificate shall (unless otherwise
permitted by the provisions of Sections 5(c) and 5(d)) be stamped or otherwise
imprinted with legends in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES OR "BLUE-SKY" LAWS. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR LAWS.
ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE CONDITIONS
SPECIFIED IN SECTION 5 OF
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<PAGE>
THE CONVERSION AGREEMENT DATED AS OF JUNE 19, 1997, AMONG BONE, MUSCLE AND
JOINT, INC. AND THE OTHER PARTIES THERETO, AND NO TRANSFER OF THESE
SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN
FULFILLED. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY
OF BONE, MUSCLE AND JOINT, INC."
"THE SALE, TRANSFER, ASSIGNMENT, PLEDGE OR ENCUMBRANCE OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE AND THE RIGHTS OF THE HOLDER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE IN RESPECT OF THE ELECTION OF
DIRECTORS ARE SUBJECT TO THE TERMS AND CONDITIONS OF THE SECOND AMENDED AND
RESTATED STOCKHOLDERS AGREEMENT DATED AS OF NOVEMBER 22, 1996, AMONG BONE,
MUSCLE AND JOINT, INC. AND THE HOLDERS OF THE OUTSTANDING CAPITAL STOCK OF
SUCH CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY
WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF BONE, MUSCLE AND JOINT, INC."
(c) Notice of Transfer. Each Noteholder agrees, prior to any Transfer of
the Shares, to give written notice to the Company of such Noteholder's intention
to effect such Transfer and to comply in all other respects with the provisions
of this Section 5. Each such notice shall describe the manner and circumstances
of the proposed Transfer and shall be accompanied by the written opinion,
addressed to the Company, of counsel for the holder of such shares, stating that
in the opinion of such counsel (which opinion and counsel shall be reasonably
satisfactory to the Company), such proposed Transfer does not involve any
transaction requiring registration or qualification of such shares under the
Securities Act or the securities or "blue-sky" laws of any relevant state of the
United States; provided, however, that no such opinion of counsel shall be
necessary for a Transfer pursuant to Rule 144. Such Noteholder shall thereupon
be entitled to Transfer such shares in accordance with the terms of the notice
delivered by such Noteholder to the Company. Each certificate or other
instrument evidencing the securities issued upon the Transfer of any such shares
(and each certificate or other instrument evidencing any untransferred balance
of such shares) shall bear the legend set forth in Section 5(b) unless (i) in
such opinion of counsel, registration of any future Transfer is not required by
the applicable provisions of the Securities Act and applicable state securities
or "blue-sky" laws or (ii) the Company shall have waived the requirement of such
legends; provided, however, that such legend shall not be required on any
certificate or other instrument evidencing the securities issued upon such
Transfer in the event such Transfer shall be made in compliance with the
requirements of Rule 144. No Noteholder shall Transfer any shares of Series D
Preferred Stock until such
-7-
<PAGE>
opinion of counsel has been given (unless waived by the Company or unless such
opinion is not required in accordance with the provisions of this Section 5).
(d) Removal of Legends, Etc. Notwithstanding the foregoing provisions of
this Section 5, the restrictions imposed by this Section 5 upon the
transferability of any shares of the capital stock of the Company held by the
Noteholders shall cease and terminate when (i) any such shares are sold or
otherwise disposed of pursuant to an effective registration statement under the
Securities Act or as otherwise contemplated by Section 5(c) and, pursuant to
Section 5(c), the securities so transferred are not required to bear the legend
set forth in Section 5(b) or (ii) the holder of such shares has met the
requirements for Transfer of such shares pursuant to subparagraph (k) of Rule
144. Whenever the restrictions imposed by this Section 5 shall terminate, as
herein provided, each Noteholder holding shares as to which such restrictions
have terminated shall be entitled to receive from the Company, without expense,
a new certificate not bearing the restrictive legend set forth in Section 5(b)
and not containing any other reference to the restrictions imposed by this
Section 5.
6. Expenses. Each of the Company, on the one hand, and the Noteholders, on
the other hand, shall bear their own fees and expenses incurred in connection
with the preparation for and consummation of the transactions contemplated by
this Agreement.
7. Notices. All notices, advices and communications to be given or
otherwise made to any party to this Agreement shall be deemed to be sufficient
if contained in a written instrument delivered in person or by telecopier or
duly sent by first class registered or certified mail, return receipt requested,
postage prepaid, or by overnight courier, addressed to such party at the address
set forth below or at such other address as may hereafter be designated in
writing by the addressee to the addresser listing all parties:
(a) if to the Company, to:
Bone, Muscle and Joint, Inc.
4800 N. Federal Highway
Suite 104D
Boca Raton, Florida 33431
Attention: Naresh Nagpal, M.D.
President
Telecopier: (407) 391-1389
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
-8-
<PAGE>
New York, New York 10112
Attention: Lawrence G. Graev, Esq.
Telecopier: (212) 408-2420; and
(b) if to the Noteholders, to their respective
addresses set forth on Schedule I;
or to such other address as the party to whom notice is to be given may have
furnished to the other parties hereto in writing in accordance herewith. Any
such notice or communication shall be deemed to have been delivered and received
(i) in the case of personal delivery or delivery by telecopier, on the date of
such delivery, (ii) in the case of nationally-recognized overnight courier, on
the next business day after the date when sent and (iii) in the case of mailing,
on the third business day following that on which the piece of mail containing
such communication is posted. As used in this Section 7, "business day" shall
mean any day other than a day on which banking institutions in the State of New
York are legally closed for business.
8. Successors and Assigns. Except as otherwise expressly provided herein,
this Agreement shall bind and inure to the benefit of the parties hereto and the
respective successors and permitted assigns of the parties hereto.
9. Entire Agreement; Amendments. This Agreement and the other writings
referred to herein or delivered pursuant hereto which form a part hereof contain
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior and contemporaneous arrangements or understandings with
respect thereto. The terms and provisions of this Agreement may only be amended
or waived with the written consent of the Company and the Noteholders.
10. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
11. Headings. The headings of the various sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed to be a
part of this Agreement.
12. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed wholly therein (without reference to any principles of
conflicts of laws).
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<PAGE>
If the foregoing accurately describes our agreement, please so
acknowledge by signing six copies of this letter and returning a copy to each of
the undersigned.
Very truly yours,
Oak VI Affiliates Fund, L.P.
By: Oak VI Affiliates, LLC
By: /s/ Ann H. Lamont
-----------------------------
Ann H. Lamont
Managing Member
Oak Investment Partners VI, L.P.
By: Oak Associates VI, L.P.
By: /s/ Ann H. Lamont
-----------------------------
Ann H. Lamont
General Partner
Delphi Ventures III, L.P
By: Delphi Management Partners
III, LLC
By: /s/ Donald J. Lothrop
-----------------------------
Donald J. Lothrop
Managing Member
Delphi BioInvestments III, L.P.
By: Delphi Management Partners
III, LLC
By: /s/ Donald J. Lothrop
-----------------------------
Donald J. Lothrop
Managing Member
-10-
<PAGE>
/s/ N. Nagpal, M.D.
--------------------------------
Naresh Nagpal, M.D.
Agreed to and Acknowledged:
Bone, Muscle and Joint, Inc.
By: /s/ David H. Fater
- -----------------------------
David H. Fater
Executive Vice President
and Chief Financial Officer
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<PAGE>
SCHEDULE I
Conversion
Noteholder Outstanding Cash
---------- Amount Shares Payment
----------- ------ -------
Oak Investment Partners VI, L.P. $ 336,941.79 61,262 $ 0.79
One Gorham Island
Westport, Connecticut 06880
Attention: Ann H. Lamont
Telecopier: (203) 227-0372
Oak VI Affiliates Fund, L.P. $ 7,861.52 1,429 $ 2.02
One Gorham Island
Westport, Connecticut 06880
Attention: Ann H. Lamont
Telecopier: (203) 227-0372
Delphi Ventures III, L.P. $ 338,705.45 61,582 $ 4.45
3000 Sand Hill Road
Building 1, Suite 135
Menlo Park, California 94025
Attention: Donald J. Lothrop
Telecopier: (415) 854-2961
Delphi BioInvestments III, L.P. $ 6,097.85 1,108 $ 3.85
3000 Sand Hill Road
Building 1, Suite 135
Menlo Park, California 94025
Attention: Donald J. Lothrop
Telecopier: (415) 854-2961
Naresh Nagpal, M.D $ 344,803.32 62,691 $ 2.82
2378 N.W. 60th Street
Boca Raton, Florida 33496
TOTAL $1,034,409.93 188,072 $13.96
============= ======= ======
<PAGE>
================================================================================
STOCK PURCHASE AGREEMENT
DATED AS OF
JULY 31, 1997
AMONG
BONE, MUSCLE AND JOINT, INC.
AND
HIS VENTURES, LLC
================================================================================
<PAGE>
BONE, MUSCLE AND JOINT, INC.
4800 N. Federal Highway, Suite 104D
Boca Raton, Florida 33431
July 31, 1997
HIS Ventures, LLC
820 Gessner
Suite 1000
Houston, Texas 77024-4259
Stock Purchase Agreement
------------------------
Ladies and Gentlemen:
The undersigned, BONE, MUSCLE AND JOINT, INC., a Delaware corporation (the
"Corporation"), hereby agrees with HIS Ventures, LLC (the "Investor"), as
follows:
SECTION 1. Issuance and Sale of Series E Preferred Stock; Closing.
1.1 Authorization of Shares. On the terms and subject to the conditions
hereof, the Corporation has authorized the issuance and sale at the Closing (as
hereinafter defined) of an aggregate of 166,667 shares (the "Shares") of the
Series E Convertible Preferred Stock, $.01 par value (the "Series E Preferred
Stock"), of the Corporation.
1.2 Agreement to Purchase and Sell the Shares. At the Closing, the
Corporation is selling to the Investor, and the Investor is purchasing from the
Corporation, upon the terms and subject to the conditions hereinafter set forth,
the Shares, at a purchase price of $6.00 per Share.
1.3 The Closing. The closing (the "Closing") hereunder with respect to the
purchase of the Shares is taking place on the date hereof at the offices of
O'Sullivan Graev & Karabell, LLP, 30 Rockefeller Plaza, New York, New York
10112, simultaneously with the execution and delivery of this Agreement (the
date hereof being sometimes referred to herein as the "Closing Date").
1.4 Delivery of Shares to the Investors. At the Closing, the Corporation
shall deliver to the Investor a certificate representing the Shares registered
in the name of the Investor and dated the Closing Date. Delivery to the Investor
of the Shares being purchased by the Investor hereunder shall be made against
receipt by the Corporation of a check payable to the Corporation, or a wire
transfer to an account designated by the Corporation, in either case in an
amount equal to $1,000,002.
<PAGE>
SECTION 2. Representations and Warranties of the Corporation. The
Corporation hereby represents and warrants to the Investor as follows:
2.1 Organization. The Corporation is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. The
Corporation has all requisite corporate power and authority to own and lease its
properties, to carry on its business as presently conducted and to carry out the
transactions contemplated hereby.
2.2 Capitalization. The authorized capital stock of the Corporation
immediately upon consummation of the transactions contemplated hereby shall
consist of:
(a) 20,000,000 shares of common stock, $.001 par value (the "Common
Stock"), of the Corporation, of which (i) 8,057,059 shares will be validly
issued and outstanding, fully paid and nonassessable; (ii) 2,000,000 shares will
be reserved for issuance pursuant to the Corporation's 1996 Stock Option Plan
(the "Stock Option Plan"); (iii) 8,633,049 shares will be reserved for issuance
upon conversion of the Preferred Stock; and 86,667 shares will be reserved for
issuance upon exercise of outstanding warrants issued by the Corporation.
(b) 8,633,049 shares of preferred stock, $.01 par value (the "Preferred
Stock"), of the Corporation, of which (i) 999,999 shares will be designated
Series A Convertible Preferred Stock (the "Series A Preferred Stock") and all of
such shares will be validly issued and outstanding, fully paid and
nonassessable; (ii) 999,999 shares will be designated Series A-1 Convertible
Preferred Stock and all of such shares will be reserved for issuance upon
conversion of the Series A Preferred Stock pursuant to Section 6 of Article IV
of the Corporation's Amended and Restated Certificate of Incorporation; (iii)
2,000,001 shares will be designated Series B Convertible Preferred Stock (the
"Series B Preferred Stock") and all of such shares will be validly issued and
outstanding, fully paid and nonassessable; (iv) 2,000,001 shares will be
designated Series B-1 Convertible Preferred Stock and all of such shares will be
reserved for issuance upon conversion of the Series B Preferred Stock pursuant
to Section 6 of Article IV of the Corporation's Amended and Restated Certificate
of Incorporation; (v) 254,999 shares will be designated Series C Convertible
Preferred Stock and all of such shares will be validly issued and outstanding,
fully paid and nonassessable; (vi) 189,000 shares will be designated Series D
Convertible Preferred Stock (the "Series D Preferred Stock") and 188,072 of such
shares will be validly issued and outstanding, fully paid and nonassessable;
(vii) 189,000 shares will be designated Series D-1 Convertible Preferred Stock
and all of such shares will be reserved for issuance upon conversion of the
Series D Preferred Stock pursuant to Section 6 of Article IV of the
Corporation's Amended and
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<PAGE>
Restated Certificate of Incorporation; (viii) 1,000,025 shares will be
designated Series E Preferred Stock and 783,335 of such shares will be validly
issued and outstanding, fully paid and nonassessable; and (ix) 1,000,025 shares
will be designated Series E-1 Convertible Preferred Stock and all of such shares
will be reserved for issuance upon conversion of the Series E Preferred Stock
pursuant to Section 6 of Article IV of the Corporation's Amended and Restated
Certificate of Incorporation;
Except for Common Stock and Preferred Stock issuable (x) upon conversion of
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock, (y) upon exercise
of the outstanding warrants to purchase an aggregate of 86,667 shares of Common
Stock and (z) pursuant to the Stock Option Plan, and upon the consummation of
the transactions contemplated hereby, there will be no (i) outstanding warrants,
options, agreements, convertible securities or other commitments or instruments
pursuant to which the Corporation is obligated to issue or sell any shares of
capital stock or other securities of the Corporation or (ii) preemptive or
similar rights to purchase or otherwise acquire shares of capital stock of the
Corporation pursuant to any provision of law, the Amended and Restated
Certificate of Incorporation or By-laws of the Corporation or any agreement to
which the Corporation is party or otherwise, other than those set forth in the
Second Amended and Restated Stockholders Agreement dated as of November 22, 1996
among the Corporation and the other parties thereto.
2.3 Authorization. The execution, delivery and performance by the
Corporation of this Agreement and the agreements referred to herein or
contemplated hereby to which the Corporation is a party (collectively, the
"Related Agreements") and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all requisite corporate action
on the part of the Corporation, and this Agreement and each of the Related
Agreements have been duly executed and delivered by the Corporation and
constitute the valid and binding obligation of the Corporation, enforceable in
accordance with its terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or similar laws
relating to or affecting the rights and remedies of creditors and debtors, and
equitable principles generally, regardless of whether such principles are
considered in a proceeding at equity or at law. The execution, delivery and
performance of this Agreement and each of the Related Agreements and compliance
with the provisions hereof and thereof by the Corporation will not (a) violate
in any material respect any law or statute or order, judgment or decree of any
court, administrative agency or other governmental body applicable to the
Corporation or its properties or assets or (b) conflict in any material respect
with or result in any material breach of any of the terms or provisions or
constitute (with due notice or lapse of time, or both) a default
-3-
<PAGE>
under the Amended and Restated Certificate of Incorporation or By-laws of the
Corporation or any material note, indenture, mortgage, lease agreement or other
material agreement, contract or instrument to which the Corporation is a party
or by which it or any of its properties or assets may be bound or affected.
2.4 Consents or Approvals Required. Except for the filing of any notice
which may be required under applicable Federal or state securities law (which,
if required, has been or shall be filed on a timely basis as may be so
required), no authorization, consent, approval or other order of, or declaration
to or filing with, any governmental agency or body or other person or entity is
required for the valid authorization, execution, delivery and performance by the
Corporation of this Agreement or any of the Related Agreements.
2.5 Authorization of Shares. The issuance, sale and delivery of the Shares
have been duly authorized by all requisite corporate action of the Corporation
and when issued, sold and delivered in accordance with the terms of this
Agreement, the Shares will be validly issued and outstanding, fully paid and
nonassessable.
2.6 Financial Information. Attached hereto as Exhibit A is a copy of the
unaudited balance sheet of the Corporation as of March 31, 1997, and the related
unaudited income statement for the three-month period then ended, prepared by
the Corporation.
2.7 Litigation. There are no actions, suits, proceedings or investigations
pending against the Corporation before any court or governmental agency, nor to
the best of the Corporation's knowledge, is there any action, suit, proceeding
or investigation pending or threatened affecting the Corporation's properties,
assets or operations or its right to employ or retain any of its employees or
consultants.
2.8 Use of Proceeds. The net proceeds received by the Corporation from the
sale of the Shares shall be used by the Corporation for general working capital
purposes as determined by the Board of Directors from time to time.
SECTION 3. Representations and Warranties of the Investor. The Investor
hereby severally represents and warrants to the Corporation as follows:
3.1 Authorization. The execution, delivery and performance by the Investor
of this Agreement and the Related Agreements to which the Investor is a party
and the consummation of the transactions contemplated hereby and thereby have
been duly authorized by all requisite action on the part of the Investor, and
this Agreement and each of the Related Agreements has been duly executed and
delivered by the Investor and
-4-
<PAGE>
constitute the valid and binding obligation of the Investor, enforceable in
accordance with its terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or similar laws
relating to or affecting the rights and remedies of creditors and debtors and
equitable principles generally, regardless of whether such principles are
considered in a proceeding at equity or at law. The execution, delivery and
performance of this Agreement and each of the Related Agreements and compliance
with the provisions hereof and thereof by the Investor will not (a) violate in
any material respect any law or statute or order, judgment or decree of any
court, administrative agency or other governmental body applicable to the
Investor or its properties or assets or (b) conflict in any material respect
with or result in any material breach of any of the terms or provisions or
constitute (with due notice or lapse of time, or both) a default under the
charter or by-laws or agreement of partnership or any similar organizational
document of the Investor or any note, indenture, mortgage, lease agreement or
other material agreement, contract or instrument to which the Investor is a
party or by which the Investor or any of the Investor's properties or assets may
be bound or affected.
3.2 Accredited Investor. The Investor is an "accredited investor" (as such
term is defined in Rule 501 of Regulation D promulgated under the Securities Act
of 1933, as amended (the "Securities Act")).
3.3 Investor Intent. The Investor is acquiring the Shares for its own
account, for investment and not with a view to, or for resale in connection
with, any distribution thereof, nor with any present intention of distributing
or reselling the same or any part thereof in any transactions that would be in
violation of the Securities Act or any state securities or "blue-sky" laws.
3.4 Restricted Securities. The Investor understands (i) that the Shares
will not be registered under the Securities Act or any state securities or
"blue-sky" laws by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act or any state securities or
"blue-sky" laws, (ii) that the Shares must be held indefinitely unless a
subsequent disposition thereof is registered under the Securities Act or any
state securities or "blue-sky" laws or is exempt from such registration, (iii)
that the Corporation is under no obligation to so register any shares of Common
Stock, except as provided in the Second Amended and Restated Registration Rights
Agreement dated as of March 12, 1997 (the "Registration Rights Agreement") and
(iv) that the certificate(s) evidencing the shares of Series E Preferred Stock
will be imprinted with a legend that prohibits the transfer substantially as set
forth in Section 6.2(b) hereof unless they are registered or such registration
is not required.
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3.5 Rule 144. The Investor understands that the exemption from registration
afforded by Rule 144 (the provisions of which are known to the Investor)
promulgated under the Securities Act ("Rule 144") depends on the satisfaction of
various conditions and that, if applicable, Rule 144 may only afford the basis
for sales under certain circumstances only in limited amounts.
3.6 Access to Information; Experience. The Investor has been furnished with
or has had access during the course of this transaction to all information
necessary to enable the Investor to evaluate the merits and risks of an
investment in the Corporation and the Investor has had an opportunity to discuss
with representatives of the Corporation the business and financial affairs of
the Corporation. The Investor has conducted its own investigation and analysis
of the business and its investment in the Shares and is not relying on the
Corporation's business plan or any information or opinions contained therein in
making its decision to purchase the Shares. The Investor has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Corporation such that the Investor is
capable of evaluating the merits and the risks of its investment in the
Corporation and has the capacity to protect such Investor's own interests in
making this investment in the Corporation. The Investor can afford to suffer a
complete loss of its investment in the Shares.
SECTION 4. Conditions Precedent to Obligations of Investor. The obligations
of the Investor to purchase and pay for the Shares on the Closing Date are
subject to the following conditions precedent:
4.1 Corporate Proceedings; Consents; Etc. All corporate and/or other
proceedings to be taken by the Corporation, its officers, directors and
stockholders and all waivers and consents to be obtained by the Corporation in
connection with the transactions contemplated by this Agreement and each of the
Related Agreements shall have been taken or obtained.
4.2 Representations and Warranties. The representations and warranties of
the Corporation contained in Section 2 shall be true and correct in all material
respects.
4.3 Blue Sky Matters. All consents, approvals, qualifications and/or
registrations required to be obtained or effected under any applicable state
securities or "blue-sky" laws in connection with the execution and delivery of
the Shares shall have been obtained or effected.
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SECTION 5. Conditions Precedent to Obligations of Corporation. The
obligation of the Corporation to issue and sell the Shares on the Closing Date
is subject to the following conditions precedent:
5.1 Representations and Warranties. The representations and warranties of
the Investor contained in Section 3 shall be true and correct in all material
respects.
5.2 Blue Sky Matters. All consents, approvals, qualifications and/or
registrations required to be obtained or effected under any applicable state
securities or "blue-sky" laws in connection with the execution and delivery of
the Shares shall have been obtained or effected.
5.3 Payment of Purchase Price. The Investor shall have delivered the full
purchase price payable by the Investor hereunder as specified in Section 1.2
hereof.
SECTION 6. Affirmative Covenants.
6.1 Information Rights. The Corporation agrees to provide the Investor with
the following:
(a) General. The Corporation will permit such persons on reasonable notice
to visit and inspect during normal business hours any of the properties of the
Corporation, to examine its books and records, to make copies thereof and to
take extracts therefrom and to discuss its affairs, finances and accounts with,
and to be advised as to the same by, its officers, consultants, counsel and
accountants, at such reasonable times as such persons may desire. In addition,
the Corporation will provide to such persons such other information as from time
to time may reasonably be requested.
(b) Monthly Statements. Within 30 days after the end of each monthly
accounting period, an unaudited consolidated financial report of the
Corporation, prepared in accordance with generally accepted accounting
principles consistently applied, except that such financial statements shall not
include footnotes and shall be subject to normal year-end audit adjustments,
including, with respect to such monthly accounting period, the following:
(i) a profit and loss statement for such monthly accounting period,
together with a cumulative profit and loss statement from the first day of
the current year to the last day of such monthly accounting period;
(ii) a balance sheet as at the last day of such monthly accounting
period;
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(iii) a statement of cash flow for such monthly accounting period on a
cumulative basis for the fiscal year to date; and
(iv) a comparison between the actual figures for such monthly
accounting period, the comparable figures (with respect to clauses (i) and
(ii) only) for the prior year (if any) and the comparable figures included
in the Budget (as hereinafter defined) for such monthly accounting period.
(c) Quarterly Reports. As soon as available, but not later than 45 days
after the end of each quarterly accounting period, an unaudited consolidated
financial report of the Corporation, prepared in accordance with generally
accepted accounting principles consistently applied, except that such financial
statements shall not include footnotes and shall be subject to normal year-end
audit adjustments, containing the information contemplated by Sections
6.1(b)(i)-(iv) with respect to such quarterly accounting period.
(d) Annual Reports. As soon as available, but not later than 120 days after
the end of each fiscal year of the Corporation, audited financial statements of
the Corporation, which shall include a statement of cash flows and statement of
operations for such fiscal year and a balance sheet as at the last day thereof,
each prepared in accordance with generally accepted accounting principles,
consistently applied, and accompanied by the report of a firm of independent
certified public accountants of recognized standing selected by the Board of
Directors of the Corporation (the "Accountants").
(e) Budget. The Corporation shall deliver to the Investor a copy of the
budget (the "Budget") of the Corporation prepared with respect to each calendar
year commencing with the calendar year beginning January 1, 1998, within 15 days
after such budget is approved by the Board of Directors of the Corporation.
(f) Termination of Information Rights. Notwithstanding the foregoing
provisions of this Section 6.1, the rights of the Investor and the obligations
of the Corporation under said Section 6.1 shall terminate upon the consummation
of the initial underwritten public offering of the Common Stock of the
Corporation.
6.2 Transfer of Securities.
(a) Restrictions on Transfer. The Investor acknowledges that the Shares
have not been registered under the Securities Act, that such shares are being
issued pursuant to an exemption from registration under the Securities Act and
that such shares constitute "restricted securities" under Rule 144. Accordingly,
the Shares held by the Investor shall not be sold,
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<PAGE>
transferred, assigned, pledged, encumbered or otherwise disposed of (each, a
"Transfer") except upon the conditions specified in this Section 6.2, which
conditions are intended to ensure compliance with the provisions of the
Securities Act and this Agreement; provided, however, that the restrictions set
forth in this Section 6.2 shall not apply with respect to any Transfer of
Restricted Shares by the Investor (i) to any affiliate of the Investor, (ii) to
The Galtney Group, Inc. (which is the Investor's parent), or (iii) to any
investment partnership in which The Galtney Group, Inc. has no less than a 15%
partnership interest or no less than a 10% partnership interest and in the
latter case it holds the largest interest in such partnership and, in either
case, Karen Kassouf is a principal as a manager or co-manager of such
partnership. As used herein "affiliate" means, with respect to the Investor, (x)
any director, officer, majority member of the Investor and (y) any other person
or entity that, directly or indirectly, through one or more intermediaries,
controls, or is controlled by, or is under common control with, such Person. The
term "control" includes, without limitation, the possession, directly or
indirectly, of the power to direct the management and policies of a person or
entity, whether through the ownership of voting securities, by contract or
otherwise.
(b) Restrictive Legend. Each certificate for shares of Preferred Stock held
by the Investor and each certificate for any such securities issued to
subsequent transferees of any such certificate shall (unless otherwise permitted
by the provisions of Sections 6.2(c) and 6.2(d)) be stamped or otherwise
imprinted with a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES OR "BLUE-SKY" LAWS. THESE SECURITIES MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR
LAWS. ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS
SUBJECT TO THE CONDITIONS SPECIFIED IN SECTION 6.2 OF THE
STOCK PURCHASE AGREEMENT DATED AS OF JULY __, 1997, AMONG
BONE, MUSCLE AND JOINT, INC. AND HIS VENTURES, LLC, AND NO
TRANSFER OF THESE SECURITIES SHALL BE VALID OR EFFECTIVE
UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST
MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF BONE, MUSCLE AND JOINT, INC."
(c) Notice of Transfer. The Investor agrees, prior to any Transfer of the
Shares, to give written notice to
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the Corporation of the Investor's intention to effect such Transfer and to
comply in all other respects with the provisions of this Section 6.2. Each such
notice shall describe the manner and circumstances of the proposed Transfer and
shall be accompanied by the written opinion, addressed to the Corporation, of
counsel for the holder of such shares, stating that in the opinion of such
counsel (which opinion and counsel shall be reasonably satisfactory to the
Corporation), such proposed Transfer does not involve any transaction requiring
registration or qualification of such shares under the Securities Act or the
securities or "blue-sky" laws of any relevant state of the United States;
provided, however, that no such opinion of counsel shall be necessary for a
Transfer pursuant to Rule 144. The Investor shall thereupon be entitled to
Transfer such shares in accordance with the terms of the notice delivered by the
Investor to the Corporation. Each certificate or other instrument evidencing the
securities issued upon the Transfer of any such shares (and each certificate or
other instrument evidencing any untransferred balance of such shares) shall bear
the legend set forth in Section 6.2(b) unless (a) in such opinion of counsel,
registration of any future Transfer is not required by the applicable provisions
of the Securities Act and applicable state securities or "blue-sky" laws or (b)
the Corporation shall have waived the requirement of such legends; provided,
however, that such legend shall not be required on any certificate or other
instrument evidencing the securities issued upon such Transfer in the event such
Transfer shall be made in compliance with the requirements of Rule 144. The
Investor shall not Transfer any shares of Preferred Stock until such opinion of
counsel has been given (unless waived by the Corporation or unless such opinion
is not required in accordance with the provisions of this Section 6.2).
(d) Removal of Legends, Etc. Notwithstanding the foregoing provisions of
this Section 6.2, the restrictions imposed by this Section 6.2 upon the
transferability of any shares of the capital stock of the Corporation held by
the Investor shall cease and terminate when (a) any such shares are sold or
otherwise disposed of pursuant to an effective registration statement under the
Securities Act or as otherwise contemplated by Section 6.2(c) and, pursuant to
Section 6.2(c), the securities so transferred are not required to bear the
legend set forth in Section 6.2(b) or (b) the holder of such shares has met the
requirements for Transfer of such shares pursuant to subparagraph (k) of Rule
144. Whenever the restrictions imposed by this Section 6.2 shall terminate, as
herein provided, the Investor holding shares as to which such restrictions have
terminated shall be entitled to receive from the Corporation, without expense, a
new certificate not bearing the restrictive legend set forth in Section 6.2(b)
and not containing any other reference to the restrictions imposed by this
Section 6.2.
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SECTION 7. Board Visitation Rights. The Corporation shall invite the
Investor to attend meetings of its board of directors when such meetings are
held.
SECTION 8. Expenses. Each of the Corporation, on the one hand, and the
Investor, on the other hand, shall bear its own fees and expenses incurred in
connection with the preparation for and consummation of the transactions
contemplated by this Agreement.
SECTION 9. Notices. All notices, advices and communications to be given or
otherwise made to any party to this Agreement shall be deemed to be sufficient
if contained in a written instrument delivered in person or by telecopier or
duly sent by first class registered or certified mail, return receipt requested,
postage prepaid, or by overnight courier, addressed to such party at the address
set forth below or at such other address as may hereafter be designated in
writing by the addressee to the addresser listing all parties:
(a) if to the Corporation, to:
Bone, Muscle and Joint, Inc.
4800 N. Federal Highway
Suite 104D
Boca Raton, Florida 33431
Attention: Naresh Nagpal, M.D.
President
Telecopier: (561) 391-1389
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Lawrence G. Graev, Esq.
Telecopier: (212) 408-2420; and
(b) if to the Investor, to:
HIS Ventures, LLC
820 Gessner
Suite 1000
Houston, Texas 77024-4259
Attention: Ms. Karen Kassouf
President
Telecopier: (713) 467-8031;
or to such other address as the party to whom notice is to be given may have
furnished to the other parties hereto in writing in accordance herewith. Any
such notice or communication shall be deemed to have been delivered and received
(i) in the case of personal delivery or delivery by telecopier, on the date of
such
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delivery, (ii) in the case of nationally-recognized overnight courier, on the
next business day after the date when sent and (iii) in the case of mailing, on
the third business day following that on which the piece of mail containing such
communication is posted. As used in this Section 8, "business day" shall mean
any day other than a day on which banking institutions in the State of New York
are legally closed for business.
SECTION 10. Successors and Assigns. Except as otherwise expressly provided
herein, this Agreement shall bind and inure to the benefit of the parties hereto
and the respective successors and permitted assigns of the parties hereto.
SECTION 11. Amendments. The terms and provisions of this Agreement may only
be amended or waived with the written consent of the Corporation and the
Investor.
SECTION 12. Entire Agreement. This Agreement and the other writings
referred to herein or delivered pursuant hereto which form a part hereof contain
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
SECTION 13. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
SECTION 14. Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be a part of this Agreement.
SECTION 15. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed wholly therein (without reference to any
principles of conflicts of laws).
* * * *
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IN WITNESS WHEREOF, each of the undersigned has caused this Stock Purchase
Agreement to be executed as of the date first written above.
BONE, MUSCLE AND JOINT, INC.
By:____________________________________
Name:
Title:
INVESTORS:
HIS VENTURES, LLC
By:____________________________________
Name:
Title:
<PAGE>
EXECUTION COPY
================================================================================
STOCK PURCHASE AGREEMENT
DATED AS OF
AUGUST 18, 1997
AMONG
BONE, MUSCLE AND JOINT, INC.
AND
COMDISCO, INC.
================================================================================
<PAGE>
BONE, MUSCLE AND JOINT, INC.
4800 N. Federal Highway, Suite 104D
Boca Raton, Florida 33431
August 18, 1997
Comdisco, Inc.
6111 North River Road
Rosemont, Illinois 60018
Stock Purchase Agreement
------------------------
Ladies and Gentlemen:
The undersigned, BONE, MUSCLE AND JOINT, INC., a Delaware
corporation (the "Corporation"), hereby agrees with Comdisco, Inc. (the
"Investor"), as follows:
SECTION 1. Issuance and Sale of Series E Preferred Stock; Closing.
1.1 Authorization of Shares. On the terms and subject to the conditions
hereof, the Corporation has authorized the issuance and sale at the Closing (as
hereinafter defined) of an aggregate of 41,667 shares (the "Shares") of the
Series E Convertible Preferred Stock, $.01 par value (the "Series E Preferred
Stock"), of the Corporation.
1.2 Agreement to Purchase and Sell the Shares. At the Closing, the
Corporation is selling to the Investor, and the Investor is purchasing from the
Corporation, upon the terms and subject to the conditions hereinafter set forth,
the Shares, at a purchase price of $6.00 per Share.
1.3 The Closing. The closing (the "Closing") hereunder with respect to the
purchase of the Shares is taking place on the date hereof at the offices of
O'Sullivan Graev & Karabell, LLP, 30 Rockefeller Plaza, New York, New York
10112, simultaneously with the execution and delivery of this Agreement (the
date hereof being sometimes referred to herein as the "Closing Date").
1.4 Delivery of Shares to the Investors. At the Closing, the Corporation
shall deliver to the Investor a certificate representing the Shares registered
in the name of the Investor and dated the Closing Date. Delivery to the Investor
of the Shares being purchased by the Investor hereunder shall be made against
receipt by the Corporation of a check payable to the Corporation, or a wire
transfer to an account designated by the Corporation, in either case in an
amount equal to $250,002.
<PAGE>
SECTION 2. Representations and Warranties of the Corporation. The
Corporation hereby represents and warrants to the Investor as follows:
2.1 Organization. The Corporation is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. The
Corporation has all requisite corporate power and authority to own and lease its
properties, to carry on its business as presently conducted and to carry out the
transactions contemplated hereby.
2.2 Capitalization. The authorized capital stock of the Corporation
immediately upon consummation of the transactions contemplated hereby shall
consist of:
(a) 20,000,000 shares of common stock, $.001 par value (the "Common
Stock"), of the Corporation, of which (i) 8,611,064 shares will be validly
issued and outstanding, fully paid and nonassessable; (ii) 2,000,000 shares
will be reserved for issuance pursuant to the Corporation's 1996 Stock
Option Plan (the "Stock Option Plan"); (iii) 8,804,716 shares will be
reserved for issuance upon conversion of the Preferred Stock; and 86,665
shares will be reserved for issuance upon exercise of outstanding warrants
issued by the Corporation.
(b) 8,633,049 shares of preferred stock, $.01 par value (the
"Preferred Stock"), of the Corporation, of which (i) 999,999 shares will be
designated Series A Convertible Preferred Stock (the "Series A Preferred
Stock") and all of such shares will be validly issued and outstanding,
fully paid and nonassessable; (ii) 999,999 shares will be designated Series
A-1 Convertible Preferred Stock and all of such shares will be reserved for
issuance upon conversion of the Series A Preferred Stock pursuant to
Section 6 of Article IV of the Corporation's Amended and Restated
Certificate of Incorporation; (iii) 2,000,001 shares will be designated
Series B Convertible Preferred Stock (the "Series B Preferred Stock") and
all of such shares will be validly issued and outstanding, fully paid and
nonassessable; (iv) 2,000,001 shares will be designated Series B-1
Convertible Preferred Stock and all of such shares will be reserved for
issuance upon conversion of the Series B Preferred Stock pursuant to
Section 6 of Article IV of the Corporation's Amended and Restated
Certificate of Incorporation; (v) 254,999 shares will be designated Series
C Convertible Preferred Stock and all of such shares will be validly issued
and outstanding, fully paid and nonassessable; (vi) 189,000 shares will be
designated Series D Convertible Preferred Stock (the "Series D Preferred
Stock") and 188,072 of such shares will be validly issued and outstanding,
fully paid and nonassessable; (vii) 189,000 shares will be designated
Series D-1 Convertible Preferred Stock and all of such shares will be
reserved for issuance upon conversion of the Series D Preferred Stock
pursuant to Section 6 of Article IV of the Corporation's Amended and
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Restated Certificate of Incorporation; (viii) 1,000,025 shares will be
designated Series E Preferred Stock and 741,669 of such shares will be validly
issued and outstanding, fully paid and nonassessable; and (ix) 1,000,025 shares
will be designated Series E-1 Convertible Preferred Stock and all of such shares
will be reserved for issuance upon conversion of the Series E Preferred Stock
pursuant to Section 6 of Article IV of the Corporation's Amended and Restated
Certificate of Incorporation;
Except for Common Stock and Preferred Stock issuable (x) upon conversion of
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock, (y) upon exercise
of the outstanding warrants to purchase an aggregate of 86,667 shares of Common
Stock and (z) pursuant to the Stock Option Plan, and upon the consummation of
the transactiopns contemplated hereby, there will be no (i) outstanding
warrants, options, agreements, convertible securities or other commitments or
instruments pursuant to which the Corporation is obligated to issue or sell any
shares of capital stock or other securities of the Corporation or (ii)
preemptive or similar rights to purchase or otherwise acquire shares of capital
stock of the Corporation pursuant to any provision of law, the Amended and
Restated Certificate of Incorporation or By-laws of the Corporation or any
agreement to which the Corporation is party or otherwise, other than those set
forth in the Second Amended and Restated Stockholders Agreement dated as of
November 22, 1996 among the Corporation and the other parties thereto.
2.3 Authorization. The execution, delivery and performance by the
Corporation of this Agreement and the agreements referred to herein or
contemplated hereby to which the Corporation is a party (collectively, the
"Related Agreements") and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all requisite corporate action
on the part of the Corporation, and this Agreement and each of the Related
Agreements have been duly executed and delivered by the Corporation and
constitute the valid and binding obligation of the Corporation, enforceable in
accordance with its terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or similar laws
relating to or affecting the rights and remedies of creditors and debtors, and
equitable principles generally, regardless of whether such principles are
considered in a proceeding at equity or at law. The execution, delivery and
performance of this Agreement and each of the Related Agreements and compliance
with the provisions hereof and thereof by the Corporation will not (a) violate
in any material respect any law or statute or order, judgment or decree of any
court, administrative agency or other governmental body applicable to the
Corporation or its properties or assets or (b) conflict in any material respect
with or result in any material breach of any of the terms or provisions or
constitute (with due notice or lapse of time, or both) a default
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under the Amended and Restated Certificate of Incorporation or By-laws of the
Corporation or any material note, indenture, mortgage, lease agreement or other
material agreement, contract or instrument to which the Corporation is a party
or by which it or any of its properties or assets may be bound or affected.
2.4 Consents or Approvals Required. Except for the filing of any notice
which may be required under applicable Federal or state securities law (which,
if required, has been or shall be filed on a timely basis as may be so
required), no authorization, consent, approval or other order of, or declaration
to or filing with, any governmental agency or body or other person or entity is
required for the valid authorization, execution, delivery and performance by the
Corporation of this Agreement or any of the Related Agreements.
2.5 Authorization of Shares. The issuance, sale and delivery of the Shares
have been duly authorized by all requisite corporate action of the Corporation
and when issued, sold and delivered in accordance with the terms of this
Agreement, the Shares will be validly issued and outstanding, fully paid and
nonassessable.
2.6 Financial Information. Attached hereto as Exhibit A is a copy of the
unaudited balance sheet of the Corporation as of March 31, 1997, and the related
unaudited income statement for the three-month period then ended, prepared by
the Corporation.
2.7 Litigation. There are no actions, suits, proceedings or investigations
pending against the Corporation before any court or governmental agency, nor to
the best of the Corporation's knowledge, is there any action, suit, proceeding
or investigation pending or threatened affecting the Corporation's properties,
assets or operations or its right to employ or retain any of its employees or
consultants.
2.8 Use of Proceeds. The net proceeds received by the Corporation from the
sale of the Shares shall be used by the Corporation for general working capital
purposes as determined by the Board of Directors from time to time.
SECTION 3. Representations and Warranties of the Investor. The Investor
hereby severally represents and warrants to the Corporation as follows:
3.1 Authorization. The execution, delivery and performance by the Investor
of this Agreement and the Related Agreements to which the Investor is a party
and the consummation of the transactions contemplated hereby and thereby have
been duly authorized by all requisite action on the part of the Investor, and
this Agreement and each of the Related Agreements has been duly executed and
delivered by the Investor and
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<PAGE>
constitute the valid and binding obligation of the Investor, enforceable in
accordance with its terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or similar laws
relating to or affecting the rights and remedies of creditors and debtors and
equitable principles generally, regardless of whether such principles are
considered in a proceeding at equity or at law. The execution, delivery and
performance of this Agreement and each of the Related Agreements and compliance
with the provisions hereof and thereof by the Investor will not (a) violate in
any material respect any law or statute or order, judgment or decree of any
court, administrative agency or other governmental body applicable to the
Investor or its properties or assets or (b) conflict in any material respect
with or result in any material breach of any of the terms or provisions or
constitute (with due notice or lapse of time, or both) a default under the
charter or by-laws or agreement of partnership or any similar organizational
document of the Investor or any note, indenture, mortgage, lease agreement or
other material agreement, contract or instrument to which the Investor is a
party or by which the Investor or any of the Investor's properties or assets may
be bound or affected.
3.2 Accredited Investor. The Investor is an "accredited investor" (as such
term is defined in Rule 501 of Regulation D promulgated under the Securities Act
of 1933, as amended (the "Securities Act")).
3.3 Investor Intent. The Investor is acquiring the Shares for its own
account, for investment and not with a view to, or for resale in connection
with, any distribution thereof, nor with any present intention of distributing
or reselling the same or any part thereof in any transactions that would be in
violation of the Securities Act or any state securities or "blue-sky" laws.
3.4 Restricted Securities. The Investor understands (i) that the Shares
will not be registered under the Securities Act or any state securities or
"blue-sky" laws by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act or any state securities or
"blue-sky" laws, (ii) that the Shares must be held indefinitely unless a
subsequent disposition thereof is registered under the Securities Act or any
state securities or "blue-sky" laws or is exempt from such registration, (iii)
that the Corporation is under no obligation to so register any shares of Common
Stock, except as provided in the Second Amended and Restated Registration Rights
Agreement dated as of March 12, 1997 (the "Registration Rights Agreement") and
(iv) that the certificate(s) evidencing the shares of Series E Preferred Stock
will be imprinted with a legend that prohibits the transfer substantially as set
forth in Section 6.2(b) hereof unless they are registered or such registration
is not required.
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3.5 Rule 144. The Investor understands that the exemption from registration
afforded by Rule 144 (the provisions of which are known to the Investor)
promulgated under the Securities Act ("Rule 144") depends on the satisfaction of
various conditions and that, if applicable, Rule 144 may only afford the basis
for sales under certain circumstances only in limited amounts.
3.6 Access to Information; Experience. The Investor has been furnished with
or has had access during the course of this transaction to all information
necessary to enable the Investor to evaluate the merits and risks of an
investment in the Corporation and the Investor has had an opportunity to discuss
with representatives of the Corporation the business and financial affairs of
the Corporation. The Investor has conducted its own investigation and analysis
of the business and its investment in the Shares and is not relying on the
Corporation's business plan or any information or opinions contained therein in
making its decision to purchase the Shares. The Investor has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Corporation such that the Investor is
capable of evaluating the merits and the risks of its investment in the
Corporation and has the capacity to protect such Investor's own interests in
making this investment in the Corporation. The Investor can afford to suffer a
complete loss of its investment in the Shares.
SECTION 4. Conditions Precedent to Obligations of Investor. The obligations
of the Investor to purchase and pay for the Shares on the Closing Date are
subject to the following conditions precedent:
4.1 Corporate Proceedings; Consents; Etc. All corporate and/or other
proceedings to be taken by the Corporation, its officers, directors and
stockholders and all waivers and consents to be obtained by the Corporation in
connection with the transactions contemplated by this Agreement and each of the
Related Agreements shall have been taken or obtained.
4.2 Representations and Warranties. The representations and warranties of
the Corporation contained in Section 2 shall be true and correct in all material
respects.
4.3 Blue Sky Matters. All consents, approvals, qualifications and/or
registrations required to be obtained or effected under any applicable state
securities or "blue-sky" laws in connection with the execution and delivery of
the Shares shall have been obtained or effected.
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<PAGE>
SECTION 5. Conditions Precedent to Obligations of Corporation. The
obligation of the Corporation to issue and sell the Shares on the Closing Date
is subject to the following conditions precedent:
5.1 Representations and Warranties. The representations and warranties of
the Investor contained in Section 3 shall be true and correct in all material
respects.
5.2 Blue Sky Matters. All consents, approvals, qualifications and/or
registrations required to be obtained or effected under any applicable state
securities or "blue-sky" laws in connection with the execution and delivery of
the Shares shall have been obtained or effected.
5.3 Payment of Purchase Price. The Investor shall have delivered the full
purchase price payable by the Investor hereunder as specified in Section 1.2
hereof.
SECTION 6. Affirmative Covenants.
6.1 Information Rights. The Corporation agrees to provide the Investor with
the following:
(a) General. The Corporation will permit such persons on reasonable
notice to visit and inspect during normal business hours any of the
properties of the Corporation, to examine its books and records, to make
copies thereof and to take extracts therefrom and to discuss its affairs,
finances and accounts with, and to be advised as to the same by, its
officers, consultants, counsel and accountants, at such reasonable times as
such persons may desire. In addition, the Corporation will provide to such
persons such other information as from time to time may reasonably be
requested.
(b) Monthly Statements. Within 30 days after the end of each monthly
accounting period, an unaudited consolidated financial report of the
Corporation, prepared in accordance with generally accepted accounting
principles consistently applied, except that such financial statements
shall not include footnotes and shall be subject to normal year-end audit
adjustments, including, with respect to such monthly accounting period, the
following:
(i) a profit and loss statement for such monthly accounting
period, together with a cumulative profit and loss statement from the
first day of the current year to the last day of such monthly
accounting period;
(ii) a balance sheet as at the last day of such monthly
accounting period;
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<PAGE>
(iii) a statement of cash flow for such monthly accounting period
on a cumulative basis for the fiscal year to date; and
(iv) a comparison between the actual figures for such monthly
accounting period, the comparable figures (with respect to clauses (i)
and (ii) only) for the prior year (if any) and the comparable figures
included in the Budget (as hereinafter defined) for such monthly
accounting period.
(c) Quarterly Reports. As soon as available, but not later than 45
days after the end of each quarterly accounting period, an unaudited
consolidated financial report of the Corporation, prepared in accordance
with generally accepted accounting principles consistently applied, except
that such financial statements shall not include footnotes and shall be
subject to normal year-end audit adjustments, containing the information
contemplated by Sections 6.1(b)(i)-(iv) with respect to such quarterly
accounting period.
(d) Annual Reports. As soon as available, but not later than 120 days
after the end of each fiscal year of the Corporation, audited financial
statements of the Corporation, which shall include a statement of cash
flows and statement of operations for such fiscal year and a balance sheet
as at the last day thereof, each prepared in accordance with generally
accepted accounting principles, consistently applied, and accompanied by
the report of a firm of independent certified public accountants of
recognized standing selected by the Board of Directors of the Corporation
(the "Accountants").
(e) Budget. The Corporation shall deliver to the Investor a copy of
the budget (the "Budget") of the Corporation prepared with respect to each
calendar year commencing with the calendar year beginning January 1, 1998,
within 15 days after such budget is approved by the Board of Directors of
the Corporation.
(f) Termination of Information Rights. Notwithstanding the foregoing
provisions of this Section 6.1, the rights of the Investor and the
obligations of the Corporation under said Section 6.1 shall terminate upon
the consummation of the initial underwritten public offering of the Common
Stock of the Corporation.
6.2 Transfer of Securities.
(a) Restrictions on Transfer. The Investor acknowledges that the Shares
have not been registered under the Securities Act, that such shares are being
issued pursuant to an exemption from registration under the Securities Act and
that such shares constitute "restricted securities" under Rule 144. Accordingly,
the Shares held by the Investor shall not be sold,
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<PAGE>
transferred, assigned, pledged, encumbered or otherwise disposed of (each, a
"Transfer") except upon the conditions specified in this Section 6.2, which
conditions are intended to ensure compliance with the provisions of the
Securities Act and this Agreement
(b) Restrictive Legend. Each certificate for shares of Preferred Stock held
by the Investor and each certificate for any such securities issued to
subsequent transferees of any such certificate shall (unless otherwise permitted
by the provisions of Sections 6.2(c) and 6.2(d)) be stamped or otherwise
imprinted with a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES OR "BLUE-SKY" LAWS. THESE SECURITIES MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR
LAWS. ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS
SUBJECT TO THE CONDITIONS SPECIFIED IN SECTION 6.2 OF THE
STOCK PURCHASE AGREEMENT DATED AS OF August 18, 1997, AMONG
BONE, MUSCLE AND JOINT, INC. AND COMDISCO, INC., AND NO
TRANSFER OF THESE SECURITIES SHALL BE VALID OR EFFECTIVE
UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST
MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF BONE, MUSCLE AND JOINT, INC."
(c) Notice of Transfer. The Investor agrees, prior to any Transfer of the
Shares, to give written notice to the Corporation of the Investor's intention to
effect such Transfer and to comply in all other respects with the provisions of
this Section 6.2. Each such notice shall describe the manner and circumstances
of the proposed Transfer and shall be accompanied by the written opinion,
addressed to the Corporation, of counsel for the holder of such shares, stating
that in the opinion of such counsel (which opinion and counsel shall be
reasonably satisfactory to the Corporation), such proposed Transfer does not
involve any transaction requiring registration or qualification of such shares
under the Securities Act or the securities or "blue-sky" laws of any relevant
state of the United States; provided, however, that no such opinion of counsel
shall be necessary for a Transfer pursuant to Rule 144. The Investor shall
thereupon be entitled to Transfer such shares in accordance with the terms of
the notice delivered by the Investor to the Corporation. Each certificate or
other instrument evidencing the securities issued upon the Transfer of any such
shares (and each certificate or other instrument evidencing any untransferred
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<PAGE>
balance of such shares) shall bear the legend set forth in Section 6.2(b) unless
(a) in such opinion of counsel, registration of any future Transfer is not
required by the applicable provisions of the Securities Act and applicable state
securities or "blue-sky" laws or (b) the Corporation shall have waived the
requirement of such legends; provided, however, that such legend shall not be
required on any certificate or other instrument evidencing the securities issued
upon such Transfer in the event such Transfer shall be made in compliance with
the requirements of Rule 144. The Investor shall not Transfer any shares of
Preferred Stock until such opinion of counsel has been given (unless waived by
the Corporation or unless such opinion is not required in accordance with the
provisions of this Section 6.2).
(d) Removal of Legends, Etc. Notwithstanding the foregoing provisions of
this Section 6.2, the restrictions imposed by this Section 6.2 upon the
transferability of any shares of the capital stock of the Corporation held by
the Investor shall cease and terminate when (a) any such shares are sold or
otherwise disposed of pursuant to an effective registration statement under the
Securities Act or as otherwise contemplated by Section 6.2(c) and, pursuant to
Section 6.2(c), the securities so transferred are not required to bear the
legend set forth in Section 6.2(b) or (b) the holder of such shares has met the
requirements for Transfer of such shares pursuant to subparagraph (k) of Rule
144. Whenever the restrictions imposed by this Section 6.2 shall terminate, as
herein provided, the Investor holding shares as to which such restrictions have
terminated shall be entitled to receive from the Corporation, without expense, a
new certificate not bearing the restrictive legend set forth in Section 6.2(b)
and not containing any other reference to the restrictions imposed by this
Section 6.2.
SECTION 7. Expenses. Each of the Corporation, on the one hand, and the
Investor, on the other hand, shall bear its own fees and expenses incurred in
connection with the preparation for and consummation of the transactions
contemplated by this Agreement.
SECTION 8. Notices. All notices, advices and communications to be given or
otherwise made to any party to this Agreement shall be deemed to be sufficient
if contained in a written instrument delivered in person or by telecopier or
duly sent by first class registered or certified mail, return receipt requested,
postage prepaid, or by overnight courier, addressed to such party at the address
set forth below or at such other address as may hereafter be designated in
writing by the addressee to the addresser listing all parties:
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<PAGE>
(a) if to the Corporation, to:
Bone, Muscle and Joint, Inc.
4800 N. Federal Highway
Suite 104D
Boca Raton, Florida 33431
Attention: Naresh Nagpal, M.D.
President
Telecopier: (561) 391-1389
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Lawrence G. Graev, Esq.
Telecopier: (212) 408-2420; and
(b) if to the Investor, to:
Comdisco, Inc.
6111 North River Road
Rosemont, Illinois 60018
Telecopier: (847) 518-5088
or to such other address as the party to whom notice is to be given may have
furnished to the other parties hereto in writing in accordance herewith. Any
such notice or communication shall be deemed to have been delivered and received
(i) in the case of personal delivery or delivery by telecopier, on the date of
such delivery, (ii) in the case of nationally-recognized overnight courier, on
the next business day after the date when sent and (iii) in the case of mailing,
on the third business day following that on which the piece of mail containing
such communication is posted. As used in this Section 8, "business day" shall
mean any day other than a day on which banking institutions in the State of New
York are legally closed for business.
SECTION 9. Successors and Assigns. Except as otherwise expressly provided
herein, this Agreement shall bind and inure to the benefit of the parties hereto
and the respective successors and permitted assigns of the parties hereto.
SECTION 10. Amendments. The terms and provisions of this Agreement may only
be amended or waived with the written consent of the Corporation and the
Investor.
SECTION 11. Entire Agreement. This Agreement and the other writings
referred to herein or delivered pursuant hereto which form a part hereof contain
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
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<PAGE>
SECTION 12. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
SECTION 13. Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be a part of this Agreement.
SECTION 14. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed wholly therein (without reference to any
principles of conflicts of laws).
* * * *
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<PAGE>
IN WITNESS WHEREOF, each of the undersigned has caused this Stock Purchase
Agreement to be executed as of the date first written above.
BONE, MUSCLE AND JOINT, INC.
By:_________________________________
Name:
Title:
INVESTOR:
COMDISCO, INC.
By:_________________________________
Name:
Title:
<PAGE>
SECURED TERM NOTE
$3,250,000.00 June 30, 1997
FOR VALUE RECEIVED, and intending to be legally bound, the undersigned,
BONE, MUSCLE & JOINT, INC., a Delaware corporation ("Borrower"), hereby promises
to pay to the order of HCFP FUNDING, INC., a Delaware corporation, its
affiliates, successors and assigns ("Lender"), the principal sum of THREE
MILLION TWO HUNDRED FIFTY THOUSAND AND 00/100 DOLLARS ($3,250,000.00) (the
"Principal Sum"), together with interest and other fees as further set forth
herein, to be paid in accordance with the terms set forth below. Capitalized
terms used but not defined herein shall have the meanings given them in that
certain Loan and Security Agreement by and between Lender and Borrower dated as
of March 28, 1997 (SCOI practice).
1. Principal and Interest. Borrower promises to pay to Lender interest on
the Principal Sum at a fluctuating rate per annum (on the basis of the actual
number of days elapsed over a year of 360 days) equal to the Prime Rate plus
three and one-half percent (Prime plus 3.5%) (the "Base Rate"), provided that
after an Event of Default such rate shall be equal to the Base Rate plus three
percent (3%). For purposes of the foregoing, the term "Prime Rate" means that
rate of interest designated as such by Fleet National Bank of Connecticut, N.A.,
or any successor thereto, as the same may from time to time fluctuate. Interest
only shall be payable monthly in arrears on the last Business Day (defined
herein) of each month for the first six (6) months that this Secured Term Note
remains outstanding, beginning on July 31, 1997 (which first interest
installment shall be for interest accrued on $3,000,000.00 of the Principal Sum
from the date hereof through July 31, 1997, and from the date of the advance of
the additional $250,000.00 through July 31, 1997) and continuing on the last
Business Day of each month thereafter through and including December 31, 1997.
On January 31, 1998, and on the last Business Day of each month thereafter
through and including December 31, 2000 (the "Maturity Date"), Borrower will pay
thirty-six (36) equal monthly installments of principal equal to Ninety Thousand
Two Hundred Seventy Seven and 98/100 Dollars ($90,277.78) per installment,
together with accrued interest on each such installment calculated at the Base
Rate. On the Maturity Date all remaining unpaid principal, together with all
accrued and unpaid interest, shall be due and payable. After the Maturity Date
and until the entire Principal Sum shall be paid in full, the amount of the
Principal Sum then outstanding shall bear interest, payable on demand, at the
Base Rate plus three percent (3%), but in no event to exceed the maximum lawful
rate.
2. Commitment Fee. In consideration for the extension of credit by Lender
as evidenced by this Secured Term Note, Borrower shall pay to Lender a
Commitment Fee in the amount of one percent (1%) of the Principal Sum, or Thirty
Two Thousand Five Hundred and No/100 Dollars ($32,500.00), with such Commitment
Fee to be paid to Lender through a
<PAGE>
deduction from the amount to be advanced at the time of the loan evidenced by
this Secured Term Note.
3. Additional Payments. Borrower further promises to pay to Lender,
immediately upon demand any and all other sums and charges that may at the time
become due and payable hereunder, and all reasonable costs, disbursements and a
reasonable documentation preparation fee in connection with the preparation of
this Secured Term Note and the related documents described in Section 4 below,
and in the collection of any payments due hereunder and in any action, suit or
proceeding to protect, sustain or enforce the rights and remedies of Lender
hereunder.
4. Conditions to Borrowing; Prepayment.
a. Subject to the terms and conditions hereof, Lender shall make available
to Borrower the Principal Sum in immediately available funds not later than
12:00 Noon (Washington, D.C. time) on the Business Day on which the following
conditions precedent are satisfied: (i) Event of Default shall have occurred and
be continuing under this Secured Term Note or any of the Loan and Security
Agreements by and between Lender and Borrower, as the same may be amended,
modified and restated from time to time hereafter, including those Loan and
Security Agreements listed on Schedule 4 attached hereto and made a part hereof
(collectively, the "Loan Agreements"), (such Loan Agreements, together with all
documents, certificates and agreements executed or delivered in connection
therewith, being referred to collectively herein as the "Loan Documents"); (ii)
all representations and warranties contained in this Secured Term Note, the Loan
Documents or otherwise made in writing in connection herewith by or on behalf of
Borrower or any party to any Loan Document shall be true and correct in all
material respects; (iii) the Lender shall have received Uniform Commercial Code
("UCC"), judgement and tax lien searches with the Secretary of State and local
filing offices of each jurisdiction where Borrower maintains a place of
business, which yield results consistent with the representations and warranties
contained herein, (iv) Lender shall have received Warrants substantially in the
form of Exhibits A-1 and A-2 attached hereto (the "Warrants"), in form and
substance satisfactory to Lender, and (v) Naresh Nagpal, Delphi Ventures III,
L.P., Delphi BioInvestments III, L.P., Oak Investment Partners VI, L.P., and Oak
VI Affiliates Fund, L.P. shall have executed in favor of Lender that certain
Unconditional Guaranty of Payment and Performance substantially in the form of
Exhibit B attached hereto (the "Guaranty");
b. Lender shall enter the Principal Sum as a debit to a loan account in the
name of Borrower and shall also record as credits in said loan account all
payments made by Borrower and all proceeds of Collateral which are indefeasibly
paid to Lender, and may record therein, in accordance with customary accounting
practice, other debits and credits.
c. Lender will account to Borrower monthly with a statement of advances,
charges and payments made pursuant to this Secured Term Note, and such account
rendered by Lender shall be deemed final, binding and conclusive upon Borrower
absent manifest error, or
2
<PAGE>
unless Lender is notified by Borrower in writing to the contrary within 30 days
after the date each accounting is mailed to Borrower. Such notice shall be
deemed an objection to those items specifically objected to therein.
d. Borrower may prepay all or any part of the Principal Sum outstanding
(inclusive of the $32,500.00 Commitment Fee if the Principal Sum is repaid in
full) without penalty, together with all interest accrued thereon and all other
sums that are payable pursuant to this Secured Term Note.
e. Notwithstanding anything herein to the contrary, the entire Principal
Sum (together with all accrued interest and all other fees, costs and expenses
arising hereunder) shall be due and payable simultaneously with the occurrence
of a Triggering Event (as defined below).
For purposes of this Secured Term Note, the term "Triggering Event" shall
mean:
(A) the closing date of any of the following transactions:
(i) The issuance by Borrower of common stock or other securities
in a public offering, private placement, convertible debt offering or
recapitalization, other than issuances made in connection with
management services agreements between Borrower and physicians;
(ii) The sale or transfer of thirty percent (30%) or more of the
outstanding ownership interests in Borrower in one or more
transactions occurring in any twelve-month period, other than
transactions pursuant to which Borrower enters into management
agreements with physicians in the ordinary course of business;
(iii) The sale, lease or other transfer by Borrower of all or
substantially all of its assets in one or more transactions;
(iv) The consolidation or merger by Borrower with an unrelated
company; or
(v) The issuance by Borrower of capital stock to one or more
persons or entities following the date of this Secured Term Note in a
transaction not covered by clauses (i) through (iv) above, which
transaction results in the stockholders of Borrower as of the date of
this Secured Term Note owning less than seventy percent (70%) of the
outstanding ownership interests in Borrower; provided that
(B) The total cash consideration payable in such transaction or series
of transactions equals or exceeds Ten Million and No/100 Dollars
($10,000,000.00).
3
<PAGE>
5. Payment Office. Both the Principal Sum and the interest hereon and any
other amounts payable hereunder are payable to Borrower in lawful money of the
United States of America at the office of Lender, at 2 Wisconsin Circle, Suite
320, Chevy Chase, Maryland 20815, Attention: Ethan D. Leder, President, or at
such other place as Lender may specify in writing to Borrower. Any payment by
other than immediately available funds shall be subject to collection. Interest
shall continue to accrue until the funds by which payment is made are available
to Lender for its use. Any payment hereunder which is stated to be due on a day
on which banks in Washington, D.C. are required or permitted to be closed for
business shall be due and payable on the next business day (each such day a
"Business Day") and such extension of time shall be included in the computation
of interest in connection with such payment.
6. No Presentment; Acceleration. On the Maturity Date or upon the
occurrence of an Event of Default (as defined in Section 12 hereof), the
outstanding Principal Sum, accrued and unpaid interest thereon and all other
sums owed by Borrower to Lender in connection herewith shall immediately become
due and payable. Borrower hereby expressly waives any presentment for payment,
demand for payment, notice of nonpayment or dishonor, protest and notice of
protest of any kind.
7. Security Agreement.
a. This Secured Term Note shall constitute a security agreement as that
term is used in the UCC and Borrower hereby grants to Lender, in order to secure
Borrower's obligations under this Secured Term Note, a security interest in the
following (collectively, the "Collateral"): (i) all of Borrower's now owned and
hereafter acquired accounts, contract rights, general intangibles, chattel
paper, documents and instruments, as such terms are defined in the UCC,
including, without limitation, all obligations for the payment of money arising
out of Borrower's sale of goods or rendition of services ("Accounts"), (ii) all
moneys, securities and other property and the proceeds thereof, now or hereafter
held or received by, or in transit to, Lender from or for Borrower, whether for
safekeeping, pledge, custody, transmission, collection or otherwise, and all of
Borrower's deposits (general or special), balances, sums and credits with Lender
at any time existing, (iii) all of Borrower's right, title and interest, and all
of Borrower's rights, remedies, security and liens, in, to and in respect of the
Accounts, including, without limitation, rights of stoppage in transit,
replevin, repossession and reclamation and other rights and remedies of an
unpaid vendor, lienor or secured party, guaranties or other contracts of
suretyship with respect to the Accounts, deposits or other security for the
obligation of any Account debtor, and credit and other insurance, (iv) all of
Borrower's right, title and interest in, to and in respect of all goods relating
to, or which by sale have resulted in, Accounts, including, without limitation,
all goods described in invoices or other documents or instruments with respect
to, or otherwise representing or evidencing, any Account, and all returned,
reclaimed or repossessed goods, (v) in all deposit accounts, as such term is
defined in the UCC, (vi) all books, records, ledger cards, computer programs and
other property at any time evidencing or relating to the Accounts ("Records"),
(vii) all of Borrower's now owned or hereafter acquired inventory of every
description which is held by Borrower for sale or lease or is furnished by
Borrower under
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<PAGE>
any contract of service or is held by Borrower as raw materials, work in process
or materials used or consumed in a business, wherever located, and as the same
may now and hereafter from time to time be constituted, together with all cash
and non-cash proceeds and products thereof, (viii) all of Borrower's now owned
or hereafter acquired machinery, equipment, tools, tooling, furniture, fixtures,
goods, supplies, materials, work in process, whether now owned or hereafter
acquired, together with all additions, parts, fittings, accessories, special
tools, attachments, and accessions now and hereafter affixed thereto and/or used
in connection therewith, all replacements thereof and substitutions therefor,
and all cash and non-cash proceeds and products thereof, (ix) all of Borrower's
general intangibles (including, without limitation, any proceeds from insurance
policies after payment of prior interests), patents, unpatented inventions,
trade secrets, copyrights, all contracts and contract rights (including but not
limited to all rights under all management contracts), goodwill, literary
rights, rights to performance, rights under licenses, choses-in-action, claims,
information contained in computer media (such as data bases, source and object
codes, and information therein), things in action, trademarks and trademarks
applied for (together with the goodwill associated therewith) and derivatives
thereof, trade names, including the right to make, use, and vend goods utilizing
any of the foregoing, and permits, licenses, certifications, authorizations and
approvals, and the rights of Borrower thereunder, issued by any governmental,
regulatory, or private authority, agency, or entity whether now owned or
hereafter acquired, together with all cash and non-cash proceeds and products
thereof, and (x) all proceeds of the foregoing, in any form, including, without
limitation, any claims against third parties for loss or damage to or
destruction of any or all of the foregoing. Borrower shall, at Borrower's
expense, perform all acts and execute all documents requested by Lender at any
time to evidence, perfect, maintain and enforce Lender's security interest and
the priority thereof in the Collateral. Upon Lender's request, at any time and
from time to time, Borrower shall, at Borrower's sole cost and expense, execute
and deliver to Lender one or more financing statements (in form and substance
satisfactory to Lender) pursuant to the UCC and, where permitted by law,
Borrower hereby authorizes Lender to execute and file one or more financing
statements signed only by Lender. Notwithstanding anything to the contrary
contained in this Secured Term Note, Borrower and Lender agree that Lender is,
and shall be deemed to be, the "secured party" as that term is defined in the
UCC and elsewhere with respect to personal property.
b. In addition to all other rights, options, and remedies granted to Lender
under this Secured Term Note, upon the occurrence and continuation of an Event
of Default Lender may exercise all other rights granted to it hereunder and all
rights under the Uniform Commercial Code in effect in the applicable
jurisdiction(s) and under any other applicable law, and exercise the following
rights and remedies (which list is given by way of example and is not intended
to be an exhaustive list of all such rights and remedies):
(i) The right to take possession of, send notices regarding, and
collect directly the Collateral, with or without judicial process, and to
exercise all rights and remedies available to Lender with respect to the
Collateral under the Uniform Commercial Code in effect in the
jurisdiction(s) in which such Collateral is located;
5
<PAGE>
(ii) The right to (by its own means or with judicial assistance) enter
any of Borrower's premises and take possession of the Collateral, or render
it unusable, or dispose of the Collateral on such premises in compliance
with subsection c. below, without any liability for rent, storage,
utilities, or other sums, and Borrower shall not resist or interfere with
such action;
(iii) The right to require Borrower at Borrower's expense to assemble
all or any part of the Collateral and make it available to Lender at any
place designated by Lender; and
(iv) The right to relinquish or abandon any Collateral or any security
interest therein.
c. Borrower agrees that a notice received by it at least five (5) days
before the time of any intended public sale, or the time after which any private
sale or other disposition of the Collateral is to be made, shall be deemed to be
reasonable notice of such sale or other disposition. If permitted by applicable
law, any perishable Collateral which threatens to speedily decline in value or
which is sold on a recognized market may be sold immediately by Lender without
prior notice to Borrower. At any sale or disposition of Collateral, Lender may
(to the extent permitted by applicable law) purchase all or any part of the
Collateral, free from any right of redemption by Borrower, which right is hereby
waived and released. Borrower covenants and agrees not to interfere with or
impose any obstacle to Lender's exercise of its rights and remedies with respect
to the Collateral following an Event of Default.
d. Upon the occurrence and continuation of an Event of Default, Lender
shall have the right to proceed against all or any portion of the Collateral to
satisfy the liabilities and obligations of Borrower to Lender in any order. All
rights and remedies granted Lender hereunder and under any agreement referred to
herein, or otherwise available at law or in equity, shall be deemed concurrent
and cumulative, and not alternative remedies, and Lender may proceed with any
number of remedies at the same time until the Principal Sum, all interest,
costs, expenses and other charges due hereunder, and all other existing and
future liabilities and obligations of Borrower to Lender, are satisfied in full.
The exercise of any one right or remedy shall not be deemed a waiver or release
of any other right or remedy, and Lender, upon the occurrence and continuation
of an Event of Default, may proceed against Borrower, and/or the Collateral, at
any time, under any agreement, with any available remedy and in any order.
8. Use of Funds. Borrower covenants and agrees that the loan of the
Principal Sum or any portion thereof shall be used for working capital or other
commercial purposes of Borrower.
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9. Representations. Borrower hereby warrants and represents to Lender that:
a. This Secured Term Note constitutes a valid and binding obligation
of Borrower, enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and other
similar laws generally affecting credit rights or remedies.
b. The execution, delivery or performance of or under this Secured
Term Note will not violate or conflict with any law, rule, regulation,
order, judgment, indenture, instrument, or agreement by which Borrower or
Borrower's properties or assets are bound or affect, or conflict or be
inconsistent with, or result in any breach of, any of the terms, covenants
or provisions of, or constitute a default under, or result in the creation
or imposition of any lien, security interest, charge or other encumbrance
upon any of the properties or assets of Borrower, pursuant to the terms of
any indenture, mortgage, deed of trust, material agreement or other
material instrument to which Borrower is a party or by which Borrower's
properties or assets may be bound or to which they may be subject other
than a lien, security interest, charge or other encumbrance in favor of
Lender.
c. There are no actions, suits or other proceedings pending,
including, without limitation, any condemnation proceeding, or to the
knowledge of Borrower threatened, against or adversely affecting Borrower's
properties or assets or the validity or enforceability of this Secured Term
Note. Borrower is not in default with respect to any order, writ,
injunction, decree or demand of any court or governmental authority. There
is no litigation or proceeding, including, without limitation, any
condemnation proceeding, pending or, to the knowledge of Borrower,
threatened against or affecting Borrower's properties or assets, or any
circumstances existing which would in any manner materially adversely
affect Borrower's properties or assets, or the validity or ability of
Borrower to perform any obligations under this Secured Term Note.
d. The financial statements of Borrower previously delivered to Lender
fairly present in all material respects the financial condition of Borrower
as of the date thereof. No material adverse change in the financial
condition of Borrower has occurred since the date of such financial
statements of Borrower delivered to Lender.
e. Borrower is the sole owner of all right, title and interest in and
to all of the Collateral free and clear of any lien, security interest,
charge or encumbrance, other than such liens, security interests, charges
or other encumbrances in favor of Lender under any of the Loan Agreements
that are senior to the lien granted hereby with respect to overlapping
Collateral and any Permitted Liens (as defined in the Loan Agreement) and
Borrower has the full right, power, and authority to convey, transfer, and
grant the security title and security interest in the Collateral granted
herein to the Lender.
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10. Affirmative Covenants.
Borrower covenants and agrees that until this Secured Term Note shall be
repaid in full:
a. Borrower will furnish to Lender (i) an accounts receivable aging
schedule on a form reasonably acceptable to Lender within fifteen (15) days
after the end of each calendar month; (ii) payable aging schedules within
fifteen (15) days after the end of each calendar month; (iii) internally
prepared monthly financial statements for Borrower, certified by the chief
financial officer of Borrower, within forty-five (45) days of the end of
each calendar month, accompanied by management analysis and actual versus
budget variance reports; (iv) if and to the extent prepared by Borrower,
annual projected, profit and loss statements, balance sheets, and cash flow
reports (prepared on a monthly basis) for the succeeding fiscal year within
thirty (30) days before the end of each of Borrower's fiscal years; (v)
internally prepared annual financial statements for Borrower within sixty
(60) days after the end of each of Borrower's fiscal years; (vi) annual
audited financial statements for Borrower prepared by Ernst & Young, LLP,
or a firm of independent public accountants reasonably satisfactory to
Lender, within one hundred thirty-five (135) days after the end of each of
Borrower's fiscal years; (vii) promptly upon receipt thereof, copies of any
reports submitted to Borrower by independent accountants in connection with
any interim audit of the books of Borrower and copies of each management
control letter provided to Borrower by independent accountants; (viii) as
soon as available, copies of all financial statements and notices provided
by Borrower to all of its stockholders; and (ix) such additional
information, reports or statements as Lender may from time to time
reasonably request. Annual financial statements shall set forth in
comparative form figures for the corresponding periods in the prior fiscal
year. All financial statements shall include a balance sheet and statement
of earnings and shall be prepared in accordance with GAAP. All internally
prepared financial statements shall be preliminary, unaudited and subject
to year end adjustments.
b. During each calendar month beginning January 1, 1998 and continuing
while this Secured Term Note remains outstanding, Borrower's EBITDA (as
defined immediately below) shall equal or exceed 1.2 times the aggregate of
Borrower's interest and principal obligations under this Secured Term Note
with respect to such month, determined in accordance with GAAP and
calculated based on the financial statements delivered to Lender in
accordance with Section 10(a) above. For purposes of this Secured Term
Note, "EBITDA" shall mean, for any period, the net income or net loss of
Borrower, determined in accordance with GAAP, plus the sum of (i) interest
expense, arising under this Secured Term Note and any subordinated debt of
Borrower that is subordinated in writing to Borrower's obligations under
this Secured Term Note, but specifically excluding interest arising under
the Loan Agreements, which shall be deducted in calculating net income or
net loss, (ii) income tax expense, (iii) depreciation expense, and (iv)
amortization expense of Borrower, determined in each case in accordance
with GAAP.
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c. Borrower will make all payments of principal, interest, fees, and
all other payments required hereunder, under the Loan Agreements, and under
any other Loan Documents, as and when due. In furtherance of the foregoing,
Borrower covenants and agrees that Lender shall have the right to apply all
collections in Lender's Concentration Account pursuant to Section 2.3 of
any of the Loan Agreements to satisfy any accrued, unpaid obligations
arising under this Secured Term Note, but only after Borrower's Obligations
that have arisen under the applicable Loan Agreements have been satisfied
in full.
d. Borrower will do or cause to be done all things necessary (i) to
obtain and keep in full force and effect all material corporate existence,
rights, licenses, privileges, and franchises of Borrower necessary to the
ownership of its property or the conduct of its business, and comply in all
material respects with all applicable present and future laws, ordinances,
rules, regulations, orders and decrees of any Governmental Authority having
or claiming jurisdiction over Borrower; and (ii) to maintain and protect
the properties used or useful in the conduct of the operations of Borrower,
in a prudent manner, including without limitation the maintenance at all
times of such insurance upon its insurable property and operations as
required by law.
e. Borrower shall make sure that the making of the loan evidenced by
this Secured Term Note shall not be subject to any penalty or special tax
(other than withholding taxes), shall not be prohibited by any governmental
order or regulation applicable to Borrower, and shall not violate any rule
or regulation of any Governmental Authority, and necessary consents,
approvals and authorizations of any Governmental Authority to or of any
such disbursement or advance shall have been obtained.
f. Within forty-five (45) days following the date of this Secured Term
Note Borrower shall use its reasonable best efforts to obtain from each
Medical Group subject to the Loan Agreements (i) UCC-1 Financing Statements
evidencing the transfer by each such Medical Group to Borrower of all
right, title and interest in the Accounts being financed under the Loan
Agreements (with each being referred to herein as the "Transfer"), and (ii)
to the extent not previously obtained, a signed acknowledgment of such
Transfer for the direct benefit of Lender, that confirms both the Transfer
and Lender's first priority security interest in the Accounts pursuant to
the applicable Loan Agreement.
g. Borrower shall cause Naresh Nagpal, M.D., Delphi Ventures III,
L.P., Delphi BioInvestments III, L.P., Oak Investment Partners VI, L.P.,
and Oak VI Affiliates Fund, L.P. and any other potential investors to
purchase collectively at least $1,300,000 of Borrower's Preferred Stock at
any time during the period commencing on the date hereof and ending on
September 30, 1997, which proceeds will be used by Borrower to fund the
acquisition of medical practices.
h. Borrower will timely file all tax reports and pay and discharge all
taxes, assessments and governmental charges or levies imposed upon
Borrower, or its income or profits or upon its properties or any part
thereof, before the same shall be in default and prior to the date
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on which penalties attach thereto, as well as all lawful claims for labor,
material, supplies or otherwise which, if unpaid, would become a lien or
charge upon the properties or any part thereof of Borrower; provided,
however, that Borrower shall not be required to pay and discharge or cause
to be paid and discharged any such tax, assessment, charge, levy or claim
so long as the validity or amount thereof shall be contested in good faith
and by appropriate proceedings by Borrower, and Borrower shall have set
aside on their books adequate reserves therefor; and provided further, that
such deferment of payment is permissible only so long as Borrower's title
to, and its right to use, the Collateral is not materially adversely
affected thereby and Lender's lien and priority on the Collateral are not
materially adversely affected, altered or impaired thereby.
i. Borrower will carry adequate public liability and professional
liability insurance with responsible companies reasonably satisfactory to
Lender in such amounts and against such risks as is customarily maintained
by similar businesses and by owners of similar property in the same general
area.
j. Subject to Section 9.20 of the Loan Agreements, Borrower will
furnish to Lender such information as Lender may, from time to time,
reasonably request with respect to the business or financial affairs of
Borrower, and permit upon reasonable notice and only during business hours,
any officer, employee or agent of Lender to visit and inspect any of the
properties, to examine the minute books, books of account and other
records, including management letters prepared by Borrower's auditors, of
Borrower, and make copies thereof or extracts therefrom, and to discuss its
and their business affairs, finances and accounts with, and be advised as
to the same by, the accountants and officers of Borrower, all at such times
and as often as Lender may reasonably require provided that Lender shall
give Borrower reasonable opportunity to participate in any discussions with
Borrower's accountants.
k. Except as permitted by Section 11(c), Borrower will maintain, keep
and preserve all of its properties in good repair, working order and
condition and from time to time make all needful and proper repairs,
renewals, replacements, betterment and improvements thereto, so that the
business carried on in connection therewith may be properly and
advantageously conducted at all times.
l. Borrower promptly will notify Lender upon the occurrence of: (i)
any Event of Default; (ii) any event which, with the giving of notice or
lapse of time, or both, would constitute an Event of Default; (iii) any
event, development or circumstance whereby the financial statements
previously furnished to Lender fail in any material respect to present
fairly, in accordance with GAAP, the financial condition and operational
results of Borrower as of the date of such statements; (iv) any judicial,
administrative or arbitration proceeding pending against Borrower, and any
judicial or administrative proceeding known by Borrower to be threatened
against it which could reasonably be expected to materially adversely
affect its condition (financial or otherwise) or operations or to expose
Borrower to uninsured liability of $250,000.00 or more; (v) any default
claimed by any other creditor for Borrowed Money of
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Borrower other than Lender in respect of Borrowed Money in a principal
amount in excess of $250,000.00; and (vi) any other development in the
business or affairs of Borrower which would be materially adverse; in each
case describing the nature thereof and (in the case of notification under
clauses (i) and (ii)) the action Borrower proposes to take with respect
thereto.
m. Borrower will (i) comply with the funding requirements of ERISA
with respect to the Plans for its employees, or will promptly satisfy any
accumulated funding deficiency that arises under Section 302 of ERISA; (ii)
furnish Lender, promptly after filing the same, with copies of all reports
or other statements filed with the United States Department of Labor, the
Pension Benefit Guaranty Corporation, or the Internal Revenue Service with
respect to all Plans, or which Borrower, or any member of a Controlled
Group, may receive from such Governmental Authority with respect to any
such Plans, and (iii) promptly advise Lender of the occurrence of any
Reportable Event or Prohibited Transaction with respect to any such Plan
and the action which Borrower proposes to take with respect thereto.
Borrower will make all contributions when due with respect to any
multi-employer pension plan in which it participates and will promptly
advise Lender: (a) upon its receipt of notice of the assertion against
Borrower of a claim for withdrawal liability; (b) upon the occurrence of
any event which would trigger the assertion of a claim for withdrawal
liability against Borrower; and (c) upon the occurrence of any event that
would place Borrower in a Controlled Group as a result of which any member
(including Borrower) thereof may be subject to a claim for withdrawal
liability, whether liquidated or contingent.
n. Borrower shall provide to Lender evidence satisfactory to Lender as
to the due recording of termination statements, releases of collateral, and
Forms UCC-3, and shall cause to be recorded financing statements on Form
UCC-1, duly executed by Borrower and Lender, in all places necessary to
release all existing security interests and other liens in the Collateral
(other than as permitted hereby) and to perfect and protect Lender's lien
and security interest in the Collateral, as Lender may request.
o. Borrower shall keep current and accurate books of records and
accounts in which full and correct entries will be made of its business
transactions, and will reflect in its financial statements adequate
accruals and appropriations to reserves, all in accordance with GAAP.
p. Borrower shall continue to collect its Accounts in the ordinary
course of business.
q. Borrower shall give ten (10) days' prior written notice to Lender
of any change in the location of any of its places of business, of the
places where its records concerning its Accounts are kept, of the places
where the Collateral is kept, or of the establishment of any new, or the
discontinuance of any existing, places of business.
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r. Borrower shall continue in the business currently conducted by it.
Borrower shall not engage, directly or indirectly, in any line of business
substantially different from the business conducted by it immediately prior
to the date hereof, or engage in business or lines of business which are
not reasonably related thereto.
s. Borrower shall give prompt notice to Lender of any litigation,
arbitration, or other proceeding before any Governmental Authority against
or affecting Borrower if the amount claimed is more than $250,000.00.
t. Borrower will, on reasonable demand of Lender, but subject to
limitations under applicable law (including, without limitation, Federal
and state law regarding confidentiality of patient records and other
information) and contractual or other confidentiality obligations, make
available to Lender copies of shipping and delivery receipts evidencing the
shipment of goods that gave rise to an Account, medical records, insurance
verification forms, assignment of benefits, in-take forms or other proof of
the satisfactory performance of services that gave rise to an Account, a
copy of the claim or invoice for each Account and copies of any written
contract or order from which the Account arose. Borrower shall promptly
notify Lender if an Account becomes evidenced or secured by an instrument
or chattel paper and upon request of Lender, will promptly deliver any such
instrument or chattel paper to Lender.
u. Borrower shall cause each Medical Group under the applicable Loan
Agreements to maintain all provider numbers and licenses necessary to
ensure the validity of Qualified Accounts, and take any steps required to
comply with any such new or additional requirements that may be imposed on
providers of medical products and services. If required, all
Medicaid/Medicare cost reports will be properly filed by the applicable
Medical Group.
v. Together with the financial statements delivered pursuant to
Section 10(a) Borrower shall deliver to Lender a certificate of its chief
financial officer, in form and substance reasonably satisfactory to Lender
setting forth:
(i) The information required in order to establish whether
Borrower is in compliance with the requirements of Section 10(b) as of
the end of the period covered by the financial statements then being
furnished; and
(ii) That the signer has reviewed the relevant terms of this
Secured Term Note, and has made (or caused to be made under his
supervision) a review of the transactions and conditions of Borrower
from the beginning of the accounting period covered by the statements
being delivered and that such review has not disclosed the existence
during such period of any condition or event which constitutes an
Event of Default or which is then, or with the passage of time or
giving of notice or both, could become an Event of Default, and if any
such condition or event existed during such period or now exists,
specifying the nature and period of existence thereof and what action
Borrower has taken or proposes to take with respect thereto.
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w. Absent death or disability, Naresh Nagpal, M.D. and David Fater
shall serve without interruption as President and Chief Executive Officer,
and Chief Financial Officer, respectively, of Borrower.
11. Negative Covenants.
Borrower covenants and agrees that until this Secured Term Note shall be
repaid in full:
a. Borrower will not create, incur, assume or suffer to exist any
liability for Borrowed Money without Lender's prior written consent, which
consent shall not be unreasonably withheld. Notwithstanding the foregoing,
Borrower shall be permitted to incur the following: (i) indebtedness to
Lender; (ii) indebtedness of Borrower secured by mortgages, encumbrances or
liens expressly permitted or not prohibited by Section 7.3 of any Loan
Agreement; (iii) accounts payable to trade creditors and current operating
expenses which are not aged more than one hundred twenty (120) days from
the billing date or more than sixty (60) days from the due date, in each
case incurred in the ordinary course of business and paid within such time
period, unless the same are being contested in good faith and by
appropriate and lawful proceedings, and Borrower shall have set aside such
reserves, if any, with respect thereto as are required by GAAP and deemed
adequate by Borrower and its independent accountants; (iv) borrowing
incurred in the ordinary course of its business and not exceeding
$100,000.00 in the aggregate outstanding at any one time; (v) borrowed
money not to exceed $250,000.00 in the aggregate outstanding at any one
time incurred by Borrower or any subsidiary after the date hereof;
provided, that (x) such Indebtedness for Borrowed Money is incurred on
account of purchase money or finance lease arrangements of assets acquired
by Borrower or a Subsidiary after the Closing Date, (y) each such purchase
money or finance lease arrangement does not exceed the cost of the assets
acquired or leased; and (z) any Lien securing such purchase money or
finance lease arrangement does not extend to the Collateral or any assets
or property other than that purchased or leased; (vi) capital leases of
equipment not to exceed $100,000.00 of aggregate lease obligations in any
calendar year; (vii) indebtedness for Borrowed Money as set forth on
Schedule 7.1 of any Loan Agreement. If an Event of Default shall have
occurred and be continuing. Borrower will not make voluntary prepayments on
any existing or future indebtedness for Borrowed Money to any Person (other
than Lender, to the extent permitted by this Agreement or any subsequent
agreement between Borrower and Lender).
b. Borrower will not create, incur, assume or suffer to exist any
mortgage, pledge, lien or other encumbrance of any kind (including the
charge upon property purchased under a conditional sale or other title
retention agreement) upon, or any security interest in, any of its
Collateral, whether now owned or hereafter acquired, except for Permitted
Liens.
c. Borrower will not without Lender's prior written consent, which
shall not be unreasonably withheld, enter into any merger or consolidation
with or acquire all or substantially all of the assets of any Person, and
will not sell, lease, or otherwise dispose of any
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<PAGE>
of the assets except in the ordinary course of its business except for (i)
sales of assets not to exceed $50,000.00 in any calendar year; (ii) asset
purchases in the ordinary course of Borrower's business of
acquiring/managing medical practices (including without limitation
purchases of assets from medical practitioners for use in rendering
services under management service agreements with such practitioners); and
(iii) sales or dispositions of used or obsolete equipment no longer useful
in the business.
d. Borrower will not, directly or indirectly, enter into any
arrangement whereby Borrower sells or transfers all or any part of its
assets and thereupon and within one year thereafter rents or leases the
assets so sold or transferred without the prior written notice to, and the
express written consent of, Lender, which consent may be withheld in
Lender's sole discretion.
e. Borrower will not declare or pay any dividends or other
distributions with respect to, purchase, redeem or otherwise acquire for
value any of its outstanding stock now or hereafter outstanding, or return
any capital of its stockholders, nor shall Borrower pay or become obligated
to pay management fees or fees of a similar nature to any Person; provided,
however, that so long as Lender has not notified Borrower of the existence
of an Event Default hereunder, Borrower may make any such dividends or
other distributions or purchase, redeem or otherwise acquire for value such
outstanding stock, return any such capital, or pay any such management fees
or fees of a similar nature subject any other terms and conditions of this
Agreement.
f. Borrower will not make loans or advances to any Person, other than
(i) trade credit extended in the ordinary course of its business; (ii)
advances for business travel and similar temporary advances in the ordinary
course of business to officers, stockholders, directors, and employees; and
(iii) advances to physician groups under management services agreements.
g. Borrower will not assume, guarantee, endorse, contingently agree to
purchase or otherwise become liable upon the obligation of any Person,
except (i) by the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business; and
(ii) for Borrowed Money permitted to be incurred under Section 7.1 of any
Loan Agreement.
h. Borrower will not, without Lender's prior written consent, which
shall not be unreasonably withheld, form any subsidiary.
i. Borrower will not permit with respect to any Plan covered by Title
IV of ERISA any Prohibited Transaction or any Reportable Event.
j. Borrower will not enter into any transaction, including without
limitation the purchase, sale, or exchange of property, or the loaning or
giving of funds to any Affiliate or subsidiary, except in the ordinary
course of business and pursuant to the reasonable requirements of
Borrower's business and upon terms no less favorable to Borrower than it
would obtain in a
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comparable arm's length transaction with any Person not an Affiliate or
subsidiary, and so long as the transaction is not otherwise prohibited
hereunder. For purposes of the foregoing, Lender consents to the
transactions described on Schedule 7.12 of any Loan Agreement.
k. Borrower will not become or be a party to any contract or agreement
which would cause Borrower to breach this Secured Term Note.
l. Borrower will not carry or purchase any "margin security" within
the meaning of Regulations U, G, T or X of the Board of Governors of the
Federal Reserve System.
m. Borrower will not furnish to Lender any certificate or other
document that contains any untrue statement of a material fact or that
omits to state a material fact necessary to make it not misleading in light
of the circumstances under which it was furnished.
n. Borrower will not at any time allow its net worth, as computed in
accordance with GAAP, to fall below $5,000,000.00 (excluding the effect of
accelerated writeoffs of intangibles).
12. Events of Default. The following events are each an "Event of Default"
under this Secured Term Note:
a. Borrower fails to make any payment of principal when due or fails
to make any payment of interest, fees or other amounts owed to or for the
account of Lender hereunder and such interest, fees or other amounts remain
unpaid for five (5) days after written notice from Lender that such payment
is due; or
b. Borrower has made any representations or warranties in this Secured
Term Note, the Loan Documents, any financial statement delivered to Lender
or otherwise in connection herewith or therewith which contains any untrue
statement of a material fact or omits a material fact necessary to make the
statements contained herein or therein not misleading, which default shall
have continued unremedied for a period of ten (10) days after written
notice from Lender; or
c. Borrower shall fail to perform or observe, or cause to be performed
or observed, any other term, obligation, covenant, condition or agreement
contained in this Secured Term Note, and any such failure shall have
continued for a period of twenty (20) days after written notice thereof
from Lender; or
d. Borrower shall (i) apply for, or consent in writing to, the
appointment of a receiver, trustee or liquidator; or (ii) file a voluntary
petition seeking relief under the Bankruptcy Code, or be unable, or admit
in writing Borrower's inability, to pay their debts as they become due; or
(iii) make a general assignment for the benefit of creditors; or (iv) file
a petition or an answer seeking reorganization or an arrangement or a
readjustment of debt with creditors, apply
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for, take advantage, permit or suffer to exist the commencement of any
insolvency, bankruptcy, suspension of payments, reorganization, debt
arrangement, liquidation, dissolution or similar event, under the law of
the United States or of any state in which Borrower is a resident; or (v)
file an answer admitting the material allegations of a petition filed
against Borrower in any such bankruptcy, reorganization or insolvency case
or proceeding or (vi) take any action authorizing, or in furtherance of,
any of the foregoing; or
e. (i) an involuntary case is commenced against Borrower and the
petition is not controverted within ten (10) days or is not dismissed
within sixty (60) days after the commencement of the case or (ii) an order,
judgment or decree shall be entered by any court of competent jurisdiction
on the application of a creditor adjudicating Borrower bankrupt or
insolvent, or appointing a receiver, trustee or liquidation of Borrower or
of all or substantially all of the assets of Borrower and such order,
judgment or decree shall continue unstayed and in effect for a period sixty
(60) days or shall not be discharged within ten (10) days after the
expiration of any stay thereof;
f. Any obligation of Borrower for the payment of Borrowed Money in a
principal amount in excess of $250,000.00 is not paid when due or within
any applicable grace period, or such obligation becomes or is declared to
be due and payable prior to the expressed maturity thereof, or there shall
have occurred an event which, with the giving of notice or lapse of time,
or both, would cause any such obligation to become, or allow any such
obligation to be declared to be, due and payable;
g. One or more final judgments in excess of $250,000.00 against
Borrower or attachments against its property not fully and unconditionally
covered by insurance shall be rendered by a court of record and shall
remain unpaid, unstayed on appeal, undischarged, unbonded and undismissed
for a period of twenty (20) days;
h. An Event of Default occurs under any of the Loan Agreements or any
of the other Loan Documents;
i. Borrower ceases any material portion of its business operations as
presently conducted;
j. There shall occur a material adverse change in the financial
condition or business prospects of Borrower and its subsidiaries taken as a
whole, which default shall have continued unremedied for a period of ten
(10) days after written notice from Lender.
13. Lender's Rights.
a. Upon the occurrence of an Event of Default, Lender may, in addition to
the acceleration rights set forth in Section 6 herein, proceed, to the extent
permitted by law, to protect and enforce its rights either by suit in equity or
by action at law, or both, whether for the
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<PAGE>
specific performance of any covenant, condition or agreement contained in this
Secured Term Note or in aid of the exercise of any power granted in this Secured
Term Note, or proceed to enforce the payment of this Secured Term Note or to
enforce any other legal or equitable right of Lender. No right or remedy herein,
the other Loan Documents or in other agreement or instrument to the benefit of
Lender is intended to be exclusive of any other right or remedy, and each and
every such right or remedy shall be cumulative and shall be in addition to every
other right and remedy given hereunder or now or hereafter existing at law or in
equity or by statute or otherwise; provided, however that Lender shall not use
the Collateral hereunder or apply the proceeds thereof to any outstanding
obligation of the Borrower, except Borrower's obligation to pay Lender the
outstanding Principal Sum, interest accrued thereon and fees associated
therewith. Without limiting the generality of the foregoing, if the outstanding
Principal Sum, or any of the other obligations of Borrower to Lender shall not
be paid when due, Lender shall not be required to resort to any particular
security, right or remedy or to proceed in any particular order of priority, and
Lender shall have the right at any time and from time to time, in any manner and
in any order, to enforce its security interests with respect to the Collateral,
liens, rights and remedies, or any of them, as it deems appropriate in the
circumstances, and apply the proceeds of any collateral to such obligations of
Borrower as it determines in its sole discretion.
b. In the event that an Event of Default has occurred as provided herein
and Borrower has not paid the total outstanding principal, together with
interest accrued thereon upon demand by Lender, then Borrower shall pay to
Lender interest on such outstanding amounts at a rate per annum equal to the
Base Rate plus three percent (3%) from the date such outstanding amounts are due
until the date this Secured Term Note is paid in full. Borrower promises to pay
all costs of collection, including reasonable attorneys' fees, if this Secured
Term Note is referred to an attorney for collection after the Event of Default.
14. No Defenses. Borrower's obligations hereunder shall not be subject to
any set-off, counterclaim or defense to payment which Borrower now has.
15. No Waiver. No failure or delay on the part of Lender in exercising any
right, power or privilege under this Secured Term Note or the other Loan
Documents, nor any course of dealing between Borrower and Lender, shall operate
as a waiver thereof, nor shall a single or partial exercise thereof preclude any
other or further exercise or the exercise of any right, power or privilege.
16. Writing Required. No modification or waiver of any provisions of this
Secured Term Note or any other Loan Document, nor consent to any departure by
Borrower, shall in any event be effective, irrespective of any course of
dealing between the parties, unless the same shall be in a writing executed by
Lender and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice to or demand on Borrower
in any case shall thereby entitle Borrower to any other or further notice or
demand in the same, similar or other circumstances.
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17. Usury Limitation. Notwithstanding anything contained herein to the
contrary, Lender shall never be entitled to receive, collect or apply as
interest any amount in excess of the maximum rate of interest permitted to be
charged by applicable law; and in the event Lender receives, collects or applies
as interest any such excess, such amount which would be excessive interest shall
be applied to the reduction of the Principal Sum; and if the Principal Sum is
paid in full, any remaining excess shall be paid to Borrower. In determining
whether or not the interest paid or payable in any specific case exceeds the
highest lawful rate, Lender and Borrower shall to the maximum extent permitted
under applicable law (i) characterize any non-principal payment as an expense,
fee or premium rather than as interest; and (ii) "spread" the total amount of
interest throughout the entire term of the obligation so that the interest rate
is deemed to have been uniform throughout said entire term.
18. Notices. Any notice or demand given under this Secured Term Note shall
be given by delivering it, sending by telecopier (with a confirming copy by
regular mail), or by mailing it by certified or registered mail, postage
prepaid, return receipt requested, or sent by prepaid overnight courier service
addressed to Borrower at: Bone, Muscle & Joint, Inc., 4800 North Federal
Highway, Suite 104-D, Boca Raton, Florida 33431, Attention: David H. Fater,
Executive Vice President and Chief Financial Officer, Telephone: (561) 391-1311,
Telecopier: (561) 391-1389; with a copy to O'Sullivan Graev & Karabell, LLP, 30
Rockefeller Plaza, New York, New York 10012, Attention: Lawrence G. Graev,
Esquire, Telephone: (212) 408-2400, Telecopier: (212) 408-2420. Any notice to be
given to Lender under this Secured Term Note shall be given by delivering it,
sending by telecopier (with a confirming copy by regular mail), or mailing it by
certified or registered mail, return receipt requested, or sent by prepaid
overnight courier service, addressed to Lender at: 2 Wisconsin Circle, Suite
320, Chevy Chase, MD 20815 Attention: Ethan D. Leder, President, Telecopier:
(301) 664-9860, or at such other place as Lender may specify in writing to
Borrower. Each party may designate a change of address by notice to the other
given in accordance herewith at least fifteen (15) days before such change of
address is to become effective. A notice given under this Secured Term Note
shall be deemed received five (5) days after it is sent by regular mail, or upon
receipt when it is delivered or sent by telecopier according to the requirements
of this paragraph, or if sent by courier on the next Business Day following
deposit with the courier.
19. Section Headings. The headings of the several paragraphs of this
Secured Term Note are inserted solely for convenience of reference and are not a
part of and are not intended to govern, limit or aid in the construction of any
term or provision.
20. Severability. Any provision contained in this Secured Term Note which
is prohibited or unenforceable in any respect in any jurisdiction shall, as to
such jurisdiction be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
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21. Survival of Terms. All covenants, agreements, representations and
warranties made in this Secured Term Note or in any financial statements
delivered pursuant hereto shall survive Borrower's execution and delivery of
this Secured Term Note to Lender and shall continue in full force and effect so
long as this Secured Term Note or any other obligation hereunder shall be
outstanding and unpaid or any other obligation of Borrower hereunder shall
remain unperformed.
22. Choice of Law; Consent to Jurisdiction. THIS SECURED TERM NOTE SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
MARYLAND, WITHOUT REGARD TO ANY OTHERWISE APPLICABLE PRINCIPLES OF CONFLICTS OF
LAWS. IF ANY ACTION ARISING OUT OF THIS SECURED TERM NOTE IS COMMENCED BY LENDER
IN THE STATE OF MARYLAND OR FEDERAL COURT LOCATED IN THE STATE OF MARYLAND,
BORROWER AND LENDER HEREBY CONSENT TO THE JURISDICTION OF ANY SUCH COURT IN ANY
SUCH ACTION AND TO THE LAYING OF VENUE IN THE STATE OF MARYLAND. ANY PROCESS IN
ANY SUCH ACTION SHALL BE DULY SERVED IF MAILED BY REGISTERED MAIL, POSTAGE
PREPAID, TO THE BORROWER AT ITS ADDRESS DESCRIBED IN SECTION 18 HEREOF.
23. Waiver of Trial by Jury. EACH OF BORROWER AND LENDER HEREBY (A)
COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUES TRIABLE OF RIGHT
BY A JURY, AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT
ANY SUCH RIGHT SHALL NOW HEREAFTER EXIST. THIS WAIVER OF RIGHT TO TRIAL BY JURY
IS SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY, BY EACH OF BORROWER AND LENDER,
AND THIS WAIVER IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH
ISSUE AS TO WHICH THE RIGHT TO A JURY TRIAL WOULD OTHERWISE ACCRUE. EACH PARTY
IS HEREBY AUTHORIZED AND REQUESTED TO SUBMIT THIS AGREEMENT TO ANY COURT HAVING
JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES HERETO, SO AS TO SERVE AS
CONCLUSIVE EVIDENCE OF THE FOREGOING WAIVER OF THE RIGHT TO JURY TRIAL. FURTHER,
EACH OF BORROWER AND LENDER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF
THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY
WILL NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION.
24. Confession of Judgment. UPON AN EVENT OF DEFAULT, BORROWER AUTHORIZES
ANY ATTORNEY ADMITTED TO PRACTICE BEFORE ANY COURT OF RECORD IN THE UNITED
STATES OR THE CLERK OF SUCH COURT TO APPEAR ON BEHALF OF BORROWER IN ANY COURT
IN ONE OR
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MORE PROCEEDINGS, OR BEFORE ANY CLERK THEREOF OR PROTHONOTARY OR OTHER COURT
OFFICIAL, AND TO CONFESS JUDGMENT AGAINST BORROWER IN FAVOR OF LENDER IN THE
FULL AMOUNT DUE ON THIS SECURED TERM NOTE (INCLUDING PRINCIPAL, ACCRUED INTEREST
AND ANY AND ALL CHARGES, FEES AND COSTS) PLUS ATTORNEYS' FEES PLUS COURT COSTS,
ALL WITHOUT PRIOR NOTICE OR OPPORTUNITY OF BORROWER FOR PRIOR HEARING. BORROWER
AGREES AND CONSENTS THAT VENUE AND JURISDICTION SHALL BE PROPER IN THE CIRCUIT
COURT OF ANY COUNTY OF THE STATE OF MARYLAND OR OF BALTIMORE CITY, MARYLAND, OR
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND. BORROWER
WAIVES THE BENEFIT OF ANY AND EVERY STATUTE, ORDINANCE, OR RULE OF COURT WHICH
MAY BE LAWFULLY WAIVED CONFERRING UPON BORROWER ANY RIGHT OR PRIVILEGE OF
EXEMPTION, HOMESTEAD RIGHTS, STAY OF EXECUTION, OR SUPPLEMENTARY PROCEEDINGS, OR
OTHER RELIEF FROM THE ENFORCEMENT OR IMMEDIATE ENFORCEMENT OF A JUDGMENT OR
RELATED PROCEEDINGS ON A JUDGMENT. THE AUTHORITY AND POWER TO APPEAR FOR AND
ENTER JUDGMENT AGAINST BORROWER SHALL NOT BE EXHAUSTED BY ONE OR MORE EXERCISES
THEREOF, OR BY ANY IMPERFECT EXERCISE THEREOF, AND SHALL NOT BE EXTINGUISHED BY
ANY JUDGMENT ENTERED PURSUANT THERETO; SUCH AUTHORITY AND POWER MAY BE EXERCISED
ON ONE OR MORE OCCASIONS FROM TIME TO TIME, IN THE SAME OR DIFFERENT
JURISDICTIONS, AS OFTEN AS LENDER SHALL DEEM NECESSARY, CONVENIENT, OR PROPER.
25. Successors and Assigns. This Secured Term Note and the loan documents
executed in connection herewith shall be binding upon and inure to the benefit
of Borrower and Lender and their respective successors and assigns.
Notwithstanding the foregoing, Borrower may not assign any of its rights or
delegate any of its obligations hereunder without the prior written consent of
Lender, which may be withheld in its sole discretion. Lender may sell, assign,
transfer, or participate any or all of its rights or obligations hereunder
without notice to or consent of Borrower.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Secured Term Note as
of the day and year first above written.
ATTEST: BONE, MUSCLE & JOINT, INC.
(Seal) a Delaware corporation
______________________________ By: _______________________________
Name:
Title:
THE FOREGOING IS ACKNOWLEDGED AND AGREED ON THIS 30TH DAY OF JUNE, 1997:
HCFP FUNDING, INC.
By:__________________________
Name:
Title:
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SCHEDULES
Loan Agreement dated March 28, 1997 (SCOI)
Loan Agreement dated May 6, 1997 (STSC)
Loan Agreement dated June 4, 1997 (Tri-City)
Loan Agreement dated June 6, 1997 (LOS)
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SUBORDINATED LOAN AND SECURITY AGREEMENT
THIS AGREEMENT (the "Agreement"), dated as of August 1,1997, is entered
into by and between Bone, Muscle & Joint, Inc. a Delaware corporation, with its
chief executive office, and principal place of business located at 4800 North
Federal Highway, Suite 104-D, Boca Raton, FL 33431 (the "Borrower") and
Comdisco, Inc., a Delaware corporation, with its principal place of business
located at 6111 North River Road, Rosemont, Illinois 60018 (the "Lender" or
sometimes, "Comdisco"). In consideration of the mutual agreements contained
herein, the parties hereto agree as follows:
RECITALS
WHEREAS, Borrower has requested Lender to make available to Borrower a loan
in the aggregate principal amount of FIVE MILLION and 00/100 DOLLARS
($5,000,000) in each (as the same may from time to time be amended, modified,
supplemented or revised, the "Loan"), which would be evidenced by a Subordinated
Promissory Note executed by Borrower substantially in the form of Exhibit A
hereto (as the same may from time to time be amended, modified, supplemented or
restated the "Note").
WHEREAS, Lender is willing to make the Loan on the terms and conditions set
forth in this Agreement, and
WHEREAS, the Secured Obligations hereunder shall be expressly subordinated,
to the extent and in the manner set forth in the Subordination Agreement.
WHEREAS, Lender and Borrower agree any Loan hereunder shall be subordinate
to Senior Debt (as defined herein) to the extent set forth in the Subordination
Agreement (as defined herein).
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein, Borrower and Lender hereby agree as follows:
SECTION 1. DEFINITIONS
Unless otherwise defined herein, the following capitalized terms shall have
the following meanings (such meanings being equally applicable to both the
singular and plural form of the terms defined):
1.1 "Account" means any "account," as such term is defined in Section 9106
of the UCC, now owned or hereafter acquired by Borrower or in which Borrower now
holds or hereafter acquires any interest and, in any event, shall include,
without limitation, all accounts receivable, book debts and other forms of
obligations (other than forms of obligations evidenced by Chattel Paper,
Documents or Instruments) now owned or hereafter received or acquired by or
belonging or owing to Borrower (including, without limitation, under any trade
name, style or division thereof) whether arising out of goods sold or services
rendered by Borrower or from any other transaction, whether or not the same
involves the sale of goods or services by
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Subordinated Loan and Security Agreement
<PAGE>
Borrower (including, without limitation, any such obligation which may be
characterized as an account or contract right under the UCC) and all of
Borrower's rights in, to and under all purchase orders or receipts now owned or
hereafter acquired by it for goods or services, and all of Borrower's rights to
any goods represented by any of the foregoing (including, without limitation,
unpaid seller's rights of rescission, replevin, reclamation and stoppage in
transit and rights to returned, reclaimed or repossessed goods), and all monies
due or to become due to Borrower under all purchase orders and contracts for the
sale of goods or the performance of services or both by Borrower (whether or not
yet earned by performance on the part of Borrower or in connection with any
other transaction), now in existence or hereafter occurring, including, without
limitation, the right to receive the proceeds of said purchase orders and
contracts, and all collateral security and guarantees of any kind given by any
Person with respect to any of the foregoing.
1.2 "Account Debtor" means any "account debtor," as such term is defined in
Section 9105(1)(a) of the UCC.
1.3 "Chattel Paper" means any "chattel paper," as such term is defined in
Section 9105(1)(b) of the UCC, now owned or hereafter acquired by Borrower or
in which Borrower now holds or hereafter acquires any interest.
1.4 "Closing Date" means the date of funding of the Loan.
1.5 "Collateral" shall have the meaning assigned to such term in Section 3
of this Agreement.
1.6 "Contracts" means all contracts, undertakings, franchise agreements or
other agreements (other than rights evidenced by Chattel Paper, Documents or
Instruments) in or under which Borrower may now or hereafter have any right,
title or interest, including, without limitation, with respect to an Account,
any agreement relating to the terms of payment or the terms of performance
thereof.
1.7 "Copyrights" means all of the following now owned or hereafter acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest:
(i) all copyrights, whether registered or unregistered, held pursuant to the
laws of the United States, any State thereof or of any other country; (ii)
registrations, applications and recordings in the United States Copyright Office
or in any similar office or agency of the United States, any state thereof or
any other country; (iii) any continuations, renewals or extensions thereof; and
(iv) any registrations to be issued in any pending applications.
1.8 "Copyright License" means any written agreement granting any right to
use any Copyright or Copyright registration now owned or hereafter acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest.
1.9 "Documents" means any "documents," as such term is defined in Section
9105(1)(f) of the UCC, now owned or hereafter acquired by Borrower or in which
Borrower now holds or hereafter acquires any interest.
1.10 "Equipment" means any "equipment," as such term is defined in Section
9109(2) of the UCC, now or hereafter owned or acquired by Borrower or in which
Borrower now holds or
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Subordinated Loan and Security Agreement
<PAGE>
hereafter acquires any interest and any and all additions, substitutions and
replacements of any of the foregoing, wherever located, together with all
attachments, components, parts, equipment and accessories installed thereon or
affixed thereto.
1.11 "Excluded Agreements" means (i) any Warrant Agreement executed
hereunder, and any other warrants (including without limitation, the warrant
agreement dated as of August 1, 1997) to acquire, or agreements governing the
rights of the holders of, any equity security of Borrower, (ii) any stock of the
Borrower issued or purchased pursuant to the Warrant Agreement, and (iii) the
Master Lease Agreement dated as of August 1, 1997 between Borrower, as lessee,
and Lender, as lessor, including, without limitation, any Equipment Schedules
and Summary Equipment Schedules to the Master Lease Agreement executed or
delivered by Borrower pursuant thereto and any other modifications or amendments
thereof, whereby Borrower (as lessee) leases equipment, software, or goods from
Lender (as lessor) to Borrower (as lessee).
1.12 "Facility Fee" means one (1%) percent of the principal amount of the
Loan due at the Closing Date.
1.13 "Fixtures" means any "fixtures," as such term is defined in Section
9313(1)(a) of the UCC, now or hereafter owned or acquired by Borrower or in
which Borrower now holds or hereafter acquires any interest and, now or
hereafter attached or affixed to or constituting a part of, or located in or
upon, real property wherever located, together with all right, title and
interest of Borrower in and to all extensions, improvements, betterments,
renewals, substitutes, and replacements of, and all additions and appurtenances
to any of the foregoing property, and all conversions of the security
constituted thereby, immediately upon any acquisition or release thereof or any
such conversion, as the case may be.
1.14 "General Intangibles" means any "general intangibles," as such term is
defined in Section 9106 of the UCC, now owned or hereafter acquired by Borrower
or in which Borrower now holds or hereafter acquires any interest and, in any
event, shall include, without limitation, all right, title and interest which
Borrower may now or hereafter have in or under any contract, all customer lists,
Copyrights, Trademarks, Patents, rights to Intellectual Property, interests in
partnerships, joint ventures and other business associations, Licenses, permits,
trade secrets, proprietary or confidential information, inventions (whether or
not patented or patentable), technical information, procedures, designs,
knowledge, know-how, software, data bases, data, skill, expertise, recipes,
experience, processes, models, drawings, materials and records, goodwill
(including, without limitation, the goodwill associated with any Trademark,
Trademark registration or Trademark licensed under any Trademark License),
claims in or under insurance policies, including unearned premiums,
uncertificated securities, cash and other forms of money or currency, deposit
accounts (including as defined in Section 9105(e) of the UCC), rights to sue for
past, present and future infringement of Copyrights, Trademarks and Patents,
rights to receive tax refunds and other payments and rights of indemnification.
1.15 "Instruments" means any "instrument," as such term is defined in
Section 9105(1)(i) of the UCC, now owned or hereafter acquired by Borrower or in
which Borrower now holds or hereafter acquires any interest.
1.16 "Intellectual Property" means all Copyrights, Trademarks, Patents,
trade secrets, source codes, customer lists, proprietary or confidential
information, inventions (whether or not
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Subordinated Loan and Security Agreement
<PAGE>
patented or patentable), technical information, procedures, designs, knowledge.
know-how, software, data bases, skill, expertise, expenence, processes, models,
drawings, materials and records.
1.17 "Inventory" means any "inventory," as such term is defined in Section
9109(4) of the UCC, wherever located, now or hereafter owned or acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest, and,
in any event, shall include, without limitation, all inventory, goods and other
personal property which are held by or on behalf of Borrower for sale or lease
or are furnished or are to be furnished under a contract of service or which
constitute raw materials, work in process or materials used or consumed or to be
used or consumed in Borrower's business, or the processing, packaging,
promotion, delivery or shipping of the same, and all furnished goods whether or
not such inventory is listed on any schedules, assignments or reports furnished
to Lender from time to time and whether or not the same is in transit or in the
constructive, actual or exclusive occupancy or possession of Borrower or is held
by Borrower or by others for Borrower's account, including, without limitation,
all goods covered by purchase orders and contracts with suppliers and all goods
billed and held by suppliers and all inventory which may be located on premises
of Borrower or of any carriers, forwarding agents, truckers, warehousemen,
vendors, selling agents or other persons.
1.18 "License" means any Copyright License, Patent License, Trademark
License or other license of rights or interests now held or hereafter acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest
and any renewals or extensions thereof.
1.19 "Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment for security, security interest, encumbrance, levy, lien or charge of
any kind, whether voluntarily incurred or arising by operation of law or
otherwise, against any property, any conditional sale or other title retention
agreement, any lease in the nature of a security interest, and the filing of any
financing statement (other than a precautionary financing statement with respect
to a lease that is not in the nature of a security interest) under the UCC or
comparable law of any jurisdiction.
1.20 "Loan Documents" shall mean and include this Agreement, the Note, and
any other documents executed in connection with the Secured Obligations or the
transactions contemplated hereby, as the same may from time to time be amended,
modified, supplemented or restated, provided, that the Loan Documents shall not
include any of the Excluded Agreements.
1.21 "Material Adverse Effect" means a material adverse effect upon: (i)
the business, operations, properties, assets or conditions (financial or
otherwise) of Borrower or (ii) the ability of Borrower to perform, or of Lender
to enforce, the Secured Obligations.
1.22 "Maturity Date" means December 31, 2000.
1.23 "Patent License" means any written agreement granting any right with
respect to any invention on which a Patent is in existence now owned or
hereafter acquired by Borrower or in which Borrower now holds or hereafter
acquires any interest.
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Subordinated Loan and Security Agreement
<PAGE>
1.24 "Patents" means all of the following now owned or hereafter acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest:
(a) letters patent of, or rights corresponding thereto in, the United States or
any other county, all registrations and recordings thereof, and all applications
for letters patent of, or rights corresponding thereto in, the United States or
any other country, including, without limitation, registrations, recordings and
applications in the United States Patent and Trademark Office or in any similar
office or agency of the United States, any State thereof or any other country;
(b) all reissues, continuations, continuations-in-part or extensions thereof;
(c) all petty patents, divisionals, and patents of addition; and (d) all patents
to issue in any such applications.
1.25 "Permitted Liens" means any and all of the following: (i) liens in
favor of Lender, (ii) liens related to, or arising in connection with, Senior
Debt, or (iii) liens permitted under the Senior Loan Agreement.
1.26 "Proceeds" means "proceeds," as such term is defined in Section
9306(1) of the UCC and, in any event, shall include, without limitation, (a) any
and all Accounts, Chattel Paper, Instruments, cash or other forms of money or
currency or other proceeds payable to Borrower from time to time in respect of
the Collateral, (b) any and all proceeds of any insurance, indemnity, warranty
or guaranty payable to Borrower from time to time with respect to any of the
Collateral, (c) any and all payments (in any form whatsoever) made or due and
payable to Borrower from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental authority (or any Person acting under color of
governmental authority), (d) any claim of Borrower against third parties (i) for
past, present or future infringement of any Copyright, Patent or Patent License
or (ii) for past, present or future infringement or dilution of any Trademark or
Trademark License or for injury to the goodwill associated with any Trademark,
Trademark registration or Trademark licensed under any Trademark License and (e)
any and all other amounts from time to time paid or payable under or in
connection with any of the Collateral.
1.27 "Receivables" shall mean and include all of the Borrowers accounts,
instruments, documents, chattel paper and general intangibles whether secured or
unsecured, whether now existing or hereafter created or arising, and whether or
not specifically sold or assigned to Lender hereunder.
1.28 "Secured Obligations" shall mean and include all principal, interest,
fees, costs, or other liabilities or obligations for monetary amounts owed by
Borrower to Lender, whether due or to become due, matured or unmatured,
liquidated or unliquidated, contingent or non-contingent, and all covenants and
duties regarding such amounts, of any kind of nature, present or future, arising
under this Agreement, the Note, or any of the other Loan Documents, whether or
not evidenced by any Note, this Agreement or other instrument, as the same may
from time to time be amended, modified, supplemented or restated, provided, that
the Secured Obligations shall not include any indebtedness or obligations of
Borrower arising under or in connection with the Excluded Agreements.
1.29 "Senior Creditor" means a bank, insurance company, pension fund, or
other institutional lender to be determined, or a syndication of such
institutional lenders that provides Senior Debt financing to Borrower; provided,
that Senior Creditor shall not include any officer, director, shareholder,
venture capital investor, or insider of Borrower, or any affiliate of the
foregoing persons, except upon the express written consent of Lender.
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Subordinated Loan and Security Agreement
<PAGE>
1.30 "Senior Debt" means any and all indebtedness and obligations for
borrowed money (including, without limitation, principal, premium (if any),
interest, fees charges, expenses, costs, professional fees and expenses, and
reimbursement obligations) at any time owing by Borrower to Senior Creditor
under the Senior Loan Documents, including, but not limited to such amounts as
may accrue or be incurred before or after default or workout or the commencement
of any liquidation, dissolution, bankruptcy, receivership or reorganization by
or against Borrower.
1.31 "Senior Loan Documents" means the loan agreement between Borrower and
Senior Creditor and any other agreement, security agreement, document,
promissory note, UCC financing statement, or instrument executed by Borrower in
favor of Senior Creditor pursuant to or in connection with the Senior Debt or
the loan agreement, as the same may from time to time be amended, modified,
supplemented, extended, renewed, restated or replaced.
1.32 "Subordination Agreement" means the Subordination Agreement of even
date herewith, entered into between Borrower and Lender for the benefit of
Senior Creditor.
1.33 "Trademark License" means any written agreement granting any right to
use any Trademark or Trademark registration now owned or hereafter acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest.
1.34 "Trademarks" means any of the following now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest: (a) any and all trademarks, tradenames, corporate names, business
names, trade styles, service marks, logos, other source or business identifiers,
prints and labels on which any of the foregoing have appeared or appear, designs
and general intangibles of like nature, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and any applications in
connection therewith, including, without limitation, registrations, recordings
and applications in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State thereof or any other
country or any political subdivision thereof and (b) any reissues, extensions or
renewals thereof.
1.35 "UCC" shall mean the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of Illinois. Unless otherwise defined
herein, terms that are defined in the UCC and used herein shall have the
meanings given to them in the UCC.
1.36 "Warrant Agreement" shall mean the agreement entered into in
connection with the Loan, substantially in the form attached hereto as Exhibit I
pursuant to which Borrower granted Lender the right to purchase that number of
shares of Series E Preferred Stock of Borrower as more particularly set forth
therein.
SECTION 2. THE LOAN
2.1 Borrower shall pay interest on the Loan to Lender on the first day
of each month commencing with the first full month occurring after the date
hereof, until the earlier to occur of December 31, 1997 or consummation of the
IPO, at a rate equal to 14% per annum of the outstanding principal of the Loan;
provided, however, that if the IPO shall not have occurred on or prior to
December 31, 1997, Borrower shall pay interest as hereinafter provided. The
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Subordinated Loan and Security Agreement
<PAGE>
outstanding principal amount of the Loan, together with interest thereon
precomputed at the rate of 14% per annum shall be due and payable on the date
which is the earlier to occur of consummation of the IPO or the Maturity Date;
provided, however, that if the IP0 is not consummated on or prior to December
31, 1997, then the Loan shall be repaid commencing January 1, 1998 in 36 monthly
installments of principal and interest, with interest accruing on the unpaid
principal amount of the Loan at rate equal to 15%. If any payment under the Note
shall be payable on a day other than a business day, then such payment shall be
due and payable on the next succeeding business day.
2.2 Borrower shall have the option to prepay the Loan, without penalty or
premium, in whole or in part, as of any Payment Date after the Closing Date by
paying to Lender such principal amount being prepaid together with all accrued
and unpaid interest with respect to such principal amount, as of the date of
such prepayment.
2.3 Borrower shall within 45 days of the effective date of its Initial
Public Offering prepay the Loan, in whole, as of the next Payment Date by paying
to Lender such principal amount being prepaid together with all accrued and
unpaid interest with respect to such principal amount, as of the date of such
prepayment.
2.4 (a) Notwithstanding any provision in this Agreement, the Note, or any
other Loan Document, it is not the parties' intent to contract for, charge or
receive interest at a rate that is greater than the maximum rate permissible by
law which a court of competent jurisdiction shall deem applicable hereto (which
under the laws of the State of Illinois shall be deemed to be the laws relating
to permissible rates of interest on commercial loans) (the "Maximum Rate"). If
the Borrower actually pays Lender an amount of interest, chargeable on the total
aggregate principal Secured Obligations of Borrower under this Agreement and the
Note (as said rate is calculated over a period of time from the date of this
Agreement through the end of time that any principal is outstanding on the
Note), which amount of interest exceeds interest calculated at the Maximum Rate
on said principal chargeable over said period of time, then such excess interest
actually paid by Borrower shall be applied first, to the payment of principal
outstanding on the Note; second, after all principal is repaid, to the payment
of Lender's out of pocket costs, expenses, and professional fees which are owed
by Borrower to Lender under this Agreement or the Loan Documents; and third,
after all principal, costs, expenses, and professional fees owed by Borrower to
Lender are repaid, the excess (if any) shall be refunded to Borrower, and the
effective rate of interest will be automatically reduced to the Maximum Rate.
(b) In the event any interest is not paid when due hereunder, delinquent
interest shall be added to principal and shall bear interest on interest,
compounded at the rate set forth in Section 2.1.
(c) Upon and during the continuation of an Event of Default hereunder, all
Secured Obligations, including principal, interest, compounded interest, and
professional fees, shall bear interest at a rate per annum equal to the rate set
forth in Section 2.1. plus five percent (5%) per annum ("Default Rate").
SECTION 3. SECURITY INTEREST
As security for the prompt and complete payment in full when due (whether
at stated payment dates or otherwise) of all the Secured Obligations and in
order to induce Lender to
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make the Loan upon the terms and subject to the conditions of the Note, Borrower
hereby assigns, conveys, mortgages, pledges, hypothecates and transfers to
Lender for security purposes only, and hereby grants to Lender a second priority
security interest in, all of Borrower's right, title and interest in, to and
under each of the following (all of which being hereinafter collectively called
the "Collateral"):
(a) All Receivables;
(b) All Equipment;
(c) All Fixtures;
(d) All General Intangibles;
(e) All Inventory;
(f) All other goods and personal property of Borrower whether tangible or
intangible and whether now or hereafter owned or existing, leased,
consigned by or to, or acquired by, Borrower and wherever located; and
(g) To the extent not otherwise included, all Proceeds of each of the
foregoing and all accessions to, substitutions and replacements for,
and rents, profits and products of each of the foregoing.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BORROWER
The Borrower represents, warrants and agrees that;
4.1 Borrower owns all right title and interest in and to the Collateral,
free of all liens, security interests, encumbrances and claims whatsoever,
except for Permitted Liens.
4.2 Borrower has the full power and authority to, and does hereby grant and
convey to the Lender, a perfected second priority security interest in the
Collateral as security for the Secured Obligations, free of all liens, security
interests, encumbrances and claims, other than Permitted Liens, and shall
execute such Uniform Commercial Code financing statements in connection herewith
as the Lender may reasonably request. Except as set forth herein, no other lien,
security interest, adverse claim or encumbrance has been created by Borrower or
is known by Borrower to exist with respect to any Collateral.
4.3 Borrower is a corporation duly organized, legally existing and in good
standing under the laws of the State of Delaware, and is duly qualified as a
foreign corporation in all jurisdictions in which the nature of its business or
location of its properties require such qualifications and where the failure to
be qualified would have a Material Adverse Effect.
4.4 Borrower's execution, delivery and performance of the Note, this
Agreement, the execution and delivery of all financing statements, all other
Loan Documents required to be delivered or executed in connection herewith, and
the Excluded Agreements have been duly authorized by all necessary corporate
action of Borrower, the individual or individuals executing the Loan Documents
and the Excluded Agreements were duly authorized to do so; and the
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Loan Documents and the Excluded Agreements constitute legal, valid and binding
obligations of the Borrower, enforceable in accordance with their respective
terms, subject to applicable bankruptcy, insolvency, reorganization or other
similar laws generally affecting the enforcement of the rights of creditors.
4.5 This Agreement the other Loan Documents and the Excluded Agreements do
not violate any provisions of Borrower's Certificate of Incorporation, bylaws or
any contract, agreement, law, regulation, order, injunction, judgment, decree or
writ to which the Borrower is subject, or result in the creation or imposition
of any lien, security interest or other encumbrance upon the Collateral, other
than those created by this Agreement and Permitted Liens.
4.6 The execution, delivery and performance of this Agreement, the other
Loan Documents and the Excluded Agreements do not require the consent or
approval of any other person or entity including, without limitation, any
regulatory authority or governmental body of the United States or any state
thereof or any political subdivision of the United States or any state thereof
except for those already obtained.
4.7 No event which has had or could reasonably be expected to have a
Material Adverse Effect has occurred and is continuing.
4.8 No fact or condition exists that would (or would, with the passage of
time, the giving of notice, or both) constitute a default under the Loan
Agreement between Borrower and Senior Creditor.
4.9 Borrower has filed or has obtained extensions for the filing of all tax
returns, federal, state and local, which it is required to file and has duly
paid or fully reserved for all taxes or installments thereof (including any
interest or penalties) as and when due, which have or may become due pursuant to
such returns or pursuant to any assessment received by Borrower for the three
(3) years preceding the Closing Date, if any (including any taxes being
contested in good faith and by appropriate proceedings).
SECTION 5. INSURANCE
5.1 So long as there are any Secured Obligations outstanding, Borrower
shall cause to be carried and maintained adequate public liability and
professional liability insurance with responsible companies reasonably
satisfactory to Lender in such amounts and against such risks as is customarily
maintained by similar businesses and by owners of similar property in the same
general area.
5.2 Borrower shall and does hereby indemnify and hold Lender, its agents
and shareholders harmless from and against any and all claims, costs, expenses,
damages and liabilities (including, without limitation, such claims, costs,
expenses, damages and liabilities based on liability in tort, including without
limitation, strict liability in tort), including reasonable attorneys' fees,
arising out of the disposition or utilization of the Collateral, other than
claims arising at or caused by Lender's gross negligence or willful misconduct.
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Subordinated Loan and Security Agreement
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SECTION 6. COVENANTS OF BORROWER
Borrower covenants and agrees as follows at all times while any of the
Secured Obligations remain outstanding:
6.1 Borrower shall furnish to Lender the financial statements listed
hereinafter, each prepared in accordance with generally accepted accounting
principles consistently applied (the "Financial Statements"):
(a) as soon as practicable (and in any event within thirty (30) days)
after the end of each month, unaudited interim financial statements as of
the end of such month (prepared on a consolidated and consolidating basis,
if applicable), including balance sheet and related statements of income
and cash flows accompanied by a report detailing any material contingencies
(including the commencement of any material litigation by or against
Borrower) or any other occurrence that could reasonably be expected to have
a Material Adverse Effect, all certified by Borrower's Chief Executive
Officer or Chief Financial Officer to be true and correct;
(b) as soon as practicable (and in any event within ninety (90) days)
after the end of each fiscal year, unqualified audited financial statements
as of the end of such year (prepared on a consolidated and consolidating
basis, if applicable), including, balance sheet and related statements of
income and cash flows, and setting forth in comparative form the
corresponding figures for the preceding fiscal year, certified by a firm of
independent certified public accountants selected by Borrower and
reasonably acceptable to Lender, accompanied by any management report from
such accountants;
(c) promptly after the sending or filing thereof, as the case may be,
copies of any proxy statements, financial statements or reports which
Borrower has made available to its shareholders and copies of any regular,
periodic and special reports or registration statements which Borrower
files with the Securities and Exchange Commission or any governmental
authority which may be substituted therefor, or any national securities
exchange; and
(d) promptly, any additional information, financial or otherwise
(including, but not limited, to tax returns and names of principal
creditors) as Lender reasonably believes necessary to evaluate Borrower's
continuing ability to meet its financial obligations.
6.2 Borrower shall permit any authorized representative of Lender and its
attorneys and accountants on reasonable prior notice to inspect, examine and
make copies and abstracts of the books of account and records of Borrower,
including bank statements, at reasonable times during normal business hours. In
addition, such representative of Lender and its attorneys and accountants shall
have the right to meet with management and officers of the Company to discuss
such books of account and records.
6.3 Borrower will from time to time execute, deliver and file, alone
or with Lender, any financing statements, security agreements or other
documents; procure any instruments or documents as may be requested by Lender;
and take all further action that may be necessary
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<PAGE>
or desirable, or that Lender may request, to confirm, perfect, preserve and
protect the security interests intended to be granted hereby, and in addition,
and for such purposes only, Borrower hereby authorizes Lender to execute and
deliver on behalf of Borrower and to file such financing statements, security
agreement and other documents without the signature of Borrower either in
Lender's name or in the name of Borrower as agent and attorney-in-fact for
Borrower. The parties agree that a carbon, photographic or other reproduction of
this Agreement shall be sufficient as a financing statement and may be filed in
any appropriate office in lieu thereof.
6.4 Borrower shall protect and defend Borrower's title as well as the
interest of the Lender against all persons claiming any interest adverse to
Borrower or Lender and shall at all times keep the Collateral free and clear
from any legal process, liens or encumbrances whatsoever (except any placed
thereon by Lender and any Permitted Lien) and shall give Lender immediate
written notice thereof.
6.5 Borrower shall continue to collect its Accounts in the ordinary course
of business.
6.6 Borrower shall maintain and protect its properties, assets and
facilities, including without limitation, its Equipment and Fixtures, in good
order and working repair and condition (taking into consideration ordinary wear
and tear) and from time to time make or cause to be made all necessary and
proper repairs, renewals and replacements thereto and shall competently manage
and care for its property in accordance with past practices.
6.7 Borrower shall not merge with and into any other entity; or sell or
convey all or substantially all of its assets or stock to any other person or
entity without notifying Lender a minimum of thirty (30) days prior to the
closing date and requesting Lender's consent to the assignment of all of
Borrower's Secured Obligations hereunder to the successor entity in form and
substance satisfactory to Lender. In the event Lender does not consent to such
assignment the parties agree Borrower shall prepay the loan in accordance with
Section 2.2 hereof.
6.8 Borrower shall not, without the prior written consent of Lender, such
consent not to be unreasonably withheld, declare or pay any cash dividend or
make a distribution on any class of stock, other than pursuant to employee
repurchase plans upon an employee's death or termination of employment or
transfer, sell, lease, lend or in any other manner convey any equitable,
beneficial or legal interest in any material portion of the assets of Borrower
(except inventory sold in the normal course of business).
6.9 Upon the reasonable request of Lender, Borrower shall, during normal
business hours, make the Inventory and Equipment available to Lender for
inspection at the place where it is normally located and shall make Borrower's
log and maintenance records pertaining to the Inventory and Equipment available
to Lender for inspection. Borrower shall take all action necessary to maintain
such logs and maintenance records in a current and accurate fashion.
6.10 Borrower covenants and agrees to pay when due, all taxes, fees or
other charges of any nature whatsoever (together with any related interest or
penalties) now or hereafter imposed or assessed against Borrower, Lender or the
Collateral or upon Borrower's ownership, possession, use, operation or
disposition thereof or upon Borrower's rents, receipts
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Subordinated Loan and Security Agreement
<PAGE>
or earnings arising therefrom. Borrower shall file or request any extension on
or before the due date therefor all personal property tax returns in respect of
the Collateral. Notwithstanding the foregoing, Borrower may contest, in good
faith and by appropriate proceedings, taxes for which Borrower maintains
adequate reserves therefor.
6.11 Borrower shall not relocate any item of the Collateral unless such
relocation shall be within the continental United States and Borrower shall
first (a) cause to be filed and/or delivered to the Lender all Uniform
Commercial Code financing statements, certificates or other documents or
instruments necessary to continue in effect the perfected security interest of
the Lender in the Collateral, and (b) have given the Lender no less than ten
(10) days prior written notice of such relocation.
SECTION 7. CONDITIONS PRECEDENT TO LOAN
The obligation of Lender to fund the Loan on the Closing Date shall be
subject to Borrower's request, and Lender's satisfactory completion of its due
diligence and approval process, and satisfaction by Borrower or waiver by
Lender, in Lender's sole discretion, of the following conditions:
7.1 The Closing Date shall occur on or before December 31, 1997.
7.2 Borrower shall have achieved seventy-five (75%) percent or more of its
cumulative revenue and cumulative income projections dated July 25, 1997 in the
prior six (6) months.
7.3 Document Delivery. Borrower, on or prior to the Closing Date, shall
have delivered to Lender the following:
(a) executed originals of the Note, and all other Loan Documents, and
the Warrant Agreement, including any documents reasonably required by
Lender to effectuate the liens of Lender, with respect to all Collateral;
(b) certified copy of resolutions of Borrower's board of directors
evidencing approval of the borrowing and other transactions evidenced by
the Loan Documents and the Warrant Agreement;
(c) certified copies of the Certificate of Incorporation and the
Bylaws, as amended through the Closing Date, of Borrower
(d) certificate of good standing for Borrower from its state of
incorporation and similar certificates from all other jurisdictions in
which it does business and where the failure to be qualified would have a
Material Adverse Effect;
(e) payment of the Facility Fee;
(f) Borrower's written instructions to Lender regarding the manner of
disbursement of the Loan, which must be reasonably satisfactory to Lender;
and
(g) such other documents as Lender may reasonably request.
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Subordinated Loan and Security Agreement
<PAGE>
7.4 Perfection of Security Interests. Borrower shall have taken or caused
to be taken such actions requested by Lender to grant Lender a second priority
perfected security interest in the Collateral, subject only to Permitted Liens.
Such actions shall include, without limitation, the delivery to Lender of all
appropriate financing statements, executed by Borrower, as to the Collateral
granted by Borrower for all jurisdictions as may be necessary or desirable to
perfect the security interest of Lender in such Collateral.
7.5 Absence of Events of Defaults. As of the Closing Date, no fact or
condition exists that would (or would, with the passage of time, the giving of
notice, or both) constitute an Event of Default under this Agreement or any of
the Loan Documents and no fact or condition exists that would (or would, with
the passage of time, the giving of notice, or both) constitute a default under
the Senior Loan Documents between Borrower and Senior Creditor.
7.6 Material Adverse Effect. As of the Closing Date, no event which has had
or could reasonably be expected to have a Material Adverse Effect has occurred
and is continuing.
SECTION 8. DEFAULT
The occurrence of any one or more of the following events (herein called
"Events of Default") shall constitute a default hereunder and under the Note and
other Loan Documents:
8.1 Borrower defaults in the payment of any principal, interest or other
Secured Obligation involving the payment of money under this Agreement, the Note
or any of the other Loan Documents, and such default continues for more than
five (5) days after the due date thereof; or
8.2 Borrower defaults in the performance of any other covenant or Secured
Obligation of Borrower hereunder or under the Note or any of the other Loan
Documents, and such default continues for more than twenty (20) days after
Lender has given notice of such default to Borrower.
8.3 Any representation or warranty when made herein by Borrower shall
prove to have been false or misleading in any material respect, which default
shall have continued unremedied for a period of ten (10) days after written
notice from Lender or
8.4 Borrower shall make an assignment for the benefit of creditors, or
shall admit in writing its inability to pay its debts as they become due, or
shall file a voluntary petition in bankruptcy, or shall file any petition or
answer seeking for itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation pertinent to such circumstances, or shall seek
or consent to or acquiesce in the appointment of any trustee, receiver, or
liquidator of Borrower or of all or any substantial part (33-1/3% or more) of
the properties of Borrower, or Borrower or its directors or majority
shareholders shall take any action initiating the dissolution or liquidation of
Borrower; or
8.5 Sixty (60) days shall have expired after the commencement of an action
by or against Borrower seeking reorganization, arrangement, composition,
readjustment, liquidation,
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<PAGE>
dissolution or similar relief under any present or future statute, law or
regulation, without such action being dismissed or all orders or proceedings
thereunder affecting the operations or the business of Borrower being stayed; or
a stay of any such order or proceedings shall thereafter be set aside and the
action setting it aside shall not be timely appealed; or Borrower shall file any
answer admitting or not contesting the material allegations of a petition filed
against Borrower in any such proceedings; or the court in which such proceedings
are pending shall enter a decree or order granting the relief sought in any such
proceedings; or
8.6 Sixty (60) days shall have expired after the appointment, without the
consent or acquiescence of Borrower, of any trustee, receiver or liquidator of
Borrower or of all or any substantial part of the properties of Borrower without
such appointment being vacated; or
8.7 The default by Borrower under any Loan Documents, any other promissory
note or agreement evidencing indebtedness for borrowed money, or the Master
Lease Agreement and any Equipment Schedules executed thereunder between Borrower
and Lender; or
8.8 If any obligation of Borrower (other than the Secured Obligations)
involving an amount in excess of $100,000.00 is not paid when due or within any
applicable grace period, or such obligation becomes or is declared to be due and
payable prior to the expressed maturity thereof, or there shall have occurred an
event which, with the giving of notice of lapse of time, or both, would cause
any such obligation to become, or allow any such obligation to be declared to
be, due and payable or the entry of any judgment against Borrower involving an
award in excess of $100,000.00 that would have a Material Adverse Effect, that
has not been bonded or stayed on appeal within thirty (30) days; or
8.9 The occurrence of any material default under the Senior Loan Documents;
or
8.10 The occurrence of any material default under the Excluded Agreements.
SECTION 9. REMEDIES
Upon the occurrence of any one or more Events of Default, Lender, at its
option, may declare the Note and all of the other Secured Obligations to be
accelerated and immediately due and payable (provided, that upon the occurrence
of an Event of Default of the type described in Subsections 8.4 or 8.5, the Note
and all of the other Secured Obligations shall automatically be accelerated and
made due and payable without any further act), whereupon the unpaid principal of
and accrued interest on such Note and all other outstanding Secured Obligations
shall become immediately due and payable, and shall thereafter bear interest at
the Default Rate set forth in, and calculated according to, Section 2.4 (c) of
this Agreement. Subject to the terms of the Subordination Agreement, Lender may
exercise all rights and remedies with respect to the Collateral under the Loan
Documents or otherwise available to it under applicable law, including the right
to release, hold or otherwise dispose of all or any part of the Collateral and
the right to occupy, utilize, process and commingle the Collateral.
Upon the happening and during the continuance of any Event of Default,
Lender may then, or at any time thereafter and from time to time, apply,
collect, sell in one or more sales, lease or otherwise dispose of, any or all of
the Collateral, in its then condition or following any commercially reasonable
preparation or processing, in such order as Lender may elect, and any such sale
may be made either at public or private sale at its place of business or
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Subordinated Loan and Security Agreement
<PAGE>
elsewhere. Borrower agrees that any such public or private sale may occur upon
five (5) calendar days' prior written notice to Borrower. Lender may require
Borrower to assemble the Collateral and make it available to Lender at a place
designated by Lender which is reasonably convenient to Lender and Borrower. The
proceeds of any sale, disposition or other realization upon all or any part of
the Collateral shall be distributed by Lender in the following order of
priorities:
First, to Lender in an amount sufficient to pay in full Lender's costs and
professionals' and advisors' fees and expenses;
Second, to Lender in an amount equal to the then unpaid amount of the
Secured Obligations in such order and priority as Lender may choose in its sole
discretion; and
Finally, upon payment in full of all of the Secured Obligations, to
Borrower or its representatives or as a court of competent jurisdiction may
direct.
Lender shall be deemed to have acted reasonably in the custody,
preservation and disposition of any of the Collateral if it complies with the
obligations of a secured party under Section 9207 of the UCC.
Lender's rights and remedies hereunder are subject to the terms of the
Subordinated Agreement.
SECTION 10. MISCELLANEOUS
10.1 Continuation of Security Interest. This is a continuing Agreement and
the grant of a security interest hereunder shall remain in full force and effect
and all the rights, powers and remedies of Lender hereunder shall continue to
exist until the Secured Obligations are paid in full as the same become due and
payable at which time Lender has executed a written termination statement (which
Lender shall execute within a reasonable time after full payment of the Secured
Obligations hereunder), reassigning to Borrower, without recourse, the
Collateral and all rights conveyed hereby and returning possession of the
Collateral to Borrower. The rights, powers and remedies of Lender hereunder
shall be in addition to all rights, powers and remedies given by statute or rule
of law and are cumulative. The exercise of any one or more of the rights, powers
and remedies provided herein shall not be construed as a waiver of or election
of remedies with respect to any other rights, powers and remedies of Lender.
10.2 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under such law, such provision shall be ineffective only to the extent
and duration of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
10.3 Notice. Except as otherwise provided herein, all notices and service
of process required, contemplated, or permitted hereunder or with respect to the
subject matter hereof shall be in writing, and shall be deemed to have been
validly served, given or delivered upon the earlier of: (i) the first business
day after transmission by facsimile or hand delivery or deposit with an
overnight express service or overnight mail delivery service; or (ii) the third
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Subordinated Loan and Security Agreement
<PAGE>
calendar day after deposit in the United States- mails, with proper first class
postage prepaid, and shall be addressed to the party to be notified as follows:
(a) If to Lender:
COMDISCO, INC.
Legal Department
Attention: General Counsel
6111 North River Road
Rosemont, IL 60018
Facsimile: (847) 518-5088
With a copy to:
COMDISCO, INC./COMDISCO VENTURES
6111 North River Road
Rosemont, IL 60018
Facsimile: (847) 518-5485
(b) If to Borrower:
BONE, MUSCLE & JOINT, INC.
Attention: David H. Fater
4800 North Federal Highway, Suite 104-D
Boca Raton, FL 33431
Facsimile: (561) 391-1389
Phone: (581) 391-1311
With a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza, 41st Floor
New York, New York 10112
Attention: Lawrence G. Graev, Esq.
Telephone: (212) 408-2400
Telecopier: (212) 408-2420
or to such other address as each party may designate for itself by like notice.
10.4 Entire Agreement; Amendments. This Agreement, the Note, and the other
Loan Documents, and the Excluded Agreements constitute the entire agreement and
understanding of the parties hereto in respect of the subject matter hereof and
thereof, and supersede and replace in their entirety any prior proposals, term
sheets, letters, negotiations or other documents or agreements, whether written
or oral, with respect to the subject matter hereof or thereof (including,
without limitation, Lender's proposal letter dated July 1, 1997, all of which
are merged herein and therein. None of the terms of this Agreement, the Note,
any of the other Loan Documents or Excluded Agreements may be amended except by
an instrument executed by each of the parties hereto.
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10.5 Headings. The various headings in this Agreement are inserted for
convenience only and shall not affect the meaning or interpretation of this
Agreement or any provisions hereof.
10.6 No Waiver. The powers conferred upon Lender by this Agreement are
solely to protect its interest in the Collateral and shall not impose any duty
upon Lender to exercise any such powers. No omission, or delay, by Lender at any
time to enforce any right or remedy reserved to it, or to require performance of
any of the terms, covenants or provisions hereof by Borrower at any time
designated, shall be a waiver of any such right or remedy to which Lender is
entitled, nor shall it in any way affect the right of Lender to enforce such
provisions thereafter.
10.7 Survival. All agreements, representations and warranties contained in
this Agreement, the Note, the other Loan Documents and the Excluded Agreements
or in any document delivered pursuant hereto or thereto shall be for the benefit
of Lender and shall survive the execution and delivery of this Agreement and the
expiration or other termination of this Agreement.
10.8 Successor and Assigns. The provisions of this Agreement, the other
Loan Documents and the Excluded Agreements shall inure to the benefit of and be
binding on Borrower and its permitted assigns (if any). Borrower shall not
assign its obligations under this Agreement, the Note, any of the other Loan
Documents or the Excluded Agreements, without Lender's express written consent,
and any such attempted assignment shall be void and of no effect. Lender may
assign, transfer, or endorse its rights hereunder and under the other Loan
Documents or Excluded Agreements without prior notice to Borrower, and all of
such rights shall inure to the benefit of Lender's successors and assigns.
10.9 Further Indemnification. Borrower agrees to pay, and to save Lender
harmless from, any and all liabilities with respect to, or resulting from any
delay in paying, any and all excise, sales or other similar taxes which may be
payable or determined to be payable with respect to any of the Collateral or in
connection with any of the transactions contemplated by this Agreement other
than any income taxes of Lender.
10.10 Governing Law. This Agreement, the Note, the other Loan Documents and
the Excluded Agreements have been negotiated and delivered to Lender in the
State of Illinois, and shall not become effective until accepted by Lender in
the State of Illinois. Payment to Lender by Borrower of the Secured Obligations
is due in the State of Illinois. This Agreement, the Note, the other Loan
Documents and the Excluded Agreements shall be governed by, and construed and
enforced in accordance with, the laws of the State of Illinois, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
10.11 Consent To Jurisdiction And Venue. All judicial proceedings arising
in or under or related to this Agreement, the Note, any of the other Loan
Documents or Excluded Agreements may be brought in any state or federal court of
competent jurisdiction located in the State of Illinois. By execution and
delivery of this Agreement, each party hereto generally and unconditionally: (a)
consents to personal jurisdiction in Cook County, State of Illinois; (b) waives
any objection as to jurisdiction or venue in Cook County, State of Illinois; (c)
agrees not to assert any defense based on lack of jurisdiction or venue in the
aforesaid courts; and (d) irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Agreement, the Note, the other Loan
Documents or Excluded Agreements.
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on any party hereto in any action arising out of or relating to this agreement
shall be effective if given in accordance with the requirements for notice set
forth in Subsection 10.3, above and shall be deemed effective and received as
set forth in Subsection 10.3, above. Nothing herein shall affect the right to
serve process in any other manner permitted by law or shall limit the right of
either party to bring proceedings in the courts of any other jurisdiction.
10.12 Mutual Waiver Of Jury Trial. Because disputes arising in connection
with complex financial transactions are most quickly and economically resolved
by an experienced and expert person and the parties wish applicable state and
federal laws to apply (rather than arbitration rules), the parties desire that
their disputes be resolved by a judge applying such applicable laws. EACH OF
BORROWER AND LENDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY
OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR
ANY OTHER CLAIM (COLLECTIVELY, "CLAIMS") ASSERTED BY BORROWER AGAINST LENDER OR
ITS ASSIGNEE AND/OR BY LENDER OR ITS ASSIGNEE AGAINST BORROWER. This waiver
extends to all such Claims, including, without limitation, Claims which involve
persons or entities other than Borrower and Lender; Claims which arise out of or
are in any way connected to the relationship between Borrower and Lender and any
Claims for damages, breach of contract arising out of this Agreement, any other
Loan Document or any of the Excluded Agreements, specific performance, or any
equitable or legal relief of any kind.
10.13 Confidentiality. Lender acknowledges that certain items of
Collateral, including, but not limited to trade secrets, source codes, customer
lists and certain other items of Intellectual Property, and any Financial
Statements provided pursuant to Section 8 hereof or the information provided to
it by Borrower, constitute proprietary and confidential information of the
Borrower (the "Confidential Information"). Accordingly, Lender agrees that any
Confidential Information it may obtain in the course of acquiring, perfecting or
foreclosing on the Collateral or otherwise provided under this Agreement,
provided such Confidential Information is marked as confidential by Borrower at
the time of disclosure, shall be received in the strictest confidence and will
not be disclosed to any other person or entity in any manner whatsoever, in
whole or in part, without the prior written consent of the Borrower, unless and
until Lender has acquired indefeasible title thereto.
10.14 Counterparts. This Agreement and any amendments, waivers, consents or
supplements hereto may be executed in any number of counterparts, and by
different parties hereto in separate counterparts, each of which when so
delivered shall be deemed an original, but all of which counterparts shall
constitute but one and the same instrument.
18
Subordinated Loan and Security Agreement
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Lender have duly executed and
delivered this Agreement as of the day and year first above written.
BORROWER: BONE, MUSCLE & JOINT, INC.
Signature: /s/ David H. Fater
---------------------------
Print Name:
---------------------------
Title: ---------------------------
Accepted In Rosemont, Illinois:
LENDER: COMDISCO, INC.
Signature:
---------------------------
Print Name:
---------------------------
Title: ---------------------------
Subordinated Loan and Security Agreement
<PAGE>
EXHIBIT A
SUBORDINATED PROMISSORY NOTE
$5,000,000.00 Date: August 5, 1997
Due: December 31, 2000
For value received, Bone, Muscle & Joint, Inc., a Delaware corporation, (the
"Borrower") hereby promises to pay to the order of Comdisco, Inc., a Delaware
corporation (the "Lender") at P.O. Box 91744, Chicago, IL 60693 or such other
place of payment as the holder of this Subordinated Promissory Note (this
"Note") may specify from time to time in writing, in lawful money of the United
States of America, the principal amount of Five Million and 00/100 Dollars
($5,000,000.00) together with interest at the rate per annum provided in the
Loan Agreement (as defined below), from the date of this Note to maturity of
each installment on the principal hereof remaining from time to time unpaid,
such principal and interest to be paid in 4 equal monthly installments of
interest only in the amount of $__________ each, commencing September 1, 1997
and on the same day of each month thereafter to and including December 1,1997,
followed by thirty-six (36) equal monthly installments of principal and
interest in the amount of $___________ each, such installments to be applied
first to accrued and unpaid interest and the balance to unpaid principal.
Interest shall be computed on the basis of a year consisting of twelve months of
thirty days each.
This Note is the promissory note referred to in, and is executed and delivered
in connection with, that certain Subordinated Loan and Security Agreement dated
as of August 1, 1997 by and between Borrower and Lender (as the same may from
time to time be amended, modified or supplemented in accordance with its terms,
the "Loan Agreement"), and is entitled to the benefit and security of the Loan
Agreement and the other Loan Documents (as defined in the Loan Agreement), to
which reference is made for a statement of all of the terms and conditions
thereof. All terms defined in the Loan Agreement shall have the same definitions
when used herein, unless otherwise defined herein.
THIS NOTE IS EXPRESSLY SUBJECT TO THE TERMS OF THAT CERTAIN SUBORDINATION
AGREEMENT BY AND BETWEEN LENDER AND BORROWER FOR THE BENEFIT OF SENIOR CREDITOR.
IN THE EVENT OF ANY CONTRADICTION OR INCONSISTENCY BETWEEN THIS NOTE AND THE
SUBORDINATION AGREEMENT, THE TERMS OF THE SUBORDINATION AGREEMENT SHALL CONTROL.
The Borrower waives presentment and demand for payment, notice of and notice of
protest and any other notice as permitted under the UCC law.
<PAGE>
This Note has been negotiated and delivered to Lender and is payable in the
State of Illinois, and shall not become effective until accepted by Lender in
the State of Illinois. This Note shall be governed by and construed and enforced
in accordance with, the laws of the State of Illinois, excluding any conflicts
of law rules or principles that would cause the application of the laws of any
other jurisdiction.
BORROWER: BONE, MUSCLE & JOINT, INC.
Signature:
---------------------------
Print Name:
---------------------------
Title: ---------------------------
Accepted In Rosemont, Illinois:
LENDER: COMDISCO, INC.
Signature:
---------------------------
Print Name:
---------------------------
Title: ---------------------------
<PAGE>
MASTER LEASE AGREEMENT
MASTER LEASE AGREEMENT. The Master Lease dated August 1, 1997 by and between
COMDISCO INC Lessor and BONE MUSCLE & JOINT INC Lessee. IN CONSIDERATION of the
mutual agreements described below, the parties agree as follows (all capitalized
terms are defined in Section 14.18):
1. Property Leased.
Lessor leases to Lessee all of the Equipment described on each Summary Equipment
Schedule. In the event of a conflict, the terms of the applicable Schedule
prevail over its Master Lease.
2. Term.
On the Commencement Date, Lessee will be deemed to accept the Equipment, will be
bound to its rental obligations for each item of Equipment and the term of a
Summary Equipment Schedule will begin and continue through the initial Term and
thereafter until terminated by either party upon prior written notice received
during the Notice Period. No termination may be effective prior to the
expiration of the Initial Term.
3. Rent and Payment.
Rent is due and payable in advance on the first day of each Rent interval at the
address specified in Lessor's invoice. Interim Rent is due and payable when
invoiced. If any payment is not made when due, Lessee will pay a Late Charge on
the overdue amount. Upon Lessee's execution of each Schedule, Lessee will pay
Lessor the Advance Specified on the Schedule. The Advance will be credited
towards the final Rent payment if Lessee is not then in default. No interest
will be paid on the Advance.
4. Selection; Warranty and Disclaimer of Warranties.
4.1 Selection. Lessee acknowledges that it has selected the Equipment and
disclaims any reliance upon statements made by the Lessor, other than as set
forth in the Schedule.
4.2 Warranty and Disclaimer of Warranties. Lessor warrants to Lessee that so
long as Lessee is not in default, Lessor will not disturb Lessee's quiet and
peaceful possession, and unrestricted use of the Equipment. To the extent
permitted by the manufacturer, Lessor assigns to Lessee during the term of the
Summary Equipment Schedule any manufacture's warranties for the Equipment.
LESSOR MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER,
INCLUDING, WITHOUT LIMITATION. THE MERCHANTABILITY OF THE EQUIPMENT OR ITS
FITNESS FOR A PARTICULAR PURPOSE. Lessor is not responsible for any liability,
claim, loss, damage or expense of any kind (including strict liability in tort)
caused by the Equipment except for any loss or damage caused by the willful
misconduct or negligent acts of Lessor. In no event is Lessor responsible for
special, incidental or consequential damages.
5. Title; Relocation or Sublease; and Assignment.
5.1 Title. Lessee holds the Equipment subject and subordinate to the rights of
the Owner, Lessor, any Assignee and any Secured Party. Lessee authorizes Lessor,
as Lessee's agent, and at Lessor's expense, to prepare, execute and file in
Lessee's name precautionary Uniform Commercial Code financing statements showing
the interest of the Owner, Lessor, and any Assignee or Secured Party in the
Equipment and to insert serial numbers in Summary Equipment Schedules as
appropriate. Lessee will, at its expense, keep the Equipment free and clear from
any liens or encumbrances of any kind (except any caused by Lessor) and will
indemnify and hold the Owner, Lessor, any Assignee and Secured Party harmless
from and against any loss caused by Lessee's failure to do so, except where such
is caused by Lessor.
5.2 Relocation or Sublease. Upon prior written notice, Lessee may relocate
Equipment to any location within the Continental United States provided (i) the
Equipment will not be used by an entity exempt from federal income tax, and (ii)
all additional costs (including any administrative fees, additional taxes and
insurance coverage) are reconciled and promptly paid by Lessee.
Lessee may sublease the Equipment upon reasonable consent of the Lessor and the
Secured Party. Such consent to sublease will be granted if: (i) Lessee meets the
relocation requirements set out above, (ii) the sublease is expressly subject
and subordinate to the terms of the Schedule, (iii) Lessee assigns its rights in
the sublease to Lessor and the Secured Party as additional collateral and
security, (iv) Lessee's obligation to maintain and insure the Equipment is not
altered, (v) all financing statements required to continue the Secured Party's
prior perfected security interest are filed, and (vi) Lessee executes sublease
documents acceptable to Lessor.
No relocation or sublease will relieve Lessee from any of its obligations under
this Master Lease and the relevant Schedule.
5.3 Assignment by Lessor. The terms and conditions of each Schedule have been
fixed by Lessor in order to permit Lessor to sell and/or assign or transfer its
interest or grant a security interest in each Schedule and/or the Equipment to a
Secured Party or Assignee in that event the term Lessor will mean the Assignee
and any Secured Party. However, any assignment, sale, or other transfer by
Lessor will not relieve Lessor of its obligations to Lessee and will not
materially change Lessee's duties or materially increase the burdens or risks
imposed on Lessee. The Lessee consents to and will acknowledge such assignments
in a written notice given to Lessee. Lessee also agrees that:
(a) The Secured Party will be entitled to exercise all of Lessor's rights
but will not be obligated to perform any of the obligations of Lessor. The
Secured Party will not disturb Lessee's quiet and peaceful possession and
unrestricted use of the Equipment so long as Lessee is not in default and
the Secured Party continues to receive all Rent payable under the Schedule
and
(b) Lessee will pay all Rent and all other amounts payable to the Secured
Party, despite any defense or claim which it has against Lessor. Lessee
reserves its right to have recourse directly against Lessor for any defense
or claim.
(c) Subject to and without impairment of Lessee's leasehold rights on the
Equipment, Lessee holds the Equipment for the Secured Party to the extent
of the Secured Party's rights in that Equipment.
6. Net Lease: Taxes and Fees.
6.1 Net Lease. Each Summary Equipment Schedule constitutes a net lease. Lessee's
obligation to pay Rent and all other amounts due hereunder is absolute and
unconditional and is not subject to any abatement, reduction, set-off, defense,
counterclaim, interruption, deferment or recoupment for any reason whatsoever.
6.2 Taxes and Fees. Lessee will pay when due or reimburse Lessor for all taxes,
fees or any other charges (together with any related interest or penalties not
arising from the negligence of the Lessor) accrued for or arising during the
term of each Summary Equipment Schedule against Lessor, Lessee or the Equipment
by any governmental authority (except only Federal, state, local and franchise
taxes on the capital or the net income of Lessor). Lessor will file all
personal property tax returns for the Equipment and pay all such property taxes
due. Lessee will reimburse Lessor for property taxes within thirty (30) days of
receipt of an invoice.
7. Care, Use and Maintenance; Inspection by Lessor.
7.1 Care, Use and Maintenance. Lessee will maintain the Equipment in good
operating order and appearance, protect the Equipment from deterioration, other
than normal wear and tear, and will not use the Equipment for any purpose other
than that for which it was designed. If commercially available and considered
common business practice for each item of Equipment. Lessee will maintain in
force a standard maintenance contract with the manufacturer of the Equipment, or
another party acceptable to Lessor, and will provide Lessor with a complete copy
of that contract. If Lessee has the Equipment maintained by a party other than
the manufacturer or self maintains, Lessee agrees to pay any costs necessary for
the manufacturer to bring the Equipment to then current release, revision and
engineering change levels, and to re-certify the Equipment as eligible for
manufacturer's maintenance at the expiration the lease term, provided
re-certification is available and is required by Lessor. The lease term will
continue upon the same terms and conditions until recertification has been
obtained.
7.2 Inspection by Lessor. Upon reasonable advance notice, Lessee, during
reasonable business hours and subject to Lessee's security requirements, will
make the Equipment and its related log and maintenance records available to
Lessor for inspection.
8. Representations and Warranties of Lessee. Lessee hereby represents, warrants
and covenants that with respect to the Master Lease and each Schedule executed
hereunder:
(a) The Lessee is a Corporation duly organized and validly existing in good
standing under the laws of the jurisdiction of its incorporation, is duly
qualified to do business in each jurisdiction (including the jurisdiction
where the Equipment is, or is to be, located) where its ownership or lease
of property or the conduct of its business requires such qualification,
except where such lack of qualification would not have a material adverse
effect on the Company's business, and has full corporate power and
authority to hold property under the Master Lease and each Schedule and to
enter into and perform its obligations under the Master Lease and each
Schedule.
(b) The execution and delivery by the Lessee of the Master Lease and each
Schedule and its performance thereunder have been duly authorized by all
necessary corporate action on the part of the lessee, and the Master Lease
and each Schedule are not inconsistent with the Lessee's Articles of
Incorporation or Bylaws, do not
-1-
<PAGE>
contravene any law or governmental rule, regulation or order applicable to
it, do not and will not contravene any provision of or constitute a default
under any indenture, mortgage contract or other instrument to which it is
a party or by which it is bound and the Master Lease and each Schedule
constitute legal, valid and binding agreements of the Lessee, enforceable
in accordance with their terms, subject to the effect of applicable
bankruptcy and other similar laws affecting the rights of creditors
generally and rules of law concerning equitable remedies.
(c) There are no actions, suits, proceedings or patent claims pending or to
the knowledge of the Lessee threatened against or affecting the Lessee in
any court or before any governmental commission, board or authority which,
if adversely determined, will have a material adverse effect on the ability
of the Lessee to perform its obligations under the Master Lease and each
Schedule.
(d) The Equipment is personal property and when subjected to use by the
Lessee will not be or become fixtures under applicable law.
(e) The Lessee has no material liabilities or obligations, absolute or
contingent (individually or in the aggregate), except the liabilities and
obligations of the Lessee as set forth in the Financial Statements and
liabilities and obligations which have occurred in the ordinary course of
business and which have not been, in any case or in the aggregate,
materially adverse to Lessee's ongoing business.
(f) To the best of the Lessee's knowledge, the Lessee owns, possesses, has
access to, or can become licensed on reasonable terms under all patents,
patent applications, trademarks, trade names, inventions, franchises,
licenses, permits, computer software and copyrights necessary for the
operations of its business as now conducted, with no known infringement of,
or conflict with, the rights of others.
(g) All material contracts, agreements and instruments to which the Lessee
is a party are in full force and effect in all material respects, and are
valid, binding and enforceable by the Lessee in accordance with their
respective terms, subject to the effect of applicable bankruptcy and other
similar laws affecting the rights of creditors generally, and rules of law
concerning equitable remedies.
9. Delivery and Return of Equipment.
Lessee hereby assumes the full expense of transportation and in-transit
insurance to Lessee's premises and installation thereat of the Equipment. Upon
termination (by expiration or otherwise) of each Summary Equipment Schedule,
Lessee shall, pursuant to Lessor's instructions and at Lessee's full expense
(including, without limitation, expenses of transportation and in-transit
insurance), return the Equipment to Lessor in the same operating order, repair,
condition and appearance as when received, less normal depreciation and wear and
tear. Lessee shall return the Equipment to Lessor at 6111 North River Road,
Rosemont, Illinois 60018 or at such other address within the continental United
States as directed by Lessor, provided, however, that Lessee's expense shall be
limited to the cost of returning the Equipment to Lessor's address as set forth
herein. During the period subsequent to receipt of a notice under Section 2,
Lessor may demonstrate the Equipment's operation in place and Lessee will supply
any of its personnel as may reasonably be required to assist in the
demonstrations.
10. Labeling.
Upon request, Lessee will mark the Equipment indicating Lessor's interest with
labels provided by Lessor. Lessee will keep all Equipment free from any other
marking or labeling which might be interpreted as a claim of ownership.
11. Indemnity.
With regard to bodily injury and property damage liability only, Lessee will
indemnify and hold Lessor, any Assignee and any Secured Party harmless from and
against any and all claims, costs, expenses, damages and liabilities, including
reasonable attorneys' fees, arising out of the ownership (for strict liability
in tort only), selection, possession, leasing, operation, control, use,
maintenance, delivery, return or other disposition of the Equipment during the
term of this Master Lease or until Lessee's obligations under the Master Lease
terminate. However, Lessee is not responsible to a party indemnified hereunder
for any claims, costs, expenses, damages and liabilities occasioned by the
negligent acts of such indemnified party. Lessee agrees to carry bodily injury
and property damage liability insurance during the term of the Master Lease in
amounts and against risks customarily insured against by the Lessee on equipment
owned by it. Any amounts received by Lessor under that insurance will be
credited against Lessee's obligations under this Section.
12. Risk of Loss
Effective upon delivery and until the Equipment is returned, Lessee relieves
Lessor of responsibility for all risks of physical damage to or loss or
destruction of the Equipment. Lessee will carry casualty insurance for each item
of Equipment in an amount not less than the Casualty Value. All policies for
such insurance will name the Lessor and any Secured Party as additional insured
and as loss payee, and will provide for at least thirty (30) days prior written
notice to the Lessor of cancellation or expiration, and will insure Lessor's
interests regardless of any breach or violation by Lessee of any representation,
warranty or condition contained in such policies and will be [illegible],
without right of contribution from any insurance effected by Lessor. Upon the
execution of any Schedule the Lessee will furnish appropriate evidence of such
insurance acceptable to Lessor.
Lessee will promptly repair any damaged item of Equipment unless such Equipment
has suffered a Casualty Loss Within fifteen (15) days of a Casualty Loss. Lessee
will provide written notice of that loss to Lessor and Lessee will at Lessee's
option either (a) replace the item of Equipment with Like Equipment and
marketable title to the Like Equipment will automatically vest in Lessor or (b)
pay the Casualty Value and after that payment and the payment of all other
amounts due and owing with respect to that item of Equipment, Lessee's
obligation to pay further Rent for the item of Equipment will cease.
13. Default, Remedies and Mitigation.
13.1 Default. The occurrence of any one or more of the following Events of
Default constitutes a default under a Summary Equipment Schedule.
(a) Lessee's failure to pay Rent or other amounts payable by Lessee when
due if that failure continues for five (5) business days after written
notice, or
(b) Lessee's failure to perform any other term or condition of the Schedule
or the material inaccuracy of any representation or warranty made by the
Lessee in the Schedule or in any document or certificate furnished to the
Lessor hereunder if that failure or inaccuracy continues for ten (10)
business days after written notice, or
(c) An assignment by Lessee for the benefit of its creditors, the failure
by Lessee to pay its debts when due, the insolvency of Lessee, the filing
by Lessee or the filing against Lessee of any petition under any
bankruptcy or insolvency law or for the appointment of a trustee or
other officer with similar powers, the adjudication of Lessee as
insolvent, the liquidation of Lessee, or the taking of any action for
the purpose of the foregoing; or
(d) The occurrence of an Event of Default under any Schedule, Summary
Equipment Schedule or other agreement between Lessee and Lessor or its
Assignee or Secured Party.
13.2 Remedies. Upon the occurrence of any of the above Events of Default,
Lessor, at its option, may:
(a) enforce Lessee's performance of the provisions of the applicable
Schedule by appropriate court action in law or in equity;
(b) recover from Lessee any damages and or expenses, including Default
Costs;
(c) with notice and demand, recover all sums due and accelerate and recover
the present value of the remaining payment stream of all Rent due under the
defaulted Schedule (discounted at the same rate of interest at which such
defaulted Schedule was discounted with a Secured Party plus any prepayment
fees charged to Lessor by the Secured Party or, if there is no Secured
Party, then discounted at [illegible] together with all Rent and other
amounts currently due as liquidated damages and not as a penalty;
(d) with notice and process of law and in compliance with Lessee's security
requirements, Lessor may enter on Lessee's premises to remove and repossess
the Equipment without being liable to Lessee for damages due to
repossession, except those resulting from Lessor's, its assignees', agents'
or representatives' negligence; and
(e) pursue any other remedy permitted by law or equity.
The above remedies, in Lessor's discretion and to the extent permitted by law,
are cumulative and may be exercised successively or concurrently.
13.3 Mitigation. Upon return of the Equipment pursuant to the terms of Section
13.2. Lessor will use its best efforts in accordance with its normal business
procedures (and without obligation to give any priority to such Equipment) to
mitigate Lessor's damages as described below. EXCEPT AS SET FORTH IN THIS
SECTION, LESSEE HEREBY WAIVES ANY RIGHTS NOW OR HEREAFTER CONFERRED BY STATUTE
OR OTHERWISE WHICH MAY REQUIRE LESSOR TO MITIGATE ITS DAMAGES OR MODIFY ANY OF
LESSOR'S RIGHTS OR REMEDIES STATED HEREIN. Lessor may sell, lease or otherwise
dispose of all or any part of the Equipment at a public or private sale for cash
or credit with the privilege of purchasing the Equipment. The proceeds from any
sale, lease or other disposition of the Equipment are defined as either:
(a) if sold or otherwise disposed of the cash proceeds less the Fair Market
Value of the Equipment at the expiration of the Initial Term less the
Default Costs; or
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<PAGE>
(b) if leased, the present value discounted at 3 percent (3%) over the U.S.
Treasury Notes of comparable maturity (to the term of the release) of the
rentals for a term not to exceed the Initial Term less the Default Costs.
Any proceeds will be applied against liquidated damages and any other sums due
to Lessor from Lessee. However, Lessee is liable to Lessor for, and Lessor may
recover the amount by which the proceeds are less than the liquidated damages
and other sums due to Lessor from Lessee.
14. Additional Provisions.
14.1 Board Attendance. One representative of Lessor will have the right to
attend Lessee's corporate Board of Directors meetings and Lessee will give
Lessor reasonable notice in advance of any special Board of Directors meeting,
which notice will provide an agenda of the subject matter to be discussed at
such board meeting. Lessee will provide Lessor with a certified copy of the
minutes of each Board of Directors meeting within thirty (30) days following the
date of such meeting held during the term of this Master Lease.
14.2 Financial Statements. As soon as practicable at the end of each month (and
in any event within thirty (30) days), Lessee will provide to Lessor the same
information which Lessee provides to its Board of Directors, but which will
include not less than a monthly income statement, balance sheet and statement of
cash flows prepared in accordance with generally accepted accounting principles,
consistently applied (the "Financial Statements"). As soon as practicable at the
end of each fiscal year, Lessee will provide to Lessor audited Financial
Statements setting forth in comparative form the corresponding figures for the
fiscal year (and in any event within ninety (90) days), and accompanied by an
audit report and opinion of the independent certified public accountants
selected by Lessee. Lessee will promptly furnish to Lessor any additional
information (including, but not limited to, tax returns, income statements,
balance sheets and names of principal creditors) as Lessor reasonably believes
necessary to evaluate Lessee's continuing ability to meet financial obligations.
After the effective date of the initial registration statement covering a public
offering of Lessee's securities, the term "Financial Statements" will be deemed
to refer to only those statements required by the Securities and Exchange
Commission.
14.3 Obligation to Lease Additional Equipment. Upon notice to Lessee, Lessor
will not be obligated to lease any Equipment which would have a Commencement
Date after said notice if; (i) Lessee is in default under this Master Lease or
any Schedule; (ii) Lessee is in default under any loan agreement, the result of
which would allow the lender or any secured party to demand immediate payment of
any material indebtedness; (iii) there is a material adverse change in Lessee's
credit standing; or (iv) Lessor determines (in reasonable good faith) that
Lessee will be unable to perform its obligations under this Master Lease or any
Schedule.
14.4 Merger and Sales Provisions. Lessee will notify Lessor of any proposed
Merger at least sixty (60) days prior to the closing date. Lessor may, in its
discretion, either (i) consent to the assignment of the Master Lease and all
relevant Schedules to the successor entity, or (ii) terminate the Lease and all
relevant Schedules. If Lessor elects to consent to the assignment, Lessee and
its successor will sign the assignment documentation provided by the Lessor. If
Lessor elects to terminate the Master Lease and all relevant Schedules, then
Lessee will pay Lessor all amounts then due and owing and a termination fee
equal to the present value (discounted at 6%) of the remaining Rent for the
balance of the Initial Term(s) of all Schedules, and will return the Equipment
in accordance with Section 9. Lessor hereby consents to any Merger in which the
acquiring entity has a Moody's Bond Rating of BA3 or better or a commercially
acceptable equivalent measure of creditworthiness as reasonably determined by
Lessor.
14.5 Entire Agreement. This Master Lease and associated Schedules and Summary
Equipment Schedules supersede all other oral or written agreements or
understandings between the parties concerning the Equipment including, for
example, purchase orders. ANY AMENDMENT OF THIS MASTER LEASE OR A SCHEDULE MAY
ONLY BE ACCOMPLISHED BY A WRITING SIGNED BY THE PARTY AGAINST WHOM THE AMENDMENT
IS SOUGHT TO BE ENFORCED.
14.6 No Waiver. No action taken by Lessor or Lessee will be deemed to constitute
a waiver of compliance with any representation, warranty or covenant contained
in this Master Lease or a Schedule. The waiver by Lessor or Lessee of a breach
of any provision of this Master Lease or a Schedule will not operate or be
construed as a waiver of any subsequent breach.
14.7 Binding Nature. Each Schedule is binding upon, and inures to the benefit of
Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR OBLIGATIONS.
14.8 Survival of Obligations. All agreements, obligations including, but not
limited to those arising under Section 6.2, representations and warranties
contained in this Master Lease, any Schedule, Summary Equipment Schedule or in
any document delivered in connection with those agreements are for the benefit
of Lessor and any Assignee or Secured Party and survive the execution, delivery,
expiration or termination of this Master Lease.
14.9 Notices. Any notice, request or other communication, by either party to the
other, will be given in writing and deemed received [ILLEGIBLE] 2) three days
after mailing, if mailed postage prepaid by regular [ILLEGIBLE] sent to Lessor
to the attention of the Candisco Venture Group or Lessee at the address set
forth on the Schedule, 3) one day after it sent by courier or 4) on the same day
as sent via facsimile transmission, provided that the original is sent by
personal delivery or mail by the sending party.
14.10 Applicable Law. THIS MASTER LEASE HAS BEEN AND EACH SCHEDULE WILL HAVE
BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL BE GOVERNED
AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE STATE OF
ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS NO RIGHTS OR
REMEDIES REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE WILL BE
CONFERRED ON LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR A SCHEDULE.
14.11 Severability. If any one or more of the provisions of this Master Lease or
any Schedule is for any reason held invalid, illegal or unenforceable, the
remaining provisions of this Master Lease and any such Schedule will be
unimpaired and the invalid, illegal or unenforceable provision replaced by a
mutually acceptable valid, legal and enforceable provision that is closest to
the original intention of the parties.
14.12 Counterparts. This Master Lease and any Schedule may be executed in any
number of counterparts, each of which will be deemed an original, but all such
counterparts together constitute one and the same instrument. If Lessor grants
a security interest in all or any part of a Schedule, the Equipment or sums
payable thereunder, only that counterpart Schedule marked "Secured Party's
Original" can transfer Lessor's rights and all other counterparts will be marked
"Duplicate."
14.13 Licensed Products. Lessee will obtain no title to Licensed Products which
will at all times remain the property of the owner of the Licensed Products. A
license from the owner may be required and it is Lessee's responsibility to
obtain any required license before the use of the Licensed Products. Lessee
agrees to treat the Licensed Products as confidential information of the owner,
to observe all copyright restrictions, and not to reproduce or sell the Licensed
Products.
14.14 Secretary's Certificate. Lessee will, upon execution of this Master Lease,
provide Lessor with a secretary's certificate of incumbency and authority. Upon
the execution of each Schedule with a purchase price in excess of $1,000,000,
Lessee will provide Lessor with an opinion from Lessee's counsel in a form
acceptable to Lessor regarding the representations and warranties in Section 8.
14.15 Electronic Communications. Each of the parties may communicate with the
other by electronic means under mutually agreeable terms.
14.16 Landlord/Mortgage Waiver. Lessee agrees to provide Lessor with a
Landlord/Mortgage Waiver with respect to the Equipment. Such waiver shall be in
a form satisfactory to Lesser.
14.17 Equipment Procurement Charges/Progress Payments. Lessee hereby agrees that
Lessor shall not by virtue of its entering into this Master Lease, be required
to remit any payments to any manufacturer or other third party until Lessee
accepts the Equipment subject to this Master Lease.
14.18 Definitions
Advance - means the amount due to Lessor by Lessee upon Lessee's execution of
each Schedule.
Assignee - means an entity to whom Lessor has sold or assigned its rights as
owner and Lessor of Equipment.
Casualty Loss - means the irreparable loss or destruction of Equipment.
Casualty Value - means the greater of the aggregate Rent remaining to be paid
for the balance of the lease term or the Fair Market Value of the Equipment
immediately prior to the Casualty Loss. However, if a Casualty Value Table is
attached to the relevant Schedule its terms will control.
Commencement Date - is defined in each Schedule.
Default Costs - means reasonable attorney's fees and remarketing costs resulting
from a Lessee default or Lessor's enforcement of its remedies.
Delivery Date - means date of delivery of Inventory Equipment to Lessee's
address.
Equipment - means the property described on a Summary Equipment Schedule and any
replacement for that property required or permitted by this Master Lease or a
Schedule.
Event of Default - means the events described in Subsection 13.1.
-3-
<PAGE>
Fair Market Value - means the aggregate amount which would be obtainable in an
arm's length transaction between an informed and willing buyer or user and an
informed and willing seller under no compulsion to sell.
Initial Term - means the period of time beginning on the first day of the first
full Rent interval following the Commencement Date for all items of Equipment
and continuing for the number of Rent intervals indicated on a Schedule.
Interim Rent - means the pro-rata portion of Rent due for the period
from the Commencement Date through but not including the first day of the first
full Rent interval included in the Initial Term.
Late Charge- means the lesser of five percent (5%) of the payment due or the
maximum amount permitted by law of the state where the Equipment is located.
Licensed Products - means any software or other licensed products attached to
the Equipment.
Like Equipment - means replacement Equipment which is lien free and of the same
model, type, configuration and manufacture as Equipment.
Merger - means any consolidation or merger of the Lessee with or into any other
corporation or entity, any sale or conveyance of all substantially all of the
assets or stock of the Lessee by or to any other person or entity in which
Lessee is not the surviving entity.
Notice Period - means not less than ninety (90) days nor more than twelve (12)
months prior to the expiration of the lease term.
Owner - means the owner of the Equipment.
Rent - means the rent Lessee will pay for each item of Equipment expressed in a
Summary Equipment Schedule either as a specific amount or an amount equal to the
amount which Lessor pays for an item of Equipment multiplied by a lease ratio
factor plus all other amounts due to Lessor under this Master Lease or a
Schedule.
Rent Interval - means a full calendar month or quarter as indicated on a
Schedule.
Schedule - means either an Equipment Schedule or a Licensed Products Schedule,
which incorporates all of the same terms and conditions of this Master Lease.
Secured Party - means an entity to whom Lessor has granted a security interest
for the purpose of securing a loan.
Summary Equipment Schedule- means a certificate provided by Lessor summarizing
all of the Equipment for which Lessor has received Lessee approved vendor
invoices, purchase documents and/or evidence of delivery during a calendar
quarter which will incorporate all of the terms and conditions of the related
Schedule and this Master Lease and will constitute a separate lease for the
equipment leased thereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Master Lease on or as
of the day and year first above written
BONE, MUSCLE & JOINT, INC. COMDISCO, INC.
As LESSEE as LESSOR
By: /s/ David H. Fater By: /s/ James P. Labe
------------------------ ------------------------------
JAMES P. LABE, PRESIDENT
Title: Title: COMDISCO VENTURES DIVISION
---------------------- ------------------------------
<PAGE>
ADDENDUM TO THE MASTER LEASE AGREEMENT DATED AS OF AUGUST 1, 1997
BETWEEN BONE, MUSCLE & JOINT , INC. AS LESSEE
AND COMDISCO, INC., AS LESSOR
The undersigned hereby agree that the terms and conditions of the above
referenced Master Lease are hereby modified and amended as follows:
1) Section 5.2 "Relocation or Sublease"
Second Paragraph, first sentence, after the words "Secured Party", insert
"provided, however that Lessee may sublease Equipment to any of its
physician practice groups with prior written notice to Lessor and without
the consent of Lessor, so long as such sublease are in accordance with the
terms of this section 5.2."
2) Section 7.1, "Care, Use and Maintenance"
Second sentence, line 7, prior to the word "acceptable" insert
"reasonably".
3) Section 13.2 "Remedies"
In subparagraph (b), after the words "any damages and or", insert
"reasonable".
4) Section 14.8, Survival of Obligations"
Second sentence, insert the following at the beginning thereof, "EXCEPT AS
PROVIDED IN SECTION 14.4".
5) Section 14.1., "Board Attendance"
In the first sentence: (i) after the words "right to attend" insert "no
more than three of" and (ii) after the words "Board of Directors meetings"
insert "occurring during the period commencing on the date of the Master
Lease and ending on the earliest to occur of (i) termination of the Master
Lease, or (ii) consummation by the Lessee of an initial public offering
(such date being the Observation Right Termination Date").
At the end of the second insert "or prior to the Observation Right
Termination Date".
6) Section 14.18., "Definitions"
Delete the definition of "Interim Rent" and replace with: "Interim Rent
means .02361% of Rent due for the period from the Commitment Date through
but not including the first day of the first full Rent interval included in
the Initial Term."
<PAGE>
BONE, MUSCLE & JOINT, INC. COMDISCO, INC.
As Lessee as Lessor
By: /s/David H. Fater By: /s/James P. Labe
------------------------ ------------------------------
JAMES P. LABE, PRESIDENT
Title: Title: COMDISCO VENTURES DIVISION
---------------------- ----------------------------
Date: Date: 8/5/97
---------------------- ----------------------------
<PAGE>
EQUIPMENT SCHEDULE VL-1
DATED AS OF AUGUST 1,1997
TO MASTER LEASE AGREEMENT
DATED AS OF AUGUST 1,1997 THE "MASTER LEASE"
LESSEE: BONE, MUSCLE & JOINT,INC. LESSOR COMDISCO,INC.
Admin. Contact/Phone No.: Address for all Notices
David H. Fater 611 North River Road
(561) 391-1311 Phone Rosemont, Illinois 60018
(562) 391-1389 Fax Attn.: Venture Group
Address for Notices:
4800 North Federal Highway, Ste. 104-D
Boca Raton, FL 33231
Central Billing Location: Rent Interval: Monthly
same as above
Attn.:
Lessee Reference No.:_________________
(24 digits maximum)
Location of Equipment: Initial Term: 48 months
same as above (Number of Rent Intervals)
Attn.: Lease Rate Factor: 2.447%
EQUIPMENT (as defined below): Advance: $12,235.00
Equipment (including software up to 30% of the Commitment Amount) specifically
approved by Lessor, which shall be delivered to and accepted by Lessee during
the period July 31, 1997 through July 31,1998 ("Equipment Delivery Period"), for
which Lessor receives vendor invoices approved for payment, up to an aggregate
purchase price of $500,000 ("Commitment Amount"); excluding custom use
equipment, leasehold improvements, installation costs and delivery costs,
rolling stock, special tooling, hand held items, molds and fungible items.
<PAGE>
1. Equipment Purchase
This Schedule contemplates Lessor's acquisition of Equipment for lease to
Lessee, either by one of the first three categories listed below or by providing
Lessee with Equipment from the fourth category in an aggregate value up to a
Commitment Amount referred to on the face of this Schedule. If the Equipment
acquired is of category (i), (ii), (iii) below, the effectiveness of this
Schedule as it relates to those items of Equipment is contingent upon Lessee's
acknowledgement at the time Lessor acquires the Equipment that Lessee has either
received or approved the relevant purchase documentation between vendor and
Lessor for that Equipment.
(i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment which is
obtained from a vendor by Lessee for its use subject to Lessor's prior
approval of the Equipment.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at Lessee's
site and to which Lessee has clear title and ownership may be
considered by Lessor for inclusion under this Lease (the
"Sale-Leaseback Transaction"). Any request for a Sale-Leaseback
Transaction must be submitted to Lessor in writing (along with
accompanying evidence of Lessee's Equipment ownership satisfactory to
Lessor for all Equipment submitted) no later than August 31,1997".
Lessor will not perform a Sale-Leaseback Transaction for any request
or accompanying Equipment ownership documents which arrive after the
date marked above by an asterisk (*). Further, any sale-leaseback
Equipment will be placed on lease subject to: (1) Lessor prior
approval of the Equipment; and (2) if approved, at Lessor's actual net
appraised Equipment value pursuant to the Schedule below:
ORIGINAL EQUIPMENT INVOICE PERCENT OF ORIGINAL MANUFACTURER'S
DATE NET EQUIPMENT COST PAID BY LESSOR
BETWEEN 6/2/97-8/31/97 100%
-------------------
(iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment which is
obtained from a third party by Lessee for its use subject to Lessor's
prior approval of the Equipment and at Lessor's appraised value for
such used Equipment.
(iv) 800 NUMBER EQUIPMENT. Upon Lessee's use of Comdisco's 1-800 Direct
Service, Lessor will purchase new or used Equipment from a third party
or Lessor will supply new or used Equipment from its inventory for use
by Lessee at rates provided by Lessor.
2. Commencement Date
The Commencement Date for each item of new on-order Equipment will be the
install date as confirmed in writing by Lessee as set forth on the vendor
invoice of which a facsimile transmission will constitute an original document.
The Commencement Date for sale-leaseback Equipment shall be the date Lessor
tenders the purchase price. The Commencement Date for 800 Number Equipment shall
be fifteen (15) days from the ship date, such ship date to be set forth on the
vendor invoice or if unavailable on the vendor invoice the ship date will be
determined by Lessor upon other supporting shipping documentation. Lessor will
summarize all approved invoices, purchase documentation and evidence of
delivery, as applicable, received in the same calendar month into a Summary
Equipment Schedule in the form attached as Exhibit 1, and the initial Term will
begin the first day of the calendar month thereafter. Each Summary Equipment
Schedule will contain the Equipment location, description, serial number(s) and
cost and will incorporate the items and conditions of the Master Lease and this
Schedule and will constitute a separate lease.
3. Option to Extend
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
ninety (90) days prior to the expiration of the Initial Term of a Summary
Equipment Schedule, Lessee will have the right to extend the initial Term of
such Summary Equipment Schedule for a period of one (1) year. In such event, the
rent to be paid during said extended period shall be mutually agreed upon and if
the parties cannot mutually agree, then the Summary Equipment Schedule shall
continue in full force and effect pursuant to the existing terms and conditions
until terminated in
<PAGE>
accordance with its terms. The summary Equipment Schedule will continue in
effect following said extended period until terminated by either party upon not
less than ninety (90) days prior written notice, which notice shall be effective
as of the date of receipt.
4. Purchase Option
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
ninety (90) days prior to the expiration of the Initial Term or the extended
term of the applicable Summary Equipment Schedule, Lessee will have the option
at expiration of the Initial Term of the Summary Equipment Schedule to purchase
all, but not less than all, of the Equipment listed therein for a purchase price
and upon terms and conditions to be mutually agreed upon by the parties
following Lessee's written notice, plus any taxes applicable at time of
purchase. Said purchase price shall be paid to Lessor at least thirty (30) days
before the expiration date of the Initial Term or extended term. Title to the
Equipment shall automatically pass to Lessee upon payment in full of the
purchase price but, in no event, earlier than the expiration of the fixed
Initial Term or extended term, if applicable. If the parties are unable to agree
on the purchase price or the terms and conditions with respect to said purchase,
then the Summary Equipment Schedule with respect to this Equipment shall remain
in full force and effect. Notwithstanding the exercise by Lessee of this option
and payment of the purchase price, until all obligations under the applicable
Summary Equipment Schedule have been fulfilled, it is agreed and understood that
Lessor shall retain a purchase money security interest in the Equipment listed
therein and the Summary Equipment Schedule shall constitute a Security Agreement
under the Uniform Commercial Code of the state in which the Equipment is
located.
5. Option Amount
So long as no Event of Default shall have occurred and is continuing and
upon Lessee's request, subject to final review by Lessor. Lessor agrees to
provide to Lessee an additional $1,000,000 of Equipment upon rates and terms to
be negotiated.
6. Technology Exchange Option
If Lessee is not in default, and there is no material adverse change in
Lessee's credit, on or after the expiration of the 12th month of any Summary
Equipment Schedule, Lessee shall have the option to replace any of the Equipment
subject to such summary Equipment Schedule with new technology equipment ("New
Technology Equipment") utilizing the following guidelines:
1. Equipment being replaced with New Technology Equipment shall have an original
cost equal to or greater than $20,000 and be comprised of full configurations of
equipment.
2. This technology Exchange Option shall be limited to a maximum in the
aggregate of fifty percent (50%) of the original equipment cost and shall not
apply to software.
3. The cost of the New Technology Equipment must be equal to or greater than the
original equipment cost of the replaced equipment, but in no event shall exceed
150% of the original equipment cost.
4. The remaining lease payments applicable to the equipment being replaced by
the New Technology Equipment will be discounted to present value at 6%.
The wholesale market value of the equipment being replaced will be established
by Comdisco based upon then current market conditions. Upon the return of the
replaced equipment, the wholesale price will be deducted from the present value
of the remaining rentals and the differential will be added to the cost of the
New Technology Equipment in calculating the new rental. The lease for the New
Technology Equipment will contain terms and conditions substantially similar to
those for the replaced equipment and will have an Initial Term not less than the
balance of the remaining Initial Term for the replaced equipment.
<PAGE>
7. Special Terms
The terms and conditions of the Lease as they pertain to this Schedule are
hereby modified and amended as follows:
Master Lease: This Schedule is issued pursuant to the Lease identified on page 1
of this Schedule. All of the terms and conditions of the Lease are incorporated
in and made a part of this Schedule as if they were expressly set forth in this
Schedule. The parties hereby reaffirm all of the terms and conditions of the
Lease (including, without limitation, the representations and warranties set
forth in Section 8) except as modified herein by this Schedule. This Schedule
may not be amended or rescinded except by a writing signed by both parties.
BONE, MUSCLE & JOINT, INC. COMDISCO, INC.
As Lessee as Lessor
By: /s/David H. Fater By: /s/James P. Labe
------------------------ ------------------------------
JAMES P. LABE, PRESIDENT
Title: Title: COMDISCO VENTURES DIVISION
---------------------- ----------------------------
Date: Date: 8/5/97
---------------------- ----------------------------
<PAGE>
EXHIBIT 1
SUMMARY EQUIPMENT SCHEDULE
This Summary Equipment Schedule dated XXXX is executed pursuant to Equipment
Schedule No. X to the Master Lease Agreement dated XXXX between Comdisco, Inc.
("Lessor") and XXXX ("Lessee"). All of the terms, conditions, representations
and warranties of the Mater Lease Agreement and Equipment Schedule No. X are
incorporated herein and made a part hereof, and this Summary Equipment Schedule
constitutes a Schedule for the Equipment on the attached invoices.
1. For Period Beginning: And Ending:
2. Initial Term Starts on: Initial Term:
(Number of Rent Intervals)
3. Total Summary Equipment Cost:
4. Lease Rate Factor:
5. Rent:
6. Acceptance Doc Type:
<PAGE>
SUBORDINATED LOAN AND SECURITY AGREEMENT
THIS AGREEMENT (the "Agreement"), dated as of August __, 1997, is entered
into by and between Bone, Muscle and Joint, Inc. a Delaware corporation, with
its chief executive office, and principal place of business located at 4800
North Federal Highway, Suite 104-D, Boca Raton, Florida 33431 (the "Borrowers')
and Galtney Corporate Services, Inc., a Texas corporation, with its principal
place of business located at 820 Gessner, Suite 1000, Houston, Texas 77024-4259
(the "Lender" or sometimes, "Galtney"). In consideration of the mutual
agreements contained herein, the parties hereto agree as follows:
RECITALS
WHEREAS, Borrower has requested Lender to make available to Borrower a loan
in the aggregate principal amount of ONE MILLION FIVE HUNDRED THOUSAND and
00/100 DOLLARS ($1,500,000) in each (as the same may from time to time be
amended, modified, supplemented or revised, the "Loan"), which would be
evidenced by a Subordinated Promissory Note executed by Borrower substantially
in the form of Exhibit A hereto (as the same may from time to time be amended,
modified, supplemented or restated the "Note").
WHEREAS, Lender is willing to make the Loan on the terms and conditions set
forth in this Agreement, and
WHEREAS, the Secured Obligations hereunder shall be expressly subordinated,
to the extent and in the manner set forth in the Subordination Agreement.
WHEREAS, Lender and Borrower agree any Loan hereunder shall be subordinate
to Senior Debt (as defined herein) to the extent set forth in the Subordination
Agreement (as defined herein).
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein, Borrower and Lender hereby agree as follows:
SECTION 1. DEFINITIONS
Unless otherwise defined herein, the following capitalized terms shall have
the following meanings (such meanings being equally applicable to both the
singular and plural form of the terms defined):
1.1. "Account" means any "account," as such term is defined in Section
9.106 of the UCC, now owned or hereafter acquired by Borrower or in which
Borrower now holds or hereafter acquires any interest and, in any event, shall
include, without limitation, all accounts receivable, book debts and other forms
of obligations (other than forms of obligations evidenced by Chattel Paper,
Documents or Instruments) now owned or hereafter received or acquired by or
belonging or owing to Borrower (including, without limitation, under any trade
name, style or division thereof) whether arising out of goods sold or services
rendered by Borrower or from any other transaction, whether or not the same
involves the sale of goods or services by Borrower (including, without
limitation, any such obligation which may be characterized as an account or
contract right under
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Sub. Loan and Security Agr
<PAGE>
the UCC) and all of Borrower's rights in, to and under all purchase orders or
receipts now owned or hereafter acquired by it for goods or services, and all of
Borrowers rights to any goods represented by any of the foregoing (including,
without limitation, unpaid seller's rights of rescission, replevin, reclamation
and stoppage in transit and rights to returned, reclaimed or repossessed goods),
and all monies due or to become due to Borrower under all purchase orders and
contracts for the sale of goods or the performance of services or both by
Borrower (whether or not yet earned by performance on the part of Borrower or in
connection with any other transaction), now in existence or hereafter occurring,
including, without limitation, the right to receive the proceeds of said
purchase orders and contracts, and all collateral security and guarantees of any
kind given by any Person with respect to any of the foregoing.
1.2. "Account Debtor" means any "account debtor," as such term is defined
in Section 9.105(a)(1) of the UCC.
1.3. "Chattel Paper" means any "chattel paper," as such term is defined in
Section 9.105(a)(2) of the UCC, now owned or hereafter acquired by Borrower or
in which Borrower now holds or hereafter acquires any interest.
1.4. "Closing Date" means the date of funding of the Loan.
1.5. "Collateral" shall have the meaning assigned to such term in Section 3
of this Agreement.
1.6. "Contracts" means all contracts, undertakings, franchise agreements or
other agreements (other than rights evidenced by Chattel Paper, Documents or
Instruments) in or under which Borrower may now or hereafter have any right,
title or interest, including, without limitation, with respect to an Account,
any agreement relating to the terms of payment or the terms of performance
thereof.
1.7. "Copyrights" means all of the following now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest: (i) all copyrights, whether registered or unregistered, held pursuant
to the laws of the United States, any State thereof or of any other country;
(ii) registrations, applications and recordings in the United States Copyright
Office or in any similar office or agency of the United States, any state
thereof or any other country; (iii) any continuations, renewals or extensions
thereof; and (iv) any registrations to be issued in any pending applications.
1.8. "Copyright License" means any written agreement granting any right to
use any Copyright or Copyright registration now owned or hereafter acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest
1.9. "Documents" means any "documents," as such term is defined in Section
9.105(a)(6) of the UCC, now owned or hereafter acquired by Borrower or in which
Borrower now holds or hereafter acquires any interest.
1.10. "Equipment" means any "equipment," as such term is defined in Section
9.109(2) of the UCC, now or hereafter owned or acquired by Borrower or in which
Borrower now holds or hereafter acquires any interest and any and all additions,
substitutions and replacements of any of the foregoing, wherever located,
together with all attachments, components, parts, equipment and accessories
installed thereon or affixed thereto.
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Sub. Loan and Security Agr
<PAGE>
1.11. "Excluded Agreements" means (i) any warrant agreement executed
hereunder, and any other warrants (including without limitation, the Warrant
Agreement dated as of even date herewith) to acquire, or agreements governing
the rights of the holders of, any equity security of Borrower, and (ii) any
stock of the Borrower issued or purchased pursuant to the Warrant Agreement.
1.12. "Facility Fee" means one (1%) percent of the principal amount of the
Loan due at the Closing Date.
1.13. "Fixtures" means any "fixtures," as such term is defined in Section
9.313(a)(1) of the UCC, now or hereafter owned or acquired by Borrower or in
which Borrower now holds or hereafter acquires any interest and, now or
hereafter attached or affixed to or constituting a part of, or located in or
upon, real property wherever located, together with all right, title and
interest of Borrower in and to all extensions, improvements, betterments,
renewals, substitutes, and replacements of, and all additions and appurtenances
to any of the foregoing property, and all conversions of the security
constituted thereby, immediately upon any acquisition or release thereof or any
such conversion, as the case may be.
1.14. "General Intangibles" means any "general intangibles," as such term
is defined in Section 9.106 of the UCC, now owned or hereafter acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest and,
in any event, shall include, without limitation, all right, title and interest
which Borrower may now or hereafter have in or under any contract, all customer
lists, Copyrights, Trademarks, Patents, rights to Intellectual Property,
interests in partnerships, joint ventures and other business associations,
Licenses, permits, trade secrets, proprietary or confidential information,
inventions (whether or not patented or patentable), technical information,
procedures, designs, knowledge, know-how, software, data bases, data, skill,
expertise, recipes, experience, processes, models, drawings, materials and
records, goodwill (including, without limitation, the goodwill associated with
any Trademark, Trademark registration or Trademark licensed under any Trademark
License), claims in or under insurance policies, including unearned premiums,
uncertificated securities, cash and other forms of money or currency, deposit
accounts (including as defined in Section 9.105(a)(5) of the UCC), rights to
sue for past, present and future infringement of Copyrights, Trademarks and
Patents, rights to receive tax refunds and other payments and rights of
indemnification.
1.15. "Instruments" means any "instrument," as such term is defined in
Section 9.105(a)(9) of the UCC, now owned or hereafter acquired by Borrower or
in which Borrower now holds or hereafter acquires any interest.
1.16. "Intellectual Property" means all Copyrights, Trademarks, Patents,
trade secrets, source codes, customer lists, proprietary or confidential
information, inventions (whether or not patented or patentable), technical
information, procedures, designs, knowledge, know-how, software, data bases,
skill, expertise, experience, processes, models, drawings, materials and
records.
1.17. "Inventory" means any "inventory," as such term is defined in Section
9.109(4) of the UCC, wherever located, now or hereafter owned or acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest, and,
in any event, shall include, without limitation, all inventory, goods and other
personal property which are held by or on behalf of Borrower for sale or lease
or are furnished or are to be furnished under a contract of service or which
constitute raw materials, work in process or materials used or consumed or to be
used
3
Sub. Loan and Security Agr
<PAGE>
or consumed in Borrower's business, or the processing, packaging, promotion,
delivery or shipping of the same, and all furnished goods whether or not such
inventory is listed on any schedules, assignments or reports furnished to Lender
from time to time and whether or not the same is in transit or in the
constructive, actual or exclusive occupancy or possession of Borrower or is held
by Borrower or by others for Borrower's account, including, without limitation,
all goods covered by purchase orders and contracts with suppliers and all goods
billed and held by suppliers and all inventory which may be located on premises
of Borrower or of any carriers, forwarding agents, truckers, warehousemen,
vendors, selling agents or other persons.
1.18. "License" means any Copyright License, Patent License, Trademark
License or other license of rights or interests now held or hereafter acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest
and any renewals or extensions thereof.
1.19. "Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment for security, security interest, encumbrance, levy, lien or charge of
any kind, whether voluntarily incurred or arising by operation of law or
otherwise, against any property, any conditional sale or other tide retention
agreement, any lease in the nature of a security interest, and the filing of any
financing statement (other than a precautionary financing statement with respect
to a lease that is not in the nature of a security interest) under the UCC or
comparable law of any jurisdiction.
1.20. "Loan Documents" shall mean and include this Agreement, the Note, and
any other documents executed in connection with the Secured Obligations or the
transactions contemplated hereby, as the same may from time to time be amended,
modified, supplemented or restated, provided, that the Loan Documents shall not
include any of the Excluded Agreements.
1.21. "Material Adverse Effect" means a material adverse effect upon: (i)
the business, operations, properties, assets or conditions (financial or
otherwise) of Borrower; or (ii) the ability of Borrower to perform, or of Lender
to enforce, the Secured Obligations.
1.22. "Maturity Date" means December 31, 2000.
1.23. "Maximum Rate" means, at any time, the maximum rate of interest under
applicable law that the Lender may charge the Borrower. The Maximum Rate shall
be calculated in a manner that takes into account any and all fees, payments,
and other charges in respect of the Loan Documents and the Excluded Agreements
that constitute interest under applicable law. Each change in any interest
provided for herein based upon the Maximum Rate resulting from a change in the
Maximum Rate shall take effect without notice to the Borrower at the time of
such change in the Maximum Rate. For purposes of determining the Maximum
Rate under Texas law, the applicable rate ceiling shall be the indicated rate
ceiling described in, and computed in accordance with, Article 5069-1.04,
Vernon's Texas Civil Statutes.
1.24. "Patent License" means any written agreement granting any right with
respect to any invention on which a Patent is in existence now owned or
hereafter acquired by Borrower or in which Borrower now holds or hereafter
acquires any interest.
1.25. "Patents" means all of the following now owned or hereafter acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest:
(a) letters patent of, or rights corresponding thereto in, the United States or
any other county, all registrations and recordings thereof, and all applications
for letters patent of, or rights corresponding thereto in, the United
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Sub. Loan and Security Agr
<PAGE>
States or any other country, including, without limitation, registrations,
recordings and applications in the United States Patent and Trademark Office or
in any similar office or agency of the United States, any State thereof or any
other country; (b) all reissues, continuations, continuations-in-part or
extensions thereof; (c) all petty patents, divisionals, and patents of addition;
and (d) all patents to issue in any such applications.
1.26. "Permitted Liens" means any and all of the following: (i) pari passau
liens in favor of Lender and Comdisco, Inc., a Delaware corporation
("Comdisco"), (ii) liens related to, or arising in connection with, Senior Debt,
or (iii) liens permitted under the Senior Loan Agreement.
1.27. "Proceeds" means "proceeds," as such term is defined in Section
9.306(a) of the UCC and, in any event, shall include, without limitation, (a)
any and all Accounts, Chattel Paper, Instruments, cash or other forms of money
or currency or other proceeds payable to Borrower from time to time in respect
of the Collateral, (b) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to Borrower from time to time with respect to any
of the Collateral, (c) any and all payments (in any form whatsoever) made or due
and payable to Borrower from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental authority (or any Person acting under color of
governmental authority), (d) any claim of Borrower against third parties (i) for
past, present or future infringement of any Copyright, Patent or Patent License
or (ii) for past, present or future infringement or dilution of any Trademark or
Trademark License or for injury to the goodwill associated with any Trademark,
Trademark registration or Trademark licensed under any Trademark License and (e)
any and all other amounts from time to time paid or payable under or in
connection with any of the Collateral.
1.28. "Receivables" shall mean and include all of the Borrowers accounts,
instruments, documents, chattel paper and general intangibles whether secured or
unsecured, whether now existing or hereafter created or arising, and whether or
not specifically sold or assigned to Lender hereunder.
1.29. "Secured Obligations" shall mean and include all principal, interest,
fees, costs, or other liabilities or obligations for monetary amounts owed by
Borrower to Lender, whether due or to become due, matured or unmatured,
liquidated or unliquidated, contingent or non-contingent, and all covenants and
duties regarding such amounts, of any kind of nature, present or future, arising
under this Agreement, the Note, or any of the other Loan Documents, whether or
not evidenced by any Note, this Agreement or other instrument, as the same may
from time to time be amended, modified, supplemented or restated, provided, that
the Secured Obligations shall not include any indebtedness or obligations of
Borrower arising under or in connection with the Excluded Agreements.
1.30. "Senior Creditor" means a bank, insurance company, pension fund, or
other institutional lender to be determined, or a syndication of such
institutional lenders that provides Senior Debt financing to Borrower; provided,
that Senior Creditor shall not include Comdisco or any officer, director,
shareholder, venture capital investor, or insider of Borrower or Comdisco, or
any affiliate of the foregoing persons, except upon the express written consent
of Lender.
1.31. "Senior Debt" means any and all indebtedness and obligations for
borrowed money (including, without limitation, principal, premium (if any),
interest, fees charges, expenses, costs, professional fees and expenses, and
reimbursement obligations) at any time owing by Borrower to Senior Creditor
under the Senior Loan Documents, including, but not limited to such amounts
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as may accrue or be incurred before or after default or workout or the
commencement of any liquidation, dissolution, bankruptcy, receivership or
reorganization by or against Borrower.
1.32. "Senior Loan Documents" means the loan agreement between Borrower and
Senior Creditor and any other agreement, security agreement, document,
promissory note, UCC financing statement, or instrument executed by Borrower in
favor of Senior Creditor pursuant to or in connection with the Senior Debt or
the loan agreement, as the same may from time to time be amended, modified,
supplemented, extended, renewed, restated or replaced.
1.33. "Subordination Agreement" means the Subordination Agreement dated as
of August 1, 1997, as amended by the First Amendment to Subordination Agreement
dated as of even date herewith, entered into between Borrower, Comdisco and
Lender for the benefit of Senior Creditor.
1.34. "Trademark License" means any written agreement granting any right to
use any Trademark or Trademark registration now owned or hereafter acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest.
1.35. "Trademarks" means any of the following now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest: (a) any and all trademarks, tradenames, corporate names, business
names, trade styles, service marks, logos, other source or business identifiers,
prints and labels on which any of the foregoing have appeared or appear, designs
and general intangibles of like nature, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and any applications in
connection therewith, including, without limitation, registrations, recordings
and applications in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State thereof or any other
country or any political subdivision thereof and (b) any reissues, extensions or
renewals thereof.
1.36. "UCC" shall mean the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of Texas. Unless otherwise defined
herein, terms that are defined in the UCC and used herein shall have the
meanings given to them in the UCC.
1.37. "Warrant Agreement" shall mean the Warrant Agreement dated as of even
date herewith entered into in connection with the Loan, pursuant to which
Borrower granted Lender the right to purchase that number of shares of Series E
Convertible Preferred Stock of Borrower as more particularly set forth therein.
SECTION 2. THE LOAN
2.1. Borrower shall pay interest on the Loan to Lender on the first day of
each month commencing with the first full month occurring after the date hereof,
until the earlier to occur of December 31, 1997 or consummation of the IPO, at a
rate equal to the lesser of (i) 14% per annum of the outstanding principal of
the Loan and (ii) the Maximum Rate; provided, however, that if the IPO shall not
have occurred on or prior to December 31, 1997, Borrower shall pay interest as
hereinafter provided. The outstanding principal amount of the Loan, together
with interest thereon pre-computed at the rate of the lesser of (i) 14% per
annum and (ii) the Maximum Rate shall be due and payable on the date which is
the earlier to occur of consummation of the IPO or the Maturity Date; provided,
however, that if the IPO is not consummated on or prior to December 31, 1997,
then the Loan shall be repaid commencing January 1, 1998 in 36 monthly
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installments of principal and interest, with interest accruing on the unpaid
principal amount of the Loan at rate equal to the lesser of (i) 15% and (ii) the
Maximum Rate. If any payment under the Note shall be payable on a day other than
a business day, then such payment shall be due and payable on the next
succeeding business day.
2.2. Borrower shall have the option to prepay the Loan, without penalty
or premium, in whole or in part, as of any Payment Date after the Closing Date
by paying to Lender such principal amount being prepaid together with all
accrued and unpaid interest with respect to such principal amount, as of the
date of such prepayment.
2.3. (a) Borrower shall within 45 days of the effective date of its Initial
Public Offering prepay the Loan, in whole, as of the next Payment Date by paying
to Lender such principal amount being prepaid together with all accrued and
unpaid interest with respect to such principal amount, as of the date of such
prepayment.
(b) If (i) an Event of Default of the type specified in Section 8.1 hereof
has occurred, or (ii) the IPO is not consummated on or prior to December 31,
1997 and at any time thereafter Borrower shall issue or sell any shares of its
preferred stock in connection with an equity financing (such transaction being,
an "Equity Financing"), then at any time and from time to time after or
simultaneously with the consummation of such Equity Financing Lender, upon not
less than 30 days prior written notice to Borrower (the first business day
following such 30-day period being the "Conversion Date"), shall have the right
to convert all (and only all) of the outstanding amount owing under the Loan
into that number of shares of such preferred stock sold or to be sold in such
Equity Financing equal to the quotient of (A) the sum of (i) the aggregate
principal amount of the Loan on the Conversion Date and (ii) the aggregate
accrued and unpaid interest with respect thereto as of the Conversion Date, and
(iii) any and all outstanding fees and expenses in connection with the Note,
divided by (B) the price per share paid by purchasers in such Equity Financing.
Notwithstanding anything contained herein to the contrary, the provisions of
this paragraph (b) shall not be applicable to any transaction in connection with
the issuance of "Excluded Securities" (as such term is defined in the Amended
and Restated Certificate of Incorporation of Borrower). Nothing contained herein
shall be construed to prevent or compel Lender to exercise its rights under the
Warrant Agreement.
(c) Upon exercise of any conversion by Lenders pursuant to paragraph (b)
hereof, Borrower shall promptly issue to Lender such certificates as shall be
necessary to evidence shares of preferred stock issuable upon exercise of such
conversion and Lender shall return the Note, together with a satisfactory note
power executed in blank.
2.4. (a) No provision of this Agreement or any other Loan Document shall
require the payment or the collection of interest in excess of the maximum
amount permitted by applicable law. If any excess of interest in such respect is
hereby provided for, or shall be adjudicated to be so provided, in any Loan
Document or Excluded Agreement or otherwise in connection with this loan
transaction, the provisions of this Section shall govern and prevail and neither
the Borrower nor the sureties, guarantors, successors, or assigns of the
Borrower shall be obligated to pay the excess amount of such interest or any
other excess sum paid for the use, forbearance, or detention of sums loaned
pursuant hereto. In the event the Lender ever receives, collects, or applies as
interest any such sum, such amount which would be in excess of the maximum
amount permitted by applicable law shall be applied as a payment and reduction
of the principal of the indebtedness evidenced by the Note; and, if the
principal of the Note has been paid in full, any remaining excess shall
forthwith be paid to the Borrower. In determining whether
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or not the interest paid or payable exceeds the Maximum Rate, the Borrower and
the Lender shall, to the extent permitted by applicable law, (a) characterize
any non-principal payment as an expense, fee or premium rather than as interest,
(b) exclude voluntary prepayments and the effects thereof, and (c) amortize,
prorate, allocate, and spread in equal or unequal parts the total amount of
interest throughout the entire contemplated term of the indebtedness evidenced
by the Note so that interest for the entire term does not exceed the Maximum
Rate.
(b) In the event any interest is not paid when due hereunder, delinquent
interest shall be added to principal and shall bear interest on interest,
compounded at the rate set forth in Section 2.1, not to exceed the Maximum Rate.
(c) Upon and during the continuation of an Event of Default hereunder, all
Secured Obligations, including principal, interest, compounded interest, and
professional fees, shall bear interest at a rate per annum equal to the lesser
of (i) the rate set forth in Section 2.1 plus two percent (2%) per annum and
(ii) the Maximum Rate ("Default Rate").
SECTION 3. SECURITY INTEREST
As security for the prompt and complete payment in full when due (whether
at stated payment dates or otherwise) of all the Secured Obligations and in
order to induce Lender to make the Loan upon the terms and subject to the
conditions of the Note, Borrower hereby assigns, conveys, mortgages, pledges,
hypothecates and transfers to Lender for security purposes only, and hereby
grants to Lender a second priority security interest in, pari passu with the
security interest in favor of Comdisco, all of Borrower's right, title and
interest in, to and under each of the following (all of which being hereinafter
collectively called the "Collateral"):
(a) All Receivables;
(b) All Equipment;
(c) All Fixtures;
(d) All General Intangibles;
(e) All Inventory;
(f) All other goods and personal property of Borrower whether tangible or
intangible and whether now or hereafter owned or existing, leased,
consigned by or to, or acquired by, Borrower and wherever located; and
(g) To the extent not otherwise included, all Proceeds of each of the
foregoing and all accessions to, substitutions and replacements for,
and rents, profits and products of each of the foregoing.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BORROWER
The Borrower represents, warrants and agrees that;
4.1. Borrower owns all right title and interest in and to the Collateral,
free of all liens, security interests, encumbrances and claims whatsoever,
except for Permitted Liens.
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4.2. Borrower has the full power and authority to, and does hereby grant
and convey to the Lender, a perfected second priority security interest (pari
passu with the security interest in favor of Comdisco) in the Collateral as
security for the Secured Obligations, free of all liens, security interests,
encumbrances and claims, other than Permitted Liens, and shall execute such
Uniform Commercial Code financing statements in connection herewith as the
Lender may reasonably request. Except as set forth herein, no other lien,
security interest, adverse claim or encumbrance has been created by Borrower or
is known by Borrower to exist with respect to any Collateral.
4.3. Borrower is a corporation duly organized, legally existing and in good
standing under the laws of the State of Delaware, and is duly qualified as a
foreign corporation in all jurisdictions in which the nature of its business or
location of its properties require such qualifications and where the failure to
be qualified would have a Material Adverse Effect.
4.4. Borrower's execution, delivery and performance of the Note, this
Agreement, the execution and delivery of all financing statements, all other
Loan Documents required to be delivered or executed in connection herewith, and
the Excluded Agreements have been duly authorized by all necessary corporate
action of Borrower, the individual or individuals executing the Loan Documents
and the Excluded Agreements were duly authorized to do so; and the Loan
Documents and the Excluded Agreements constitute legal, valid and binding
obligations of the Borrower, enforceable in accordance with their respective
terms, subject to applicable bankruptcy, insolvency, reorganization or other
similar laws generally affecting the enforcement of the rights of creditors.
4.5. This Agreement, the other Loan Documents and the Excluded Agreements
do not violate any provisions of Borrower's Certificate of Incorporation, bylaws
or any contract, agreement, law, regulation, order, injunction, judgment, decree
or writ to which the Borrower is subject, or result in the creation or
imposition of any lien, security interest or other encumbrance upon the
Collateral, other than those created by this Agreement and Permitted Liens.
4.6. The execution, delivery and performance of this Agreement, the other
Loan Documents and the Excluded Agreements do not require the consent or
approval of any other person or entity including, without limitation, any
regulatory authority or governmental body of the United States or any state
thereof or any political subdivision of the United States or any state thereof
except for those already obtained.
4.7. No event which has had or could reasonably be expected to have a
Material Adverse Effect has occurred and is continuing.
4.8. No fact or condition exists that would (or would, with the passage of
time, the giving of notice, or both) constitute a default under the Loan
Agreement between Borrower and Senior Creditor.
4.9. Borrower has filed or has obtained extensions for the filing of all
tax returns, federal, state and local, which it is required to file and has duly
paid or fully reserved for all taxes or installments thereof (including any
interest or penalties) as and when due, which have or may become due pursuant to
such returns or pursuant to any assessment received by Borrower for the three
(3) years preceding the Closing Date, if any (including any taxes being
contested in good faith and by appropriate proceedings).
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SECTION 5. INSURANCE
5.1. So long as there are any Secured Obligations outstanding, Borrower
shall cause to be carried and maintained adequate public liability and
professional liability insurance with responsible companies reasonably
satisfactory to Lender in such amounts and against such risks as is customarily
maintained by similar businesses and by owners of similar property in the same
general area.
5.2. THE BORROWER SHALL INDEMNIFY THE LENDER AND EACH AFFILIATE THEREOF AND
THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS, AND AGENTS FROM, AND
HOLD EACH OF THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES, CLAIMS,
DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING
ATTORNEYS' FEES) TO WHICH ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR
INDIRECTLY ARISE FROM OR RELATE TO THE DISPOSITION OR UTILIZATION OF THE
COLLATERAL, OTHER THAN CLAIMS ARISING OUT OF OR CAUSED BY LENDER'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITING ANY PROVISION OF THIS
AGREEMENT OR OF ANY OTHER LOAN DOCUMENT, IT IS THE EXPRESS INTENTION OF THE
PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED UNDER THIS SECTION SHALL BE
INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND ALL, SUCH LOSSES,
LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND
EXPENSES (INCLUDING ATTORNEYS' FEES) RELATING TO THE DISPOSITION OR UTILIZATION
OF THE COLLATERAL ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY
NEGLIGENCE OF SUCH PERSON BUT NOT AGAINST LOSSES, LIABILITIES, CLAIMS, DAMAGES,
PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS OR EXPENSES ARISING OUT OF SUCH
PERSON'S ACTS OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
SECTION 6. COVENANTS OF BORROWER
Borrower covenants and agrees as follows at all times while any of the
Secured Obligations remain outstanding:
6.1. Borrower shall furnish to Lender the financial statements listed
hereinafter, each prepared in accordance with generally accepted accounting
principles consistently applied (the "Financial Statements"):
(a) as soon as practicable (and in any event within thirty (30) days)
after the end of each month, unaudited interim financial statements as of
the end of such month (prepared on a consolidated and consolidating basis,
if applicable), including balance sheet and related statements of income
and cash flows accompanied by a report detailing any material contingencies
(including the commencement of any material litigation by or against
Borrower) or any other occurrence that could reasonably be expected to have
a Material Adverse Effect, all certified by Borrower's Chief Executive
Officer or Chief Financial Officer to be true and correct;
(b) as soon as practicable (and in any event within ninety (90) days)
after the end of each fiscal year, unqualified audited financial statements
as of the end of such year (prepared on a consolidated and consolidating
basis, if applicable), including balance sheet and related statements of
income and cash flows, and setting forth in comparative form the
corresponding figures for the preceding fiscal year, certified by a firm of
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independent certified public accountants selected by Borrower and
reasonably acceptable to Lender, accompanied by any management report from
such accountants;
(c) promptly after the sending or filing thereof, as the case may be,
copies of any proxy statements, financial statements or reports which
Borrower has made available to its shareholders and copies of any regular,
periodic and special reports or registration statements which Borrower
files with the Securities and Exchange Commission or any governmental
authority which may be substituted therefor, or any national securities
exchange; and
(d) promptly, any additional information, financial or otherwise
(including, but not limited, to tax returns and names of principal
creditors) as Lender reasonably believes necessary to evaluate Borrower's
continuing ability to meet its financial obligations.
6.2. Borrower shall permit any authorized representative of Lender and its
attorneys and accountants on reasonable prior notice to inspect, examine and
make copies and abstracts of the books of account and records of Borrower,
including bank statements, at reasonable times during normal business hours. In
addition, such representative of Lender and its attorneys and accountants shall
have the right to meet with management and officers of the Company to discuss
such books of account and records.
6.3. Borrower will from time to time execute, deliver and file, alone or
with Lender, any financing statements, security agreements or other documents;
procure any instruments or documents as may be requested by Lender; and take all
further action that may be necessary or desirable, or that Lender may request,
to confirm, perfect, preserve and protect the security interests intended to be
granted hereby, and in addition, and for such purposes only, Borrower hereby
authorizes Lender to execute and deliver on behalf of Borrower and to file such
financing statements, security agreement and other documents without the
signature of Borrower either in Lender's name or in the name of Borrower as
agent and attorney-in-fact for Borrower. The parties agree that a carbon,
photographic or other reproduction of this Agreement shall be sufficient as a
financing statement and may be filed in any appropriate office in lieu thereof.
6.4. Borrower shall protect and defend Borrower's title as well as the
interest of the Lender against all persons claiming any interest adverse to
Borrower or Lender and shall at all times keep the Collateral free and clear
from any legal process, liens or encumbrances whatsoever (except any placed
thereon by Lender and any Permitted Lien) and shall give Lender immediate
written notice thereof.
6.5. Borrower shall continue to collect its Accounts in the ordinary course
of business.
6.6. Borrower shall maintain and protect its properties, assets and
facilities, including without limitation, its Equipment and Fixtures, in good
order and working repair and condition (taking into consideration ordinary wear
and tear) and from time to time make or cause to be made all necessary and
proper repairs, renewals and replacements thereto and shall competently manage
and care for its property in accordance with past practices.
6.7. Borrower shall not merge with and into any other entity; or sell or
convey all or substantially all of its assets or stock to any other person or
entity without notifying Lender a minimum of thirty (30) days prior to the
closing date and requesting Lender's consent to the assignment of all of
Borrower's Secured Obligations hereunder to the successor entity in form
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and substance satisfactory to Lender. In the event Lender does not consent to
such assignment the parties agree Borrower shall prepay the loan in accordance
with Section 2.2 hereof.
6.8. Borrower shall not, without the prior written consent of Lender, such
consent not to be unreasonably withheld, declare or pay any cash dividend or
make a distribution on any class of stock, other than pursuant to employee
repurchase plans upon an employee's death or termination of employment or
transfer, sell, lease, lend or in any other manner convey any equitable,
beneficial or legal interest in any material portion of the assets of Borrower
(except inventory sold in the normal course of business).
6.9. Upon the reasonable request of Lender, Borrower shall, during normal
business hours, make the Inventory and Equipment available to Lender for
inspection at the place where it is normally located and shall make Borrower's
log and maintenance records pertaining to the Inventory and Equipment available
to Lender for inspection. Borrower shall take all action necessary to maintain
such logs and maintenance records in a current and accurate fashion.
6.10. Borrower covenants and agrees to pay when due, all taxes, fees or
other charges of any nature whatsoever (together with any related interest or
penalties) now or hereafter imposed or assessed against Borrower, Lender or the
Collateral or upon Borrower's ownership, possession, use, operation or
disposition thereof or upon Borrower's rents, receipts or earnings arising
therefrom. Borrower shall file or request any extension on or before the due
date therefor all personal property tax returns in respect of the Collateral.
Notwithstanding the foregoing, Borrower may contest, in good faith and by
appropriate proceedings, taxes for which Borrower maintains adequate reserves
therefor.
6.11. Borrower shall not relocate any item of the Collateral unless such
relocation shall be within the continental United States and Borrower shall
first (a) cause to be filed and/or delivered to the Lender all Uniform
Commercial Code financing statements, certificates or other documents or
instruments necessary to continue in effect the perfected security interest of
the Lender in the Collateral, and (b) have given the Lender no less than ten
(10) days prior written notice of such relocation.
SECTION 7. CONDITIONS PRECEDENT TO LOAN
The obligation of Lender to fund the Loan on the Closing Date shall be
subject to Borrower's request, and Lender's satisfactory completion of its due
diligence and approval process, and satisfaction by Borrower or waiver by
Lender, in Lender's sole discretion, of the following conditions:
7.1. The Closing Date shall occur on or before December 31, 1997.
7.2. Borrower shall have achieved seventy-five (75%) percent or more of its
cumulative revenue and cumulative income projections dated July 25, 1997 in the
prior six (6) months.
7.3. Document Delivery. Borrower, on or prior to the Closing Date, shall
have delivered to Lender the following:
(a) executed originals of the Note, and all other Loan Documents, and
the Warrant Agreement, including any documents reasonably required by
Lender to effectuate the liens of Lender, with respect to all Collateral;
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(b) certified copy of resolutions of Borrower's board of directors
evidencing approval of the borrowing and other transactions evidenced by
the Loan Documents and the Warrant Agreement;
(c) certified copies of the Certificate of Incorporation and the
Bylaws, as amended through the Closing Date, of Borrower;
(d) certificate of good standing for Borrower from its state of
incorporation and similar certificates from all other jurisdictions in
which it does business and where the failure to be qualified would have a
Material Adverse Effect;
(e) payment of the Facility Fee;
(f) Borrower's written instructions to Lender regarding the manner of
disbursement of the Loan, which must be reasonably satisfactory to Lender;
and
(g) such other documents as Lender may reasonably request.
7.4. Perfection of Security Interests. Borrower shall have taken or caused
to be taken such actions requested by Lender to grant Lender a second priority
perfected security interest in the Collateral, subject only to Permitted Liens.
Such actions shall include, without limitation, the delivery to Lender of all
appropriate financing statements, executed by Borrower, as to the Collateral
granted by Borrower for all jurisdictions as may be necessary or desirable to
perfect the security interest of Lender in such Collateral
7.5. Absence of Events of Defaults. As of the Closing Date, no fact or
condition exists that would (or would, with the passage of time, the giving of
notice, or both) constitute an Event of Default under this Agreement or any of
the Loan Documents and no fact or condition exists that would (or would, with
the passage of time, the giving of notice, or both) constitute a default under
the Senior Loan Documents between Borrower and Senior Creditor.
7.6. Material Adverse Effect. As of the Closing Date, no event which has
had or could reasonably be expected to have a Material Adverse Effect has
occurred and is continuing.
SECTION 8. DEFAULT
The occurrence of any one or more of the following events (herein called
"Events of Default") shall constitute a default hereunder and under the Note and
other Loan Documents:
8.1. Borrower defaults in the payment of any principal, interest or other
Secured Obligation involving the payment of money under this Agreement, the Note
or any of the other Loan Documents, and such default continues for more than
five (5) days after the due date thereof; or
8.2. Borrower defaults in the performance of any other covenant or
Secured Obligation of Borrower hereunder or under the Note or any of the other
Loan Documents, and such default continues for more than twenty (20) days after
Lender has given notice of such default to Borrower.
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8.3. Any representation or warranty when made herein by Borrower shall
prove to have been false or misleading in any material respect, which default
shall have continued unremedied for a period of ten (10) days after written
notice from Lender; or
8.4. Borrower shall make an assignment for the benefit of creditors, or
shall admit in writing its inability to pay its debts as they become due, or
shall file a voluntary petition in bankruptcy, or shall file any petition or
answer seeking for itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation pertinent to such circumstances, or shall seek
or consent to or acquiesce in the appointment of any trustee, receiver, or
liquidator of Borrower or of all or any substantial part (33-1/3% or more) of
the properties of Borrower; or Borrower or its directors or majority
shareholders shall take any action initiating the dissolution or liquidation of
Borrower; or
8.5. Sixty (60) days shall have expired after the commencement of an action
by or against Borrower seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, without such action being dismissed or all
orders or proceedings thereunder affecting the operations or the business of
Borrower being stayed; or a stay of any such order or proceedings shall
thereafter be set aside and the action setting it aside shall not be timely
appealed; or Borrower shall file any answer admitting or not contesting the
material allegations of a petition filed against Borrower in any such
proceedings; or the court in which such proceedings are pending shall enter a
decree or order granting the relief sought in any such proceedings; or
8.6. Sixty (60) days shall have expired after the appointment, without the
consent or acquiescence of Borrower, of any trustee, receiver or liquidator of
Borrower or of all or any substantial part of the properties of Borrower without
such appointment being vacated; or
8.7. The default by Borrower under any Loan Documents, any other promissory
note or agreement evidencing indebtedness for borrowed money; or
8.8. If any obligation of Borrower (other than the Secured Obligations)
involving an amount in excess of $100,000.00 is not paid when due or within any
applicable grace period, or such obligation becomes or is declared to be due and
payable prior to the expressed maturity thereof, or there shall have occurred an
event which, with the giving of notice of lapse of time, or both, would cause
any such obligation to become, or allow any such obligation to be declared to
be, due and payable or the entry of any judgment against Borrower involving an
award in excess of $100,000.00 that would have a Material Adverse Effect, that
has not been bonded or stayed on appeal within thirty (30) days; or
8.9. The occurrence of any material default under the Senior Loan
Documents; or
8.10. The occurrence of any material default under the Excluded Agreements.
SECTION 9. REMEDIES
Upon the occurrence of any one or more Events of Default, Lender, at its
option, may declare the Note and all of the other Secured Obligations to be
accelerated and immediately due and payable (provided, that upon the occurrence
of an Event of Default of the type described in Subsections 8.4 or 8.5, the Note
and all of the other Secured Obligations shall automatically be accelerated and
made due and payable without any further act), whereupon the unpaid principal
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Sub. Loan and Security Agr
<PAGE>
of and accrued interest on such Note and all other outstanding Secured
Obligations shall become immediately due and payable, and shall thereafter bear
interest at the Default Rate set forth in, and calculated according to, Section
2.4(c) of this Agreement. Subject to the terms of the Subordination Agreement,
Lender may exercise all rights and remedies with respect to the Collateral under
the Loan Documents or otherwise available to it under applicable law, including
the right to release, hold or otherwise dispose of all or any part of the
Collateral and the right to occupy, utilize, process and commingle the
Collateral.
Upon the happening and during the continuance of any Event of Default,
Lender may then, or at any time thereafter and from time to time, apply,
collect, sell in one or more sales, lease or otherwise dispose of, any or all of
the Collateral, in its then condition or following any commercially reasonable
preparation or processing, in such order as Lender may elect, and any such sale
may be made either at public or private sale at its place of business or
elsewhere. Borrower agrees that any such public or private sale may occur upon
five (5) calendar days' prior written notice to Borrower. Lender may require
Borrower to assemble the Collateral and make it available to Lender at a place
designated by Lender which is reasonably convenient to Lender and Borrower. The
proceeds of any sale, disposition or other realization upon all or any part of
the Collateral shall be distributed by Lender in the following order of
priorities:
First, to Lender in an amount sufficient to pay in full Lender's costs and
professionals' and advisors' fees and expenses;
Second, to Lender in an amount equal to the then unpaid amount of the
Secured Obligations in such order and priority as Lender may choose in its sole
discretion; and
Finally, upon payment in full of all of the Secured Obligations, to
Borrower or its representatives or as a court of competent jurisdiction may
direct.
Lender shall be deemed to have acted reasonably in the custody,
preservation and disposition of any of the Collateral if it complies with the
obligations of a secured party under Section 9.207 of the UCC.
Lender's rights and remedies hereunder are subject to the terms of the
Subordinated Agreement.
SECTION 10. MISCELLANEOUS
10.1. Continuation of Security Interest. This is a continuing Agreement and
the grant of a security interest hereunder shall remain in full force and effect
and all the rights, powers and remedies of Lender hereunder shall continue to
exist until the Secured Obligations are paid in full as the same become due and
payable at which time Lender has executed a written termination statement (which
Lender shall execute within a reasonable time after full payment of the Secured
Obligations hereunder), reassigning to Borrower, without recourse, the
Collateral and all rights conveyed hereby and returning possession of the
Collateral to Borrower. The rights, powers and remedies of Lender hereunder
shall be in addition to all rights, powers and remedies given by statute or rule
of law and are cumulative. The exercise of any one or more of the rights, powers
and remedies provided herein shall not be construed as a waiver of or election
of remedies with respect to any other rights, powers and remedies of Lender.
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Sub. Loan and Security Agr
<PAGE>
10.2. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under such law, such provision shall be ineffective only to the extent
and duration of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
10.3. Notice. Except as otherwise provided herein, all notices and service
of process required, contemplated, or permitted hereunder or with respect to the
subject matter hereof shall be in writing, and shall be deemed to have been
validly served, given or delivered upon the earlier of: (i) the first business
day after transmission by facsimile or hand delivery or deposit with an
overnight express service or overnight mail delivery service; or (ii) the third
calendar day after deposit in the United States mails, with proper first class
postage prepaid, and shall be addressed to the party to be notified as follows:
(a) If to Lender:
GALTNEY CORPORATE SERVICES, INC.
Attention: Karen Kassouf
820 Gessner, Suite 1000
Houston, Texas 77024-4259
Facsimile: (713) 467-8031
With a copy to:
Galtney Corporate Services, Inc.
Attention: Gary Cordell
820 Gessner, Suite 1000
Houston, Texas 77024-4259
Facsimile: (713) 467-8031
(b) If to Borrower:
BONE, MUSCLE AND JOINT, INC.
Attention: David H. Fater
4800 North Federal Highway, Suite 104-D
Boca Raton, FL 33431
Facsimile: (561) 391-1389
Phone: (561) 391-1311
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza, 41st Floor
New York, New York 10112
Attention: Lawrence G. Graev, Esq.
Phone: (212) 408-2400
Facsimile: (212) 408-2420
or to such other address as each party may designate for itself by like notice.
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Sub. Loan and Security Agr
<PAGE>
10.4. Entire Agreement; Amendment. THIS AGREEMENT, THE NOTE, AND THE OTHER
LOAN DOCUMENTS REFERRED TO HEREIN AND THE EXCLUDED AGREEMENTS EMBODY THE FINAL,
ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR
COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR
ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR
VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR
DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE
PARTIES HERETO. The provisions of this Agreement and the other Loan Documents to
which the Borrower is a party may be amended or waived only by an instrument in
writing signed by the parties hereto.
10.5. Headings. The various headings in this Agreement are inserted for
convenience only and shall not affect the meaning or interpretation of this
Agreement or any provisions hereof.
10.6. No Waiver. The powers conferred upon Lender by this Agreement are
solely to protect its interest in the Collateral and shall not impose any duty
upon Lender to exercise any such powers. No omission, or delay, by Lender at any
time to enforce any right or remedy reserved to it, or to require performance of
any of the terms, covenants or provisions hereof by Borrower at any time
designated, shall be a waiver of any such right or remedy to which Lender is
entitled, nor shall it in any way affect the right of Lender to enforce such
provisions thereafter.
10.7. Survival. All agreements, representations and warranties contained in
this Agreement, the Note, the other Loan Documents and the Excluded Agreements
or in any document delivered pursuant hereto or thereto shall be for the benefit
of Lender and shall survive the execution and delivery of this Agreement and the
expiration or other termination of this Agreement.
10.8. Successor and Assigns. The provisions of this Agreement, the other
Loan Documents and the Excluded Agreements shall inure to the benefit of and be
binding on Borrower and its permitted assigns (if any). Borrower shall not
assign its obligations under this Agreement, the Note, any of the other Loan
Documents or the Excluded Agreements, without Lender's express written consent,
and any such attempted assignment shall be void and of no effect. Lender may
assign, transfer, or endorse its rights hereunder and under the other Loan
Documents or Excluded Agreements without prior notice to Borrower, and all of
such rights shall inure to the benefit of Lender's successors and assigns.
10.9. Further Indemnification. Borrower agrees to pay, and to save Lender
harmless from, any and all liabilities with respect to, or resulting from any
delay in paying, any and all excise, sales or other similar taxes which may be
payable or determined to be payable with respect to any of the Collateral or in
connection with any of the transactions contemplated by this Agreement other
than any income taxes of Lender.
10.10. Governing Law. This Agreement, the Note, the other Loan Documents
and the Excluded Agreements have been negotiated and delivered to Lender in the
State of Texas. Payment to Lender by Borrower of the Secured Obligations is due
in the State of Texas. This Agreement, the Note, the other Loan Documents and
the Excluded Agreements shall be governed by, and construed and enforced in
accordance with, the laws of the State of Texas, excluding conflict of laws
principles that would cause the application of laws of any other jurisdiction.
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Sub. Loan and Security Agr
<PAGE>
10.11. CONSENT TO JURISDICTION AND VENUE. ALL JUDICIAL PROCEEDINGS ARISING
IN OR UNDER OR RELATED TO THIS AGREEMENT, THE NOTE, ANY OF THE OTHER LOAN
DOCUMENTS OR EXCLUDED AGREEMENTS MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION LOCATED IN THE STATE OF TEXAS. BY EXECUTION AND DELIVERY
OF THIS AGREEMENT, EACH PARTY HERETO GENERALLY AND UNCONDITIONALLY: (A) CONSENTS
TO PERSONAL JURISDICTION IN HARRIS COUNTY, STATE OF TEXAS; (B) WAIVES ANY
OBJECTION AS TO JURISDICTION OR VENUE IN HARRIS COUNTY, STATE OF TEXAS; (C)
AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE IN THE
AFORESAID COURTS; AND (D) IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT
RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT, THE NOTE, THE OTHER LOAN
DOCUMENTS OR EXCLUDED AGREEMENTS. SERVICE OF PROCESS ON ANY PARTY HERETO IN ANY
ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE EFFECTIVE IF GIVEN
IN ACCORDANCE WITH THE REQUIREMENTS FOR NOTICE SET FORTH IN SUBSECTION 10.3,
ABOVE AND SHALL BE DEEMED EFFECTIVE AND RECEIVED AS SET FORTH IN SUBSECTION
10.3, ABOVE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF EITHER PARTY TO BRING
PROCEEDINGS IN THE COURTS OF ANY OTHER JURISDICTION.
10.12. Mutual Waiver Of Jury Trial. Because disputes arising in connection
with complex financial transactions are most quickly and economically resolved
by an experienced and expert person and the parties wish applicable state and
federal laws to apply (rather than arbitration rules), the parties desire that
their disputes be resolved by a judge applying such applicable laws. EACH OF
BORROWER AND LENDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY
OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR
ANY OTHER CLAIM (COLLECTIVELY, "CLAIMS") ASSERTED BY BORROWER AGAINST LENDER OR
ITS ASSIGNEE AND/OR BY LENDER OR ITS ASSIGNEE AGAINST BORROWER. This waiver
extends to all such Claims, including, without limitation, Claims which involve
persons or entities other than Borrower and Lender; Claims which arise out of or
are in any way connected to the relationship between Borrower and Lender; and
any Claims for damages, breach of contract arising out of this Agreement, any
other Loan Document or any of the Excluded Agreements, specific performance, or
any equitable or legal relief of any kind.
10.13. Confidentiality. Lender acknowledges that certain items of
Collateral, including, but not limited to trade secrets, source codes, customer
lists and certain other items of Intellectual Property, and any Financial
Statements provided pursuant to Section 6 hereof or the information provided to
it by Borrower, constitute proprietary and confidential information of the
Borrower (the "Confidential Information"). Accordingly, Lender agrees that any
Confidential Information it may obtain in the course of acquiring, perfecting or
foreclosing on the Collateral or otherwise provided under this Agreement,
provided such Confidential Information is marked as confidential by Borrower at
the time of disclosure, shall be received in the strictest confidence and will
not be disclosed to any other person or entity in any manner whatsoever, in
whole or in part, without the prior written consent of the Borrower, unless and
until Lender has acquired indefeasible title thereto.
10.14. Counterparts. This Agreement and any amendments, waivers, consents
or supplements hereto may be executed in any number of counterparts, and by
different parties hereto in separate counterparts, each of which when so
delivered shall be deemed an original, but all of which counterparts shall
constitute but one and the same instrument.
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Sub. Loan and Security Agr
<PAGE>
10.15. Non-Application of Chapter 15 of Texas Credit Code. The provisions
of Chapter 15 of the Texas Credit Code (Vernon's Texas Civil Statutes, Article
5069-15) are specifically declared by the parties hereto not to be applicable to
this Agreement or any of the other Loan Documents or to the transactions
contemplated hereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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Sub. Loan and Security Agr
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Lender have duly executed and
delivered this Agreement as of the day and year first above written.
BORROWER: BONE, MUSCLE & JOINT, INC.
Signature: /s/ David H. Fater
---------------------------
Print Name:
---------------------------
Title: ---------------------------
LENDER: GALTNEY CORPORATE SERVICES, INC.
Signature: /s/ Joe L. Moore
---------------------------
Print Name: Joe L. Moore
---------------------------
Title: Senior Vice President & Treasurer
---------------------------
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Sub. Loan and Security Agr
<PAGE>
THE SALE AND ISSUANCE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
UNDER THE SECURITIES LAW OF ANY STATE OR OTHER JURISDICTION. THESE SECURITIES
HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH,
THE DISTRIBUTION THEREOF. THESE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED, OR
TRANSFERRED UNLESS (I) A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO
THESE SECURITIES AND SUCH OFFER, SALE, PLEDGE, OR TRANSFER IS IN COMPLIANCE WITH
APPLICABLE SECURITIES LAW OF ANY STATE OR OTHER JURISDICTION OR (II) THERE IS AN
OPINION OF COUNSEL OR OTHER EVIDENCE, SATISFACTORY TO THE COMPANY, THAT AN
EXEMPTION THEREFROM IS AVAILABLE AND THAT SUCH OFFER, SALE, PLEDGE, OR TRANSFER
IS IN COMPLIANCE WITH APPLICABLE SECURITIES LAW OF ANY STATE OR OTHER
JURISDICTION.
BONE, MUSCLE AND JOINT, INC.
8.0% Promissory Note
January 14, 1997
$7,600.00
For value received, BONE MUSCLE AND JOINT, INC., a Delaware
corporation (the "Company"), hereby promises to pay to Oak VI Affiliates Fund,
Limited Partnership, having an office located at One Gorham Island, Westport,
Connecticut 06880, or its registered assigns (the "Holder"), the principal sum
of Seven Thousand Six Hundred Dollars ($7,600.00) plus interest thereon and on
any and all charges as hereinafter provided, on March 14, 1997, or at such
earlier time upon the occurrence of an "Event of Default" (as hereinafter
defined) (the "Maturity Date"). Principal and interest shall be payable in
lawful money of the United States of America, at the address of the Holder first
set forth above or at such other place as the legal holder may designate from
time to time in writing to the Company. Interest shall be computed on the basis
of a 360-day year of twelve (12) 30-day months.
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<PAGE>
The outstanding principal balance of this Note shall bear interest, in
arrears, from the date hereof at a rate per annum equal to eight percent (8.0%).
The Company agrees to pay interest (to the extent permitted by applicable law)
on any overdue principal or interest or from and after the occurrence and during
the continuance of an Event of Default hereunder, at a rate per annum equal to
the lesser of (a) eleven percent (11.0%) per annum or (b) the highest rate
allowed by applicable law, with such interest on overdue principal or interest
accruing from the Maturity Date. This Note may be prepaid by the Company, in
whole or in part, without penalty or premium.
It is acknowledged and agreed by the Company and the Holder that this
Note is one of a series of 8.0% Promissory Notes issued by the Company to the
Holder and each of the other "Purchasers" (such Promissory Notes being issued to
the Other Holders (as defined below) being hereinafter referred to as the "Other
Notes") identified in the Schedule of Purchasers set forth as Schedule I to that
certain Note Agreement (the "Note Agreement"), dated as of even date hereof (the
"Other Holders") among the Company, the initial Holder hereof and others. This
Note shall rank equally and ratably and without priority over each of the Other
Notes issued to the Other Holders. Accordingly, no payment shall be made
hereunder unless payment is made with respect to the Other Notes issued to the
Other Holders in proportion to the amount of the respective unpaid principal
balances outstanding with respect to each of the respective Other Notes.
ARTICLE I
REGISTRATION; TRANSFER; REPLACEMENT
1.1. Payment on Non-Business Days. Whenever any payment to be made
shall be due on a Saturday, Sunday or a public holiday under the laws of the
State of New York, such payment may be made on the next succeeding business day.
1.2. Registration, etc. The Company shall maintain at its principal
office a register of this Note and shall record therein the name and address of
the registered holder of this Note, the address to which notices are to be sent
and the address to which payments are to be made as designated by the registered
holder if other than the address of the initial Holder, and the particulars of
all transfers, exchanges and replacements of this Note. No transfer of this Note
shall be valid unless the registered holder or its duly appointed attorney
requests such transfer to be made on such register, upon surrender therefor for
exchange as hereinafter provided, accompanied by an instrument in writing, in
form and execution reasonably satisfactory to the Company. Each Note issued,
whether originally or upon transfer, exchange or replacement of this Note, shall
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<PAGE>
be registered on the date of execution thereof by the Company. The registered
holder of this Note shall be that person in whose name this Note has been so
registered by the Company. A registered holder shall be deemed the owner of this
Note for all purposes and, subject to the provisions hereof, shall be entitled
to the principal and interest evidenced by such Note, free from all equities or
rights of set-off or counterclaim between the Company and the transferor of such
registered holder or any previous registered holder of such Note.
1.3. Transfer and Exchange. This Note may not be transferred without
compliance with applicable federal and state securities laws (including delivery
of legal opinions reasonably satisfactory to the Company, if such is requested
by the Company). The registered holder of this Note or its duly appointed
attorney may, from and after the date hereof and prior to repayment of the
principal balance outstanding hereunder, plus interest thereon, surrender this
Note at the principal office of the Company for transfer or exchange. Within a
reasonable time after notice to the Company from a registered holder of its
intention to make such exchange and, without expense (other than transfer taxes,
if any) to such registered holder, the Company shall issue in exchange therefor
another Note dated the date of this Note, and for the same aggregate principal
amount as the unpaid principal amount of, the Note so surrendered, having the
same maturity and containing the same provisions and subject to the same terms
and conditions as the Note so surrendered. Each new Note shall be made payable
to such person or registered assigns as the registered holder of such
surrendered Note may designate, and such transfer or exchange shall be made in
such a manner that no gain or loss of principal shall result therefrom.
1.4. Replacement. Upon receipt of evidence satisfactory to the Company
of the loss, theft, destruction or mutilation of this Note (or any replacement
hereof) and, if requested by the Company in the case of any such loss, theft or
destruction, upon delivery of an indemnity bond or other agreement or security
reasonably satisfactory to the Company, or, in the case of any such mutilation,
upon surrender and cancellation of such Note, the Company will issue a new Note,
of like tenor and amount and dated the date of such subsequent issue, in lieu of
such lost, stolen, destroyed or mutilated Note.
ARTICLE II
EVENTS OF DEFAULT
2.1 Events of Default. It shall be an aEvent of Defaulta under this
Note upon the occurrence of any of the following events:
(a) The Company shall fail to make any payment of principal,
interest or other amount when due hereunder, whether upon the Maturity Date or
otherwise; or
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<PAGE>
(b) The Company shall fail to perform any other material covenant,
term or provision of this Note; or
(c) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for the relief of creditors under any
bankruptcy or similar laws are instituted by or against the Company, and if
instituted against the Company, are consented to or are not dismissed within 60
days after such institution; or
(d) The Company becomes bankrupt or insolvent, or makes an
assignment for the benefit of creditors or the Company applied for, or consents
to the appointment of a custodian, liquidator, trustee or receiver for the
Company of all or a majority of its assets.
2.2 Remedies Upon An Event of Default. If an Event of Default shall
have occurred and shall be continuing, the Holder of this Note may at any time
declare the entire unpaid principal balance of this Note, together with interest
thereon at the applicable rate, due and payable, and thereupon, the same shall
be so due and payable, without presentment, demand, protest, or notice, all of
which are hereby waived by the Company. No course of delay on the part of the
Holder shall operate as a waiver thereof or otherwise prejudice the right of the
Holder or any Other Holder. No remedy conferred hereby shall be exclusive of any
other remedy referred to herein or now or hereafter available at law, in equity,
by statute or otherwise.
ARTICLE III
MISCELLANEOUS
3.1. Late Charge. The Holder may collect a "late charge" equal to five
percent (5%) of any payment of interest or principal or both which is not paid
within five (5) days of the Maturity Date. Late charges shall be separately
charged to and collected from the Company and shall be due upon demand by the
Holder.
3.2. Fees and Expenses. The Company shall pay all costs and expenses,
including reasonable attorneys' fees and expenses, incurred by the Holder in
connection with the preparation, negotiation, amendment, collection and
enforcement of this Note.
3.3. Governing Law. This Note is being delivered as a sealed instrument
in the State of New York and shall be construed in accordance with the laws
thereof.
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<PAGE>
3.4. Headings. Article and section headings in this Note are included
herein for purposes of convenience of reference only and shall not constitute a
part of this Note for any other purpose.
3.5. Surrender in Exchange. Any portion of the outstanding principal
under this Note may be used by the Holder hereof to pay for any securities,
including equity securities, of the Company which the Holder hereof may from
time to time purchase from the Company.
3.6. Binding Effect. The obligations of the Company set forth herein
shall be binding upon the successors and assigns of the Company, whether or not
such successors or assigns are permitted by the terms hereof. The rights of the
Holder hereof may not be transferred, except in compliance with Section 4.8
hereof.
3.7. Amendments. This Note may not be modified or amended in any manner
except in a writing executed by the Company and the Holder.
3.8. Compliance with Securities Laws. The Holder of this Note
acknowledges that this Note is being acquired solely for the Holder's own
account and not as a nominee for any other party, and for investment, and that
the Holder shall not offer, sell or otherwise dispose of this Note except under
circumstances that will not result in a violation of the Act or any state
securities laws. This Note and any Note issued in substitution or replacement
therefor shall be stamped or imprinted with a legend in substantially the
following form:
"THE SALE AND ISSUANCE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAW OF ANY
STATE OR OTHER JURISDICTION. THESE SECURITIES HAVE BEEN ACQUIRED
FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE
DISTRIBUTION THEREOF. THESE SECURITIES MAY NOT BE OFFERED, SOLD,
PLEDGED, OR TRANSFERRED UNLESS (I) A REGISTRATION STATEMENT UNDER
THE ACT IS IN EFFECT AS TO THESE SECURITIES AND SUCH OFFER, SALE,
PLEDGE, OR TRANSFER IS IN COMPLIANCE WITH APPLICABLE SECURITIES LAW
OF ANY STATE OR OTHER JURISDICTION OR (II) THERE IS AN OPINION OF
COUNSEL OR OTHER EVIDENCE, SATISFACTORY TO THE COMPANY, THAT AN
EXEMPTION THEREFROM IS AVAILABLE AND THAT SUCH OFFER, SALE, PLEDGE,
OR TRANSFER IS IN COMPLIANCE WITH APPLICABLE SECURITIES LAW OF ANY
STATE OR OTHER JURISDICTION."
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<PAGE>
3.9. Company Waivers.
(a) Except as otherwise specifically provided herein, the Company
and all others that may become liable for all or any part of the obligations
evidenced by this Note, hereby waive presentment, demand, notice of nonpayment,
protest and all other demands and notices in connection with the delivery,
acceptance, performance or enforcement of this Note, and do hereby consent to
any number of renewals of extensions of the time or payment hereof and agree
that any such renewals or extensions may be made without notice to any such
persons and without affecting their liability herein and do further consent to
the release of any person liable hereon, all without affecting the liability of
the other persons, firms, or corporations liable for the payment of this Note;
AND DO HEREBY WAIVE TRIAL BY JURY.
(b) THE COMPANY ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS
NOTE IS A PART IS A COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED BY
APPLICABLE LAW, HEREBY WAIVES ITS RIGHT TO NOTICE AND HEARING WITH RESPECT TO
ANY PREJUDGMENT REMEDY WHICH THE HOLDER OR ITS SUCCESSORS OR ASSIGNS MAY DESIRE
TO USE.
BONE, MUSCLE AND JOINT, INC.
By:
Its: President and Chief Executive Officer
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<PAGE>
EXECUTION COPY
THIS MANAGEMENT SERVICES AGREEMENT (the "Agreement") is
entered into as of December 23, 1996 (the "Signature Date"),
effective as of November 1, 1996, by and between SOUTH TEXAS
SPINAL CLINIC, .A., a Texas professional association (the
"Medical Group"), and BONE, MUSCLE AND JOINT, INC., a
Delaware corporation (the "Management Company"), with
reference to the following facts:
A. The Medical Group is engaged in the business (the "Medical
Business") of providing orthopedic medical and surgical services and related
medical and ancillary services to the general public.
B. The Management Company is a corporation engaged in the business (the
"Management Business") of providing management, administrative, financial,
marketing, information technology, and related services to professional medical
organizations.
C. Concurrently herewith, the Management Company and the Medical Group
have entered into an Asset Purchase Agreement (the "Asset Purchase Agreement"),
pursuant to which the Management Company has acquired substantially all of the
assets of the Medical Group.
D. The Management Company and the Medical Group now desire to enter
into this Management Services Agreement, pursuant to which, among other things,
the Management Company will render certain management and administrative
services to the Medical Group.
NOW, THEREFORE, the Medical Group and the Management Company hereby
agree as follows:
<PAGE>
SECTION I. Retention of the Management Company.
1.1. RETENTION.
The Medical Group hereby retains the Management Company to provide all
of the management and related services identified or referenced in Section 3
hereof and as otherwise required by this Agreement (collectively, the
"Management Services"), and the Management Company hereby accepts such retention
and agrees to provide such services, upon the terms and subject to the
conditions set forth herein.
1.2. EXCLUSIVITY.
During the term of this Agreement, the Management Company shall be the
exclusive provider of all management and administrative services utilized by the
Medical Group; provided, however, that the Medical Group may contract directly
with or otherwise engage individuals or companies for the provision of
accounting, legal, consulting, or other professional or advisory services
(provided that such services shall be in addition to, and not in replacement of,
the services to be provided by the Management Company hereunder), all in the
sole discretion of the Medical Group and at the sole cost of the Medical Group.
1.3. RELATIONSHIP OF PARTIES.
Notwithstanding anything contained herein to the contrary, (a) the
Management Company and the Medical Group intend to act and perform as
independent contractors, and the provisions hereof are not intended to create
any partnership, joint venture, or employment relationship between the parties,
and (b) the Management Company is hereby engaged solely to provide management
and administrative services to the Medical Group and shall not interfere with,
control, direct, or supervise the Medical Group or any medical professional
employed by the Medical Group in connection with the provision of professional
medical services.
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1.4. NO REFERRAL OBLIGATION.
The parties agree that the benefits to the Medical Group hereunder do
not require, are not payment for, and are not in any way contingent upon the
admission, referral, purchase, or any other arrangement for the provision of any
item or service to or for any of the Medical Group's patients in or from any
medical facility or laboratory or from any other entity owned, operated,
controlled, or managed by the Management Company. The Management Company shall
provide prior written notice to the Medical Group before acquiring any
ownership, investment interest, or control in, or entering into any agreement or
arrangement pursuant to which the Management Company would become responsible
for all or any part of the operations or management of, any medical facility,
laboratory, or any provider or supplier of ancillary services, diagnostic or
therapeutic equipment, prosthetic or orthotic devices, medical supplies, or
other items or services furnished to or for use by patients, but only if any of
the foregoing is located in California or serves the geographic area served by
the Medical Group.
SECTION 2. TERM.
Provided that the Closing under the Asset Purchase Agreement shall have
occurred as provided therein, and subject to such start-up procedures as the
parties may agree upon for purposes of facilitating the transition of
responsibilities required by this Agreement, the performance of services under
this Agreement shall commence as of November 1, 1996 (the "Commencement Date")
and shall expire on the fortieth anniversary of the Commencement Date unless
terminated earlier pursuant to the terms hereof (the "Base Term"). The Base Term
of this Agreement shall be automatically extended for additional terms
("Additional Terms" and together with the Base Term, the "Term") of five years
each, unless either party delivers to the other party, not less than six (6)
months nor more than nine (9) months prior to the expiration of the then-current
Term, written notice
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of such party's intention not to extend the Term of this Agreement.
SECTION 3. MANAGEMENT SERVICES.
3.1. MANAGEMENT SERVICES GENERALLY.
(a) The Management Company shall be the sole and exclusive manager and
administrator of all day-to-day business functions for the Medical Group,
subject to the provisions of Section 1.2 hereof. The Management Company shall
provide all of the management and administrative services reasonably required by
the Medical Group in connection with the provision of any and all of the Medical
Group Services and as otherwise provided in this Agreement, including without
limitation the services described in Sections 3.2 through 3.17 hereof.
(b) Without limiting the generality of the provisions of Section
3.1(a), the Management Services shall include such management and administrative
services as may be reasonably required in connection with (i) all of the offices
(including New Medical Offices) of the Medical Group, and (ii) all professional
services and all ancillary services furnished by the Medical Group.
(c) Additionally, the full range of Management Services as described
in this Agreement shall be applicable with respect to the items identified as
Medical Group Costs in Section 5.7 hereof, except that such Medical Group Costs
shall be paid by the Medical Group rather than by the Management Company.
Accordingly, the Management Company shall provide accounting, bookkeeping, and
related services with respect to all such costs.
(d) The Management Company may enter into such contracts and
agreements with outside services and suppliers as the Management Company shall
reasonably deem necessary in connection with the provision of the Management
Services, and, to the extent permitted by applicable law, such contracts and
agreements shall, except as otherwise expressly provided in this Agreement, be
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in the name of the Management Company. The Management Company shall have no
authority, directly or indirectly, to perform, and shall not perform or enter
into any agreement to perform, Medical Services or any other medical function
required by law to be performed by a licensed physician or by any other licensed
health care professional.
(e) The Management Company shall comply in all material respects with
all applicable material Federal, state and local laws, regulation, and
ordinances in connection with the provision of the Management Services
hereunder.
3.2. PREMISES.
(a) The Medical Group, as of the Commencement Date of this Agreement,
provides Medical Services at the following locations:
(i) Suite Lease between Meadows Enterprises, L.C., as Lessor,
and Medical Group, as Lessee, dated March 1, 1994 for premises commonly
known as Suites 220 and 300, 7614 Louis Pasteur, San Antonio, TX;
(ii) Suite Lease between International Bank of Commerce, Inc.,
as Lessor, and Medical Group, as Lessee, dated September 7, 1994 for
premises commonly known as Suite 106, 12602 Toepperwein, San Antonio, TX;
(iii) Suite Lease between Memorial Professional Services Inc.,
as Lessor, and Medical Group, as Lessee, dated January 23, 1995 for
premises commonly known as Suite 209, 8711 Village Drive, San Antonio, TX;
(iv) Suite Lease between S.W.R.O.E., Inc. as Lessor, and Medical
Group, as Lessee dated April 30, 1996 for premises commonly known as 209
Village Blvd., Suite 1, Laredo, TX;
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(v) Suite Sub-Lease arrangement between J. Peter Forney, III,
M.D., P.A., and Medical Group dated February 28, 1996 at 712 North Houston
Street, New Braunfels, TX;
(vi) Suite Sub-Lease arrangement between Crossroads Orthopedics,
P.A., and Medical Group dated March 19, 1996 at 115 Medical Drive, Suite
101, Victoria, TX; and
(vii) Suite Lease arrangement between Medplex Rentals and
Medical Group dated December 1, 1996, Beeville, TX.
Immediately prior to the Commencement Date of this Agreement, all of the
above-identified premises were leased to the Medical Group, in the Medical
Group's name. Effective from and after the Commencement Date of this Agreement,
each of the leases of such premises are to be assigned from the Medical Group to
the Management Company pursuant to an assignment substantially in the form of
the Assignment of Lease attached hereto as Exhibit D. Additionally, the
Management Company shall sublease each of such premises to the Medical Group
pursuant to a sublease (each, an "Office Sublease") substantially in the form of
the Office Sublease attached hereto as Exhibit E, in consideration of the
payments to be made by the Medical Group under such Office Sublease. The parties
intend that the payments to be made by the Medical Group to the Management
Company pursuant to an Office Sublease shall equal the amounts payable by the
Medical Group to the landlord under the assigned lease corresponding to such
Office Sublease. Upon the expiration of each of the premises leases assigned in
accordance with this Section 3.2(a), the Management Company shall use its best
efforts to enter into a new lease, in the name of the Management Company, with
the landlord of such premises, and the parties shall amend the applicable
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Office Sublease or enter into a new sublease relating to such new premises
lease; provided, however, that the approval of the Medical Group, which shall
not be unreasonably withheld, shall be required in the event of any substantial
changes in the terms of the premises lease, and if the Medical Group does not
give such approval, the failure to enter into such new premises lease shall not
constitute a default of the Management Company. Each assigned lease and each new
lease entered into between the Management Company and the landlord is referred
to herein as an "Office Lease."
(b) A New Medical Office (as hereinafter defined) may be opened only
upon the agreement of the Medical Group and the Management Company. The capital
costs and start-up costs reasonably required in connection with the opening of
any New Medical Office shall be borne as set forth in Section 5 hereof. The
premises of any New Medical Office shall be leased to the Management Company, in
the Management Company's name, and the Medical Group shall not be required to
lease any such premises. Additionally, the Management Company shall sublease
such premises to the Medical Group pursuant to a sublease substantially in the
form of the Sublease attached hereto as Exhibit E, in consideration of the
payments to be made by the Medical Group under such sublease.
(c) The closing or relocation of any offices of the Medical Group
shall be subject to agreement by the Medical Group and the Management Company.
(d) The premises services to be provided by the Management Company
shall include, without limitation, the negotiation and renegotiation of leases,
provision of ongoing liaison with the landlords of the respective office
premises of the Medical Group, identification of potential new locations for
Medical Group offices, financial analysis relating to the opening, closing, and
relocation of offices, arranging for necessary repairs, maintenance and
improvements, procurement of
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property insurance, arranging for telephone and other utility services,
arranging for hazardous waste disposal, and all other reasonably necessary or
appropriate services related to all of the office premises of the Medical Group.
(e) The Management Company also shall provide all necessary or
appropriate leasehold improvements to each of the premises, subject to prior
approval as provided in Section 8.2 hereof.
(f) The Medical Group acknowledges that the Management Company makes
no warranties or representations, expressed or implied, regarding the condition
of any of the leased premises.
3.3. Equipment.
(a) The Management Company shall provide to the Medical Group all of
the diagnostic and therapeutic medical equipment reasonably required by the
Medical Group in connection with the provision of Medical Group Services (the
"Medical Equipment"). All Medical Equipment shall be provided by the Management
Company to the Medical Group in consideration of the rental payments to be made
by the Medical Group to the Management Company pursuant to an equipment lease
substantially in the form of the Medical Equipment Master Lease Agreement
attached hereto as Exhibit F. As used herein, the term Medical Equipment shall
not include medical equipment used in connection with a New Ancillary Service
(as hereinafter defined).
(b) The Management Company also shall provide to the Medical Group all
furniture, furnishings, trade fixtures, and office equipment reasonably required
in connection with the provision of Medical Group Services pursuant to this
Agreement (collectively, "FF&E"). The Management Company shall acquire, at its
cost, all FF&E, and the Management Company shall retain ownership of all FF&E.
The Management Fee payable to the Management Company under this Agreement is
intended to compensate
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the Management Company for the provision of FF&E for use by the Medical Group.
As used herein, the term FF&E does not include furniture, furnishings, trade
fixtures, and office equipment used in connection with a New Ancillary Service.
(c) The Medical Equipment and the FF&E are sometimes referred to
collectively as the "Equipment." The acquisition, replacement, relocation, or
other disposition of any Equipment shall require prior approval as provided in
Section 8.2 hereof.
(d) The Management Company's obligations with respect to the Equipment
are subject and subordinate to the provisions and obligations contained in any
financing, security interest, mortgage, lien or other encumbrance the Management
Company may, in its reasonable discretion, place upon the Equipment through an
unaffiliated third party. The Medical Group shall use the Equipment only in
connection with its provision of the Medical Group Services, and the Medical
Group shall not alter, repair, augment, or remove the Equipment from the
premises of the Medical Group without the prior written consent of the
Management Company and any lessor thereof, which approval may be granted or
withheld in the Management Company's or such lessor's sole discretion. To the
extent the Equipment is utilized by the Medical Group in the provision of
Medical Group Services, the Medical Group shall have the right to exercise
reasonable control over the use of such Equipment.
(e) From time to time, and as reasonably requested by the Medical
Group, the Management Company shall use reasonable efforts to cause the
Equipment manufacturer or its authorized agent to provide service and
maintenance for the Equipment as needed to maintain the Equipment in an operable
condition, so that all such Equipment shall function continuously (subject to
interruptions not reasonably avoidable) in accordance with the manufacturer's
specifications and so that all conditions imposed by the manufacturer to
maintaining the continued effectiveness of
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any warranty on such Equipment shall be satisfied. The Management Company shall
take all reasonable steps to provide that all necessary service and maintenance
is obtained in a prompt and timely manner, so as to minimize the amount of time
that any of the Equipment is not available for usage by or for patients of the
Medical Group.
(f) THE MEDICAL GROUP ACKNOWLEDGES THAT THE MANAGEMENT COMPANY MAKES
NO WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, AS TO ANY MATTER
WHATSOEVER RELATING TO THE EQUIPMENT PROVIDED TO THE MEDICAL GROUP PURSUANT TO
THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, THE DESIGN CONDITION OF THE
EQUIPMENT, THE CONFORMANCE THEREOF TO THE PROVISIONS AND SPECIFICATIONS OF ANY
PURCHASE ORDER RELATING THERETO, OR THE FITNESS OF THE EQUIPMENT FOR ANY
PARTICULAR PURPOSE. NOTWITHSTANDING THE FOREGOING DISCLAIMER, THE MANAGEMENT
COMPANY DOES WARRANT TO THE MEDICAL GROUP THAT THE X-RAY EQUIPMENT AND THE
COMPUTER HARDWARE AND COMPUTER SOFTWARE THAT THE MANAGEMENT COMPANY SELECTS FOR
USE BY THE MEDICAL GROUP SHALL BE SUITABLE FOR USE BY THE MEDICAL GROUP FOR SUCH
INTENDED USES. Nothing in this Agreement shall be construed to affect or limit
in any way the professional discretion of the Medical Group to select and use
any Equipment acquired by the Management Company in accordance with the terms of
this Agreement insofar as such selection or use constitutes or might constitute
the practice of medicine.
3.4. NEW ANCILLARY SERVICES.
(a) For purposes of this Agreement, "New Ancillary Services" means the
technical component (but not the professional component) of the following,
except as set forth in Schedule I:
(i) Physical therapy;
(ii) Magnetic resonance imaging and/or other imaging services
(except diagnostic radiology);
(iii) Outpatient surgery;
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(iv) Densitometry; and
(v) Other revenue-producing services generally recognized as
ancillary services, but excluding the following:
(A) Plain film radiography;
(B) Any other services provided on a regular basis by the
Medical Group immediately prior to the Commencement Date of this
Agreement, including without limitation (1) other diagnostic radiology
(if any) and (2) ultrasound for pediatric patients; and
(C) Any service performed in connection with new Medical
Equipment acquired to replace existing Medical Equipment so long as
the new Medical Equipment performs substantially the same functions as
the replaced Medical Equipment.
New Ancillary Services do not include the sale or provision of (or services
rendered in connection with) prosthetics, prosthetic devices, orthotics, braces,
splints, appliances, crutches, casts, or any other supplies or similar items
which are billable to patients or payors.
(b) New Ancillary Services may be established only upon agreement of
the Medical Group and the Management Company. Such agreement shall be
memorialized in a written agreement executed by the parties (or in a written
amendment to this Agreement) under which the Management Company agrees to
provide all of the Management Services described in this Section 3 in connection
with such New Ancillary Service, and for which the Management Company shall be
compensated as described in Section 5.8 of this Agreement, except as otherwise
agreed by the parties.
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3.5. ADMINISTRATION, FINANCE AND ACCOUNTING.
The Management Company shall provide or arrange for the provision of
all administrative, financial, and accounting functions necessary for the
operation of the Medical Group, including without limitation --
(a) Creation and maintenance of bank accounts.
(b) Deposits of receipts.
(c) Preparing accounts receivable summary reports, including various
analyses of delinquent accounts.
(d) Receiving appropriate approvals as required by the Medical Group's
General Partnership Agreement prior to distribution of payments to outside
parties; provided, however, that the Management Company shall not be responsible
for or liable with respect to interpretations of the General Partnership
Agreement.
(e) Disbursement of payables, including payables of the Medical Group;
provided, however, that payables of the Medical Group shall be paid from an
account of the Medical Group and not from the Management Company's Operating
Account, and all checks drawn on any Medical Group account shall be signed by a
partner in the Medical Group or other authorized representative of the Medical
Group.
(f) Negotiation of vendor contracts.
(g) Performing monthly accounting functions, including bank
reconciliations, maintenance of books and records, and preparation of financial
statements.
(h) Analyzing financial data as reasonably requested by physicians.
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(i) Analyzing potential new office locations, and coordinating all
functions associated with opening new office locations.
(j) Preparing monthly financial and medical practice statistics
reports:
(i) By satellite office; and
(ii) By physician
(k) Providing from the Medical Group's bank account(s) monthly draws
to physicians and professional corporations pursuant to service agreements,
monthly profit and loss distributions, and quarterly bonus calculations;
provided, however, that the Management Company shall not be responsible for or
liable with respect to interpretations of the General Partnership Agreement;
provided, further, that all checks drawn on any Medical Group account shall be
signed by a partner in the Medical Group or other authorized representative of
the Medical Group.
(1) Calculating physicians' and professional corporations' annual
earnings based on the Medical Group's profit and loss distribution formulas.
(m) Ongoing day-to-day communication with the managing partner and
assisting the managing partner in fulfilling his responsibilities.
(n) Preparing agendas and information packages for Medical Group
meetings.
(o) Developing budgets and long-term strategies for the Medical Group.
(p) Coordinating payroll processing and payroll tax payments.
(q) Providing ongoing personnel FTE analysis.
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(r) Providing administrative services (excluding the services of a
plan administrator) of the Medical Group's 401(k) and flexible spending plans;
provided, however, that the Management Company shall not be responsible for
investment decisions.
(s) Coordinating recruitment, interviewing, and hiring of new
physicians.
(t) Implementing Medical Group fee schedule increases and/or
decreases.
(u) Coordinating depositions and court appearances.
(v) Assisting in the coordination of call schedules.
(w) Assisting in the coordination of coverage of athletic team events.
(x) Assisting in the day-to-day administration of the Medical Group's
fellowship program, including the sports clinic.
(y) Acting as liaison to hospital administration, physical therapy,
surgery center, MRI, and other ancillary services entities.
(z) Cooperating with outside accountants in preparing various
schedules and providing other information.
(aa) Interacting with legal counsel as necessary.
3.6. BILLING AND COLLECTION.
(a) The Medical Group hereby irrevocably designates and appoints the
Management Company to be the agent of the Medical Group during the Term, to
perform the following duties and for those purposes incidental thereto: (i) to
bill
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patients and third party payors in the Medical Group's name and on its behalf;
(ii) to collect accounts receivable resulting from such billing; (iii) to
receive payments and prepayments from the Medical Group's patients, Blue Cross
and Blue Shield organizations, insurance companies, health care plans, Medicare,
Medicaid, HMO's and any and all other third party payors; (iv) to take
possession of and deposit into such bank (the "Medical Group Bank") as the
Medical Group designates, in an account established by the Medical Group in the
name of the Medical Group (the "Medical Group Collections Account"), any and all
checks, insurance payments, cash, cash equivalents and other instruments
received for Medical Group Services; and (v) to initiate with the consent of the
Medical Group, which consent may be withheld by the Medical Group in its sole
and absolute discretion, legal proceedings in the name of the Medical Group to
collect any accounts and monies owed to the Medical Group, to enforce the rights
of the Medical Group as a creditor under any contract or in connection with the
rendering of any service, and to contest adjustments and denials by governmental
agencies (or its fiscal intermediaries) as third-party payors. The Management
Company, in its capacity as agent pursuant to this paragraph, shall not have any
duties or responsibilities except those expressly set forth in clauses (i)
through (v) above. Following termination of this Agreement, the Management
Company shall continue to use reasonable efforts to collect the accounts
receivable of the Medical Group as of such termination date for a period of
ninety (90) days thereafter.
(b) From time to time at the Management Company's request, the Medical
Group shall make available to the Management Company one or more authorized
partners (the "Authorized Partners") of the Medical Group to sign any letters,
checks, instruments or other documents (the "Documents") on behalf of the
Medical Group that are necessary for the Management Group to perform its duties
as agent under this Section 3.6 and its other duties under this Agreement. If
the Management Company notifies the Medical Group that an Authorized Partner is
not signing the
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Documents in a timely manner, the Management Company shall not be liable for any
failure to perform its duties as agent hereunder or for any failure to perform
the Management Services to the extent caused by the failure of an Authorized
Partner to sign the Documents in a timely manner.
(c) The Management Company represents and warrants to the Medical
Group that it has sufficient knowledge and expertise in the area of billing for
orthopedic and other medical services and ancillary services to be able to
adequately perform the billing services required by the Medical Group hereunder.
The Management Company shall submit all bills and manage the billing process on
a timely basis in accordance with the terms of this Agreement and applicable
law.
(d) Without limiting the generality of the foregoing, the Management
Company shall bill patients, bill and submit claims to third party payors,
perform appropriate coding for each bill, and collect all fees for professional
and other services rendered and for items supplied to patients by the Medical
Group, all in a timely manner and in accordance with parameters and criteria
established by the Operations Committee (as hereinafter defined). Additionally,
the Management Company shall provide the following services which are currently
being provided by or on behalf of the Medical Group:
(i) Receive and collect from patients at the time of visit all
appropriate payments and pre-payments, including co-pays, deductibles,
payments for non-covered medical services, and deposits for surgeries (if
applicable), and additionally shall obtain all appropriate insurance and
other information required.
(ii) Submit claims utilizing electronic billing submission,
whenever appropriate.
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(iii) Perform delinquent account collection calls and other
appropriate follow-up mechanisms for delinquent accounts of all insurance
classifications, all in a timely fashion as determined by the Operations
Committee.
(iv) Turn over to outside collection agencies all delinquent
accounts satisfying the criteria established by the Operations Committee.
The Management Company shall also follow-up on the performance of the
outside collection agencies and make changes if necessary, and additionally
shall reconcile each account turned over to the summary data provided by
the collection agency.
(v) Write-off account balances according to criteria approved by
the Operations Committee.
(vi) Prepare claim reviews in accordance with criteria approved
by the Operations Committee.
(vii) Bill workers' compensation medical services at rates equal
to the most recently approved California workers' compensation fee
schedule.
(viii) Apply "insurance only" and other courtesy write-offs in
compliance with Operations Committee policy.
(ix) With respect to discounted fee-for-service contracts with
Preferred Provider Organizations (PPOs) and Health Maintenance
Organizations (HMOs), the Management Company shall determine that payments
from the PPOs and HMOs are in compliance with the contract with the Medical
Group.
(x) With respect to capitation fee contracts with HMOs, the
Management Company shall --
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(A) Follow-up to ensure that payments to the Medical Group
are made on a timely basis;
(B) Review and audit enrollment data provided by the HMO to
ensure that Medical Group is being compensated for the proper number
of lives enrolled.
(xi) With respect to lien accounts, the Management Company shall
--
(A) Ensure that appropriate documents are signed and agreed
to initially as between Medical Group, attorney and patient;
(B) Follow-up on a regular basis as to the status of the
account; and
(C) Apply the policies of the Operations Committee in
resolving open account balances.
(xii) With respect to student athlete accounts, the Management
Company shall coordinate insurances and other information in compliance
with the policy of the Operations Committee.
(xiii) With respect to amounts withheld by payors in compliance
with contracts between the payor and the Medical Group, the Management
Company shall follow-up on a timely basis to ensure that withheld amounts
are returned to the Medical Group, if warranted, and to ensure that amounts
not returned are verified and audited for appropriateness.
(xiv) Coordinate the timely payment of refunds to patients and
third party payors when appropriate.
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(xv) Ensure that revenue related to depositions, record review,
court appearances, athletic teams services, are accounted for, monitored,
followed-up, and ultimately collected.
3.7. PERSONNEL.
(a) The Management Company shall retain and provide or arrange for the
retention and provision of all of the following non-medical personnel necessary
for the conduct of the Medical Group's business operations (collectively,
"Administrative Personnel"):
<TABLE>
<S> <C>
(i) Administration
(ii) Accounting
(iii) Billing and Collection
(iv) Secretarial
(v) Transcription
(vi) Appointments
(vii) Switchboard
(viii) Medical Records
(ix) Chart Preparation
(x) Historians
(xi) Clinic Support
(xii) Marketing
</TABLE>
(b) The Management Company shall determine and pay the salaries and
fringe benefits of the Administrative Personnel, and shall provide other
personnel services related to the Administrative Personnel, including but not
limited to
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scheduling, personnel policies, administering continuing education benefits, and
payroll administration.
(c) With respect to each applicable new employee in Administrative
Personnel, the Management Company shall, as reasonably necessary, verify
educational and employment experience, licensure, and insurability.
(d) All of the personnel services shall be performed in compliance
with all applicable Texas and Federal labor laws.
(e) Notwithstanding anything to the contrary contained in this
Agreement, the Management Company shall retain all of the Administrative
Personnel employed by the Medical Group as of the Commencement Date for the
six-month period beginning on the Commencement Date and ending on the six month
anniversary of the Commencement Date.
3.8. INVENTORY AND SUPPLIES.
The Management Company shall order and purchase inventory and supplies
on behalf of the Medical Group, and such other ordinary or appropriate materials
as the Medical Group reasonably deems to be necessary for it to carry out its
professional medical activities. Inventory and supplies shall include, but not
be limited to:
(a) Medical supplies
(b) Office supplies
(c) Postage
(d) Computer forms and supplies
(e) Printing and stationary supplies
(f) Printer supplies
(g) Linen and laundry supplies
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3.9. TAXES.
The Management Company shall provide the Medical Group with access to
all information necessary for the Medical Group to prepare its tax returns. The
Management Company shall have no responsibility for --
(a) The payment of the Medical Group's taxes; or
(b) The preparation of any partnership income tax returns or related
Schedule K-1 forms for the Medical Group.
3.10. Information Systems Management.
(a) The Management Company shall provide or arrange for the provision
of all management information systems services to be utilized by the Medical
Group. These services shall include, but not be limited to --
(i) Ongoing maintenance and improvement of the Medical Group's
existing information systems:
(A) Accounts receivable - Billing/Insurance/Collections
(B) On-line appointment scheduling
(C) Internal e-mail
(D) On-line transcription
(E) Faxing subsystem
(F) Electronic claims submission
(G) Patient flow monitoring system
(H) Authorization module
(I) Prescription module
(J) X-ray tracking system
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(K) Voice mail
(ii) Development of the following new information systems --
(A) Paperless medical records
(B) Bar code chart tracking system
(b) The services provided by the Management Company shall
protect the confidentiality of patient medical records to the extent
required by applicable law or the Medical Group's payor agreements;
provided, however, that in no event shall a breach of such confidentiality
be deemed a default under this Agreement if the Management Company acted
reasonably and in good faith to protect such confidentiality.
3.11. USE OF NEW TECHNOLOGIES IN THE PRACTICE OF MEDICINE.
The Management Company shall promote the integration of new
technologies into the professional practice of the Medical Group, including
without limitation the use of satellite and other telecommunications services
that permit the provision of remote consultations, virtual operations, and other
professional services; provided, however, that the foregoing shall be subject to
the terms of Section 8.2(e) hereof.
3.12. PUBLIC RELATIONS; MARKETING AND ADVERTISING.
The Management Company shall develop and implement community outreach
programs and public relations programs designed to educate the patient
population regarding the Medical Group, the availability of its medical
services, and the availability in terms of any managed care programs in which
the Medical Group participates. The Management Company also shall develop and
implement marketing and advertising programs as reasonably required to promote
and expand the Medical Business, subject to any approved budgets. The programs
shall be conducted in
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compliance with applicable laws and regulations governing
advertising by the medical profession.
3.13. MEDICAL PERSONNEL RECRUITING.
(a) The Management Company shall, upon request by the Medical Group,
assist the Medical Group in recruiting Medical Personnel. "Medical Personnel"
means:
(i) Physicians (including 5 fellows and residents, if any)
providing professional medical services who are employees, independent
contractors, partners, or physician-employees of corporate partners in the
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Medical Group;
(ii) Physician assistants, nurse practitioners, and other health
care professionals who provide services that are billable to patients or
third party payors (separate and apart from the billable services provided
by physicians); and
(iii) Technicians who perform diagnostic tests or procedures.
(b) With respect to each of the Medical Personnel, the
Management Company shall verify educational and employment experience,
licensure and insurability, and shall review and provide the Medical Group
with copies of any complaints contained in public files with applicable
state and federal sanctioned commissions.
3.14. INSURANCE.
The Management Company shall provide the insurance coverage described
in Sections 12.1 and 12.2 of this Agreement.
3.15. FILES AND RECORDS.
(a) To the extent permitted by applicable law, the Management Company
shall supervise and maintain custody of all
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files and records relating to the operation of the business of the Medical
Group, including, without limitation, accounting, billing, collection, or
patient medical records. The management of all files and records shall be in
compliance with applicable state and federal statutes. Business records of the
Medical Group created and/or maintained by the Management Company shall be the
joint property of the Management Company and the Medical Group and shall at all
times be located at a location that is readily accessible to the parties.
Patient medical records shall at all times be and remain the property of the
Medical Group and shall be located at a location that is readily accessible for
patient care. The Management Company shall preserve the confidentiality of
patient medical records and use information contained in such records only for
the limited purposes necessary to perform the management services set forth
herein; provided, however, that in no event shall a breach of such
confidentiality be deemed a default under this Agreement if the Management
Company acted reasonably and in good faith to protect such confidentiality.
(b) The Management Company shall provide all off site storage of files
and records as required and in conjunction with policies established by the
Operations Committee. The Management Company shall provide the Medical Group
with all requested off-site files and records on a timely basis, consistent with
the policies of the Medical Group in effect immediately prior to the
Commencement Date. Any change in such policies shall be subject to the approval
of the Operations Committee.
3.16. MANAGED CARE CONTRACTS.
The Management Company shall solicit, negotiate and administer all
managed care contracts on behalf of the Medical Group based on parameters and
criteria established by the Operations Committee. Such services shall be
performed by the Management Company as agent of the Medical Group, and all
managed care contracts shall be subject to the Medical Group's prior
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approval of any such contract. The Management Company shall prepare cost
forecasts and other analyses as reasonably requested by the Medical Group in
order to allow the Medical Group to make an informed decision with respect to
each proposed contract.
3.17. BUDGETS.
The Management Company shall prepare, for the review and approval of
the Operations Committee, annual operating budgets (the "Budgets") reflecting in
reasonable detail projected Billings, Collections, Medical Group Costs, and
Management Company Operating Costs; provided, however, that the Medical Group
shall provide the Management Company with a proposed Budget covering the initial
three-month period under this Agreement. The initial Budget, which shall be
applicable to the period commencing on the Commencement Date and ending three
(3) months thereafter, is attached hereto as Schedule II. All other budgets
shall be on a calendar year basis. The Management Company shall prepare and
submit to the Operations Committee all subsequent Budgets on or before December
15 of the year immediately preceding the calendar year to which such Budgets are
applicable.
3.18. FORCE MAJEURE.
The Management Company shall not be liable to the Medical Group for
failure to perform any of the services required herein in the event of strikes,
lock-outs, calamities, acts of God, unavailability of supplies, changes in
applicable law or regulations or other events over which the Management Company
has no control for so long as such events continue and for a reasonable time
thereafter.
SECTION 4. EQUITY PARTICIPATION AND CONSIDERATION.
In consideration of the Medical Group's entering into this Agreement,
the Management Company shall provide to the persons identified in Schedule III
attached hereto (the "Eligible Parties") the equity and the cash consideration
set forth on Schedule III.
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SECTION 5. Costs, Compensation, and Other Payments.
5.1. BANK ACCOUNTS.
The Medical Group shall instruct the Medical Group Bank to transfer,
on a weekly basis, all funds in the Medical Group Collections Account (less the
amount necessary to avoid the payment of bank charges or fees relating to the
failure to maintain a minimum balance in the Medical Group Collections Account)
to a bank (the "Management Company Bank") designated by the Management Company,
for credit to an account in the Management Company's name (the "Operating
Account"). All interest earned on the funds on deposit in the Operating Account
shall be for the account of the Management Company.
5.2. PAYMENTS.
The Management Company shall pay all of the Medical Group Compensation
and all of the Management Company Costs, as hereinafter defined, and the
Management Company shall be entitled to retain for itself the Management Fee, as
hereinafter defined. The Management Company may disburse funds from the
Operating Account only for the purposes specified in this Section 5, including
without limitation for the payment of Medical Group Compensation, Authorized
Management Company Operating Costs, and the Management Fee. If at any time there
are insufficient funds in the Operating Account to satisfy any of the payment
obligations of the Management Company under this Agreement, the Management
Company shall satisfy such obligations from other funds of the Management
Company, and the Management Company may thereafter reimburse itself such amounts
from the Operating Account.
5.3. MEDICAL GROUP COMPENSATION.
(a) Monthly Draw.
(i) On each Draw Date during the Term hereof, the Management
Company shall distribute to the
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Medical Group an amount equal to a percentage (the "Draw Percentage") of
the Medical Group's total Billings for Medical Group Services provided
during the previous month (the "Monthly Draw"). The Draw Date and the
initial Draw Percentage are as set forth in Schedule IV, and the Draw
Percentage shall be adjusted as provided in Section 5.3(a)(ii).
(ii) Commencing May 15, 1998, and effective May 15 of each year
thereafter, the Draw Percentage shall be adjusted to equal a fraction, the
numerator of which is the Annual Medical Group Compensation Amount for the
previous year, and the denominator of which is the total amount of Billings
for the previous year.
(b) Annual Settlement.
(i) On or before April 1, 1998, and on or before April 1 of each
year thereafter, the Management Company shall calculate the following (the
"Annual Medical Group Compensation Amount"):
(A) The total Collections for all Medical Group Services
rendered during the previous calendar year, less --
(B) the sum of the following:
(1) the Management Fee earned by the Management Company for
the previous calendar year; and
(2) the Authorized Management Company Operating Costs
incurred by the Management Company during the previous calendar year.
(ii) If the Annual Medical Group Compensation Amount thus
determined exceeds the total of the twelve (12) Monthly Draws paid by the
Management Company to the Medical Group during the previous calendar year
(the "Annual Draw Amount"), the Management Company shall pay to the Medical
Group on or before May 15, an amount equal to such excess. If the Annual
Draw Amount for the previous calendar year exceeds the Annual Medical Group
Compensation Amount for the previous calendar year, the Management Company
shall withhold from the Medical Group Compensation otherwise payable to the
Medical Group, during each of the following six (6) months, an amount equal
to one-sixth (1/6) of such excess.
(iii) For purposes of determining the total Collections for all
Medical Group Services provided during any calendar year, all Collections
during January, February, and March of each year shall be deemed to be for
Medical Group Services rendered during the previous calendar year, and all
Collections during April through December shall be deemed to be for Medical
Group Services rendered during the calendar year in which such Collections
were received; provided, however, that for purposes of determining the
total Collections during the period commencing on the Commencement Date and
ending December 31, 1997, all Collections from and after the Commencement
Date through March 31, 1998, shall be deemed to be for Medical Group
Services rendered during the period commencing on the Commencement Date and
ending December 31, 1997. Notwithstanding the foregoing, the Management Fee
applicable to any calendar year shall be
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based on the Collections actually received during such calendar year.
(iv) Notwithstanding anything to the contrary set forth herein,
the first period for which the annual settlement described in this Section
5.3(b) shall be applicable is the period commencing on the Commencement
Date and ending on December 31, 1997.
(c) Notwithstanding the provisions of Section 5.1, in the event that
the Medical Group has not received from the Management Company all or any
portion of the Monthly Draw on or before the third business day following the
Draw Date, or in the event that the Medical Group has not received from the
Management Company all or any portion of any amount payable to the Medical Group
pursuant to Section 5.3(b)(ii) on or before the third business day following the
date on which such payment is required to be made under the terms of Section
5.3(b)(ii), without limiting any other right or remedy that the Medical Group
may have under this Agreement or under applicable law, the Medical Group shall
have the right to immediately withdraw such amount directly from the Medical
Group Collections Account.
(d) For purposes of this Agreement --
(i) "Billings" means, for any applicable period, the gross
charges of the Medical Group for all Medical Group Services furnished
during such period.
(ii) "Collections" means, for any applicable period, all cash or
cash equivalents received during such period, net of refunds paid during
such period, for Medical Group Services.
(iii) "Medical Group Services" means the following services
rendered by, through, or on behalf of the Medical Group or its Medical
Personnel: all professional services rendered by or under the supervision
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of any of the Medical Personnel (including professional services rendered
in connection with New Ancillary Services); all diagnostic radiology
services rendered by or under the supervision of any of the Medical
Personnel; all other ancillary services (other than New Ancillary
Services); all prosthetics, prosthetic devices, orthotics, braces, splints,
appliances, and other items and supplies that are billable to patients or
to third party payors; and depositions, record review services, court
appearances, independent medical exams, athletic team services.
(iv) It is the intent of the parties that Billings, Collections,
and Medical Group Services not include any of the following: New Ancillary
Services (excluding professional services rendered by Medical Personnel in
connection therewith, which professional services are included under
Section 5.3(d)(iii) above), interest income; royalties payable to any
Medical Group physician for medical inventions; fees payable under
consulting agreements entered into by Medical Group physicians; income from
presentations, writings, and endorsements; proceeds from the sale of any
capital assets of the Medical Group; and any income from investments.
5.4. MANAGEMENT FEE.
(a) The compensation payable to the Management Company for the
provision of Management Services under this Agreement (the "Management Fee"),
which the Management Company may disburse from the Operating Account from time
to time at its discretion, shall be equal to the aggregate of the following:
(i) An amount equal to the Applicable Percentage of Collections,
provided that the amount thus determined shall be reduced by the Medical
Equipment Master Lease Payments; and
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(ii) An amount equal to sixty-six and two-thirds percent
(66-2/3%) of the Professional Practice Cost Savings.
(b) For purposes of this Section 5.4, "Applicable Percentage" has the
meaning set forth in Schedule V.
(c) For purposes of this Agreement, "Office Sublease Payments" means
the aggregate of the monthly lease amounts payable under all of the Office
Subleases described in Section 3.2 hereof.
(d) For purposes of this Agreement, "Medical Equipment Master Lease
Payments" means the monthly lease amounts payable for all Medical Equipment
determined in accordance with the Medical Equipment Master Lease Agreement
referenced in Section 3.3(a) hereof.
(e) For purposes of this Section 5.4, "Professional Practice Cost
Savings" means the cost savings determined in the manner described in Schedule
VI.
(f) An example of the computation of Medical Group Compensation and
the Management Fee is attached hereto as Schedule VII.
5.5. MANAGEMENT COMPANY COSTS.
(a) The Management Company shall pay all Management Company Operating
Costs and all Excluded Costs (collectively, the "Management Company Costs").
(Authorized Management Company Operating Costs may be paid from the Operating
Account, but Excluded Costs shall be paid from a separate account of the
Management Company.) All Management Company Costs shall be incurred in the name
of the Management Company, and not in the name of the Medical Group, except as
specifically approved by the Medical Group. Management Company Costs shall not
include any costs or expenses incurred prior to the Commencement Date of this
Agreement.
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(b) The Management Company shall provide to the Medical Group, upon
reasonable request by the Medical Group from time to time, supporting
documentation and other backup detail relating to any or all of the Management
Company Costs.
(c) For purposes of this Agreement, "Management Company Operating
Costs" means all costs and expenses incurred in connection with the provision of
the Management Services, except for any costs and expenses defined as Medical
Group Costs in Section 5.7 hereof, and except for Excluded Costs. "Excluded
Costs" means all of the following costs and expenses incurred in connection with
the provision of the Management Services hereunder:
(i) New Medical Office Start-Up Costs;
(ii) The rent and any other payments due under any of the Office
Leases;
(iii) The cost of any Medical Equipment leased by the Management
Company to the Medical Group;
(iv) The cost of any FF&E provided by the Management Company to
the Medical Group;
(v) Depreciation, amortization, and interest; and
(vi) Corporate overhead of the Management Company ("Corporate
Overhead") except to the extent that all of the following conditions are
satisfied:
(A) The Corporate Overhead is incurred in lieu of a
pre-existing Management Company Operating Cost;
(B) The amount of such Corporate Overhead does not exceed
the amount of
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the Management Company Operating Costs being eliminated; and
(C) The Corporate Overhead is allocated to the Medical Group
and to all other medical groups utilizing such Corporate Overhead on a
pro rata basis.
Any Corporate Overhead with respect to which all of the above conditions are
satisfied shall be considered Management Company Operating Costs.
(d) For purposes of this Agreement, "Authorized Management Company
Operating Costs" means all Management Company Operating Costs incurred in any
year reduced by any or all of the following, as applicable:
(i) any costs that exceed the applicable Management Company
Operating Costs Budget which are not approved by the Operations Committee;
(ii) any costs with respect to which the Medical Group has
reasonably requested supporting documentation or other backup detail which
has not been furnished by the Management Company or which does not
reasonably establish the appropriateness of such costs; and
(iii) any costs that have been determined pursuant to an audit
under Section 5.9 not to have been reasonably incurred in connection with
the Management Services required to be provided under of this Agreement.
5.6. NEW MEDICAL OFFICE START-UP COSTS.
(a) The Management Company shall pay all New Medical Office
Start-Up Costs incurred in connection with the establishment of any New
Medical Office.
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(b) All Medical Equipment utilized at any New Medical Office shall be
acquired by the Management Company and leased to the Medical Group in accordance
with Section 3.3 hereof.
(c) For purposes of this Agreement, "New Medical Office" means any
office of the Medical Group other than those offices located in the premises
identified in Sections 3.2(a) and 3.2(b) hereof.
(d) For purposes of this Agreement, "New Medical Office Start-Up
Costs" means the following costs incurred in connection with the establishment
of a New Medical Office during the New Medical Office Start-Up Period: all
Management Company Costs and all costs other than physician Medical Personnel
costs that, but for this provision, would have been considered Medical Group
Costs.
(e) For purposes of this Agreement, "New Medical Office Start-Up
Period" means the period commencing on the date that any costs are incurred in
connection with the establishment of a New Medical Office and ending on the
earlier of (i) the last day of the calendar month in which a period of eighteen
(18) months has elapsed from and after the date on which the New Medical Office
first opened for the treatment of patients, or (ii) the last day of the first
period of two (2) consecutive calendar months for which the costs borne by the
Management Company in connection with the New Medical Office are less than sixty
percent (60%) of the Collections for Medical Group Services provided at the New
Medical Office during such two-month period. In no event shall the Management
Company have any obligation under this Section 5.6 to pay any New Medical Office
Start-Up Costs incurred later than eighteen (18) months after the New Medical
Office first opened for the treatment of patients.
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5.7. MEDICAL GROUP COSTS.
Except as otherwise provided in this Agreement, the Medical Group
shall pay all of the costs specified in this Section 5.7 (the "Medical Group
Costs"). All Medical Group Costs shall be incurred in the name of the Medical
Group, and not in the name of the Management Company, and shall be paid from an
account of the Medical Group and not from the Operating Account of the
Management Company. The Medical Group Costs are as follows:
(a) Compensation of all Medical Personnel;
(b) Any applicable fringe benefits for all Medical Personnel,
including, but not limited to, payroll taxes, workers' compensation, health
insurance (including drug coverage), dental insurance, individual disability
insurance, life insurance, business buy-out disability insurance, continuing
education, and medical dues and licenses;
(c) The cost of prosthetics, prosthetic devices, orthotics, braces,
splints, appliances, allografts, x-ray films, and other items and supplies that
are billable to patients or to third party payors (the "Billable Items");
(d) The Medical Equipment Master Lease Payments;
(e) Any lease payments for New Ancillary Service Medical Equipment;
(f) The Office Sublease Payments; and
(g) The cost of any items which are not required to be provided by the
Management Company under this Agreement and/or which were ordered, purchased, or
incurred by the Medical Group directly, including but not limited to the cost of
accounting, legal, consulting, or other professional or advisory services,
business meetings, and business taxes.
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5.8. NEW ANCILLARY SERVICES COSTS.
(a) Any agreement by the parties to establish a New Ancillary Service
as described in Section 3.4 of this Agreement shall (unless otherwise agreed by
the parties) incorporate the following:
(i) The Management Company shall create a separate division
("Ancillary Division") for purposes of accounting for the income, costs,
profits, and losses of any New Ancillary Service. The Management Company
shall utilize generally accepted accounting principles in determining and
accounting for the profits and losses related to the operations of each New
Ancillary Service.
(ii) Profits and/or losses of any Ancillary Division shall be
divided equally between the Medical Group and the Management Company, and
all distributions to the Medical Group and to the Management Company shall
be made in equal amounts to each from available cash (after payment of all
currently due obligations incurred in connection with such New Ancillary
Division, including without limitation any principal and interest amounts
then due and payable under Section 5.8(a)(iv) below, and after retention of
reasonable reserves) derived from the operation of such Ancillary Division.
(iii) All diagnostic and therapeutic equipment utilized in
connection with any New Ancillary Service ("New Ancillary Service Medical
Equipment") shall be acquired by the Management Company and leased to the
Medical Group pursuant to an equipment lease substantially in the form of
the Medical Equipment Master Lease Agreement attached hereto as Exhibit F.
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(iv) The Management Company shall pay all of the Ancillary
Service Start-Up Costs. Beginning with the month following the expiration
of the Ancillary Service Start-Up Period, the Management Company shall be
entitled to recoup all of the Ancillary Service Start-Up Costs previously
paid by the Management Company in sixty (60) equal monthly installments of
principal, plus interest on the unrecouped portion of such costs at the
prevailing prime rate as set forth in the Wall Street Journal and/or at the
actual rate paid by the Management Company with respect to any part of such
costs that have been financed by the Management Company.
(v) The Management Company shall provide, in connection with any
New Ancillary Service, the full range of management services described in
this agreement.
(vi) The billings, collections, costs and expenses relating to
any New Ancillary Service shall not be included in the computations of
Medical Group Compensation, the Management Fee, Management Company Costs,
New Medical Office Start-Up Costs, or Medical Group Costs as described in
Sections 5.3, 5.4, 5.5, 5.6, or 5.7, respectively.
(b) For purposes of this Section 5.8, "Ancillary Service Start-Up
Period" means the period commencing on the date that any costs are incurred in
connection with the establishment of the New Ancillary Service and ending on the
last day of the first period of two (2) consecutive calendar months for which
the New Ancillary Service shows a profit.
(c) For purposes of this Section 5.8, "Ancillary Service Start-Up
Costs" means the total of all of the following costs incurred in connection with
the establishment of a New Ancillary Service during the Ancillary Service
Start-Up Period
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(whether such costs would otherwise be considered Management Company Costs or
Medical Group Costs) --
(i) Any lease payments for New Ancillary Service Medical
Equipment;
(ii) All costs of acquiring furniture, fixtures, and office equipment;
All initial occupancy costs, if any, including but not limited to rent deposits,
prepaid rent, and tenant improvements;
(iii) All other start-up costs, including but not limited to legal,
accounting and consulting fees, and the cost of initial inventories of supplies
and other items; and
(v) All ongoing costs of the New Ancillary Service, including but not
limited to personnel (other than physician Medical Personnel) and related
benefits, the cost of operating any equipment utilized in providing the service,
supplies, insurance, rent, repairs and maintenance, outside services, telephone,
taxes, utilities, storage and other ordinary ongoing expenses of providing the
New Ancillary Service.
5.9. REVIEW AND AUDIT OF BOOKS AND RECORDS.
Each of the parties shall have the right, during ordinary business
hours and upon reasonable notice, to review and make copies of, or to audit
through a qualified certified public accountant approved by the other party
(which approval shall not be unreasonably withheld), the books and records of
the other party relating to the billing, collection, and disbursement of fees,
and the determination of costs, under this Agreement. Any such review or audit
shall be performed at the cost of the requesting party; provided, however, that
in the event that such
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review or audit requested by the Medical Group discloses a discrepancy
indicating that the Medical Group has actually been underpaid by an amount in
excess of two percent (2%) of the total amount of Medical Group Compensation
payable to the Medical Group for the period covered by the audit, the cost of
the audit shall be borne by the Management Company. All documents and other
information obtained in the course of such review or audit shall be held in
strict confidence.
5.10. START-UP PERIOD.
<PAGE>
Consistent with the provisions of Section 2 of this Agreement, the
parties acknowledge and agree that, in order to facilitate the transition of
responsibilities hereunder, certain requirements and procedures agreed to under
this Agreement may be implemented over the course of a period of time commencing
on the Commencement Date and ending December 31, 1996 (subject to extension by
agreement of the Medical Group and the Management Company), rather than being
fully implemented immediately on the Commencement Date. Accordingly, the parties
further agree that the Management Fee and Medical Group Compensation payable in
respect of the Management Services and the Medical Group Services applicable to
such period of time shall be computed, and any appropriate adjustments shall be
made, such that no material financial advantage or disadvantage shall accrue to
either party as a result of implementing such requirements and procedures over
the course of such start-up period rather than immediately on the Commencement
Date.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE MEDICAL GROUP.
The Medical Group hereby represents and warrants to the Management
Company, as of the Signature Date hereof, as follows:
6.1. ORGANIZATION; GOOD STANDING; QUALIFICATION AND POWER.
The Medical Group is a professional association duly organized,
validly existing, and in good standing under the laws
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of the State of Texas and has all requisite power and authority to own, lease,
and operate its properties, to carry on its business as now being conducted and
as proposed to be conducted, to enter into this Agreement, the Asset Purchase
Agreement, the Medical Equipment Master Lease, each Assignment of Lease, each
Office Sublease, and each Stockholder Non-Competition Agreement (collectively,
the "Medical Group Transaction Documents"), to perform its obligations
thereunder, and to consummate the transactions contemplated hereby and thereby.
The Medical Group has delivered to the Management Company a true and correct
copy of its certificate of association and bylaws, in effect on the date hereof.
6.2. EQUITY INVESTMENTS.
The Medical Group currently has no subsidiaries, nor does the Medical
Group currently own any capital stock or other proprietary interest, directly or
indirectly, in any corporation, association, trust, partnership, joint venture,
or other entity.
6.3. AUTHORITY.
The execution, delivery and performance of the Medical Group
Transaction Documents and the consummation of the transactions contemplated
thereby have been duly and validly authorized by all necessary action on the
part of the Medical Group. The Medical Group Transaction Documents have been
duly and validly executed and delivered by the Medical Group and constitute the
legal, valid and binding obligations of the Medical Group enforceable in
accordance with their respective terms, except as enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally or by applicable laws pertaining to
the enforceability of non-competition agreements. Neither the execution,
delivery or performance of the Medical Group Transaction Documents by the
Medical Group nor the consummation by the Medical Group of the transactions
contemplated hereby or thereby, nor compliance by the Medical
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Group with any provision hereof or thereof will conflict with or result in a
breach of any provision of the formation documents of the Medical Group, cause a
default (with due notice, lapse of time or both), or give rise to any right of
termination, cancellation or acceleration, under any of the terms, conditions or
provisions of any note, bond, lease, mortgage, indenture, license or other
instrument, obligation or agreement to which the Medical Group or the Medical
Business is a party or by which they or any of its respective properties or
assets may be bound (with respect to which defaults or other rights all
requisite waivers or consents shall have been obtained at or prior to the date
hereof) or to the best knowledge of the Medical Group, but without expressing
any opinion regarding the enforceability of non-competition agreements, violate
any law, statute, rule or regulation or order, writ, judgment, injunction or
decree of any court, administrative agency or governmental body applicable to
the Medical Group, the Medical Business or any of their respective properties or
assets. To the best knowledge of the Medical Group, no permit, authorization,
consent or approval of or by, or any notification of or filing with, any person
(governmental or private) is required in connection with the execution, delivery
or performance by the Medical Group of the Medical Group Transaction Documents
or the consummation of the transactions contemplated thereby.
6.4. FINANCIAL INFORMATION.
Schedule 6.4 contains the Medical Group's internal statements of
assets, liabilities and partners' equity of the Medical Business at September
30, 1996 (the "Balance Sheet"; and the date thereof being referred to as the
"Balance Sheet Date"), and the related internal statements of revenue and
expenses for the period then ended (including the notes thereto and other
financial information included therein) (collectively, the "Internal Financial
Statements"), and (b) the review financial statements of the Medical Business
for the periods ended December 31, 1995 and December 31, 1994 (the "Review
Financial
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Statements"). The Internal Financial Statements and the Review
Financial Statements (i) were prepared in accordance with the books and records
of the Medical Business, (ii) fairly present the financial position of the
Medical Business as of the dates thereof, and (iii) are true, correct and
complete in all material respects as of the dates thereof.
6.5. ABSENCE OF UNDISCLOSED LIABILITIES.
Except as set forth on Schedule 6.5, as of the Balance Sheet Date, the
Medical Business did not have any material liability of any nature (matured or
unmatured, fixed or contingent, known or unknown) which was not provided for or
disclosed on the Balance Sheet, all liability reserves established by the
Medical Business on the Balance Sheet were adequate and there were no loss
contingencies (as such term is used in Statement of Financial Accounting
Standards No. 5 issued by the Financial Accounting Standards Board in March
1975) which were not adequately provided for or disclosed on the Balance Sheet.
6.6. ABSENCE OF CHANGES.
Except as set forth on Schedule 6.6, since the Balance Sheet Date, the
Medical Business has been operated in the ordinary course and consistent with
past practice and there has not been:
(a) any material adverse change in the condition (financial or
otherwise), assets (including, without limitation, levels of working capital and
the components thereof), liabilities, operations, results of operations,
earnings, business or prospects of the Medical Business;
(b) any damage, destruction or loss (whether or not covered by
insurance) in an aggregate amount exceeding $25,000 affecting any asset or
property of the Medical Business;
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(c) any obligation or liability (whether absolute, accrued, contingent
or otherwise and whether due or to become due) created or incurred, or any
transaction, contract or commitment entered into, by the Medical Business other
than such items created or incurred in the ordinary course of the Medical
Business and consistent with past practice;
(d) any payment, discharge or satisfaction of any claim, lien,
encumbrance, liability or obligation by the Medical Business outside the
ordinary course of the Medical Business (whether absolute, accrued, contingent
or otherwise and whether due or to become due);
(e) any license, sale, transfer, pledge, mortgage or other disposition
of any tangible or intangible asset of the Medical Business except in the
ordinary course of the Medical Business and consistent with past practice;
(f) any write-off as uncollectible of any accounts receivable in
connection with the Medical Business or any portion thereof in excess of $5,000
in the aggregate exclusive of all normal contractual adjustments from third
party payors;
(g) except for all normal contractual adjustments from third party
payors, any account receivable in connection with the Medical Business in an
amount greater than $10,000 which (i) has become delinquent in its payment by
more than 90 days, (ii) has had asserted against it any claim, refusal to pay or
right of set-off, (iii) an account debtor has refused to pay for any reason or
with respect to which such account debtor has become insolvent or bankrupt or
(iv) has been pledged to any third party;
(h) any cancellation of any debts or claims of, or any amendment,
termination or waiver of any rights of material value to, the Medical Business;
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(i) any general uniform increase in the compensation of employees of
the Medical Group or the Medical Business (including, without limitation, any
increase pursuant to any bonus, pension, profit-sharing, deferred compensation
arrangement or other plan or commitment) or any increase in compensation payable
to any officer, employee, consultant or agent thereof, or the entering into of
any employment contract with any officer or employee, or the making of any loan
to, or the engagement in any transaction with, any officer of the Medical Group
or the Medical Business;
(j) any change in the accounting methods or practices followed in
connection with the Medical Business or any change in depreciation or
amortization policies or rates theretofore adopted;
(k) the termination of any partner and/or key employee of the Medical
Group or the Medical Business listed on Annex A ("Medical Group Key Personnel"),
or any expression of intention by any of the Medical Group Key Personnel to
terminate such partnership status or employment with the Medical Group or the
Medical Business;
(l) any agreement or commitment relating to the sale of any material
fixed assets of the Medical Business;
(m) any other transaction relating to the Medical Business other than
in the ordinary course of the Medical Business and consistent with past
practice; or
(n) any agreement or understanding, whether in writing or otherwise,
for the Medical Business to take any of the actions specified in items (a)
through (m) above.
6.7. TAX MATTERS.
(a) Except as set forth on Schedule 6.7, (i) all Taxes relating to the
Medical Business required to be paid by the Medical Group through the date
hereof have been paid and all
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returns, declarations of estimated Tax, Tax reports, information returns and
statements required to be filed by the Medical Group in connection with the
Medical Business prior to the date hereof (other than those for which extensions
shall have been granted prior to the date hereof) relating to any Taxes with
respect to any income, properties or operations of the Medical Group prior to
the date hereof (collectively, "Returns") have been duly filed; (ii) as of the
time of filing, the Returns correctly reflected in all material respects (and,
as to any Returns not filed as of the date hereof, will correctly reflect in all
material respects) the facts regarding the income, business, assets, operations,
activities and status of the Medical Business and any other information required
to be shown therein; (iii) all Taxes relating to the operations of the Medical
Business that have been shown as due and payable by the Medical Group on the
Returns have been timely paid and filed or adequate provisions made to the books
and records of the Medical Business; (iv) in connection with the Medical
Business (x) the Medical Group has made provision on the Balance Sheet for all
Taxes payable by the Medical Group for any periods that end on or before the
Balance Sheet Date for which no Returns have yet been filed and for any periods
that begin on or before the Balance Sheet Date and end after the Balance Sheet
Date to the extent such Taxes are attributable to the portion of any such period
ending on the Balance Sheet Date and (y) provision has been made for all Taxes
payable by the Medical Group for any periods that end on or before the date
hereof for which no Returns have then been filed and for any periods that begin
on or before the date hereof and end after such date to the extent such Taxes
are attributable to the portion of any such period ending on such date; (v) no
tax liens have been filed with respect to any of the assets of the Medical
Business, and there are no pending tax audits of any Returns relating to the
Medical Business; and (vi) no deficiency or addition to Taxes, interest or
penalties applicable to the Medical Group for any Taxes relating to the
operation of the Medical Business has been proposed, asserted or assessed in
writing (or any member of any affiliated or combined group of
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which the Medical Group or any previous operator of the Medical Business was a
member for which the Medical Group could be liable).
(b) The Medical Group is not a foreign person within the meaning of
ss.1.1445-2(b) of the Regulations under Section 1445 of the Code.
(c) The Medical Group has provided the Management Company with true
and complete copies of all Federal, state and foreign Returns of the Medical
Group for the calendar years ending December 31, 1994 and 1995.
(d) For purposes of this Agreement, "Tax" means any of the Taxes and
"Taxes" means, with respect to any person or entity, (i) all federal, state,
local and foreign income taxes (including any tax on or based upon net income,
or gross income, or income as specially defined, or earnings, or profits, or
selected items of income, earnings or profits) and all Federal, state, local and
foreign gross receipts, sales, use, ad valorem, transfer, franchise, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property or windfall profits taxes, alternative or add-on minimum taxes, customs
duties or other Federal, state, local and foreign taxes, fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing authority (domestic
or foreign) on such person or entity and (ii) any liability for the payment of
any amount of the type described in the immediately preceding clause (i) as a
result of being a `transferee' (within the meaning of Section 6901 of the Code
or any other applicable law) of another person or entity or a member of an
affiliated or combined group.
6.8. LITIGATION, ETC.
Except as set forth on Schedule 6.8, there are no (a) actions, suits,
claims, investigations or legal or administrative
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or arbitration proceedings pending or, to the best knowledge of the Medical
Group, threatened against the Medical Group or in connection with the Medical
Business, whether at law or in equity, or before or by any Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality or (b) judgments, decrees, injunctions or orders of any court,
governmental department, commission, agency, instrumentality or arbitrator
against the Medical Group, its assets or affecting the Medical Business. The
Medical Group has delivered to the Management Company all documents and
correspondence relating to matters referred to in said Schedule 6.8.
6.9. COMPLIANCE; GOVERNMENTAL AUTHORIZATIONS.
The Medical Group and the Medical Business shall have complied in all
material respects with all applicable material Federal, state, local or foreign
laws, ordinances, regulations and orders. The Medical Group has all Federal,
state, local and foreign governmental licenses and permits necessary in the
conduct of the Medical Business, the lack of which would have a material adverse
effect on the Medical Group's ability to operate the Medical Business after the
date hereof on substantially the same basis as presently operated, such licenses
and permits are in full force and effect, the Medical Group has not received any
notice indicating that any violations are or have been recorded in respect of
any thereof, and no proceeding is pending or, to the best knowledge of the
Medical Group, threatened to revoke or limit any thereof. To the best knowledge
of the Medical Group, none of such licenses and permits shall be affected in any
material respect by the transactions contemplated hereby.
6.10. ACCOUNTS RECEIVABLE; ACCOUNTS PAYABLE.
(a) Except as set forth on Schedule 6.10, all of the accounts
receivable owing to the Medical Group in connection with the Medical Business as
of the date hereof constitute valid and enforceable claims arising from bona
fide transactions in the
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ordinary course of the Medical Business, the amounts of which are actually due
and owing, and as of the date hereof, to the best knowledge of the Medical
Group, there are no claims, refusals to pay or other rights of set-off against
any thereof. Except as set forth on Schedule 6.10, as of the date hereof, there
is (i) no account debtor or note debtor of the Medical Business delinquent in
its payment by more than 60 days, (ii) no account debtor or note debtor of the
Medical Business who or which has refused to pay its obligations for any reason
or is the subject of a bankruptcy proceeding and (iii) no account receivable or
note receivable of the Medical Business pledged to any third party.
(b) All accounts payable and notes payable by the Medical Business to
third parties arose in the ordinary course of business and, except as set forth
in Schedule 6.10, there is no account payable or note payable past due or
delinquent in its payment.
6.11. LABOR RELATIONS; EMPLOYEES.
Schedule 6.11 contains a true and complete list of the persons
employed by the Medical Group as of the date hereof (the "Employees"). Except as
set forth on Schedule 6.11, (a) the Medical Group and the Medical Business are
not delinquent in payments to any of the Employees for any wages, salaries,
commissions, bonuses or other compensation for any services performed by them to
the date hereof or amounts required to be reimbursed to the Employees; (b) upon
termination of the employment of any of the Employees, neither the Medical
Group, the Medical Business nor the Management Company will by reason of
anything done prior to the date hereof, or by reason of the consummation of the
transactions contemplated hereby, be liable for any excise taxes pursuant to
Section 4980B of the Code or to any of the Employees for severance pay or any
other payments; (c) there is no unfair labor practice complaint against the
Medical Group or in connection with the Medical Business pending before the
National Labor Relations Board or any comparable state, local
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or foreign agency; (d) there is no labor strike, dispute, slowdown or stoppage
actually pending or, to the best knowledge of the Medical Group, threatened
against or involving the Medical Group or Medical Business; (e) there is no
collective bargaining agreement covering any of the Employees; and (f) to the
best knowledge of the Medical Group, no Employee or consultant is in violation
of any (i) employment agreement, arrangement or policy between such person and
any previous employer (private or governmental) or (ii) agreement restricting or
prohibiting the use of any information or materials used or being used by such
person in connection with such person's employment by or association with the
Medical Group or the Medical Business.
6.12. EMPLOYEE BENEFIT PLANS.
(a) Schedule 6.12 identifies each `employee benefit plan', as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and all other written or oral plans, programs, policies or
agreements involving direct or indirect compensation (including any employment
agreements entered into between the Medical Group or the Medical Business and
any Employee or former employee of the Medical Group or in connection with the
Medical Business, but excluding workers' compensation, unemployment compensation
and other government-mandated programs) currently or previously maintained or
entered into by the Medical Group or in connection with the Medical Business for
the benefit of any Employee or former employee of the Medical Group or in
connection with the Medical Business under which the Medical Group, any
affiliate thereof or the Medical Business has any present or future obligation
or liability (the "Employee Plans"). The Medical Group has provided the
Management Company with true and complete age, salary, service and related data
for Employees of the Medical Group and in connection with the Medical Business.
(b) Schedule 6.12 lists each employment, severance or other similar
contract, arrangement or policy and each plan or arrangement (written or oral)
providing for insurance coverage
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(including any self-insured arrangements), workers' compensation, disability
benefits, supplemental unemployment benefits, vacation benefits, retirement
benefits, deferred compensation, profit-sharing, bonuses, stock options, stock
appreciation or other forms of incentive compensation or post-retirement
insurance, compensation or benefits currently maintained by the Medical Group or
in connection with the Medical Business.
6.13. INSURANCE.
Schedule 6.13 contains a list of all policies of professional
liability (medical malpractice), general liability, theft, fidelity, fire,
product liability, errors and omissions, health and other property and casualty
forms of insurance held by the Medical Group covering the assets, properties or
operations of the Medical Group and the Medical Business (specifying the
insurer, amount of coverage, type of insurance, policy number and any pending
claims thereunder). All such policies of insurance are valid and enforceable
policies and are outstanding and duly in force and all premiums with respect
thereto are currently paid. Neither the Medical Group nor its predecessor in
interest has, during the last five fiscal years, been denied or had revoked or
rescinded any policy of insurance relating to the assets, properties or
operations of the Medical Group or the Medical Business.
6.14. REAL PROPERTY.
Schedule 6.14 sets forth an accurate and complete legal description of
the entire right, title and interest of the Medical Group in and to all real
property, together with all buildings, facilities, fixtures and improvements
located on such real property, owned or leased by the Medical Group (the "Real
Property"), together with an accurate description of the title insurance policy
or other evidence of title issued with respect thereto, the most current survey
of such real property and a description of the use thereof. Other than the Real
Property, the Medical Group has no other interest (leasehold or otherwise)
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in real property used, held for use or intended to be used in the Medical
Business. The Medical Group has a valid leasehold interest in all Real Property
leased by the Medical Group.
6.15. BURDENSOME RESTRICTIONS.
Except as set forth on Schedule 6.15, neither the Medical Group nor
the Medical Business is bound by any oral or written agreement or contract which
by its terms prohibits it from conducting the Medical Group or the Medical
Business (or any material part thereof).
6.16. DISCLOSURE.
Neither the Medical Group Transaction Documents (including the
Exhibits and Schedules attached thereto) nor any other document, certificate or
written statement furnished to the Management Company by or on behalf of the
Medical Group in connection with the transactions contemplated hereby contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein and therein not
misleading. Except as set forth on Schedule 6.16, there have been no events or
transactions, or information which has come to the attention of the Medical
Group, which, as they relate directly to the Medical Group or the Medical
Business, could reasonably be expected to have a material adverse effect on the
business, operations, affairs, prospects or condition of the Medical Group and
the Medical Business.
SECTION 7. REPRESENTATIONS AND WARRANTIES OF THE MANAGEMENT COMPANY.
The Management Company represents and warrants to the Medical Group,
as of the Signature Date hereof, as follows:
7.1. ORGANIZATION, GOOD STANDING AND POWER.
The Management Company (a) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and (b)
has all requisite corporate
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power and authority to own, lease and operate its properties, to carry on its
business as now being conducted and as proposed to be conducted, to execute and
deliver this Agreement, the Asset Purchase Agreement, each Restricted Stock
Agreement, the Medical Equipment Master Lease, each Assignment of Lease, each
Office Sublease, and each Stockholder Non-Competition Agreement (collectively,
the "Management Company Transaction Documents"), to perform its obligations
thereunder, and to consummate the transactions contemplated hereby and thereby.
The Management Company has delivered to the Medical Group a true and correct
copy of its formation documents, consisting of the following: Amended and
Restated Certificate of Incorporation filed November 12, 1996 and the
Certificate of Amendment to the Amended and Restated Certificate of
Incorporation filed November 25, 1996 (the "BMJ Formation Documents"). The BMJ
Formation Documents have not been amended, and the BMJ Formation Documents are
in effect as of the date hereof.
7.2 EQUITY INVESTMENTS.
Except as identified in Schedule 7.2, the Management Company currently
has no subsidiaries, nor does the Management Company currently own any capital
stock or other proprietary interest, directly or indirectly, in any corporation,
association, trust, partnership, joint venture, or other entity.
7.3. CAPITALIZATION.
(a) The total authorized capital of the Management Company consists of
15,000,000 shares of common stock and 5,000,000 shares of preferred stock. Set
forth in Schedule 7.3(a) is an accurate and complete listing of all of the
stockholders of the Management Company and the number and class of shares held
by each. Except as set forth in Schedule 7.3(a), the Management Company has no
other outstanding stock or securities of any kind or nature, and no shares of
capital stock are held by the Management Company in its treasury. Each of the
outstanding shares of capital stock has been duly and validly
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authorized and issued, is fully paid and non-assessable, and was issued in
compliance with all applicable federal and state securities laws. Except as set
forth in the Stockholders Agreement (as hereinafter defined), no person is
entitled to any preemptive or similar right with respect to the issuance of any
shares of capital stock of the Management Company.
(b) No sale of common stock has been effected or any other action
taken the effect of which sale or other action would require or permit an
adjustment of the Conversion Price of any issued and outstanding convertible
preferred stock. The exercise of the right of any holder of convertible
preferred stock to convert such stock to common stock on or as of the
Commencement Date hereunder would entitle such holder of preferred stock to
receive one share of common stock for each share of preferred stock.
(c) There are no outstanding warrants, options, calls, conversion
rights or commitments or other rights to subscribe for or purchase from the
Management Company any shares of capital stock of the Management Company or
securities convertible into or exchangeable for capital stock, except as set
forth in Schedule 7.3(c).
(d) The Management Company has taken all action necessary or
appropriate to duly authorize the creation, issuance and sale of the common
stock to be issued hereunder. Such shares of common stock, when issued, sold and
delivered, as provided for herein and in the Restricted Stock Agreements, will
be validly issued, fully paid and nonassessable, with no personal liability
attaching to the ownership of the shares. The issuance of such shares of common
stock will not violate any preemptive or similar right of any person.
7.4. STOCKHOLDERS AGREEMENT.
The Management Company has delivered to the Medical Group a true and
correct copy of that certain Amended and
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Restated Stockholders Agreement dated as of November 12, 1996, entered into by
and among the Management Company and the stockholders identified therein. The
Stockholders Agreement has not been terminated or amended and remains in full
force and effect.
7.5. AUTHORITY.
The execution, delivery and performance of the Management Company
Transaction Documents, and the consummation of the transactions contemplated
thereby have been duly and validly authorized by all necessary corporate action
on the part of the Management Company. The Management Company Transaction
Documents to which it is a party have been duly and validly executed and
delivered by the Management Company, and such Management Company Transaction
Documents are valid and binding obligations of the Management Company,
enforceable in accordance with their respective terms except as enforcement may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the rights of creditors generally. Neither the execution,
delivery or performance of the Management Company Transaction Documents, nor the
consummation by the Management Company of the transactions contemplated thereby,
nor compliance by the Management Company with any provision thereof, will (a)
conflict with or result in a breach of any provisions of the BMJ Formation
Documents or By-laws of the Management Company, (b) cause a default (with due
notice, lapse of time or both), or give rise to any right of termination,
cancellation or acceleration, under any of the terms, conditions or provisions
of any material note, bond, lease, mortgage, indenture, license or other
instrument, obligation or agreement to which the Management Company is a party
or by which it or any of its properties or assets is or may be bound or (c)
violate any law, statute, rule or regulation or order, writ, judgment,
injunction or decree of any court, administrative agency or governmental body
applicable to the Management Company or any of its properties or assets. Except
as provided in Schedule 7.5, to the best of the Management
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Company's knowledge, no permit, authorization, consent or approval of or by, or
any notification of or filing with, any person (governmental or private) is
required in connection with the execution, delivery or performance by the
Management Company of this Agreement or the consummation by the Management
Company of the transactions contemplated hereby.
7.6. FINANCIAL INFORMATION.
Schedule 7.6 contains (a) the unaudited statements of assets,
liabilities and stockholders' equity of the Management Business at October 31,
1996 (the "Management Company Balance Sheet"; and the date thereof being
referred to as the "Management Company Balance Sheet Date"), and the related
unaudited statements of revenue and expenses for the periods then ended
(including the notes thereto and other financial information included therein)
(collectively, the "Unaudited Financial Statements"). The Unaudited Financial
Statements (i) were prepared in accordance with the books and records of the
Management Business, (ii) fairly present the financial position of the
Management Business as of the dates thereof, and (iii) are true, correct and
complete in all material respects as of the date thereof.
7.7. ABSENCE OF UNDISCLOSED LIABILITIES.
Except as set forth on Schedule 7.7, as of the Management Company
Balance Sheet Date, (a) the Management Business did not have any material
liability of any nature (matured or unmatured, fixed or contingent, known or
unknown) which was not provided for or disclosed on the Management Company
Balance Sheet, (b) all liability reserves established by the Management Business
on the Management Company Balance Sheet were adequate and (c) there were no loss
contingencies (as such term is used in Statement of Financial Accounting
Standards No. 5 issued by the Financial Accounting Standards Board in March
1975) which were not adequately provided for or disclosed on the Management
Company Balance Sheet.
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7.8. ABSENCE OF CHANGES.
Except as set forth on Schedule 7.8, since the Management Company
Balance Sheet Date, the Management Business has been operated in the ordinary
course and consistent with past practice and there has not been:
(a) any material adverse change in the condition (financial or
otherwise), assets (including, without limitation, levels of working capital and
the components thereof), liabilities, operations, results of operations,
earnings, business or prospects of the Management Business;
(b) any damage, destruction or loss (whether or not covered by
insurance) in an aggregate amount exceeding $25,000 affecting any asset or
property of the Management Business;
(c) any obligation or liability (whether absolute, accrued, contingent
or otherwise and whether due or to become due) created or incurred, or any
transaction, contract or commitment entered into, by the Management Business
other than such items created or incurred in the ordinary course of the
Management Business and consistent with past practice;
(d) any payment, discharge or satisfaction of any claim, lien,
encumbrance, liability or obligation by the Management Business outside the
ordinary course of the Management Business (whether absolute, accrued,
contingent or otherwise and whether due or to become due);
(e) any license, sale, transfer, pledge, mortgage or other disposition
of any tangible or intangible asset of the Management Business except in the
ordinary course of the Management Business and consistent with past practice;
(f) any write-off as uncollectible of any accounts receivable in
connection with the Management Business or any
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portion thereof in excess of $5,000 in the aggregate exclusive of all normal
contractual adjustments from third party payors;
(g) except for all normal contractual adjustments from third party
payors, any account receivable in connection with the Management Business in an
amount greater than $10,000 which (i) has become delinquent in its payment by
more than 90 days, (ii) has had asserted against it any claim, refusal to pay or
right of set-off, (iii) an account debtor has refused to pay for any reason or
with respect to which the Management Business, such account debtor has become
insolvent or bankrupt or (iv) has been pledged to any third party;
(h) any cancellation of any debts or claims of, or any amendment,
termination or waiver of any rights of material value to, the Management
Business;
(i) any general uniform increase in the compensation of employees of
the Management Company or the Management Business (including, without
limitation, any increase pursuant to any bonus, pension, profit-sharing,
deferred compensation arrangement or other plan or commitment) or any increase
in compensation payable to any officer, employee, consultant or agent thereof,
or the entering into of any employment contract with any officer or employee, or
the making of any loan to, or the engagement in any transaction with, any
officer of the Management Company or the Management Business;
(j) any change in the accounting methods or practices followed in
connection with the Management Business or any change in depreciation or
amortization policies or rates theretofore adopted;
(k) any termination of employment of any key employee of the
Management Company or the Management Business listed on Annex B (each, a
"Management Company Key Employee"), or any expression of intention by any Key
Employee of the Management
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Company or the Management Business to terminate such employment with the
Management Company or the Management Business;
(l) any agreement or commitment relating to the sale of any material
fixed assets of the Management Business;
(m) any other transaction relating to the Management Business other
than in the ordinary course of the Management Business and consistent with past
practice; or
(n) any agreement or understanding, whether in writing or otherwise,
for the Management Business to take any of the actions specified in items (a)
through (m) above.
7.9. TAX MATTERS.
(a) Except as set forth on Schedule 7.9, (i) all Taxes relating to the
Management Business required to be paid through the date hereof have been paid
and all returns, declarations of estimated Tax, Tax reports, information returns
and statements required to be filed in connection with the Management Business
prior to the date hereof (other than those for which extensions shall have been
granted prior to the date hereof) relating to any Taxes with respect to any
income, properties or operations of the Management Company prior to the date
hereof (collectively, "Management Company Returns") have been duly filed; (ii)
as of the time of filing, the Management Company Returns correctly reflected in
all material respects (and, as to any Management Company Returns not filed as of
the date hereof, will correctly reflect in all material respects) the facts
regarding the income, business, assets, operations, activities and status of the
Management Business and any other information required to be shown therein;
(iii) all Taxes relating to the operations of the Management Business that have
been shown as due and payable on the Management Company Returns have been timely
paid and filed or adequate provisions made to the books and records of the
Management Business; (iv) in connection with the Management Business (x) the
Management
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Company has made provision on the Management Company Balance Sheet for all Taxes
payable for any periods that end on or before the Management Company Balance
Sheet Date for which no Management Company Returns have yet been filed and for
any periods that begin on or before the Management Company Balance Sheet Date
and end after the Management Company Balance Sheet Date to the extent such Taxes
are attributable to the portion of any such period ending on the Management
Company Balance Sheet Date and (y) provision has been made for all Taxes payable
for any
<PAGE>
periods that end on or before the date hereof for which no Management Company
Returns have then been filed and for any periods that begin on or before the
date hereof and end after such date to the extent such Taxes are attributable to
the portion of any such period ending on such date; (v) no tax liens have been
filed with respect to any of the assets of the Management Business, and there
are no pending tax audits of any Management Company Returns relating to the
Management Business; and (vi) no deficiency or addition to Taxes, interest or
penalties for any Taxes relating to the operation of the Management Business has
been proposed, asserted or assessed in writing (or any member of any affiliated
or combined group of which the Management Company or any previous operator of
the Management Business was a member for which the Management Company could be
liable).
(b) The Management Company is not a foreign person within the meaning
of ss.1.1445-2(b) of the Regulations under Section 1445 of the Code.
7.10. LITIGATION, ETC.
Except as set forth on Schedule 7.10, there are no (a) actions, suits,
claims, investigations or legal or administrative or arbitration proceedings
pending or, to the best knowledge of the Management Company, threatened against
the Management Company or in connection with the Management Business, whether at
law or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality or
(b) judgments, decrees, injunctions or orders
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of any court, governmental department, commission, agency, instrumentality or
arbitrator against the Management Company its assets or affecting the Management
Business. The Management Company has delivered to the Medical Group all
documents and correspondence relating to matters referred to in said Schedule
7.10.
7.11. COMPLIANCE; GOVERNMENTAL AUTHORIZATIONS.
The Management Company and the Management Business shall have complied
in all material respects with all applicable material Federal, state, local or
foreign laws, ordinances, regulations and orders. The Management Company has all
Federal, state, local and foreign governmental licenses and permits necessary in
the conduct of the Management Business, the lack of which would have a material
adverse effect on the Management Company's ability to operate the Management
Business after the date hereof on substantially the same basis as presently
operated, such licenses and permits are in full force and effect, the Management
Company has not received any notice indicating that any violations are or have
been recorded in respect of any thereof, and no proceeding is pending or, to the
best knowledge of the Management Company, threatened to revoke or limit any
thereof. To the best knowledge of the Management Company, none of such licenses
and permits shall be affected in any material respect by the transactions
contemplated hereby.
7.12. ACCOUNTS RECEIVABLE; ACCOUNTS PAYABLE.
(a) Except as set forth on Schedule 7.12, all of the accounts
receivable owing to the Management Company in connection with the Management
Business as of the date hereof constitute valid and enforceable claims arising
from bona fide transactions in the ordinary course of the Management Business,
the amounts of which are actually due and owing, and as of the date hereof, to
the best knowledge of the Management Company, there are no claims, refusals to
pay or other rights of set-off against any thereof. Except as set forth on
Schedule 7.12, as of
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the date hereof, there is (i) no account debtor or note debtor of the Management
Business delinquent in its payment by more than 60 days, (ii) no account debtor
or note debtor of the Management Business who or which has refused to pay its
obligations for any reason or is the subject of a bankruptcy proceeding and
(iii) no account receivable or note receivable of the Management Business
pledged to any third party.
(b) All accounts payable and notes payable by the Management Business
to third parties arose in the ordinary course of business and, except as set
forth in Schedule 7.12, there is no account payable or note payable past due or
delinquent in its payment.
7.13. LABOR RELATIONS; EMPLOYEES.
Schedule 7.13 contains a true and complete list of the persons
employed by the Management Company as of the date hereof (the "Management
Company Employees"). Except as set forth on Schedule 7.13, (a) the Management
Company and the Management Business are not delinquent in payments to any of the
Management Company Employees for any wages, salaries, commissions, bonuses or
other compensation for any services performed by them to the date hereof or
amounts required to be reimbursed to the Management Company Employees; (b) upon
termination of the employment of any of the Management Company Employees,
neither the Management Company, the Management Business nor the Medical Group
will by reason of anything done prior to the date hereof, or by reason of the
consummation of the transactions contemplated hereby, be liable for any excise
taxes pursuant to Section 4980B of the Code or to any of the Management Company
Employees for severance pay or any other payments; (c) there is no unfair labor
practice complaint against the Management Company or in connection with the
Management Business pending before the National Labor Relations Board or any
comparable state, local or foreign agency; (d) there is no labor strike,
dispute, slowdown or stoppage actually pending or, to the best knowledge of the
Management Company, threatened against or involving the
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Management Company or Management Business; (e) there is no collective bargaining
agreement covering any of the Management Company Employees; and (f) to the best
knowledge of the Management Company, no Management Company Employee or
consultant is in violation of any (i) employment agreement, arrangement or
policy between such person and any previous employer (private or governmental)
or (ii) agreement restricting or prohibiting the use of any information or
materials used or being used by such person in connection with such person's
employment by or association with the Management Company or the Management
Business.
7.14. EMPLOYEE BENEFIT PLANS.
(a) Schedule 7.14 identifies each `employee benefit plan', as defined
in Section 3(3) of ERISA, and all other written or oral plans, programs,
policies or agreements involving direct or indirect compensation (including any
employment agreements entered into between the Management Company or the
Management Business and any Management Company Employee or former employee of
the Management Company or in connection with the Management Business, but
excluding workers' compensation, unemployment compensation and other
government-mandated programs) currently or previously maintained or entered into
by the Management Company or in connection with the Management Business for the
benefit of any Management Company Employee or former employee of the Management
Company or in connection with the Management Business under which the Management
Company, any affiliate thereof or the Management Business has any present or
future obligation or liability. The Management Company has provided the Medical
Group with true and complete age, salary, service and related data for
Management Company Employees and in connection with the Management Business.
(b) Schedule 7.14 lists each employment, severance or other similar
contract, arrangement or policy and each plan or arrangement (written or oral)
providing for insurance coverage (including any self-insured arrangements),
workers' compensation,
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disability benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits, deferred compensation, profit-sharing, bonuses, stock
options, stock appreciation or other forms of incentive compensation or
post-retirement insurance, compensation or benefits currently maintained by the
Management Company or in connection with the Management Business.
7.15. INSURANCE.
Schedule 7.15 contains a list of all policies of liability, theft,
fidelity, fire, product liability, errors and omissions, health and other
property and casualty forms of insurance held by the Management Company covering
the assets, properties or operations of the Management Company and the
Management Business (specifying the insurer, amount of coverage, type of
insurance, policy number and any pending claims thereunder). All such policies
of insurance are valid and enforceable policies and are outstanding and duly in
force and all premiums with respect thereto are currently paid. Neither the
Management Company nor its predecessor in interest has, during the last five
fiscal years, been denied or had revoked or rescinded any policy of insurance
relating to the assets, properties or operations of the Management Company or
the Management Business.
7.16. REAL PROPERTY.
Schedule 7.16 sets forth an accurate and complete legal description of
the entire right, title and interest of the Management Company in and to all
real property, together with all buildings, facilities, fixtures and
improvements located on such real property, owned or leased by the Management
Company (the "Management Company Real Property"), together with an accurate
description of the title insurance policy or other evidence of title issued with
respect thereto, the most current survey of such real property and a description
of the use thereof. Other than the Management Company Real Property, the
Management Company has no other interest (leasehold or otherwise) in real
property
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used, held for use or intended to be used in the Management Business. The
Management Company has a valid leasehold interest in all Management Company Real
Property leased by the Management Company.
7.17. BURDENSOME RESTRICTIONS.
Except as set forth on Schedule 7.17, neither the Management Company
nor the Management Business is bound by any oral or written agreement or
contract which by its terms prohibits it from conducting the Management Company
or the Management Business (or any material part thereof).
7.18. DISCLOSURE.
Neither the Management Company Transaction Documents (including the
Exhibits and Schedules attached thereto) nor any other document, certificate or
written statement furnished to the Medical Group by or on behalf of the
Management Company in connection with the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein and therein not
misleading. Except as set forth on Schedule 7.18, there have been no events or
transactions, or information which has come to the attention of the Management
Company, which, as they relate directly to the Management Company or the
Management Business, could reasonably be expected to have a material adverse
effect on the business, operations, affairs, prospects or condition of the
Management Company and the Management Business.
SECTION 8. OPERATIONS COMMITTEE.
8.1. FORMATION AND OPERATION OF THE OPERATIONS COMMITTEE.
The Management Company and the Medical Group shall establish an
Operations Committee responsible for directing the Management Company in
connection with the development of certain specific management and
administrative policies for the overall
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operation of the Medical Group. The Operations Committee shall consist of six
(6) members. The Medical Group shall designate three (3) members of the
Operations Committee, each of whom shall be a physician in the Medical Group,
and the Management Company shall designate three (3) members of the Operations
Committee. The business of the Operations Committee shall be conducted in
accordance with the policies and procedures described in Section 8.4 hereof.
8.2. AUTHORITATIVE FUNCTIONS OF THE OPERATIONS COMMITTEE.
The Operations Committee shall perform the following functions, and
the decisions of the Operations Committee with respect to such functions shall
be binding on the Management Company and the Medical Group:
(a) Approve the annual budgets for:
(i) Billings and Collections
(ii) Medical Group Costs
(iii) Management Company Operating Costs
(b) Approve costs and expenses that exceed the Management Company
Operating Costs Budget.
(c) Establish parameters and criteria with respect to the
establishment and maintenance of relationships with institutional providers and
payors and managed care contracts (except with respect to the establishment of
professional fees).
(d) Establish parameters and criteria with respect to:
(i) Billings
(ii) Claims submission
(iii) Collections of fees
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(iv) Delinquent account collection policies
(v) Turnover of delinquent accounts to outside collection
agencies
(vi) Write-offs of account balances
(vii) Claim review requests
(viii) "Insurance only" and other courtesy write-off
policies
(ix) Lien account collection policies
(x) Student Athlete account policies
(e) Approve the acquisition, replacement, relocation, or other
disposition of Medical Equipment and FF&E, approve the integration of new
technologies into the professional practice of the Medical Group as contemplated
by Section 3.11 hereof, and approve the renovation and expansion of any offices
of the Medical Group ("Tenant Improvements"); provided, however, that the
approval of the Management Company also shall be required prior to (i) the
acquisition of any Medical Equipment or FF&E (including any Medical Equipment or
FF&E relating to the integration of new technologies into the professional
practice of the Medical Group) if and to the extent that the aggregate cost of
such items in any calendar year exceeds five percent (5%) of the Management Fee
for such year, (ii) the undertaking of any Tenant Improvements relating to
patient care facilities that cost more than $25,000 in the aggregate at any one
of the Medical Group's office locations in any calendar year, or (iii) the
undertaking of any other Tenant Improvements.
(f) Establish parameters and criteria for off-site storage of files
and records of the Medical Group.
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8.3. ADVISORY FUNCTIONS OF THE OPERATIONS COMMITTEE.
The Operations Committee shall review, evaluate and make
recommendations to the Medical Group and the Management Company with respect to
the following matters:
(a) Identification of physician subspecialties required for the
efficient operation of the Medical Group; advice regarding all Medical Personnel
employment and recruitment contracts to be utilized by the Medical Group.
(b) Development of long-term strategic planning objectives for the
Medical Group.
(c) Public relations, advertising, and other marketing of Medical
Group services, including design of exterior signs.
(d) The establishment of fees for professional services and ancillary
services rendered by the Medical Group.
(e) Access and quality issues pertaining to ancillary services.
(f) Insurance limits and insurance coverage of the Medical Group and
the Management Company, as such coverage may relate to Medical Group operations
and activities.
(g) Any matters arising in connection with the operations of the
Medical Group that are not specifically addressed in this Agreement and as to
which the Management Company or the Medical Group requests consideration by the
Operations Committee.
The recommendations of the Operations Committee with respect to the matters
described in this Section 8.3 are intended for the advice and guidance of the
Management Company and the Medical Group, and except as provided herein, the
Operations Committee does not have the power to bind the Management Company or
the Medical Group. Where discretion with respect to any matters is
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vested in the Management Company or the Medical Group under the terms of this
Agreement, the Management Company or the Medical Group, as the case may be,
shall have ultimate responsibility for the exercise of such discretion,
notwithstanding any recommendation of the Operations Committee. The Management
Company and the Medical Group shall, however, take such recommendations of the
Operations Committee into account in good faith in the exercise of such
discretion.
8.4. COMMITTEE POLICIES AND PROCEDURES.
(a) The Medical Group shall designate one of its members to act as
Chairman of the Committee, and the Management Company shall designate one of its
members to act as Vice Chairman. Each party may substitute or change its
designated Operations Committee members at any time upon notice to the other
party, and any Operations Committee member may designate his or her own
substitute at any meeting without notice. Each member shall have one vote and
shall have the right to grant his or her proxy to another member of the
Operations Committee. The Chairman, if present, shall preside at all meetings of
the Operations Committee. In the absence of the designated Chairman, the Vice
Chairman shall preside. The only powers of the Chairman and the Vice Chairman
that differ from those of the other members of the Operations Committee shall be
to call and preside over meetings in accordance with this Section 8.4.
(b) The Operations Committee may hold meetings without call or formal
notice at such times and places as a quorum of its members may from time to time
determine. A meeting of the Operations Committee also may be called by at least
two (2) members of the Operations Committee or by the Chairman or Vice Chairman
thereof upon at least three (3) days' written notice to the other members of the
Operations Committee. Such notice requirement shall be deemed waived with
respect to any member of the Operations Committee who attends such meeting.
Meetings may be held in person or by telephone. The Operations Committee also
may act by written consent as provided in Section
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8.4(c). Minutes shall be kept of all formal actions taken by the Operations
Committee.
(c) No action of the Operations Committee shall be effective unless
authorized by the vote of four (4) or more members of the Operations Committee
present or represented by proxy at the applicable meeting. A quorum of the
Operations Committee shall be four (4) members, in person, by telephone, or by
proxy, and a quorum must remain for the duration of the meeting. The Operations
Committee may establish such procedures to act by written consent, without a
meeting, as the Operations Committee determines are advisable, provided that all
six (6) members (in person or by proxy) must sign any written consent.
SECTION 9. OBLIGATIONS OF THE MEDICAL GROUP.
The Medical Group shall perform the following obligations during the
Term:
9.1. COMPLIANCE WITH LAWS.
The Medical Group shall provide professional services to patients in
compliance at all times with ethical standards, laws and regulations to which
they are subject. The Medical Group shall verify, with the assistance of the
Management Company, that each physician and other Medical Personnel associated
with the Medical Group for the purpose of providing medical care to patients of
the Medical Group is licensed by the State of California. The Medical Group
shall monitor the quality of medical care practiced by physicians and other
health care personnel associated with the Medical Group. In the event that any
disciplinary actions or medical malpractice actions are initiated against any
such physician by any payor, patient, state or federal regulatory agency or any
other person or entity, the Medical Group shall immediately inform the
Management Company of such action and its underlying facts and circumstances.
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9.2. USE OF FACILITY.
The Medical Group shall use and occupy any Facility (as defined below)
exclusively for the practice of medicine, and shall comply with all applicable
federal, state and local rules, ordinances and standards of medical care. The
medical practice or practices conducted at any Facility described in clause (i)
of the definition of the term "Facility" shall be conducted solely by Medical
Personnel associated with the Medical Group, and no other physician or medical
practitioner shall be permitted to use or occupy any Facility described in
clause (i) below without the prior written consent of the Management Company,
which consent shall not be unreasonably withheld or delayed. The term "Facility"
shall mean (i) any medical facility or laboratory controlled, managed or
operated by the Management Company or (ii) any hospital at which any Medical
Personnel practices medicine or maintains admitting privileges.
9.3. CHOICE OF BRACES, SPLINTS, APPLIANCES, MEDICAL SUPPLIES, AND
ALLOGRAFTS.
The Medical Group shall have the exclusive control over the choice of
vendors and products utilized with respect to all prosthetics, prosthetic
devices, orthotics, braces, splints, appliances, medical supplies and
allografts.
9.4. CHOICE OF RADIOLOGISTS, ANESTHESIOLOGISTS, HOSPITALS, PHYSICAL
THERAPY, MRI, AND OTHER MEDICAL PROFESSIONALS AND FACILITIES.
The Medical Group shall have exclusive control over the choice of
specific physicians and facilities to be utilized by the Medical Group with
respect to radiology, anesthesiology, hospitals, physical therapy, MRI, and
other medical professionals and facilities; provided, however, that the
foregoing shall not limit the provisions of Section 3.4(b) hereof.
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9.5. INSURABILITY.
The Medical Group shall cooperate with the Management Company in (i)
ensuring that its Medical Personnel are insurable or (ii) instituting
proceedings to terminate within two business days any Medical Personnel who is
not insurable or who loses his or her insurance eligibility. The Medical Group
shall notify the Management Company in writing of any change in the insurance
status of any Medical Personnel within two days after the Medical Group receives
notice of any such change. The Medical Group shall require all Medical Personnel
to participate in an on-going risk management program.
9.6. MEDICARE.
The Medical Group shall cause all physicians to be participating
providers and accept assignment under Medicare.
9.7. ACCOUNTS RECEIVABLE; BILLING.
From the Commencement Date, the Medical Group acknowledges and agrees
that all accounts receivable of the Medical Group or its Medical Personnel shall
be the property of the Management Company hereunder and the Medical Group and
the Medical Personnel hereby transfer and assign all of their right, title and
interest to such accounts receivable to the Management Company. The Medical
Group's Medical Personnel shall be responsible for providing the appropriate
current CPT4 coding with respect to the fee tickets prepared by such Medical
Personnel.
9.8. MEDICAL PERSONNEL HIRING.
The Medical Group shall have the ultimate control over and
responsibility for the hiring, compensation, supervision, evaluation and
termination of its Medical Personnel; provided, however, that at the request of
the Medical Group, the Management Company shall consult with the Medical Group
regarding such matters.
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9.9. CONTINUING EDUCATION.
The Medical Group and its Medical Personnel shall be solely
responsible for ongoing membership in professional associations and continuing
professional education. The Medical Group shall ensure that its Medical
Personnel participate in such continuing professional education as is necessary
for such physician or professional to remain current in his or her field of
medical practice.
9.10. PHYSICIAN FELLOWSHIP PROGRAM.
The Medical Group shall have the ultimate control over and
responsibility for the Physician Fellowship Program of the Medical Group,
including but not be limited to fellow interviewing, hiring, termination,
compensation, day-to-day supervision, and assignment of responsibilities and
projects.
9.11. CLINICAL RESEARCH.
The Medical Group shall have the ultimate control over and
responsibility for the clinical research program pertaining to patients of the
Medical Group. This shall include but not be limited to research personnel
interviewing, hiring, termination, compensation, day-to-day supervision, and
assignment of responsibilities and projects. However, the Medical Group will
cooperate with and take direction from the Management Company in its nationwide
efforts to provide an effective disease management information system and
outcome studies programs.
9.12. SALES OF STOCK.
The Eligible Parties shall give to Naresh Nagpal, M.D. and any venture
capital firm providing funds to the Management Company the right to participate
on a pro rata basis (based on the number of shares, whether preferred or common,
calculated on an as-converted basis, held by Naresh Nagpal, M.D. and any such
venture capital firm and by any other shareholders who hold the same rights that
are conferred by this Section 9.12, including
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members of other physician groups) in any proposed sale of more than fifty
percent (50%) of the stock in the Management Company held by the Eligible
Parties to any unaffiliated third party or parties, and the Medical Group shall
require the Eligible Parties to comply with the obligations set forth in this
Section 9.12; provided, however, that the obligations under this Section 9.12
shall become null and void upon the consummation of an initial public offering
of the Management Company's common stock.
SECTION 10. CERTAIN COVENANTS.
10.1. CHANGE OF CONTROL.
During the Term of this Agreement, the Medical Group shall not enter
into any single transaction (or group of related transactions undertaken
pursuant to a common plan) involving [the admission of new partners, transfer of
partnership interests], or reorganization or restructuring of the Medical Group
if in any such case the effect would be to transfer a majority of the ownership
interest in the Medical Group, without the prior written consent of the
Management Company, which consent shall not be unreasonably withheld or delayed.
10.2. LEGEND ON SECURITIES.
During the Term of this Agreement, any certificate or similar evidence
representing an equity interest in the Medical Group issued by the Medical Group
shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO THE RESTRICTIONS ON TRANSFER CONTAINED IN THE MANAGEMENT
SERVICES AGREEMENT EFFECTIVE AS OF NOVEMBER 1, 1996, BETWEEN
SOUTH TEXAS SPINAL CLINIC, P.A., A TEXAS PROFESSIONAL
ASSOCIATION, AND BONE, MUSCLE AND JOINT, INC., A DELAWARE
CORPORATION."
The Management Company acknowledges that there is no certificate or
other similar evidence representing equity interests in the Medical Group as of
the Signature Date hereof. Nothing herein
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shall be construed as requiring the Medical Group to issue any certificate or
other evidence representing an equity interest in the Medical Group (other than
the Medical Group's [Name any agreements], or any replacement thereof, as
amended from time to time).
SECTION 11. RECORDS.
11.1. MEDICAL RECORDS.
Upon termination of this Agreement, the Medical Group shall retain all
patient medical records maintained by the Medical Group or the Management
Company in the name of the Medical Group.
11.2. MANAGEMENT BUSINESS RECORDS.
All books and records relating in any way to the operation of the
Management Business which are not patient medical records shall at all times be
the joint property of the Management Company and the Medical Group. The
Management Company shall maintain custody of such records, and the Medical Group
shall, upon its written request, be entitled to copies of any such records
relating to the Management Services performed by the Management Company.
11.3. ACCESS TO RECORDS FOLLOWING TERMINATION.
Following the termination of this Agreement, the Medical Group shall
grant (to the extent permitted by law) to the Management Company, for the
purpose of preparing for any actual or anticipated legal proceeding or for any
other reasonable purpose, reasonable access (which shall include making
photocopies) to the patient medical records described in Section 11.1 hereof and
any other pertinent information regarding the Medical Group during the Term.
Prior to accessing such patient medical records, the Management Company shall
obtain any required patient authorization.
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Following the termination of this Agreement, the Management Company
shall provide to the Medical Group, promptly upon the Medical Group's written
request, photocopies of the Management Business records described in Section
11.2 hereof, and shall grant to the Medical Group, for the purpose of preparing
for any actual or anticipated legal proceeding or for any other reasonable
purpose, any other pertinent information regarding the Management Company during
the Term.
SECTION 12. INSURANCE AND INDEMNITY.
12.1. PROFESSIONAL LIABILITY INSURANCE.
During the Term, the Management Company shall, to the extent permitted
by applicable law, procure and maintain for the benefit of itself and the
Medical Group comprehensive professional liability insurance providing for (a)
general liability coverage and (b) medical malpractice coverage with limits of
not less than $200,000 per claim and with aggregate policy limits of not less
than $600,000 covering the Medical Group and each of the Medical Personnel of
the Medical Group (or such higher amounts as may be necessary to comply with any
regulatory requirement and/or contractual requirement to which such Medical
Personnel or the Medical Group may be subject), including coverage for claims
made after the Commencement Date relating to events or occurrences at any time
prior thereto. The parties hereto acknowledge that the Management Company is
procuring the malpractice insurance referenced herein to ensure that the
Management Company has protection in the event it is sued as a result of an act
or omission of an employee of the Medical Group. The Management Company shall
pay the premiums for such general and medical malpractice liability coverage,
and the Management Company shall be designated as a co-beneficiary under such
insurance policies.
12.2. LIFE INSURANCE.
The Management Company shall obtain a $500,000 life insurance policy
for each duly licensed physician partner in the
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Medical Group. The Management Company shall be designated as the beneficiary
under such policies. The premiums for such policies shall be paid by the
Management Company and shall not be included as Management Company Operating
Costs or otherwise charged to the Medical Group.
12.3. INDEMNIFICATION BY MEDICAL GROUP.
The Medical Group shall indemnify, hold harmless and defend the
Management Company, its officers, directors, shareholders, employees, agents and
independent contractors from and against any and all liabilities, losses,
damages, claims, causes of action and expenses (including reasonable attorneys'
fees and expenses), whether or not covered by insurance, caused or asserted to
have been caused, directly or indirectly, by or as a result of (i) the
performance of Medical Group Services, including without limitation the
performance of such services prior to
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the Commencement Date, (ii) any other acts or omissions of the Medical Group and
its Medical Personnel, including without limitation any such acts or omissions
that occurred prior to the Commencement Date, or (iii) any breach of or failure
to perform any obligation under this Agreement or the Transaction Documents by
the Medical Group and/or the Medical Personnel and/or their respective agents
and/or subcontractors (other than the Management Company) during the Term.
12.4. INDEMNIFICATION BY MANAGEMENT COMPANY.
The Management Company shall indemnify, hold harmless and defend the
Medical Group, its officers, directors, partners, members, employees, agents and
independent contractors from and against any and all liabilities, losses,
damages, claims, causes of action and expenses (including reasonable attorneys'
fees and expenses), whether or not covered by insurance, caused or asserted to
have been caused, directly or indirectly, by or as a result of (i) the
performance of Management Services, (ii) any other acts or omissions of the
Management Company and its employees or (iii) any breach of or failure to
perform any
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obligation under this Agreement or the Transaction Documents by the Management
Company and/or its partners, agents, employees and/or subcontractors (other than
the Medical Group) during the Term.
SECTION 13. TERMINATION.
13.1. TERMINATION BY MEDICAL GROUP.
The Medical Group may terminate this Agreement effective immediately
by giving written notice of termination to the Management Company (a) in the
event of the filing of a petition in voluntary bankruptcy or an assignment for
the benefit of creditors by the Management Company or upon other action taken or
suffered, voluntarily or involuntarily, under any federal or state law for the
benefit of debtors by the Management Company, except for the filing of a
petition in involuntary bankruptcy against the Management Company which is
dismissed within ninety (90) days thereafter (a "Bankruptcy Event"), (b) in the
event the Management Company shall default in any material respect in the
performance of any duty or obligation imposed upon it by this Agreement and the
Management Company shall not have taken reasonable action commencing curing of
such default within thirty (30) days after written notice thereof has been given
to the Management Company by the Medical Group or the Management Company does
not thereafter diligently prosecute such action to completion, (c) in the event
that any of the representations and warranties made by the Management Company in
Section 7 is untrue or misleading in any material respect, provided that the
Medical Group shall have previously given written notice to the Management
Company describing in reasonable detail the nature of the item in question and
the Management Company shall not have cured such matter within thirty (30) days
of such notice or (d) in the event that the sale of shares of the Management
Company pursuant to its IPO is not consummated within forty-eight (48) months
after the Commencement Date.
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13.2. TERMINATION BY MANAGEMENT COMPANY.
The Management Company may terminate this Agreement effective
immediately by giving written notice of termination to the Medical Group (a) in
the event of a Bankruptcy Event relating to the Medical Group, (b) in the event
the Medical Group shall default in any material respect in the performance of
any duty or obligation imposed upon it by this Agreement and the Medical Group
shall not have taken reasonable action commencing curing of such default within
thirty (30) days after written notice thereof has been given to the Medical
Group by the Management Company or the Medical Group does not thereafter
diligently prosecute such action to completion, (c) in the event that any of the
representations and warranties made by the Medical Group in Section 6 is untrue
or misleading in any material respect, provided that the Management Company
shall have previously given written notice to the Medical Group describing in
reasonable detail the nature of the item in question and the Medical Group shall
not have cured such matter within thirty (30) days of such notice, or (d) in the
event the Medical Group is excluded from the Medicaid or Medicare program for
any reason.
13.3. TERMINATION BY MEDICAL GROUP OR MANAGEMENT COMPANY.
The Medical Group and the Management Company shall each have the right
to terminate this Agreement effective immediately by giving written notice of
termination to the other party pursuant to Section 28 of this Agreement.
13.4. EFFECT OF TERMINATION.
Upon the termination of this Agreement in accordance with the terms
hereof, neither party hereto shall have any further obligation or liability to
the other party hereunder, except as provided in Section 13.5 and in Section 27
hereof, and except to pay in full and satisfy any and all outstanding
obligations of the parties accruing through the effective date of termination.
In order to accomplish the foregoing, the Annual
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Medical Group Compensation Amount described in Section 5.3(b) shall be
calculated on or before the end of the fourth month following the termination
date, rather than on or before April 30 as specified in Section 5.3(b), and the
computation made under such section shall be made with respect to the portion of
the year ending on the termination date (if the termination date is other than
December 31). In making such computation, all Collections during January,
February, and March of such year shall be excluded, and all Collections during
the three-month period following termination shall be included. Additionally,
any payment required under the terms of Section 5.3(b)(ii) shall be made within
fifteen (15) days after the date by which the foregoing calculation is to be
made, rather than on May 15.
13.5. REPURCHASE OF ASSETS.
Promptly following termination of this Agreement for any reason, the
Management Company shall sell, transfer, convey, and assign to the Medical
Group, and the Medical Group shall purchase, assume, and accept from the
Management Company, at such price and upon such terms as may be agreed upon by
the parties -- or, if the parties are unable to agree, at fair market value,
determined in the manner set forth below -- all of the following items which are
used in connection with the professional practice and related activities of the
Medical Group and which, in the case of items (a), (b), (c) and (d), are
physically located in any of the offices of the Medical Group, subject to any
required consent from any third party having an interest therein:
(a) the Medical Equipment owned by the Management Company;
(b) the furniture, furnishings, trade fixtures, and office equipment
owned by the Management Company;
(c) the Management Company's rights and interests in any equipment
leased by the Management Company, subject to the
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Medical Group's assumption of the obligations accruing thereunder after the date
of termination of this Agreement;
(d) the supplies owned by the Management Company;
(e) the Management Company's rights and interests under all of the
Office Leases, subject to the Medical Group's assumption of the obligations
accruing thereunder after the date of termination of this Agreement; and
(f) the deposits of the Management Company relating to the Medical
Group.
Fair market value of the above described assets shall be determined by an
independent appraiser mutually agreed upon by the Medical Group and the
Management Company; provided, however, that if the Medical Group and the
Management Company are unable to agree upon such an appraiser, each of the
parties shall select an appraiser and the two appraisers thus selected shall
select a third appraiser. All of the appraisers shall appraise the assets, and
for purposes of determining the purchase price, the highest and lowest
appraisals shall be disregarded, and the remaining appraisal shall be used.
SECTION 14. RESCISSION/DISENGAGEMENT
14.1. RESCISSION/DISENGAGEMENT BY MEDICAL GROUP.
(a) On (i) the earlier to occur of (A) the second (2nd) anniversary of
the Commencement Date or (B) the filing by the Management Company of a
Preliminary Prospectus for the initial public offering of its common stock with
the Securities and Exchange Commission (the "Second (2nd) Anniversary") and (ii)
the seventh (7th) anniversary of the Commencement Date (the "Seventh (7th)
Anniversary"), the Medical Group, at its option, may rescind this Agreement and
disengage itself from further participation in and from all of its obligations
under the terms of this Agreement. The option may be exercised by the Medical
Group by giving 30
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days' prior written notice of rescission/disengagement to the Management
Company, on or before the Second (2nd) or the Seventh (7th) Anniversary, as the
case may be, and by the Medical Group complying with provisions of Sections
14.1(c) through 14.1(d) below (subject however, to the performance of the
obligations imposed upon the Management Company in Section 14.1(e) below). The
effective date (the "Effective Date") of the rescission/disengagement shall be
the date specified in the written notice (which shall be either the Second (2nd)
Anniversary or the Seventh (7th) Anniversary).
(b) Effect of Rescission/Disengagement. The effect of the
rescission/disengagement by the Medical Group pursuant to the provisions of this
Section 14.1 shall be identical to the effect of termination, as described in
Section 13.4 of this Agreement.
(c) Repurchase of Assets. Within 30 days following the Effective Date
of the rescission/disengagement by the Medical Group, the Management Company
shall, subject to the prior receipt of any required landlord and third party
consents, sell, transfer, convey and assign to the Medical Group and the Medical
Group shall purchase, assume and accept from the Management Company the property
described and under the terms provided in Section 13.5 of this Agreement.
(d) Repayment of Consideration. On or before the Effective Date of the
rescission/disengagement, the Medical Group shall deliver to the Management
Company the following:
(i) Cash Consideration:
(A) Second (2nd) Anniversary: In the event the Medical Group
exercises its option as of the Second (2nd) Anniversary, a dollar
amount equal to the aggregate cash consideration received by the
Medical Group or by the Eligible Parties (the amount of which is set
forth opposite
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the name of each of the Eligible Parties on Schedule III hereto) from
the Management Company upon execution of this Agreement, SAVE AND
EXCEPT for that portion of the cash consideration payable under the
terms of that one (1) certain Asset Purchase Agreement executed
contemporaneously with the execution of this Agreement (the amount of
which is also set forth opposite the name of each of the Eligible
Parties on Schedule III hereto). The aggregate sum so determined shall
be payable to the Management Company in cash, by cashier's or
certified check or by wire transfer of good funds delivered to a
depository institution designated by the Management Company;
(B) Seventh (7th) Anniversary: In the event the Medical
Group shall exercise its option as of the Seventh (7th) Anniversary,
it shall have no obligation to return any portion of the cash
consideration received by the Medical Group upon execution of this
Agreement.
(ii) Stock of Management Company:
(A) Second (2nd) Anniversary: In the event the Medical Group
shall exercise its option as of the Second (2nd) Anniversary, all
shares of stock of the Management Company received by the Eligible
Parties associated with the Medical Group shall be returned and
redelivered to the Management Company. In the event any portion of the
shares to be returned and redelivered shall have been previously
disposed of by the Eligible Parties associated with the Medical Group,
the Fair Market Value (as defined in the Restricted Stock Agreement)
of such portion, determined as of the Second (2nd) Anniversary, shall
be payable
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to the Management Company in cash, by cashier's or certified check or
by wire transfer of good funds delivered to a depository institution
designated by the Management Company;
(B) Seventh (7th) Anniversary: In the event the Medical
Group shall exercise its option as of the Seventh (7th) Anniversary,
fifty percent (50%) of the shares of stock of the Management Company
received by the Eligible Parties associated with the Medical Group
upon execution of this Agreement shall be returned and redelivered to
the Management Company. In the event any portion of the shares to be
returned and redelivered shall have been previously disposed of by the
Eligible Parties associated with the Medical Group, the Fair Market
Value of such portion, determined as of the Seventh (7th) Anniversary,
shall be payable to the Management Company in cash, by cashier's or
certified check or by wire transfer of good funds delivered to a
depository institution designated by the Management Company.
(e) Repayment of Management Fee. The performance of the obligations of
the Medical Group under the provisions of Sections 14.1(b) through (d) above
shall be expressly subject to and conditioned upon the delivery from the
Management Company to the Medical Group, in cash, by cashier's or certified
check or by wire transfer of good funds delivered to a depository institution
designated by the Medical Group, of the following amount:
(i) Second (2nd) Anniversary: In the event the Medical Group
shall exercise its option as of the Second (2nd) Anniversary, the
Management Company shall deliver to the Medical Group fifty percent (50%)
of the Management Fees paid by the Medical Group under
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the terms of this Agreement after the Commencement Date and on or before
the Second (2nd) Anniversary;
(ii) Seventh (7th) Anniversary: In the event the Medical Group
shall exercise its option as of the Seventh (7th) Anniversary, the
Management Company shall have no obligation to return any portion of the
Management Fees paid by the Medical Group under the terms of this
Agreement.
14.2. DISENGAGEMENT OF INDIVIDUAL MEMBER.
On each of the Second (2nd) Anniversary and the Seventh (7th)
Anniversary, a member of the Medical Group (the "Disengaging Member") may,
at his option, disengage from further participation in and from further
obligations under the terms and provisions of this Agreement. The option
may be exercised by a Disengaging Member by giving written notice of his
disengagement to the Management Company and by complying with the
obligations imposed by Sections 14.2(b)-14.2(c) below (subject however, to
the performance by the Management Company of the obligations imposed in
Section 14.2(c)(iii) below). The Effective Date of the disengagement shall
be the date specified in the written notice (which shall be either the
Second Anniversary or the Seventh Anniversary).
(a) Effect of Disengagement. The effect of the disengagement by the
Disengaging Member pursuant to the provisions of this Section 14.2 shall,
insofar as the Disengaging Member is concerned, be identical to the effect
of termination, as described in Section 13.4 of this Agreement. However,
the disengagement by the Disengaging Member shall have no effect upon the
continuing rights and obligations of the Medical Group vis-a-vis the
Management Company under the terms of this Agreement.
(b) Repurchase of Assets. Within thirty (30) days after the Effective
Date of the disengagement (that is, thirty
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(30) days after the Second (2nd) Anniversary or the Seventh (7th) Anniversary,
as the case may be), the Disengaging Member shall have the right, option and
privilege to purchase the furnishings, fixtures, furniture and equipment
contained in the Disengaging Member's personal office. Such option shall be
exercised by notifying the Management Company in writing of the Disengaging
Member's election to exercise the option and specifying the particular items of
property which the Disengaging Member desires to purchase. The purchase price
for such property items shall be determined in the manner provided in Section
13.5 of this Agreement.
(c) Repayment of Consideration. On or before the Effective Date of
disengagement, the Disengaging Member shall deliver to the Management Company
the following:
(i) Cash Consideration:
(A) Second (2nd) Anniversary: In the event the Disengaging
Member exercises his option as of the Second (2nd) Anniversary, a
dollar amount equal to the aggregate cash consideration received by
the Disengaging Member (the amount of which is set forth opposite such
Disengaging Member's name on Schedule III hereto) from the Management
Company upon execution of this Agreement, SAVE AND EXCEPT for the
Disengaging Member's portion of the cash consideration payable under
the terms of that one (1) certain Asset Purchase Agreement executed
contemporaneously with the execution of this Agreement (the amount of
which is also set forth opposite such Disengaging Member's name on
Schedule III hereto). The aggregate sum, so determined, shall be
payable to the Management Company in cash, by cashier's or certified
check or by wire transfer of good funds
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delivered to a depository institution designated by the Management
Company;
(B) Seventh (7th) Anniversary: In the event the Disengaging
Member shall exercise his option as of the Seventh (7th) Anniversary,
he shall have no obligation to return any portion of the cash
consideration received by such Disengaging Member upon execution of
this Agreement.
(ii) Stock of Management Company:
(A) Second (2nd) Anniversary: In the event the Disengaging
Member shall exercise his option as of the Second (2nd) Anniversary,
all shares of stock of the Management Company received by the
Disengaging Member shall be returned and redelivered to the Management
Company. In the event any portion of the shares to be returned and
redelivered shall have been previously disposed of by the Disengaging
Member, the Fair Market Value of such portion, determined as of the
Second (2nd) Anniversary, shall be payable to the Management Company
in cash, by cashier's or certified check or by wire transfer of good
funds delivered to a depository institution designated by the
Management Company;
(B) Seventh (7th) Anniversary: In the event the Disengaging
Member shall exercise his option as of the Seventh (7th) Anniversary,
fifty percent (50%) of the shares of stock of the Management Company
received by the Disengaging Member upon execution of this Agreement
shall be returned and redelivered to the Management Company. In the
event any portion of the shares to be returned and redelivered shall
have been
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previously disposed of by the Disengaging Member, the Fair Market
Value of such portion, determined as of the Seventh (7th) Anniversary,
shall be payable to the Management Company in cash, by cashier's or
certified check or by wire transfer of good funds delivered to a
depository institution designated by the Management Company.
(iii) Repayment of Management Fee. The performance of the
obligations of the Disengaging Member under the provisions of Sections
14.2(b) and 14.2(c) shall be expressly subject to and conditioned upon the
delivery from the Management Company to the Disengaging Member, in cash, by
cashier's of certified check or by wire transfer of good funds delivered to
a depository institution designated by the Disengaging Member, of the
following amount:
(A) Second (2nd) Anniversary: In the event the Disengaging
Member shall exercise his option as of the Second (2nd) Anniversary,
the Management Company shall deliver to the Disengaging Member, fifty
percent (50%) of the Management Fees paid by the Medical Group under
the terms of this Agreement and allocable to income of the Medical
Group attributable to the Disengaging Member, after the Commencement
Date of this Agreement and on or before the Second (2nd) Anniversary.
(B) Seventh (7th) Anniversary: In the event the Disengaging
Member shall exercise his option as of the Seventh (7th) Anniversary,
the Management Company shall have no obligation to return any portion
of the Management Fees paid by the Medical Group under the terms of
this Agreement.
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14.3. SUPPLEMENTAL RESCISSION/DISENGAGEMENT RIGHT.
(a) If, on or before the Second (2nd) Anniversary, the Management
Company shall be providing Management Services within the metropolitan San
Antonio, Bexar County, Texas trade area for fewer than sixteen (16) medical
doctors having areas of specialty providing musculo-skeletal services which are
similar and complimentary to the areas of specialty represented by Management
Company affiliated physicians and the Medical Group, then in such event this
Agreement may be rescinded and terminated, at the election of the Medical Group.
If it shall so elect by notice in writing to the Management Company, delivered
on or before thirty (30) days before the Second (2nd) Anniversary, the Medical
Group shall no longer participate in or be obligated under the terms and
provisions of this Agreement if it shall comply with the provisions of Sections
14.3(c) through 14.3(d) below (subject however, to the performance by the
Management Company of the obligations imposed in Section 14.3(e) below). In such
case, the Effective Date of the rescission shall be the Second (2nd)
Anniversary.
(b) Effect of Rescission. The effect of the rescission of this
Agreement pursuant to the provisions of this Section 14.3 shall be identical to
the effect of termination, as described in Section 13.4 of this Agreement.
(c) Repurchase of Assets. Within 30 days following the Effective Date
of the rescission of this Agreement pursuant to the provisions of this Section
14.3, the Management Company shall sell, transfer, convey and assign to the
Medical Group and the Medical Group shall purchase, assume and accept from the
Management Company the property described and under the terms provided in
Section 13.5 of this Agreement.
(d) Repayment of Consideration. On or before the Effective Date of the
rescission of this Agreement, the Medical Group shall deliver to the Management
Company the following:
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(i) Cash Consideration: A dollar amount equal to the aggregate
cash consideration received by the Medical Group or by the Eligible Parties
(the amount of which is set forth opposite the name of each of the Eligible
Parties on Schedule III hereto) from the Management Company upon execution
of this Agreement, SAVE AND EXCEPT for that portion of the cash
consideration payable under the terms of that one (1) certain Asset
Purchase Agreement executed contemporaneously with the execution of this
Agreement (the amount of which is also set forth opposite the name of each
of the Eligible Parties on Schedule III hereto). The aggregate sum so
determined shall be payable to the Management Company in cash, by cashier's
or certified check or by wire transfer of good funds delivered to a
depository institution designated by the Management Company.
(ii) Stock of Management Company: All shares of stock of the
Management Company received by the Medical Group or the Eligible Parties
shall be returned and redelivered to the Management Company. In the event
any portion of the shares to be returned and redelivered shall have been
previously disposed of by the Medical Group or the Eligible Parties, the
Fair Market Value of such portion, determined as of the Second Anniversary,
shall be payable to the Management Company in cash, by cashier's or
certified check or by wire transfer of good funds delivered to a depository
institution designated by the Management Company.
(e) Return of Management Fee. The performance of the obligations of
the Medical Group under the provisions of Section 14.3(c) and 14.3(d) above
shall be expressly subject to and conditioned upon the delivery by the
Management Company to the Medical Group of fifty (50%) of the Management Fees
paid by the Medical Group after the Commencement Date of this Agreement
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and prior to or on the Second (2nd) Anniversary. Such sum shall be payable to
the Medical Group in cash, by cashier's or certified check or by wire transfer
of good funds delivered to a depository institution designated by the Medical
Group.
14.4. WAIVER OF RESCISSION/DISENGAGEMENT RIGHT.
Notwithstanding anything contained herein to the contrary, the parties
hereto expressly agree and acknowledge that if the Medical Group or any proposed
Disengaging Member, as applicable, shall fail to deliver the notice of
rescission/disengagement referenced in Sections 14.1-14.3 hereof within the time
periods prescribed by said Sections, then the Medical Group or such proposed
Disengaging Member, as the case may be, shall be deemed to have expressly and
irrevocably waived its or his right to rescind and/or disengage from the
Management Services Agreement pursuant to the applicable provisions of Sections
14.1-14.3 hereof.
14.5. CONTINUATION OF MANAGEMENT FEES
The parties hereto acknowledge that in the event this Agreement is
terminated or rescinded (or the parties disengage) pursuant to the provisions of
Article 13 or 14 hereof, the Management Company shall be entitled to all
Management Fees otherwise payable hereunder for all services provided by the
Medical Group through and including the date of such termination, rescission or
disengagement. This provision shall survive any such termination, rescission or
disengagement, and for purposes thereof, the parties agree that the transfer of
funds provided for in Section 5.1 hereof shall continue until such time as the
Management Company has collected all Management Fees to which it is entitled.
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SECTION 15. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
15.1. NON-DISCLOSURE.
Neither the Management Company nor the Medical Group, nor their
respective employees, stockholders, consultants or agents shall, at any time
after the execution and delivery hereof, directly or indirectly disclose any
Confidential or Proprietary Information relating to the other party hereto to
any person, firm, corporation, association or other entity, nor shall either
party, or their respective employees, stockholders, consultants or agents make
use of any of such Confidential or Proprietary Information for its or their own
purposes or for the benefit of any person, firm, corporation or other entity
except the parties hereto or any subsidiary or affiliate thereof. The foregoing
obligation shall not apply to any information which a party hereto can establish
to have (a) become publicly known without breach of this Agreement by it or
them, (b) to have been given to such party by a third party who is not obligated
to maintain the confidentiality of such information, or (c) is disclosed to a
third party with the prior written consent of the other party hereto.
15.2. CONFIDENTIAL OR PROPRIETARY INFORMATION.
The term "Confidential or Proprietary Information" means all
information known to a party hereto, or to any of its employees, stockholders,
officers, directors or consultants, which relates to the Transaction Documents,
patient medical and billing records, trade secrets, books and records, supplies,
pricing and cost information, marketing plans, strategies and forecasts. Nothing
contained herein shall prevent a party hereto from furnishing Confidential or
Proprietary Information pursuant to a direct order of a court of competent
jurisdiction.
SECTION 16. NON-COMPETITION.
In consideration of the premises contained herein and the
consideration to be received hereunder, and in consideration
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of and as an inducement to the Management Company to consummate the transactions
contemplated hereby, the Medical Group hereby (a) agrees to the Non-Competition
provisions attached hereto as Schedule VIII and (b) agrees to require each of
the Eligible Parties, and each person who after the date hereof becomes entitled
to receive shares (or options to receive shares) in the Management Company in
connection with his or her performance of services for the Medical Group, to
execute a Stockholder Non-Competition Agreement substantially in the form
attached hereto as Exhibit B.
SECTION 17. OBLIGATIONS OF THE MANAGEMENT COMPANY
17.1. NO PRACTICE OF MEDICINE.
The Medical Group and the Management Company acknowledge that certain
federal and state statutes severely restrict or prohibit the Management Company
from providing medical services. Accordingly, during the Term, the Management
Company shall not provide or otherwise engage in services or activities which
constitute the practice of medicine, as defined in applicable state or federal
law, except in compliance therewith.
17.2. NO INTERFERENCE WITH PROFESSIONAL JUDGMENT.
Without in any way limiting Section 17.1 hereof, during the Term, the
Management Company shall not interfere with the exercise of professional
judgment by any physician or other licensed health care professional who is a
partner, employee, or contractor of the Medical Group, nor shall the Management
Company interfere with, control, direct, or supervise any physician or other
licensed health care professional in connection with the provision of Medical
Services. The foregoing shall not preclude the Management Company from assisting
in the development of professional protocols and monitoring compliance with
policies and procedures that have been instituted in accordance with this
Agreement.
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17.3. COMPENSATION COMMITTEE.
The Management Company shall establish a compensation committee (the
"Compensation Committee") which is comprised of members of the Board of
Directors of the Management Company who are not employees of the Management
Company. The compensation payable to the five (5) most highly compensated
management employees of the Management Company shall be subject to the approval
of the Compensation Committee.
17.4. BUDGETS.
The Board of Directors of the Management Company shall establish
budgets for the expenses of the Management Company, and the approval of the
Board of Directors shall be required in connection with any expenses in excess
of any such approved budget; provided, however, that following consummation of
an initial public offering of the Company's Common Stock, the responsibility of
the Board of Directors with respect to such budgets shall be exercised in
accordance with the standards applicable to the conduct of business of public
companies.
17.5. CONTRACTS WITH VENTURE CAPITAL FIRMS.
The Management Company shall not enter into any consulting agreement
or other contract or arrangement with any venture capital firm (or affiliate
thereof) providing financing to the Management Company under which compensation
will be payable to any such venture capital firm (or affiliate thereof).
17.6. STOCK HELD BY CERTAIN INDIVIDUALS OR ENTITIES.
Naresh Nagpal, M.D. and any venture capital firm providing funds to
the Management Company ("Selling Shareholders") shall give to the Eligible
Parties the right to participate on a pro rata basis (based on the number of
shares, whether preferred or common, calculated on an as-converted basis, held
by the Eligible Parties and by any other shareholders who hold the same rights
that are conferred by this Section 17.6,
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including members of other physician groups) in any proposed sale of stock
(whether preferred or common) in the Management Company from any of the Selling
Shareholders to any unaffiliated third party or parties, and the Management
Company shall require the Selling Shareholders to comply with the obligations
set forth in this Section 17.6; provided, however, that the obligations under
this Section 17.6 shall become null and void upon the consummation of an initial
public offering of the Management Company's common stock.
17.7. CONVERTIBLE PREFERRED STOCK.
The Management Company shall not sell any common stock or take any
other action the effect of which sale or other action would be to give a holder
of convertible preferred stock the right to convert any number of shares of
convertible preferred stock into a greater number of shares of common stock;
provided, however, that the obligations under this Section 17.7 shall become
null and void upon the consummation of an initial public offering of the
Management Company's common stock.
17.8. REPRESENTATION ON BOARD OF DIRECTORS.
The Management Company shall take such actions as may be necessary to
provide that a physician member of the Medical Group may attend and observe
meetings of the Management Company's Board of Directors; provided, however, that
such physician member shall not be entitled to vote on any matters acted upon by
the Management Company's Board of Directors; provided further, that the
obligations under this Section 17.8 shall become null and void upon the
consummation of an initial public offering of the Management Company's common
stock.
SECTION 18. ASSIGNMENT.
The Management Company shall have the right to assign its rights and
delegate its obligations hereunder to any affiliate and to assign its rights
hereunder to any lending institution from which the Management Company or any
affiliate
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obtains financing for security purposes or as collateral. Except as set forth in
the preceding sentence, neither the Management Company nor the Medical Group
shall have the right to assign their respective rights and delegate their
respective obligations hereunder without the prior written consent of the other
party; provided, however, that after the consummation of an initial public
offering of the Management Company's common stock, the Medical Group's consent
shall not be required in connection with a sale of all or substantially all of
the stock or assets of the Management Company or the merger, consolidation, or
reorganization of the Management Company.
SECTION 19. NOTICES.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed sufficient if personally delivered, sent
by nationally-recognized overnight courier, by registered or certified mail,
return receipt requested and postage prepaid, or by facsimile if also sent by
nationally recognized overnight courier for next day delivery, addressed as
follows:
If to the Management Company:
Bone, Muscle and Joint, Inc.
4800 North Federal Highway, Suite 104D
Boca Raton, Florida 33431
Attention: Naresh Nagpal, M.D., President
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Jeffrey S. Held, Esq.
If to the Medical Group:
South Texas Spinal Clinic, P.A.
7614 Louis Pasteur
Suite 300
San Antonio, Texas 78229
Attention: Steve Ensinger
with a copy to:
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Law Offices of Peter Wolverton
Nations Bank Plaza
300 Convent
Suite 1450
San Antonio, Texas 78285
Attention: Peter Wolverton, Esq.
or to such other address as the party to whom notice is to be given may have
furnished to each other party in writing in accordance herewith. Any such notice
or communication shall be deemed to have been received (a) in the case of
personal delivery, on the date of such delivery, (b) in the case of
nationally-recognized overnight courier, on the next business day after the date
when sent, and (c) in the case of mailing, on the third business day following
the day on which the piece of mail containing such communication is posted.
SECTION 20. BENEFITS OF AGREEMENT.
This Agreement shall bind and inure to the benefit of any successors
to or permitted assigns of the Management Company and the Medical Group.
SECTION 21. GOVERNING LAW; ARBITRATION.
(a) This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Texas without giving effect to the laws
and principles thereof, or of any other jurisdiction, which would direct the
application of the laws of another jurisdiction.
(b) All disputes, controversies, differences or claims arising out of,
relating to or in connection with this Agreement, or the breach thereof, except
controversies involving less than $5,000, shall be finally settled by binding
arbitration in San Antonio, Bexar County, Texas pursuant to the arbitration
rules of the American Arbitration Association. Arbitration shall take place
before three arbitrators with one arbitrator selected by each of the Management
Company and the Medical Group and a third arbitrator selected by the two
arbitrators chosen by the parties. The governing law of the arbitration shall be
the law
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set forth in Section 21(a). Any award or decision rendered by the arbitrators
shall clearly set forth the factual and legal basis for such award or decision.
Judgment on the award or decision rendered by the arbitrators shall be
non-appealable and enforceable in the Presiding District Court of Bear County,
Texas. Each party shall bear its own legal and administrative costs and expenses
relating to the arbitration and the Management Company and the Medical Group
shall equally share the fees and expenses of the arbitrators and the
administration of the arbitration by the American Arbitration Association.
SECTION 22. HEADINGS.
Section headings are used for convenience only and shall in no way
affect the construction of this Agreement.
SECTION 23. ENTIRE AGREEMENT; AMENDMENTS.
This Agreement and the various exhibits hereto and thereto, contain
the entire understanding of the parties with respect to its subject matter, and
neither this Agreement nor any part of it may in any way be altered, amended,
extended, waived, discharged or terminated except by a written agreement signed
by each of the parties hereto.
SECTION 24. ATTORNEYS' FEES.
Notwithstanding anything contained herein to the contrary, in the
event of any dispute or controversy arising out of or relating to this
Agreement, the prevailing party shall be entitled to recover from the other
party all reasonable costs and expenses, including arbitrators' fees and
expenses, attorneys' fees and accountants' fees, incurred in connection with
such dispute or controversy.
SECTION 25. COUNTERPARTS.
This Agreement may be executed in counterparts, and each such
counterpart shall be deemed to be an original
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instrument, but all such counterparts together shall constitute but one
agreement.
SECTION 26. WAIVERS.
Any party to this Agreement may, by written notice to the other party,
waive any provision of this Agreement. The waiver by any party of a breach of
any provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach.
SECTION 27. SURVIVAL OF TERMINATION.
Notwithstanding anything contained herein to the contrary, Sections
3.3(f), 3.6, 11, 12, 13.4, 13.5, 15, 16(a), 18, 19, 20, 21, 24, 26, 28, and this
Section 27 shall survive any expiration or termination of this Agreement.
SECTION 28. CONTRACT MODIFICATION FOR PROSPECTIVE LEGAL EVENTS.
In the event any state or Federal laws or regulations, now existing or
enacted or promulgated after the date hereof, are interpreted by judicial
decision, a regulatory agency or legal counsel of both parties in such a manner
as to indicate that the structure of this Agreement may be in violation of such
laws or regulations, the Medical Group and the Management Company shall amend
this Agreement as necessary to avoid such violation. To the maximum extent
possible, any such amendment shall preserve the underlying economic and
financial arrangements between the Medical Group and the Management Company. If
an amendment is not possible, either party shall have the right to terminate
this Agreement. Any dispute between the parties hereto arising under this
Section 28 with respect to whether this Agreement violates any state or Federal
laws or regulations shall be jointly submitted by the parties and finally
settled by binding arbitration in San Antonio, Texas, pursuant to the
arbitration rules of the National Health Lawyers Association Alternative Dispute
Resolution Service. Arbitration shall take place before one arbitrator appointed
in accordance with such rules. The
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governing law of the arbitration shall be the law set forth in Section 21. Any
decision rendered by the arbitrator shall clearly set forth the factual and
legal basis for such decision. The decision rendered by the arbitrator shall be
non-appealable and enforceable in any court having jurisdiction thereof. The
administrative costs of the arbitration and the arbitrator fees shall be equally
borne by the parties. Each party shall pay its own legal costs and fees in
connection with such arbitration.
* * * * *
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IN WITNESS WHEREOF, the parties have duly executed this Management
Services Agreement as of the date first above written.
SOUTH TEXAS SPINAL CLINIC, P.A.
By: /s/ Gilbert R. Meadows, M.D.
Gilbert R. Meadows, M.D.
President
BONE, MUSCLE AND JOINT, INC.
By: /s/ Naresh Nagpal, M.D., President
Naresh Nagpal, M.D., President
and Chief Executive Officer
AGREED AND ACCEPTED BY
THE ELIGIBLE PARTIES
AS TO SECTIONS 4, 9.7,
14.1, 14.2, 14.3, 14.4
and 14.5:
/s/ Gilbert R. Meadows, M.D
- ----------------------------
Gilbert R. Meadows, M.D.
/s/ Jerjis J. Denno, M.D.
- ----------------------------
Jerjis J. Denno, M.D.
/s/ M. David Dennis, M.D.
- ---------------------------
M. David Dennis, M.D.
/s/ Paul T. Geibel, M.D.
- ----------------------------
Paul T. Geibel, M.D.
/s/ David M. Hirsch, D.O.
- ----------------------------
David M. Hirsch, D.O.
/s/ Gregg S. Gurwitz, M.D.
- ----------------------------
Gregg S. Gurwitz, M.D.
<PAGE>
ACCEPTED AND AGREED
AS TO SECTION 17.6
/s/ NARESH NAGPAL, M.D.
- ----------------------------------------
NARESH NAGPAL, M.D.
DELPHI VENTURES III, L.P.
By: DELPHI MANAGEMENT PARTNERS
III, L.L.C., its General Partner
By: /s/ Donald J. Lothrop, Managing Member
Donald J. Lothrop, Managing Member
DELPHI BIOINVESTMENTS III, L.P.
By: DELPHI MANAGEMENT PARTNERS
III, L.L.C., its General Partner
By: /s/ Donald J. Lothrop, Managing Member
Donald J. Lothrop, Managing Member
OAK INVESTMENT PARTNERS VI, LIMITED
PARTNERSHIP
By: OAK ASSOCIATES VI, LIMITED
PARTNERSHIP, its General Partner
By: /s/ Ann H. Lamont, Managing Member
Ann H. Lamont, Managing Member
OAK VI AFFILIATES FUND,
LIMITED PARTNERSHIP
By: OAK VI AFFILIATES, LLC,
its General Partner
By:/s/ Ann H. Lamont, Managing Member
Ann H. Lamont, Managing Member
<PAGE>
Annex A
Medical Group Key Personnel
Gilbert R. Meadows, M.D.
Jerjis J. Denno, M.D.
C. Stuart Pipkin III, M.D.
Gregg S. Gurwitz, M.D.
Paul T. Geibel, M.D.
David M. Hirsch, D.O.
David Dennis, M.D.
<PAGE>
ANNEX B
-------
to Management Services Agreement
--------------------------------
Management Company Key Employees
--------------------------------
Naresh Nagpal, M.D.
<PAGE>
EXHIBIT F - - Medical Equipment Master Lease
<PAGE>
ATTACHMENTS
-----------
SCHEDULES
- ---------
SCHEDULE I -- New Ancillary Services -- Exceptions
SCHEDULE II -- Management Company Operating Cost Budget
SCHEDULE III -- Equity Participation
SCHEDULE IV -- Draw Date and Draw Percentage
SCHEDULE V -- Management Fee -- Applicable Percentage
SCHEDULE VI -- Professional Practice Cost Savings
SCHEDULE VII -- Computation Example
SCHEDULE VIII -- Non-Competition
SCHEDULE IX -- Royalties
SCHEDULE 6.4 -- Financial Information
SCHEDULE 6.5 -- Absence of Undisclosed Liabilities
SCHEDULE 6.6 -- Absence of Changes
SCHEDULE 6.7 -- Tax Matters
SCHEDULE 6.8 -- Litigation, Etc.
SCHEDULE 6.10 -- Accounts Receivable; Accounts Payable
SCHEDULE 6.11 -- Labor Relations; Employees
SCHEDULE 6.12 -- Employee Benefit Plans
SCHEDULE 6.13 -- Insurance
SCHEDULE 6.14 -- Real Property
SCHEDULE 6.15 -- Burdensome Restrictions
SCHEDULE 6.16 -- Disclosure
SCHEDULE 7.2 -- Equity Investments
SCHEDULE 7.3(a) -- Issued and Outstanding Stock
SCHEDULE 7.3(c) -- Options; Conversion Rights
SCHEDULE 7.5 -- Permits, Authorizations, Consents, Approvals,
Notifications, and Filings
SCHEDULE 7.6 -- Financial Information
SCHEDULE 7.7 -- Absence of Undisclosed Liabilities
SCHEDULE 7.8 -- Absence of Changes
SCHEDULE 7.9 -- Tax Matters
SCHEDULE 7.10 -- Litigation, Etc.
SCHEDULE 7.11 -- Compliance; Governmental Authorizations
SCHEDULE 7.12 -- Accounts Receivable; Accounts Payable
SCHEDULE 7.13 -- Labor Relations; Employees
SCHEDULE 7.14 -- Employee Benefit Plans
SCHEDULE 7.15 -- Insurance
SCHEDULE 7.16 -- Real Property
SCHEDULE 7.17 -- Burdensome Restrictions
SCHEDULE 7.18 -- Disclosure
ANNEXES
- -------
ANNEX A -- Medical Group Key Personnel
ANNEX B -- Management Company Key Employees
EXHIBITS
- --------
EXHIBIT A -- Asset Purchase Agreement
EXHIBIT B -- Stockholder Non-Competition Agreement
EXHIBIT C -- Restricted Stock Agreement
EXHIBIT D -- Assignment of Lease
EXHIBIT E -- Office Sublease
EXHIBIT F -- Medical Equipment Master Lease
<PAGE>
INDEX OF DEFINED TERMS
----------------------
Term Page
- ---- ----
Additional Terms ........................................... 3
Administrative Personnel ................................... 16
Agreement .................................................. 1
Ancillary Division ......................................... 31
Ancillary Service Start-Up Costs ........................... 32
Ancillary Service Start-Up Period .......................... 32
Annual Draw Amount ......................................... 23
Annual Medical Group Compensation Amount ................... 23
Applicable Percentage ...................................... 26
Asset Purchase Agreement ................................... 1
Authorized Management Company Operating Costs .............. 28
Authorized Partners ........................................ 13
Balance Sheet .............................................. 35
Balance Sheet Date ......................................... 35
Bankruptcy Event ........................................... 81
Base Term .................................................. 3
Billable Items ............................................. 30
Billings ................................................... 24
BMJ Formation Documents .................................... 44
Budgets .................................................... 21
Certificate of Designation ................................. 44
Collections ................................................ 24
Commencement Date .......................................... 3
Compensation Committee ..................................... 70
Competitive Business .......................................101
Confidential or Proprietary Information .................... 69
Corporate Overhead ......................................... 27
Cost Savings ............................................... 96
Documents .................................................. 13
Draw Date .................................................. 93
Draw Percentage ............................................ 22
Eligible Parties ........................................... 21
Employee Plans ............................................. 42
Employees .................................................. 41
Equipment .................................................. 7
ERISA ...................................................... 42
Excluded Costs ............................................. 27
<PAGE>
Facility ................................................... 59
FF&E ....................................................... 7
Incentive Based Costs ...................................... 96
Internal Financial Statements .............................. 35
IPO ........................................................ 94
Management Business ........................................ 1
Management Company ......................................... 1
Management Company Balance Sheet ........................... 46
Management Company Balance Sheet Date ...................... 47
Management Company Bank .................................... 22
Management Company Costs ................................... 27
Management Company Employees ............................... 52
Management Company Key Employee ............................ 49
Management Company Operating Costs ......................... 27
Management Company Real Property ........................... 54
Management Company Returns ................................. 50
Management Company Transaction Documents ................... 44
Management Fee ............................................. 44
Management Services ........................................ 2
Medical Business ........................................... 1
Medical Equipment .......................................... 7
Medical Equipment Master Lease Payments .................... 26
Medical Group .............................................. 1
Medical Group Bank ......................................... 12
Medical Group Collections Account .......................... 12
Medical Group Cost ......................................... 30
Medical Group Key Personnel ................................ 38
Medical Group Services ..................................... 24
Medical Group Transaction Documents ........................ 34
Medical Personnel .......................................... 19
MGC ........................................................ 94
Monthly Draw ............................................... 22
MSAs ....................................................... 86
New Ancillary Service Medical Equipment .................... 31
New Ancillary Services ..................................... 9
New Medical Office ......................................... 29
New Medical Office-Start-Up Costs .......................... 29
New Ancillary Services ..................................... 9
New Medical Office ......................................... 29
<PAGE>
New Medical Office Start-Up Costs .......................... 29
New Medical Office Start-Up Period ......................... 29
Office Lease ............................................... 5
Office Sublease ............................................ 5
Office Sublease Payments ................................... 26
OGC ........................................................ 94
Operating Account .......................................... 22
Professional Practice Cost Savings ......................... 26
Real Property .............................................. 43
Restricted Stock Agreement ................................. 83
Returns .................................................... 38
Review Financial Statements ................................ 35
SEC ........................................................ 94
Selling Shareholders ....................................... 71
Shares ..................................................... 87
Stock ...................................................... 80
Stockholders Agreement ..................................... 46
Tax ........................................................ 39
Taxes ...................................................... 39
Tenant Improvement ......................................... 56
Term ....................................................... 3
Transaction Documents ...................................... 80
Unaudited Financial Statements ............................. 47
MANAGEMENT SERVICES AGREEMENT
BETWEEN
BONE, MUSCLE AND JOINT, INC.
AND
SOUTH TEXAS SPINAL CLINIC, P.A.
Effective as of November 1, 1996
<PAGE>
AMENDMENT TO THE
MANAGEMENT SERVICES AGREEMENT
dated as of April 30, 1997,
between SOUTH TEXAS SPINAL
CLINIC, P.A., a Texas
professional association (the
"Medical Group"), and BONE,
MUSCLE AND JOINT, INC., a
Delaware corporation (the
"Management Company").
Reference is made to the Management Services Agreement dated as of December
23, 1996, between the Medical Group and the Management Company (the "Management
Services Agreement"). In connection with the performance of its obligations
under the Management Services Agreement, the Management Company has negotiated a
Loan and Security Agreement (the "Loan Agreement") with HCFP Funding, Inc.
("HCFP"), pursuant to which HCFP has agreed to provide revolving credit
financing (the "Financing") to the Management Company. The Medical Group will
benefit from the Management Company's access to funds under the Loan Agreement.
HCFP and the Management Company have agreed that the collateral for the
Financing will be the accounts receivable and the other rights to payment
arising from the provision by the Medical Group of orthopedic medical and
surgical services and related medical services to the general public (the
"Accounts"). To induce HCFP to consummate the Financing, the Management Company
and the Medical Group desire to clarify and confirm the rights of the Management
Company in and to the Accounts, and the corresponding rights of the Management
Company to pledge the Accounts and related assets to HCFP as security for the
Financing under the Loan Agreement.
NOW, THEREFORE, in consideration for the mutual agreements contained in
this Amendment and in the Management Services Agreement and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Medical Group and the Management Company hereby agree as
follows:
SECTION 1. All capitalized terms used but not defined herein have the
meanings ascribed thereto in the Management Services Agreement.
SECTION 2. Section 3 of the Management Services Agreement is hereby amended
by adding a new Section 3.19 to read as follows:
"3.19 Ownership of Accounts; Security.
(a) Notwithstanding anything to the contrary contained in this
Agreement and in order to accommodate the procurement of financial credit
by the Management Company, the Medical Group and the Management Company
<PAGE>
hereby acknowledge and agree that Sections 3.5 and 3.6 of this Agreement
provide for the transfer to the Management Company of ownership of all
accounts receivable and the other rights to payment arising from the
provision by the Medical Group of orthopedic medical and surgical services
and related medical services to the general public (the "Accounts");
provided, however, that the right to payment of Medicaid and Medicare
receivables shall remain with the Medical Group in accordance with
applicable Federal law. Accordingly, the Medical Group acknowledges and
agrees that, except as set forth herein, the Management Company possesses
all right, title and interest in and with respect to any and all now
existing or hereafter acquired Accounts generated by the Medical Group in
the operation of the medical practice that is the subject of this
Agreement, together with all contract rights, chattel paper, documents,
instruments, books, records, computer information and other general
intangibles relating thereto (collectively, the "Collateral"). The
ownership rights in the Collateral vested hereunder permit the Management
Company to, among other things, grant liens, extend the time of payment of,
or compromise or settle for cash, credit or otherwise, upon any terms, all
or any part of the Collateral; provided, however, that the Management
Company has acquired the net receivables and, therefore, shall not be
liable to the Medical Group for any receivables that remain uncollected.
(b) The Medical Group hereby confirms the powers granted to the
Management Company as its agent pursuant to Sections 3.5 and 3.6 of this
Agreement, and acknowledges that the Management Company shall, pursuant to
the terms of a loan and security agreement (the "Loan Agreement"), grant a
lender (the "Lender"), a first priority lien and security interest in and
with respect to the Collateral, as security for the obligations of the
Management Company under the Loan Agreement, and the Medical Group consents
to the foregoing. The Medical Group agrees to execute any and all documents
necessary to evidence the Lender's security interest in and with respect to
all of the Collateral pursuant to the terms of the Loan Agreement,
including, without limitation, UCC-1 financing statements. The Medical
Group further agrees to cooperate with the Lender in all respects in the
event the Lender seeks to enforce its rights and remedies under the Loan
Agreement or any of the documents ancillary thereto, including granting the
Lender access, to the extent permitted by law, to all books and records
associated with the Collateral. So long as this Agreement is in effect, it
shall not be necessary for the Lender to give the Medical Group notice of
any
-2-
<PAGE>
changes in any of the agreements evidencing the financing arrangements
between the Lender and the Management Company, as presently contemplated by
the Loan Agreement, or with respect to any other financial arrangements
between the Management Company and the Lender. Except as set forth below,
the Medical Group will notify the Lender at least ten (10) business days
prior to the termination or material modification of this Agreement,
provided that any such modification or termination shall have no effect on
the Medical Group's undertakings pursuant to paragraph (a) above and this
paragraph (b) with respect to Accounts generated prior to the termination
date."
(c) The Medical Group and the Management Company hereby acknowledge
that the rights to all of the Accounts generated by the Medical Group set
forth in paragraph (a) above are granted to the Management Company in
consideration of the Management Company's obligation to pay the
Semi-Monthly Draw to the Medical Group and to perform the other obligations
set forth in Section 5.3 of the Management Services Agreement. In the event
that (i) the Medical Group receives from the Lender a Default Notice (as
defined in the Tri-Party Agreement dated as of the date hereof (the
"Tri-Party Agreement") among the Management Company, the Medical Group and
HCFP Funding, Inc.) or (ii) the Medical Group does not receive the
Semi-Monthly Draw on the applicable Draw Date, the Medical Group shall have
the right (to be exercised in its sole discretion) to terminate this
Agreement by written notice to the Management Company (with a copy to the
Lender) of its decision to so terminate, which notice shall be delivered at
least 15 days prior to the Termination Date (as hereinafter defined). Such
termination shall be effective as of the date (the "Termination Date") that
is 30 days after the last Draw Date on which the Medical Group received its
Draw and shall revoke those rights of the Management Company set forth in
Section 3.19(a) above, provided that such revocation shall only be
applicable with respect to any Accounts generated after the Termination
Date.
SECTION 3. Section 5.1 of the Management Services Agreement is hereby
amended by deleting the word "weekly" on the second line thereof and inserting
the word "daily".
SECTION 4. Section 5.2 of the Management Services Agreement is hereby
amended by deleting the second sentence thereof.
SECTION 5. Section 5.3(a) of the Management Services Agreement is hereby
amended and restated in its entirety to read as follows:
-3-
<PAGE>
"(a) Draw Payment.
(i) On each Draw Date during the Term hereof occurring on or prior to
May 1, 1997, the Management Company shall distribute to the Medical Group
an amount equal to a percentage (the "Draw Percentage") of the Medical
Group's total Billings for Medical Group Services provided during the
previous month (the "Monthly Draw"). The Draw Percentage is set forth on
Schedule IV and shall be adjusted as provided in Section 5.3(a)(iv).
(ii) On each Draw Date during the Term hereof occurring after May 1,
1997, the Management Company shall distribute to the Medical Group an
amount equal to the Draw Percentage times the Medical Group's total
Billings for Medical Group Services provided during the two-week period
ending immediately prior to the Draw Date (the "Semi-Monthly Draw").
(iii) The Draw Dates for the Monthly Draw and the Semi-Monthly Draw
are set forth on Schedule IV.
(iv) Commencing May 15, 1998, and effective May 15 of each year
thereafter, the Draw Percentage shall be adjusted to equal a fraction, the
numerator of which is the Annual Medical Group Compensation Amount for the
previous year, and the denominator of which is the total amount of Billings
for the previous year."
SECTION 6. Section 5.3(c) of the Management Services Agreement is hereby
deleted.
SECTION 7. Section 13.4 of the Management Services Agreement is hereby
amended by inserting "Section 5.3(b)," on the third line thereof after the
phrase "except as provided in".
SECTION 8. Section 23 of the Management Services Agreement is hereby
amended and restated in its entirety to read as follows:
"SECTION 23. Entire Agreement; Amendments. This Agreement and the
exhibits and schedules hereto contain the entire understanding of the
parties with respect to its subject matter, and neither this Agreement nor
any part of it may in any way be altered, amended, extended, waived,
discharged or terminated except by a written agreement signed by the
Management Company and the Medical Group; provided, however, that in the
case of any amendment with respect to Section 9.12 or Section 17.6 hereof,
the signatures of all of those persons or entities that would be adversely
impacted by such amendment shall also be required in order for such
amendment to be effective."
-4-
<PAGE>
SECTION 9. Schedule IV to the Management Services Agreement is hereby
amended and restated in its entirety as attached hereto as Annex I.
SECTION 10. The parties hereto further acknowledge that, notwithstanding
the terms and provisions of this Amendment, any and all checks, insurance
payments, cash, cash equivalents and other instruments received by the
Management Company in connection with the Accounts shall be deposited first into
the Medical Group Collections Account pursuant to the terms of Section
3.6(a)(iv) of the Management Services Agreement and thereafter shall be
transferred to the Operating Account as set forth in Section 5.1 of the
Management Services Agreement.
SECTION 11. Except as expressly provided in this Amendment, this Agreement
remains in full force and effect in accordance with its terms.
SECTION 12. The Medical Group hereby acknowledges and agrees that the
Lender is a third party beneficiary of the rights and benefits of the Management
Company arising under the Management Services Agreement as amended hereby, and
that the execution of this Amendment is a material inducement to the Lender's
agreement to enter into the Loan Agreement and to provide the Financing
contemplated thereby.
SECTION 13. This Amendment may be executed in more than one counterpart,
and by the parties hereto in separate counterparts, and each such counterpart
shall constitute an original instrument, but all such counterparts taken
together shall constitute one and the same Amendment.
SECTION 14. This Amendment shall by governed by, construed and interpreted
in accordance with the laws of the State of Texas.
* * * *
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment to
the Management Services Agreement as of the date first above written. SOUTH
TEXAS SPINAL CLINIC, P.A.
By:
----------------------------------
Gilbert R. Meadows, M.D.
President
BONE, MUSCLE AND JOINT, INC.
By:
----------------------------------
Name:
Title:
-------------------------------------
Gilbert R. Meadows, M.D.
-------------------------------------
Jerjis J. Denno, M.D.
-------------------------------------
M. David Dennis, M.D.
-------------------------------------
Paul T. Geibel, M.D.
-------------------------------------
David M. Hirsch, D.O.
-------------------------------------
Gregg S. Gurwitz, M.D.
<PAGE>
ANNEX I
SCHEDULE IV
to the Management Services Agreement
Draw Dates and Draw Percentage
During the period beginning on the Commencement Date and ending on May 1,
1997, the "Draw Date" shall be the first day of each month (or the business day
immediately following, if such day is a Saturday, Sunday or other day on which
banks in Florida or Texas are not open for business). During the period
beginning on May 2, 1997 and ending on the date this Agreement is terminated
pursuant to Section 3.19, 13 or 14, the "Draw Dates" shall be the first and the
fifteenth day of each month (or the business day immediately following, if such
day is a Saturday, Sunday or other day on which banks in Florida, Texas or
Maryland are not open for business).
The "Draw Percentage" is 38 percent.
<PAGE>
EXECUTION COPY
--------------
AMENDMENT NO. 2 TO THE
MANAGEMENT SERVICES AGREEMENT
dated as of September 12, 1997,
between SOUTH TEXAS SPINAL
CLINIC, P.A., a Texas
professional association (the
"Medical Group"), and BONE,
MUSCLE AND JOINT, INC., a
Delaware corporation (the
"Management Company").
Reference is made to the Management Services Agreement effective as of
November 1, 1996 (as amended by Amendment No. 1 to the Management Services
Agreement dated as of April 30, 1997, the "Management Services Agreement"),
between the Medical Group and the Management Company, pursuant to which the
Management Company has agreed to provide the Medical Group with certain
management, administrative and other related services in connection with the
Medical Business (as defined in the Management Services Agreement). The parties
hereto desire to amend the Management Services Agreement to provide that the
Management Company arrange for the provision of Technical Personnel (as
hereinafter defined) to the Medical Group on the terms hereinafter set forth.
NOW, THEREFORE, in consideration for the mutual agreements contained in
this Amendment and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Medical Group and the
Management Company hereby agree as follows:
SECTION 1. All capitalized terms used but not defined herein have the
meanings ascribed thereto in the Management Services Agreement.
SECTION 2. Section 1.4 of the Management Services Agreement is hereby
amended by deleting the reference to "California" in the second to last line
thereof and replacing it with "Texas".
SECTION 3. Section 3 of the Management Services Agreement is hereby amended
by adding a new Section 3.20 thereto, to read in its entirety as follows:
"3.20 Technical Personnel; Leased Employees.
(a) Subject to the conditions set forth in this Section 3.20, the
Management Company shall employ or contract with, or shall arrange for, and
shall provide to the Medical Group as leased employees, such Technical
Personnel (as defined below) as may reasonably be necessary for the conduct
of the Medical Business.
<PAGE>
(b) For purposes of this Agreement, "Technical Personnel" means
nurses, medical assistants, x-ray technicians, other technicians, and other
personnel who perform diagnostic tests or other services that are covered
by Medicare or by other third party payors when performed by an employee of
a physician under the physician's supervision.
(c) The Medical Group shall have the right to exercise, and shall
exercise, such supervision and control over the activities of the Technical
Personnel as may be necessary for the Technical Personnel to be considered
leased employees under the Medicare program and under applicable law.
Without limiting the generality of the foregoing, the Medical Group shall:
(i) have the right to have any Technical Personnel terminated
from employment;
(ii) furnish the Technical Personnel with the equipment and
supplies needed by the Technical Personnel for their work;
(iii) provide the Technical Personnel with any necessary
training;
(iv) instruct the Technical Personnel regarding their
activities performed for the Medical Group;
(v) establish the hours of work for the Technical Personnel;
(vi) approve vacation time and other time off from work; and
(vii) provide that degree of supervision as is required by
Medicare and by other third party payors to satisfy applicable
conditions for coverage thereunder.
(d) With respect to each of the Technical Personnel, the Management
Company shall verify or arrange for the verification of educational and
employment experience, licensure and insurability, and shall review and
provide the Medical Group with copies of any complaints contained in public
files with applicable state and Federal commissions.
SECTION 4. Except as expressly provided in this Amendment No. 2, the
Management Services Agreement remains in full force and effect in accordance
with its terms.
-2-
<PAGE>
SECTION 5. This Amendment No. 2 may be executed in more than one
counterparts, and by the parties hereto in separate counterparts, and each such
counterpart shall constitute an original instrument, but all such counterparts
taken together shall constitute one and the same Amendment.
SECTION 6. This Amendment No. 2 shall by governed by, construed and
interpreted in accordance with the laws of the State of Texas.
* * * *
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 2 to the Management Services Agreement as of the date first above written.
SOUTH TEXAS SPINAL CLINIC, P.A.
By:_________________________________
Name:
Title:
BONE, MUSCLE AND JOINT, INC.
By:__________________________________
Name:
Title:
<PAGE>
EXECUTION COPY
================================================================================
ASSET PURCHASE AGREEMENT
BETWEEN
BONE, MUSCLE AND JOINT, INC.
AND
SOUTH TEXAS SPINAL CLINIC, P.A.
Effective as of November 1, 1996
================================================================================
<PAGE>
EXHIBITS
- --------
Exhibit A - Bill of Sale
Exhibit B - Assignment and Assumption Agreement
SCHEDULES
- ---------
1.1(a) - Medical Equipment,
Furniture, Furnishings, Trade
Fixtures, and Office Equipment
1.1(c) - Equipment Leases
1.1(d) - Supplies
1.1(e) - Accounts Receivable
1.1(f) - Office Leases
1.1(g) - Deposits
1.1(h) - Additional Items
2.2 - Allocation of Purchase Price
3.1(c) - Claims
3.1(d) - Litigation
<PAGE>
Definitions
-----------
The following terms which may appear in more than one Section of this
Agreement are defined at the following pages:
TERM PAGE
- ---- ----
A/R Amount ................................................................ 5
A/R Balance ............................................................... 6
A/R Collections ........................................................... 6
Accounts Receivable ....................................................... 2
Affiliate ................................................................. 16
Assignment and Assumption Agreement ....................................... 3
Assumed Obligations ....................................................... 3
Bill of Sale .............................................................. 3
Business Day .............................................................. 22
Buyer ..................................................................... 1
Buyer Indemnification Event ............................................... 16
Buyer Indemnified Persons ................................................. 16
Claims .................................................................... 8
Closing ................................................................... 14
Closing Date .............................................................. 14
Determination Date ........................................................ 5
Excluded Assets ........................................................... 36
Excluded Assets ........................................................... 2
Indemnified Persons ....................................................... 3
Indemnified Persons ....................................................... 16
Indemnifying Person ....................................................... 16
Losses .................................................................... 17
Management Services Agreement ............................................. 1
Permitted Liens ........................................................... 9
Purchase Price ............................................................ 5
Purchased Assets .......................................................... 2
Related Agreements ........................................................ 12
Seller .................................................................... 1
Seller Indemnification Event .............................................. 17
Seller Indemnified Persons ................................................ 17
Signature Date ............................................................ 1
Statement of Allocation ................................................... 5
Subject Business .......................................................... 1
<PAGE>
THIS ASSET PURCHASE AGREEMENT is entered into
as of December 23, 1996 (the "Signature Date"),
effective as of November 1, 1996, by and between
BONE, MUSCLE AND JOINT, INC., a Delaware
corporation (the "Buyer"), and SOUTH TEXAS SPINAL
CLINIC, P.A., a Texas professional association
(the "Seller").
A. The Seller is engaged in the business (the "Subject Business") of
providing orthopedic medical and surgical services and related medical and
ancillary services to patients.
B. The Buyer is engaged in the business of providing management,
administrative, financial, marketing, information technology, and related
services to professional medical organizations.
C. Concurrently herewith, the Seller and the Buyer are entering into a
Management Services Agreement (the "Management Services Agreement"), pursuant to
which the Buyer will furnish to the Seller management, administrative, and
related services.
D. The Seller desires to sell, transfer, convey and assign to the Buyer and
the Buyer desires to purchase from the Seller, certain of the assets,
properties, interests in properties and rights of the Seller used in the Subject
Business upon the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements hereinafter set forth, the
parties hereby agree as follows:
<PAGE>
ARTICLE I
TRANSFER OF PURCHASED ASSETS, ASSUMPTION OF
LIABILITIES AND RELATED MATTERS
1.1. Transfer of Assets.
On the terms and subject to the conditions of this Agreement, at the
Closing (as hereinafter defined), the Seller shall sell, transfer, convey and
assign to the Buyer, and the Buyer shall purchase, assume, and accept from the
Seller, the following assets, properties, interests in properties and rights of
the Seller (the "Purchased Assets"), as the same shall exist immediately prior
to the Closing, free and clear of all Claims (as defined below) (except
Permitted Liens (as defined below)):
(a) the medical equipment owned by the Seller and listed on Schedule
1.1(a);
(b) the furniture, furnishings, trade fixtures, and office equipment
owned by the Seller and listed on Schedule 1.1(a);
(c) the Seller's rights and interests under the equipment leases
identified on Schedule 1.1(c), subject to the Buyer's assumption of the
obligations accruing thereunder as provided in Section 1.3;
(d) the supplies described on Schedule 1.1(d);
(e) the accounts receivable described on Schedule 1.1(e) (the
"Accounts Receivable");
(f) the Seller's rights and interests under the office leases
identified in Schedule 1.1(f), subject to the Buyer's assumption of the
obligations accruing thereunder as provided in Section 1.3;
(g) the deposits identified on Schedule 1.1(g);
-2-
<PAGE>
(h) any additional items identified on Schedule 1.1(h).
1.2. Assets Not Being Transferred.
All assets, properties, interests in properties, and rights of the Seller
not expressly identified in Section 1.1 or the schedules referenced therein (the
"Excluded Assets") are expressly excluded from the assets of the Seller being
sold, assigned, or otherwise transferred to the Buyer.
1.3. Liabilities Being Assumed.
Except as otherwise provided herein and subject to the terms and conditions
of this Agreement, simultaneously with the sale, transfer, conveyance and
assignment to the Buyer of the Purchased Assets, the Buyer shall assume, and
hereby agrees to pay when due, those liabilities accruing after the Closing Date
under the equipment leases identified in Schedule 1.1(c) and the office leases
identified in Schedule 1.1(f) (the "Assumed Obligations").
1.4. Liabilities Not Being Assumed.
The Buyer is not assuming any liabilities or obligations of the Seller
(fixed or contingent, known or unknown, matured or unmatured) whatsoever other
than the Assumed Obligations. For convenience of reference, all liabilities and
obligations of the Seller not being assumed by the Buyer are collectively
referred to as the "Excluded Obligations."
1.5. Instruments of Conveyance and Transfer, Etc.
At the Closing, the Seller shall deliver (or cause to be delivered) to the
Buyer such deeds, bills of sale, endorsements, assignments and other good and
sufficient instruments of sale, transfer, conveyance and assignment as shall
-3-
<PAGE>
be necessary to sell, transfer, convey and assign to the Buyer, in accordance
with the terms hereof, title to the Purchased Assets, free and clear of all
Claims (except Permitted Liens), including, without limitation, the delivery of
a Bill of Sale (the "Bill of Sale") substantially in the form of Exhibit A and
the delivery of an Assignment and Assumption Agreement (the "Assignment and
Assumption Agreement") substantially in the form of Exhibit B attached hereto.
Simultaneously therewith, the Seller shall take all steps as may be reasonably
required to put the Buyer in possession and operating control of the Purchased
Assets.
1.6. Right of Endorsement, Etc.
Effective upon the Closing, the Seller hereby constitutes and appoints the
Buyer, its successors and assigns, the true and lawful attorney-in-fact of the
Seller with full power of substitution, in the name of the Buyer, or the name of
the Seller, on behalf of and for the benefit of the Buyer, to collect all
accounts receivable assigned to the Buyer as provided herein, to endorse,
without recourse, checks, notes and other instruments received in payment of
such accounts receivable in the name of the Seller, and to institute and
prosecute, in the name of the Seller or otherwise, all proceedings which the
Buyer may deem proper in order to assert or enforce any claim, right or title of
any kind in or to the Purchased Assets (other than the Accounts Receivable), to
defend and compromise any and all actions, suits or proceedings in respect of
any of the Purchased Assets (other than the Accounts Receivable) and to do all
such acts and things in relation thereto as the Buyer may deem advisable. The
foregoing powers are coupled with an interest and shall be irrevocable by the
Seller, directly or indirectly, whether by the dissolution of the Seller or in
any manner or for any reason.
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1.7. Further Assurances.
The Seller shall pay or cause to be paid to the Buyer promptly any amounts
which shall be received by the Seller after the Closing which constitute
Purchased Assets, including all amounts paid to the Seller on account of the
Accounts Receivable. The Seller shall, at any time and from time to time after
the Closing, upon the reasonable request of the Buyer, execute, acknowledge,
deliver and file, or cause to be done, executed, acknowledged, delivered or
filed, all such further acts, transfers, conveyances, assignments or assurances
as may reasonably be required for better selling, transferring, conveying,
assigning and assuring to the Buyer, or for aiding and assisting in the
collection of or reducing to possession by the Buyer, any of the assets,
properties, interests in properties or rights being purchased by the Buyer
hereunder. Any expenses incurred in connection with the foregoing shall be borne
equally by the Buyer and the Seller.
1.8. Assignment of Leases.
Anything contained in this Agreement to the contrary notwithstanding, this
Agreement shall not constitute an agreement or attempted agreement to assign any
office lease or equipment lease if an attempted assignment thereof, without the
consent of any other party thereto, would constitute a breach thereof or in any
way affect the rights of the Buyer or the Seller thereunder. The Seller shall
use its best efforts, and the Buyer shall cooperate with the Seller, to obtain
the consent of any such third party to the assignment thereof to the Buyer. If
such consent is not obtained, the Seller shall cooperate with the Buyer in any
arrangements reasonably necessary or desirable to provide for the Buyer the
benefits (together with the obligations to perform) thereunder.
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ARTICLE II
PURCHASE PRICE; ALLOCATION
2.1. Purchase Price; Payment.
The purchase price (the "Purchase Price") to be paid for the Purchased
Assets shall consist of the following:
(a) the sum of Four Hundred Forty-Six Thousand Three Hundred and
Twenty-Seven U.S. Dollars ($446,327) payable to the Seller in cash on the
earlier to occur of (i) November 1, 1997, or (ii) on the date on which an
initial public offering of the Buyer's common stock pursuant to the
Securities Act of 1933 is consummated; and
(b) the sum of One Million Seven Hundred and Three Thousand Eight
Hundred and Twenty-Eight U.S. Dollars ($1,703,828) representing fifty
percent (50%) of the A/R Amount (as defined below), subject to adjustment
and payable in accordance with Section 2.3.
2.2. Allocation of Purchase Price.
The Purchase Price shall be allocated among the Purchased Assets in a
statement (the "Statement of Allocation") reflecting the allocation set forth in
Schedule 2.2 attached hereto. The parties acknowledge that the total of the
accounts receivable amounts set forth in Schedule 2.2 (the "A/R Amount")
represents the parties' best estimate of the total collectible amount of the
accounts receivable assigned under this Agreement. The parties shall complete
their respective tax returns for the period which includes the Closing Date in a
manner that is consistent with the Statement of Allocation.
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2.3. Accounts Receivable Payment.
The portion of the Purchase Price specified in Section 2.1(b) is subject to
adjustment and shall be paid as follows:
(a) Within fifteen (15) days after the earlier of (i) the date which
occurs one year after the Commencement Date hereunder or (ii) the date on
which an initial public offering of the Buyer's common stock pursuant to
the Securities Act of 1933 is consummated (the "Determination Date"), the
Buyer shall furnish to the Seller a statement setting forth the amount of
collections received by the Buyer in payment of the Accounts Receivable as
of the Determination Date (the "A/R Collections"), including detail of
write-offs of any of the Accounts Receivable, the remaining outstanding
balances of the Accounts Receivable, and any other detail relating thereto
as the Seller may reasonably request. The amount by which the A/R
Collections exceed the sum of $1,703,828 is hereinafter referred to as the
"A/R Balance." The Buyer shall deliver to the Seller a check in an amount
equal to the A/R Balance together with the statement referred to in this
Section 2.3(a). If the A/R Collections are less than $1,703,828, the Seller
shall deliver to the Buyer a check in an amount equal to such difference.
The Buyer or the Seller, as the case may be, may offset any amount payable
by it under this Section 2.3(a) against any amounts owed to it by the other
party hereto under this Agreement or the Management Services Agreement. Any
amounts payable by the Buyer or the Seller, as the case may be, under this
Section 2.3(a) shall be payable over the six (6) month period immediately
following the date when due in six equal monthly installments.
(b) The parties shall confer promptly after the Seller's receipt of
the notice and check described in Section 2.3(a) for the purpose of
determining the amount of collections then anticipated to be realized after
the Determination Date in respect of the then-outstanding Accounts
Receivable. If the parties agree on an amount that represents the amount of
such
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collections anticipated to be realized, the Buyer shall promptly pay such
amount to the Seller in full satisfaction of the Buyer's obligation to
purchase the Accounts Receivable hereunder. If the parties fail to so
agree, the Buyer shall pay to the Seller on a monthly basis, within fifteen
(15) days after the end of each month, commencing with the month next
following the month in which the Determination Date occurred, an amount
equal to the actual amount of collections received by the Buyer during the
prior month in respect of any of the then-outstanding Accounts Receivable,
such payments to continue until the Accounts Receivable have been collected
in full or agreed by the parties to be written off. It is the intention of
the parties that an amount equal to any and all payments received by the
Buyer in respect of the Accounts Receivable be paid by the Buyer to the
Seller.
(c) All payments by patients and third party payors shall be accounted
for on a first-in-first-out basis unless any such payment is identified as
a payment in respect of a particular invoice or otherwise is designated as
payment of a particular invoice or for a particular service.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of the Seller.
The Seller hereby represents and warrants to the Buyer, as of the Signature
Date hereof, as follows:
(a) Organization; Good Standing; Qualification and Power. The Seller
is a professional association duly organized, validly existing and in good
standing under the laws of the State of Texas and has all requisite power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted and as proposed to be conducted, to enter
into this Agreement, the Bill of Sale, and the Assignment and
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Assumption Agreement, to perform its obligations hereunder and thereunder
and to consummate the transactions contemplated hereby and thereby. The
Seller has delivered to the Buyer a true and correct copy of its
certificate of association and bylaws as in effect on the date hereof.
(b) Authority. The execution, delivery and performance of this
Agreement, the Bill of Sale, and the Assignment and Assumption Agreement
and the consummation of the transactions contemplated hereby and thereby
have been duly and validly authorized by all necessary partnership action
on the part of the Seller. This Agreement, the Bill of Sale, and the
Assignment and Assumption Agreement have been duly and validly executed and
delivered by the Seller and constitute legal, valid and binding obligations
of the Seller enforceable in accordance with their respective terms, except
as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the rights of
creditors generally. Neither the execution, delivery or performance by the
Seller of this Agreement, the Bill of Sale, or the Assignment and
Assumption Agreement nor the consummation by the Seller of the transactions
contemplated hereby or thereby, nor compliance by the Seller with any
provision hereof or thereof will (i) conflict with or result in a breach of
any provision of the General Partnership Agreement of the Seller, (ii)
cause a default (with due notice, lapse of time or both), or give rise to
any right of termination, cancellation or acceleration, under any of the
terms, conditions or provisions of any note, bond, lease, mortgage,
indenture, license or other instrument, obligation or agreement to which
the Seller is a party or by which it or any of its respective properties or
assets may be bound or (iii) violate any law, statute, rule or regulation
or order, writ, judgment, injunction or decree of any court, administrative
agency or governmental body applicable to the Seller or any of its
respective properties or assets. No permit, authorization, consent or
approval of or by, or any notification of or filing
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with, any person (governmental or private) is required in connection with
the execution, delivery or performance by the Seller of this Agreement or
the consummation of the transactions contemplated hereby.
(c) Title to Assets, Properties, Interests in Properties and Rights
and Related Matters.
(i) The Seller has good and valid title to all of the Purchased
Assets, free and clear of all security interests, judgments, liens,
pledges, claims, charges, escrows, encumbrances, easements, options,
rights of first refusal, rights of first offer, mortgages, indentures,
security agreements or other agreements, arrangements, contracts,
commitments, understandings or obligations, whether written or oral
and whether or not relating in any way to credit or the borrowing of
money (collectively, "Claims"), of any kind or character, except for
(i) those Claims set forth on Schedule 3.1(c) and (ii) Permitted
Liens.
(ii) There does not exist any condition which materially
interferes with the economic value or use (consistent with the
Seller's past practice) of any tangible personal property included in
the Purchased Assets and such property is in good operating condition
and repair, reasonable wear and tear excepted.
(iii) The Seller has the complete and unrestricted power and the
unqualified right to sell, transfer, convey and assign the Purchased
Assets, and this Agreement, the Bill of Sale, and the Assignment and
Assumption Agreement are sufficient to sell, transfer, convey and
assign to the Buyer all right, title and interest of the Seller in and
to the Purchased Assets, free and clear of all Claims (other than
Permitted Liens) and to vest in the Buyer good and valid title
thereto.
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(iv) As used in this Agreement, "Permitted Liens" shall mean (i)
any lien for current taxes not yet due and payable, (ii) liens of
carriers, warehousemen, mechanics and materialmen created in the
ordinary course of the Subject Business for amounts not yet due and
payable which do not materially detract from the value or impair the
use of any property or assets and (iii) in the case of Purchased
Assets, liens incurred in the ordinary course of the Subject Business
(including, without limitation, surety bonds and appeal bonds) in
connection with workers' compensation, unemployment insurance and
other types of social security benefits.
(d) Litigation. Except as set forth on Schedule 3.1(d), there are no
(i) actions, suits, claims, investigations or legal or administrative or
arbitration proceedings pending or, to the best knowledge of the Seller,
threatened against the Seller, the Purchased Assets or the Subject
Business, whether at law or in equity, or before or by any Federal, state,
municipal or other governmental department, commission, board, bureau,
agency or instrumentality or (ii) judgments, decrees, injunctions or orders
of any court, governmental department, commission, agency, instrumentality
or arbitrator against the Seller or affecting the Purchased Assets or the
Subject Business. The Seller has delivered to the Buyer all documents and
correspondence relating to matters referred to in said Schedule 3.1(d).
(e) Compliance; Governmental Authorizations. The Seller has complied
in all material respects with all applicable Federal, state, local or
foreign laws, ordinances, regulations and orders. The Seller has all
Federal, state, local and foreign governmental licenses and permits
necessary in the conduct of the Subject Business the lack of which would
have a material adverse effect on the Buyer's ability to operate the
Subject Business after the Closing on substantially the same basis as
presently operated, such licenses and permits are in full force and effect,
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no violations are or have been recorded in respect of any thereof and no
proceeding is pending or threatened to revoke or limit any thereof. None of
such licenses and permits shall be affected in any material respect by the
transactions contemplated hereby.
(f) Disclosure. Neither this Agreement (including the Exhibits and
Schedules attached hereto) nor any other document, certificate or written
statement furnished to the Buyer by or on behalf of the Seller in
connection with the transactions contemplated hereby contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein and therein not misleading.
3.2. Representations and Warranties of the Buyer.
The Buyer represents and warrants to the Seller, as of the Signature Date
hereof, as follows:
(a) Organization, Good Standing and Power. The Buyer (i) is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, (ii) has all requisite corporate power and
authority to own, lease and operate its properties, to carry on its
business as now being conducted, to execute and deliver this Agreement and
the Assignment and Assumption Agreement, to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated
hereby and thereby and (iii) is duly qualified and in good standing to do
business in all jurisdictions in which the failure to be so qualified and
in good standing to do business could reasonably be expected to have a
material adverse effect on the business, assets, operations, results of
operations or affairs of the Buyer.
(b) Authority. The execution, delivery and performance of this
Agreement and the Assignment and Assumption Agreement, and the consummation
of the transactions contemplated hereby and thereby, have been duly and
validly authorized by all
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necessary corporate action on the part of the Buyer. This Agreement and the
Assignment and Assumption Agreement have been duly and validly executed and
delivered by the Buyer, and both constitute valid and binding obligations
of the Buyer, enforceable in accordance with their respective terms except
as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the rights of
creditors generally. Neither the execution, delivery or performance by the
Buyer of this Agreement or the Assignment and Assumption Agreement, nor the
consummation by the Buyer of the transactions contemplated hereby or
thereby, nor compliance by the Buyer with any provision hereof or thereof,
will (i) conflict with or result in a breach of any provisions of the
Certificate of Incorporation or By-laws of the Buyer, (ii) cause a default
(with due notice, lapse of time or both), or give rise to any right of
termination, cancellation or acceleration, under any of the terms,
conditions or provisions of any material note, bond, lease, mortgage,
indenture, license or other instrument, obligation or agreement to which
the Buyer is a party or by which it or any of its properties or assets is
or may be bound or (iii) violate any law, statute, rule or regulation or
order, writ, judgment, injunction or decree of any court, administrative
agency or governmental body applicable to the Buyer or any of its
properties or assets. No permit, authorization, consent or approval of or
by, or any notification of or filing with, any person (governmental or
private) is required in connection with the execution, delivery or
performance by the Buyer of this Agreement or the consummation by the Buyer
of the transactions contemplated hereby.
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ARTICLE IV
CONDITIONS OF CLOSING
4.1. Conditions of Each Party's Obligations.
The obligations of the Seller to sell the Purchased Assets, and of the
Buyer to purchase the Purchased Assets, are subject to the satisfaction of the
following conditions unless waived in writing (to the extent such conditions can
be waived) by the Seller and the Buyer:
(a) Approvals. All authorizations, consents, orders or approvals of,
or declarations or filings with, or expiration of waiting periods imposed
by, any governmental agency or authority necessary for the consummation of
the transactions contemplated hereby shall have been filed, occurred or
been obtained.
(b) Legal Action. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the
consummation of transactions contemplated hereby shall have been issued by
any Federal or state court and remain in effect. Each party agrees to use
its best efforts to have any such injunction or order lifted.
(c) Legislation. No Federal, state, local or foreign statute, rule or
regulation shall have been enacted which prohibits, restricts or delays the
consummation of the transactions contemplated by this Agreement or any of
the conditions to the consummation of such transactions.
(d) Related Agreements. Each of the related agreements identified in
Section 4.4 hereof (collectively, the "Related Agreements") shall have been
fully executed and delivered prior to or at the Closing by all of the
parties required to execute and deliver such agreements.
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4.2. Conditions of Obligations of the Buyer.
The obligation of the Buyer to purchase the Purchased Assets is subject to
the satisfaction of the following conditions unless waived in writing (to the
extent such conditions can be waived) by the Buyer:
(a) Representations and Warranties. The representations and warranties
of the Seller set forth in Section 3.1 shall in each case be true and
correct in all material respects as of the date of this Agreement and as of
the Closing as though made at and as of the Closing.
(b) Performance of Obligations. The Seller shall have performed all
obligations required to be performed by it under this Agreement prior to
and at the Closing.
(c) Authorization. All action necessary to authorize the execution,
delivery and performance of this Agreement by the Seller and the
consummation of the transactions contemplated hereby and thereby shall have
been duly and validly taken by the Seller and the Seller shall have full
power and right to consummate the transactions contemplated hereby and
thereby.
(d) Consents and Approvals. The Seller shall have delivered to the
Buyer duly executed copies of (i) consents to the assignment of the office
leases and equipment leases listed on Schedules 1.1(c) and 1.1(f) and (ii)
all other approvals, if any, required by this Agreement or the Schedules,
in each case in form and substance satisfactory to the Buyer and counsel to
the Buyer.
(e) Government Consents, Authorizations, Etc. All consents,
authorizations, orders or approvals of, and filings or registrations with,
any Federal, state, local or foreign governmental commission, board or
other regulatory body which are required for or in connection with the
execution and delivery by
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the Seller of this Agreement and the consummation by the Seller of the
transactions contemplated hereby shall have been obtained or made.
4.3. Conditions of Obligations of the Seller.
The obligation of the Seller to sell the Purchased Assets to the Buyer is
subject to the satisfaction of the following conditions unless waived in writing
(to the extent such conditions can be waived) by the Seller:
(a) Representations and Warranties. The representations and warranties
of the Buyer set forth in Section 3.2 shall in each case be true and
correct in all material respects as of the date of this Agreement and as of
the Closing Date as though made at and as of the Closing.
(b) Performance of Obligations. The Buyer shall have performed all
obligations required to be performed by it under this Agreement prior to
and at the Closing, and the Seller shall have received a certificate signed
by an authorized officer of the Buyer to that effect.
(c) Authorization. All action necessary to authorize the execution,
delivery and performance of this Agreement by the Buyer and the
consummation of the transactions contemplated hereby shall have been duly
and validly taken by the Buyer.
(d) Consents and Approvals. The Seller shall have received duly
executed copies of (i) consents to the assignment of the office leases and
equipment leases listed on Schedules 1.1(c) and 1.1(f) and (ii) all other
approvals, if any, required by this Agreement or the Schedules, in each
case in form and substance satisfactory to the Seller and counsel to the
Seller.
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(e) Government Consents, Authorizations, Etc. All consents,
authorizations, orders or approvals of, and filings or registrations with,
any Federal, state, local or foreign governmental commission, board or
other regulatory body which are required for or in connection with the
execution and delivery by the Buyer of this Agreement and the consummation
by the Buyer of the transactions contemplated hereby shall have been
obtained or made.
4.4. Related Agreements.
The Related Agreements referred to in this Agreement consist of the
following:
(a) the Management Services Agreement, entered into by and between the
parties hereto;
(b) the Restricted Stock Agreements, entered into by and between the
Buyer and each of the Eligible Parties, respectively;
(c) the Stockholder Non-Competition Agreements, entered into by and
among the Seller, the Buyer, and each of the Eligible Parties,
respectively;
(d) the Office Subleases relating to each of the medical offices
identified in Schedule 1.1(f), entered into by and between the parties
hereto; and
(e) the Medical Equipment Master Lease, entered into by and between
the parties hereto.
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ARTICLE V
CLOSING
5.1. Date.
The closing (the "Closing") for the consummation of the transactions
contemplated by this Agreement shall be deemed to have taken place at 12:01 a.m.
on November 1, 1996 (the "Closing Date"), irrespective of the actual date(s) and
time(s) that all of the documents required hereunder are executed and delivered.
5.2. Closing Transactions.
At the Closing, the parties shall take the actions and deliver the
documents identified in this Section 5.2. The Closing shall not be deemed to
have taken place, and the transactions contemplated by this Agreement shall not
be deemed to have been consummated, unless all of the closing transactions
identified in this Section 5.2 have been completed or waived in writing by the
parties.
(a) The Seller shall deliver to the Buyer an executed copy of the Bill
of Sale;
(b) Each of the parties shall execute and deliver to the other a copy
of the Assignment and Assumption Agreement;
(c) The Buyer shall deliver to the Seller a cashiers check or wire
transfer funds for that portion of the Purchase Price specified in Section
2.1(b) hereof;
(d) Each of the parties shall execute and deliver to the other a fully
executed copy of the Management Services Agreement;
(e) The Seller shall deliver Restricted Stock Agreements to the Buyer
executed respectively by each of the Eligible Parties (as defined in the
Management Services
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Agreement), and the Buyer shall execute and deliver to the Seller
Restricted Stock Agreements for each of the Eligible Parties, respectively;
(f) The Buyer shall deliver to the Seller stock certificates issued in
the names of the Eligible Parties as required under the terms of the
Restricted Stock Agreements.
(g) The Seller shall deliver Stockholder Non-Competition Agreements to
the Buyer executed by the Seller and by each of the Eligible Parties,
respectively;
(h) Each of the parties shall execute and deliver to the other an
Office Sublease relating to each of the premises identified in Schedule
1.1(f); and
(i) Each of the parties shall execute and deliver to the other a copy
of the Medical Equipment Master Lease.
ARTICLE VI
INDEMNIFICATION
6.1. Definitions.
As used in this Agreement, the following terms shall have the following
meanings:
(a) "Affiliate", as to any person, means any other person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with such person.
(b) "Buyer Indemnification Event" shall mean the following:
(i) (A) the untruth, inaccuracy or breach of any representation
or warranty of the Seller contained in this Agreement, any Schedule or
Exhibit attached hereto or any
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certificate delivered by the Seller in connection herewith (or any
facts or circumstances constituting any such untruth, inaccuracy or
breach) or (B) the breach of any agreement or covenant of the Seller
contained in this Agreement;
(ii) the assertion against the Buyer or any Buyer Indemnified
Person of any liability or obligation arising from, relating to, or in
any way connected with the operation of the Subject Business prior to
the Closing;
(iii) the assertion against the Buyer or any Buyer Indemnified
Person of any Excluded Obligation; and
(iv) any non-compliance by the Seller with the "bulk sales laws"
of Texas to the extent that such laws may be applicable to the
transactions contemplated hereby.
(c) "Buyer Indemnified Persons" shall mean and include the Buyer and
its officers, directors, and employees.
(d) "Indemnified Persons" shall mean the Buyer Indemnified Persons or
the Seller Indemnified Persons, as the case may be.
(e) "Indemnifying Person" shall mean the Buyer or the Seller.
(f) "Losses" shall mean any and all losses, claims, damages,
liabilities, expenses (including reasonable attorneys' and accountants'
fees), assessments, tax deficiencies and taxes (including interest or
penalties thereon) sustained, suffered or incurred by any Indemnified
Person arising from any matter which is the subject of indemnification
under Section 6.2.
(g) "Seller Indemnification Event" shall mean the untruth, inaccuracy
or breach of any representation or warranty of the Buyer contained in this
Agreement, any Schedule or Exhibit attached hereto or any certificate
delivered by the Buyer
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in connection herewith (or any facts or circumstances constituting any such
untruth, inaccuracy or breach) or the breach of any agreement or covenant
of the Buyer contained in this Agreement.
(h) "Seller Indemnified Persons" shall mean and include the Seller and
its partners and employees.
6.3. Indemnification Generally.
(a) Buyer Indemnification. The Seller shall indemnify, defend and hold
harmless the Buyer Indemnified Persons, and each of them, from and against
any and all Losses resulting from Buyer Indemnification Events.
(b) Seller Indemnification. The Buyer shall indemnify, defend and hold
harmless the Seller Indemnified Persons, and each of them, from and against
any and all Losses resulting from Seller Indemnification Events.
6.3. Assertion of Claims.
No claim, demand, suit or cause of action shall be brought under Section
6.2 unless the Indemnified Persons, or any of them, give the Indemnifying Person
written notice of the existence of any such claim, demand, suit or cause of
action, stating with particularity the nature and basis of said claim, and the
amount thereof, to the extent known, and providing to the extent reasonably
available all written documentation relating thereto. Such written notice shall
be delivered to the Indemnifying Person as soon as practicable upon receipt of
actual knowledge of such claim, demand, suit or cause of action; provided,
however, that the failure to provide such written notice shall not affect the
Indemnified Persons' right to indemnification hereunder if failure to provide
such written notice does not materially adversely affect the Indemnifying
Person. Upon the giving of such written notice as aforesaid, the Indemnified
Persons, or any of them, shall have the right to
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commence legal proceedings subsequent to the applicable survival date, if any,
for the enforcement of their rights under Section 6.2.
6.4. Notice and Defense of Third Party Claims.
(a) In the event any action, suit or proceeding is brought by a third party
against an Indemnified Person, with respect to which an Indemnifying Person may
have liability under Section 6.2, the action, suit or proceeding shall, upon the
written agreement of the Indemnifying Person that it is obligated with respect
to such action, suit or proceeding, be defended (including all proceedings on
appeal or for review which counsel for the defendant shall deem appropriate)
and, unless otherwise provided below, controlled by such Indemnifying Person.
The Indemnified Persons shall have the right to employ its or their own counsel
in any such case, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Persons, unless (i) the employment of such counsel
shall have been authorized in writing by the Indemnifying Person in connection
with the defense of such action, suit or proceeding, (ii) the Indemnifying
Person shall fail actively and diligently to defend such action, suit or
proceeding, (iii) the Indemnified Persons shall have reasonably concluded that
such action, suit or proceeding involves to a significant extent matters beyond
the scope of the indemnity agreement contained in Section 6.2 or (iv) the
Indemnified Persons shall have reasonably concluded that there may be one or
more legal or equitable defenses available to the Indemnified Persons which are
different from or additional to those available to the Indemnifying Person, in
any of which events the Indemnifying Person shall not have the right to direct
the defense of such action, suit or proceeding on behalf of the Indemnified
Persons and that portion of any fees and expenses of counsel related to matters
covered by the indemnity agreement and contained in Section 6.2 shall be borne
by the Indemnifying Person. The Indemnified Persons shall be kept fully informed
of
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such action, suit or proceeding at all stages thereof whether or not they are so
represented. The Indemnifying Person shall make available to the Indemnified
Persons and their attorneys and accountants all books and records of the
Indemnifying Person relating to such action, suit or proceeding and the parties
hereto agree to render to each other such assistance as they may reasonably
require of each other in order to ensure the proper and adequate defense of any
such action, suit or proceeding.
(b) The Indemnifying Person shall not make any settlement of any
action, suit or proceeding without the written consent of the Indemnified
Persons, which consent shall not be unreasonably withheld; provided, however,
that in the event the Indemnified Persons refuse to consent to a settlement
acceptable to the Indemnifying Person which is capable of settlement by the
payment of money only and the Indemnifying Persons shall demonstrate to the
reasonable satisfaction of the Indemnified Persons their ability to pay such
amount, the Indemnifying Person may pay the amount of the proposed settlement to
the Indemnified Persons and shall thereupon be released from any further
liability with respect to such action, suit or proceeding.
6.5. Survival of Representations, Warranties and Covenants.
The representations and warranties of the Seller contained in Section 3.1
and the representations and warranties of the Buyer contained in Section 3.2
shall survive the Closing and shall terminate forty-five (45) days following the
first anniversary of the Closing Date; provided, however, that the
representations and warranties of the Seller set forth in Sections 3.1(a),
3.1(b), 3.1(c) and 3.1(e), and the representations and warranties of the Buyer
set forth in Sections 3.2(a) and 3.2(b), shall survive the Closing and remain in
full force and effect until the expiration of the statute of limitations, if
any, applicable to the matters set forth therein (and indefinitely if none).
-23-
<PAGE>
ARTICLE VII
NON-COMPETITION PHYSICIANS
The parties hereby acknowledge that they have entered into an agreement
regarding non-competition, as set forth in Section 16 of the Management Services
Agreement.
ARTICLE VIII
REPURCHASE OF ASSETS
The Purchased Assets, except for the Accounts Receivable, are subject to
repurchase by the Seller from the Buyer upon termination and/or recission of the
Management Services Agreement in accordance with Sections 13.5, 14.1 and/or 14.3
of the Management Services Agreement. In addition, a portion of the Purchased
Assets are subject to repurchase by a Disengaging Member (as defined in the
Management Services Agreement) upon such Disengaging Member's disengagement from
the Management Services Agreement in accordance with the provisions of Section
14.2 of the Management Services Agreement.
ARTICLE IX
AMENDMENT, MODIFICATION AND WAIVER
This Agreement shall not be altered or otherwise amended except pursuant to
an instrument in writing signed by each of the parties. The waiver by one party
of the performance of any covenant, condition or promise shall not invalidate
this Agreement, nor shall it be considered as a waiver by such party of any
other covenant, condition or promise. The delay in pursuing any remedy or in
insisting upon full performance for any breach or failure of any covenant,
condition or promise shall not prevent a party from later pursuing any remedies
or insisting upon full performance for the same or any similar breach or
failure.
-24-
<PAGE>
ARTICLE X
MISCELLANEOUS
10.1. Transfer Taxes, Etc.
The Seller and the Buyer shall each pay one-half (1/2) of all sales, use
and excise taxes and all registration, recording or transfer taxes which may be
payable in connection with the transactions contemplated by this Agreement.
10.2. Entire Agreement.
This Agreement (including the recitals hereof and the Schedules and the
Exhibits attached hereto), together with the related agreements referenced
herein, contains the entire agreement between the parties hereto with respect to
the transactions contemplated hereby and supersedes all prior agreements,
representations, warranties and understandings, either oral or written, between
the parties with respect thereto.
10.3. Descriptive Headings.
Descriptive headings are for convenience only and shall not control or
affect the meaning or construction of any provisions of this Agreement.
10.4. Notices.
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally or sent by
telecopier (if an addressee has set forth a telecopy number below), sent by
nationally-recognized overnight courier, sent by certified mail, postage
prepaid, return receipt requested, or sent by facsimile if also sent by
nationally-recognized overnight courier for next day delivery, addressed as
follows:
-25-
<PAGE>
if to the Buyer, to:
Bone, Muscle and Joint, Inc.
4800 North Federal Highway, Suite 104D
Boca Raton, Florida 33431
Attention: President
Telecopier: (561) 391-1389
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Jeffrey S. Held, Esq.
Telecopier: (212) 408-2420
if to the Seller, to:
South Texas Spinal Clinic, P.A.
7614 Louis Pasteur, Suite 300
San Antonio, Texas 78229
Attention: Steve Ensinger
Telecopier: (210) 614-7327
in each case, with a copy to:
Law Offices of Peter Wolverton
NationsBank Plaza
300 Convent, Suite 1450
San Antonio, Texas 78285
Attention: Peter Wolverton, Esq.
Telecopier: (210) 227-9363
or to such other address as the party to whom notice is to be given may have
furnished to each other party in writing in accordance herewith. Any such
communication shall be deemed to have been given (i) when delivered if
personally delivered or sent by telecopier, (ii) on the Business Day after
dispatch if sent by nationally-recognized, overnight courier and (iii) on the
fifth Business Day after dispatch, if sent by mail. As used herein, "Business
Day" means a day that is not a Saturday, Sunday or a day on which banking
institutions in Texas are not required to be open.
-26-
<PAGE>
10.5. Counterparts.
This Agreement may be executed in any number of counterparts, and each such
counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
10.6. Bulk Sales Compliance.
The Buyer hereby waives compliance by the Seller with the provisions of the
"bulk sales laws" of any state which may be applicable to the transactions
contemplated hereby; provided, however, that the Seller shall indemnify the
Buyer in connection with such noncompliance to the extent provided in Article 6
hereof.
10.7. Governing Law; Arbitration.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Texas without giving effect to the laws
and principles thereof, or of any other jurisdiction, which would direct the
application of the laws of another jurisdiction. All disputes, controversies,
differences or claims arising out of, relating to or in connection with this
Agreement, or the breach thereof, except controversies involving less than
$5,000, shall be finally settled by binding arbitration in San Antonio, Bexar
County, Texas pursuant to the arbitration rules of the American Arbitration
Association. Arbitration shall take place before three arbitrators with one
arbitrator selected by each of the Management Company and the Medical Group and
a third arbitrator selected by the two arbitrators chosen by the parties. Any
award or decision rendered by the arbitrators shall clearly set forth the
factual and legal basis for such award or decision. Judgment on the award or
decision rendered by the arbitrators shall be non-appealable and enforceable in
the Presiding District Court of Bexar County, Texas. Each party shall bear its
own legal and
-27-
<PAGE>
administrative costs and expenses relating to the arbitration and the Management
Company and the Medical Group shall equally share the fees and expenses of the
arbitrators and the administration of the arbitration by the American
Arbitration Association.
10.8. Attorneys' Fees.
Notwithstanding anything contained herein to the contrary, in the event of
any dispute or controversy arising out of or relating to this Agreement, the
prevailing party shall be entitled to recover from the other party all costs and
expenses, including arbitrators' fees and expenses, attorneys' fees and
accountants' fees, incurred in connection with such dispute or controversy.
10.9. Benefits of Agreement.
The terms and provisions of this Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and permitted
assigns. Anything contained herein to the contrary notwithstanding, this
Agreement shall not be assignable by any party without the consent of the other
parties hereto, and any purported assignment without such consent shall be null
and void.
10.10. Pronouns.
As used herein, all pronouns shall include the masculine, feminine, neuter,
singular and plural thereof whenever the context and facts require such
construction.
* * *
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed on its behalf effective as of the day and year first above written.
BONE, MUSCLE AND JOINT, INC.
By:____________________________
Naresh Nagpal, M.D., President
and Chief Executive Officer
SOUTH TEXAS SPINAL CLINIC, P.A.
By:______________________________
Name: Gilbert R. Meadows, M.D.
Title: President
<PAGE>
Schedule 1.1(a)
MEDICAL EQUIPMENT, FURNITURE, FURNISHINGS,
TRADE FIXTURES, AND OFFICE EQUIPMENT
SEE FOLLOWING PAGES
<PAGE>
Schedule 1.1(c)
EQUIPMENT LEASES
SEE FOLLOWING PAGES
<PAGE>
Schedule 1.1(d)
SUPPLIES
All of the medical supplies, office supplies, postage, and printed
materials owned by the Medical Group and located on the premises of any of the
Medical Group's offices at 12:01 a.m. on the Closing Date hereunder.
<PAGE>
Schedule 1.1(e)
ACCOUNTS RECEIVABLE
All of the accounts receivable of the Medical Group the payment of which
would constitute "Collections" as defined in Section 5.3(d)(ii) of the
Management Services Agreement, determined as of 12:01 a.m. of the Closing Date
hereunder.
SEE FOLLOWING PAGES
<PAGE>
Schedule 1.1(f)
OFFICE LEASES
1. Suite Lease between Meadows Enterprises, L.C., as Lessor, and Medical
Group, as Lessee, dated March 1, 1994 for premises commonly known as
Suites 220 and 300, 7614 Louis Pasteur, San Antonio, TX.
2. Suite Lease between International Bank of Commerce, Inc., as Lessor,
and Medical Group, as Lessee, dated September 7, 1994 for premises
commonly known as Suite 106, 12602 Toepperwein, San Antonio, TX.
3. Suite Lease between Memorial Professional Services, Inc., as Lessor,
and Medical Group, as Lessee, dated January 23, 1995 for premises
commonly known as Suite 209, 8711 Village Drive, San Antonio, TX.
4. Suite Lease between S.W.R.O.E., Inc., as Lessor, and Medical Group, as
Lessee, dated April 30, 1996 for premises commonly known as 209
Village Blvd., Suite 1, Laredo, TX.
5. Suite Sub-Lease arrangement between J. Peter Forney, III, M.D., P.A.,
and Medical Group dated February 28, 1996 at 712 North Houston Street,
New Braunfels, TX.
6. Suite Sub-Lease arrangement between Crossroads Orthopedics, P.A., and
Medical Group dated March 19, 1996 at 115 Medical Drive, Suite 101,
Victoria, TX.
7. Suite Lease arrangement between Medplex Rentals and Medical Group
dated December 1, 1996, Beeville, TX.
<PAGE>
Schedule 1.1(g)
DEPOSITS
1. Security deposits under leases of $ 19,952
offices located in San Antonio, TX, --------
Suite 300 only (Schedule 1.1(f), item
#1)
2. Security deposit under lease of office $ 1,375
located in San Antonio, TX Schedule --------
1.1(f), item #2
$ 21,327
========
<PAGE>
Schedule 1.1(h)
ADDITIONAL ITEMS
NONE
<PAGE>
Schedule 3.1(c)
CLAIMS
Except for the attached Promissory Note and Security Agreement both dated
April 26, 1993.
<PAGE>
Schedule 3.1(d)
LITIGATION
<PAGE>
EXHIBIT A
BILL OF SALE
South Texas Spinal Clinic, P.A., a Texas professional association (the
"Seller"), hereby sells, conveys, transfers, signs and delivers to Bone, Muscle
and Joint, Inc., a Delaware corporation (the "Buyer"), the following assets,
properties, interests in properties and rights of the Seller (collectively, the
"Purchased Assets"):
1. the medical equipment owned by the Seller and listed on Schedule
1.1(a) of that certain Asset Purchase Agreement between the Seller and
the Buyer entered into as of the date hereof (the "Asset Purchase
Agreement");
2. the furniture, furnishings, trade fixtures, and office equipment owned
by the Seller and listed on Schedule 1.1(a) of the Asset Purchase
Agreement;
3. the Seller's rights and interests under the equipment leases
identified on Schedule 1.1(c) of the Asset Purchase Agreement, subject
to the Buyer's assumption of the obligations accruing thereunder from
and after the date hereof;
4. the supplies described on Schedule 1.1(d) of the Asset Purchase
Agreement;
5. the accounts receivable described on Schedule 1.1(e) of the Asset
Purchase Agreement;
6. the Seller's rights and interests under the office leases identified
in Schedule 1.1(f) of the Asset Purchase Agreement, subject to the
Buyer's assumption of the obligations accruing thereunder from and
after the date hereof;
7. the deposits identified on Schedule 1.1(g) of the Asset Purchase
Agreement; and
<PAGE>
8. any additional items identified on Schedule 1.1(h) of the Asset
Purchase Agreement.
All assets, properties, interests in properties, and rights of the Seller not
expressly identified above or in the schedules referenced in the Asset Purchase
Agreement (the "Excluded Assets") are expressly excluded from the assets of the
Seller being sold, assigned, or otherwise transferred to the Buyer.
To the extent there is a conflict between the terms and provisions of this
Bill of Sale and the Asset Purchase Agreement, the terms and provisions of the
Asset Purchase Agreement shall govern.
IN WITNESS WHEREOF, the Seller has executed this instrument, by its duly
authorized signatory as of December 23, 1996, effective as of November 1, 1996.
SOUTH TEXAS SPINAL CLINIC, P.A.
By:______________________________
Name:
Title:
<PAGE>
EXHIBIT B
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (the "Agreement") is entered into
as of December 23, 1996 and effective November 1, 1996 by and between South
Texas Spinal Clinic, P.A. ("Assignor") and Bone, Muscle and Joint, Inc.
("Assignee").
A. Pursuant to the terms of the Asset Purchase Agreement dated the date
hereof (the "Asset Purchase Agreement"), between Assignor, as Seller, and
Assignee, as Buyer, Assignor has concurrently with the delivery hereof, sold,
conveyed, transferred, assigned and delivered to Assignee certain assets of
Assignor (the "Purchased Assets"), which are specifically identified in the
Asset Purchase Agreement.
B. In partial consideration of the Purchased Assets, the Asset Purchase
Agreement provides that Assignee shall assume certain liabilities of Assignor,
identified in Section 1.3 of the Asset Purchase Agreement.
NOW, THEREFORE, Assignor and Assignee hereby agree as follows:
1. Assignment; Assumption.
Assignor hereby assigns, transfers and delivers to Assignee, and Assignee
does hereby accept, all of Assignor's rights, titles, and interests, legal and
equitable, in, to and under the equipment leases identified in Schedule 1.1(c)
of the Asset Purchase Agreement and the office leases identified in Schedule
1.1(f) of the Asset Purchase Agreement (the "Assigned Contracts"), and Assignee
agrees to assume and to pay when due, those liabilities accruing from and after
the date hereof under the Assigned Contracts and to observe, perform, and comply
with the covenants, restrictions, limitations, and conditions imposed upon
Assignor under the Assigned Contracts.
2. Limitation of Assumption.
2.1 Right to Contest Obligations.
Nothing contained in this Agreement shall require that Assignee perform,
pay or discharge any obligation expressly assumed hereby so long as Assignee
shall in good faith contest or cause to be contested the amount or validity
thereof.
2.2 Obligations Not Assumed.
<PAGE>
Other than as specifically stated above, Assignee is not assuming any
liabilities or obligations of the Assignor (fixed or contingent, known or
unknown, matured or unmatured) whatsoever.
To the extent there is a conflict between the terms and provisions of this
Assignment and Assumption Agreement and the Asset Purchase Agreement, the terms
and provisions of the Asset Purchase Agreement shall govern.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
SOUTH TEXAS SPINAL CLINIC, P.A.
By:______________________________
Name:
Title:
BONE, MUSCLE AND JOINT, INC.
("Assignee")
By:______________________________
Naresh Nagpal, M.D., President
and Chief Executive Officer
<PAGE>
EXECUTION COPY
================================================================================
MANAGEMENT SERVICES AGREEMENT
BETWEEN
BMJ MEDICAL MANAGEMENT, INC.
AND
ORTHOPAEDIC SURGERY ASSOCIATES, INC.
Effective as of September 1, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1 RETENTION OF THE MANAGEMENT COMPANY ............................. 2
1.1. Retention ..................................................... 2
1.2. Exclusivity ................................................... 2
1.3. Relationship of Parties ....................................... 2
1.4. No Referral Obligation ........................................ 3
SECTION 2 TERM ............................................................ 3
SECTION 3 MANAGEMENT SERVICES ............................................. 3
3.1. Management Services Generally ................................. 3
3.2. Premises ...................................................... 5
3.3. Equipment ..................................................... 7
3.4. New Ancillary Services ........................................ 9
3.5. Administration, Finance and Accounting ........................ 11
3.6. Billing and Collection ........................................ 14
3.7. Administrative Personnel ...................................... 19
3.8. Technical Personnel; Leased Employees ......................... 20
3.9 Medical Personnel Recruiting .................................. 22
3.10 Inventory and Supplies ........................................ 23
3.11. Taxes ......................................................... 23
3.12. Information Systems Management ................................ 23
3.13. Use of New Technologies in the Practice of Medicine ........... 25
3.14. Public Relations; Marketing and Advertising ................... 25
3.15. Insurance ..................................................... 25
3.16. Files and Records ............................................. 26
3.17. Managed Care Contracts ........................................ 27
3.18. Budgets ....................................................... 27
3.19. Force Majeure ................................................. 28
SECTION 4 CONSIDERATION ................................................... 28
SECTION 5 COSTS, COMPENSATION, AND OTHER PAYMENTS ......................... 28
5.1. Ownership of Accounts; Security ............................... 28
5.2. Bank Accounts ................................................. 29
5.3. Medical Group Compensation .................................... 29
5.4. Management Fee ................................................ 34
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<PAGE>
5.5. Management Company Costs ...................................... 37
5.6. New Medical Office Start-Up Costs ............................. 40
5.7. Medical Group Costs ........................................... 42
5.8. New Ancillary Services Costs .................................. 43
5.9. Review and Audit of Books and Records ......................... 46
5.10. Start-Up Period ............................................... 46
5.11 New Physician Compensation Costs .............................. 47
SECTION 6 REPRESENTATIONS AND WARRANTIES OF THE MEDICAL GROUP ............. 48
6.1. Organization; Good Standing; Qualification and Power .......... 49
6.2. Equity Investments ............................................ 49
6.3. Authority ..................................................... 49
6.4. Financial Information ......................................... 50
6.5. Absence of Undisclosed Liabilities ............................ 51
6.6. Absence of Changes ............................................ 51
6.7. Tax Matters ................................................... 54
6.8. Litigation, Etc. .............................................. 56
6.9. Compliance; Governmental Authorizations ....................... 56
6.10. Accounts Receivable; Accounts Payable ......................... 57
6.11. Labor Relations; Employees .................................... 58
6.12. Employee Benefit Plans ........................................ 59
6.13. Insurance ..................................................... 60
6.14. Real Property ................................................. 61
6.15. Burdensome Restrictions ....................................... 61
6.16. Disclosure .................................................... 61
SECTION 7 REPRESENTATIONS AND WARRANTIES OF THE MANAGEMENT COMPANY ........ 62
7.1. Organization, Good Standing and Power ......................... 62
7.2. Authority ..................................................... 62
7.3. Capitalization ................................................ 64
7.4. Financial Information ......................................... 64
7.5. Absence of Undisclosed Liabilities ............................ 65
7.6. Absence of Changes ............................................ 65
7.7. Litigation, Etc. .............................................. 67
7.8. Compliance; Governmental Authorizations ....................... 67
-ii-
<PAGE>
7.9. Employees ..................................................... 68
7.10. Insurance ..................................................... 68
7.11. Burdensome Restrictions ....................................... 68
7.12. Disclosure .................................................... 68
SECTION 8 OPERATIONS COMMITTEE ............................................ 69
8.1. Formation and Operation of the Operations Committee ........... 69
8.2. Authoritative Functions of the Operations Committee ........... 69
8.3. Committee Policies and Procedures ............................. 72
SECTION 9 OBLIGATIONS OF THE MEDICAL GROUP ................................ 73
9.1. Compliance with Laws .......................................... 74
9.2. Use of Facility ............................................... 74
9.3. Choice of Braces, Splints, Appliances, Medical Supplies,
and Allografts ................................................ 75
9.4. Choice of Radiologists, Anesthesiologists, Hospitals,
Physical Therapy, MRI, and Other Medical Professionals
and Facilities ................................................ 75
9.5. Insurability .................................................. 75
9.6. Medicare ...................................................... 76
9.7. Accounts Receivable; Billing .................................. 76
9.8. Medical Personnel Hiring ...................................... 76
9.9. Continuing Education .......................................... 76
9.10. Clinical Research ............................................. 77
SECTION 10 CERTAIN COVENANTS ............................................... 77
10.1. Change of Control ............................................. 77
10.2. Legend on Securities .......................................... 78
SECTION 11 RECORDS ......................................................... 78
11.1. Medical Records ............................................... 78
11.2. Management Business Records ................................... 78
11.3. Access to Records Following Termination ....................... 79
SECTION 12 INSURANCE AND INDEMNITY ......................................... 79
12.1. Professional Liability Insurance .............................. 79
12.2. Life Insurance; Business Interruption ......................... 80
12.3. Indemnification by Medical Group .............................. 81
12.4. Indemnification by Management Company ......................... 81
-iii-
<PAGE>
SECTION 13 TERMINATION; RESCISSION ........................................ 82
13.1. Termination by Medical Group .................................. 82
13.2. Termination by Management Company ............................. 83
13.3. Termination by Medical Group or Management Company ............ 84
13.4. Effect of Termination ......................................... 84
13.5. Repurchase of Assets .......................................... 86
13.6 Rescission By Medical Group ................................... 88
SECTION 14 NON-DISCLOSURE OF CONFIDENTIAL INFORMATION ...................... 89
14.1. Non-Disclosure ................................................ 89
SECTION 15 NON-COMPETITION ................................................. 91
SECTION 16 OBLIGATIONS OF THE MANAGEMENT COMPANY ........................... 91
16.1. No Practice of Medicine ....................................... 91
16.2. No Interference with Professional Judgment .................... 91
16.3 Market Development Limitation ................................. 92
16.4 Physician Advisory Board ...................................... 94
16.5 Ancillary Services Facilities ................................. 94
16.6 Business Plan ................................................. 94
16.7 Business Combination .......................................... 95
SECTION 17 ASSIGNMENT ...................................................... 95
SECTION 18 NOTICES ......................................................... 96
SECTION 19 BENEFITS OF AGREEMENT ........................................... 97
SECTION 20 SEVERABILITY .................................................... 97
SECTION 21 GOVERNING LAW ................................................... 97
SECTION 22 HEADINGS ........................................................ 98
SECTION 23 ENTIRE AGREEMENT; AMENDMENTS .................................... 98
SECTION 24 ATTORNEYS' FEES ................................................. 98
SECTION 25 COUNTERPARTS .................................................... 99
SECTION 26 WAIVERS ......................................................... 99
SECTION 27 SURVIVAL OF TERMINATI0N ......................................... 99
SECTION 28 CONTRACT MODIFICATION FOR PROSPECTIVE LEGAL EVENTS .............. 99
-iv-
<PAGE>
INDEX OF DEFINED TERMS
Page No.
Accounts.................................................................... 28
Acquired Company............................................................ 93
Acquired Physicians......................................................... 93
Acquisition................................................................. 93
Additional Term............................................................. 3
Administrative Personnel.................................................... 19
Agreement................................................................... 1
Ancillary Division.......................................................... 43
Ancillary Service Start-Up Costs............................................ 45
Ancillary Service Start-Up Period........................................... 45
Annual Draw Amount.......................................................... 31
Annual Medical Group Compensation Amount.................................... 30
Annual Overpayment.......................................................... 31
Annual Shortfall............................................................ 31
Applicable Percentage....................................................... 36
Articles of Incorporation................................................... 11
Asset Purchase Agreement.................................................... 1
Assignment of Lease......................................................... 5
Authorized Management Company Operating Costs............................... 39
Authorized Signatories...................................................... 16
Balance Sheet............................................................... 50
Balance Sheet Date.......................................................... 50
Bankruptcy Event............................................................ 82
Base Term................................................................... 3
Billable Medical Personnel.................................................. 42
Billings.................................................................... 32
Budgets..................................................................... 27
Business Plan............................................................... 94
Bylaws...................................................................... 11
Code........................................................................ 55
Collateral.................................................................. 28
Collections................................................................. 32
Combined Exclusivity Area................................................... 92
Commencement Date........................................................... 3
Confidential or Proprietary Information..................................... 90
Constituent Practices....................................................... 54
Conversion Notice........................................................... 36
Conversion Period........................................................... 36
Corporate Overhead.......................................................... 39
Departing Physician......................................................... 34
Documents................................................................... 16
Draw Percentage............................................................. 29
Eligible Parties............................................................ 28
Employee Plans.............................................................. 59
Employees................................................................... 58
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<PAGE>
INDEX OF DEFINED TERMS
Page No.
Equipment................................................................... 8
ERISA....................................................................... 59
Excluded Costs.............................................................. 38
Exclusivity Period.......................................................... 92
Facility.................................................................... 74
FF&E........................................................................ 8
Financing Statement......................................................... 29
Guaranteed Minimum Fee...................................................... 34
Internal Financial Statements............................................... 51
Involuntary Departure....................................................... 35
Legal Determination......................................................... 99
Lender...................................................................... 28
LOA......................................................................... 77
Look Back Period............................................................ 37
Management Business......................................................... 1
Management Company.......................................................... 1
Management Company Balance Sheet............................................ 64
Management Company Balance Sheet Date....................................... 64
Management Company Bank..................................................... 29
Management Company Costs.................................................... 37
Management Company Operating Costs.......................................... 38
Management Company Transaction Documents.................................... 62
Management Fee.............................................................. 34
Management Services......................................................... 2
Medical Business............................................................ 1
Medical Equipment........................................................... 7
Medical Group............................................................... 1
Medical Group Bank.......................................................... 15
Medical Group Collections Account........................................... 15
Medical Group Costs......................................................... 42
Medical Group Services...................................................... 32
Medical Group Transaction Documents......................................... 49
Medical Personnel........................................................... 22
Monthly Draw................................................................ 30
New Ancillary Service Medical Equipment..................................... 44
New Ancillary Services....................................................... 9
New Medical Office.......................................................... 41
New Medical Office Start-Up Costs........................................... 41
New Medical Office Start-Up Period.......................................... 42
New Office Division......................................................... 40
New Physician............................................................... 48
New Physician Compensation.................................................. 48
New Physician Net Collections............................................... 47
Office Lease................................................................ 6
Operating Account........................................................... 29
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<PAGE>
INDEX OF DEFINED TERMS
Page No.
Operations Committee........................................................ 69
Physician Advisory Board.................................................... 94
Physician Breakeven Date.................................................... 48
Physician Start Date........................................................ 48
Professional Management Cost Savings........................................ 36
Professional Medical Cost Savings........................................... 36
Professional Practice Cost Savings.......................................... 36
Promissory Note............................................................. 83
Real Property............................................................... 61
Rescission Effective Date................................................... 88
Rescission Notice........................................................... 88
Rescission Option........................................................... 88
Rescission Period........................................................... 88
Restricted Stock Agreement.................................................. 81
Returns..................................................................... 54
Review Financial Statements................................................. 51
Signature Date.............................................................. 1
Simplified Exclusivity Area................................................. 93
Specialty Care Network Profit............................................... 36
Tax......................................................................... 55
Taxes....................................................................... 55
Technical Personnel......................................................... 20
Tenant Improvements......................................................... 71
Term......................................................................... 3
Unaudited Financial Statements.............................................. 64
-iii-
<PAGE>
ATTACHMENTS
-----------
SCHEDULES
- ---------
SCHEDULE I -- New Ancillary Services -- Exceptions
SCHEDULE II -- Management Company Operating Cost Budget
SCHEDULE III -- Equity Participation
SCHEDULE IV -- Draw Date and Draw Percentage
SCHEDULE V -- Management Fee -- Applicable Percentage
SCHEDULE VI -- Professional Practice Cost Savings
SCHEDULE VII -- Computation Example
SCHEDULE VIII -- Non-Competition
SCHEDULE 6.2 -- Equity Investments
SCHEDULE 6.3 -- Consents
SCHEDULE 6.4 -- Financial Information
SCHEDULE 6.5 -- Absence of Undisclosed Liabilities
SCHEDULE 6.6 -- Absence of Changes
SCHEDULE 6.7 -- Tax Matters
SCHEDULE 6.8 -- Litigation, Etc.
SCHEDULE 6.10 -- Accounts Receivable; Accounts Payable
SCHEDULE 6.11 -- Labor Relations; Employees
SCHEDULE 6.12 -- Employee Benefit Plans
SCHEDULE 6.13 -- Insurance
SCHEDULE 6.14 -- Real Property
SCHEDULE 6.15 -- Burdensome Restrictions
SCHEDULE 6.16 -- Disclosure
SCHEDULE 7.2 -- Consents
SCHEDULE 7.4 -- Financial Information
SCHEDULE 7.5 -- Absence of Undisclosed Liabilities
SCHEDULE 7.6 -- Absence of Changes
SCHEDULE 7.7 -- Litigation, Etc.
SCHEDULE 7.9 -- Employees
SCHEDULE 7.11 -- Burdensome Restrictions
<PAGE>
EXHIBITS
- --------
EXHIBIT A -- Asset Purchase Agreement
EXHIBIT B -- Assignment of Lease
EXHIBIT C -- Restricted Stock Agreement
EXHIBIT D -- Stockholder Non-Competition Agreement
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THIS MANAGEMENT SERVICES
AGREEMENT (the "Agreement") is entered
into on October 16, 1997, (the
"Signature Date"), effective as of
September 1, 1997, by and between
ORTHOPAEDIC SURGERY ASSOCIATES, INC.,
a Florida corporation (the "Medical
Group"), and BMJ MEDICAL MANAGEMENT,
INC., a Delaware corporation (the
"Management Company"), with reference to
the facts set forth below:
A. The Medical Group is engaged in the business (the "Medical Business") of
providing orthopedic medical and surgical services and related medical and
ancillary services to the general public.
B. The Management Company is a corporation engaged in the business (the
"Management Business") of providing management, administrative, financial,
marketing, information technology, and related services to professional medical
organizations.
C. Concurrently herewith, the Management Company and the Medical Group are
entering into an Asset Purchase Agreement (the "Asset Purchase Agreement"), in
the form of Exhibit A attached hereto, pursuant to which the Management Company
is acquiring substantially all of the assets of the Medical Group.
D. The Management Company and the Medical Group desire to enter into this
Agreement, pursuant to which, among other things, the Management Company will
render certain management and administrative services to the Medical Group.
NOW, THEREFORE, the Medical Group and the Management Company hereby agree
as follows:
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SECTION 1. Retention of the Management Company.
1.1. Retention.
The Medical Group hereby retains the Management Company to provide all of
the management and related services identified or referenced in Section 3 hereof
and as otherwise required by this Agreement (collectively, the "Management
Services"), and the Management Company hereby accepts such retention and agrees
to provide such services, upon the terms and subject to the conditions set forth
herein.
1.2. Exclusivity.
During the term of this Agreement, the Management Company shall be the
exclusive provider of all management and administrative services utilized by the
Medical Group; provided, however, that the Medical Group may contract directly
with or otherwise engage individuals or companies for the provision of
accounting, legal, consulting, or other professional or advisory services
(provided that such services shall be in addition to, and not in replacement of,
the services to be provided by the Management Company hereunder), all in the
sole discretion of the Medical Group and at the sole cost of the Medical Group.
1.3. Relationship of Parties.
Notwithstanding anything contained herein to the contrary, (a) the
Management Company and the Medical Group intend to act and perform as
independent contractors, and the provisions hereof are not intended to create
any partnership, joint venture, or employment relationship between the parties,
and (b) the Management Company is hereby engaged solely to provide management
and administrative services to the Medical Group and shall not interfere with,
control, direct, or supervise the Medical Group or any medical professional
employed by the Medical Group in connection with the provision of professional
medical services.
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1.4. No Referral Obligation.
The parties agree that the benefits to the Medical Group hereunder do not
require, are not payment for, and are not in any way contingent upon the
admission, referral, purchase, or any other arrangement for the provision of any
item or service to or for any of the Medical Group's patients in or from any
medical facility or laboratory or from any other entity owned, operated,
controlled, or managed by the Management Company.
SECTION 2. Term.
Provided that the Closing under the Asset Purchase Agreement shall have
occurred as provided therein, and subject to such start-up procedures as the
parties may agree upon for purposes of facilitating the transition of
responsibilities required by this Agreement, the performance of services under
this Agreement shall commence as of September 1, 1997 (the "Commencement Date")
and shall expire on the fortieth (40th) anniversary of the Commencement Date
unless terminated earlier pursuant to the terms hereof (the "Base Term"). The
Base Term of this Agreement shall be automatically extended for successive terms
(each, an "Additional Term," and together with the Base Term, the "Term") of
five years each, unless either party delivers to the other party, not less than
six (6) months nor more than nine (9) months prior to the expiration of the
then-current Term, written notice of such party's intention not to so extend the
Term of this Agreement.
SECTION 3. Management Services.
3.1. Management Services Generally.
(a) The Management Company shall be the sole and exclusive manager and
administrator of all day-to-day business functions for the Medical Group,
subject to the provisions of Section 1.2 hereof. The Management Company shall
provide all of the management and administrative services reasonably required by
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the Medical Group in connection with the provision of any and all of the Medical
Group Services (as hereinafter defined) and as otherwise provided in this
Agreement, including without limitation the services described in Sections 3.2
through 3.17 hereof.
(b) Without limiting the generality of the provisions of Section 3.1(a),
and subject to the further provisions of this Agreement, the Management Services
shall include such management and administrative services as may be reasonably
required in connection with (i) all of the offices (including New Medical
Offices, as hereinafter defined) of the Medical Group, and (ii) all professional
services and all ancillary services furnished by the Medical Group.
(c) Additionally, the full range of Management Services as described in
this Agreement shall be applicable with respect to the items identified as
Medical Group Costs in Section 5.7 hereof, except that such Medical Group Costs
shall be paid by the Medical Group rather than by the Management Company.
Accordingly, the Management Company shall provide accounting, bookkeeping, and
related services with respect to all such costs.
(d) The Management Company may enter into such contracts and agreements
with outside services and suppliers as the Management Company shall reasonably
deem necessary in connection with the provision of the Management Services, and,
to the extent permitted by applicable law, such contracts and agreements shall,
except as otherwise specified by the Operations Committee, be in the name of the
Management Company; provided, however, that without the prior approval of the
Operations Committee (as hereinafter defined), the Management Company shall not
enter into any agreement pursuant to which an unaffiliated third party will
perform substantially all of the duties of the Management Company set forth in
Section 3.6(a) hereof. The Management Company shall have no authority, directly
or
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indirectly, to perform, and shall not perform or enter into any agreement to
perform, Medical Group Services or any other medical function required by law to
be performed by a licensed physician or by any other licensed health care
professional.
(e) The Management Company shall comply in all material respects with all
applicable material Federal, state and local laws, regulation, and ordinances in
connection with the provision of the Management Services hereunder.
3.2. Premises.
(a) The Medical Group, as of the Commencement Date, leases premises and
provides Medical Group Services at the following location(s):
1401 N.W. 9th Avenue
Boca Raton, Florida 33486
2828 S. Seacrest Boulevard
Suite 204
Boynton Beach, Florida 33435
5130 Linton Boulevard
Suite E3
Delray Beach, Florida 33484
Immediately prior to the Commencement Date, the above-identified premises were
leased to the Medical Group, in the Medical Group's name. Effective from and
after the Commencement Date, each of the leases for such premises (except for
9th Avenue) is to be assigned from the Medical Group to the Management Company
pursuant to an assignment (each, an "Assignment of Lease") substantially in the
form attached hereto as Exhibit B. During the Term, the Medical Group shall,
subject in all instances to the terms of such leases, have the right to use such
premises solely for the provision of Medical Group Services in accordance with
the terms of this Agreement. In connection therewith, the Medical Group agrees
in all instances to abide by all of the terms and provisions of all such leases.
Upon the expiration of any of the leases assigned in accordance with this
Section
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3.2(a), the Management Company shall use its best efforts to enter into
a new lease, in the name of the Management Company, with the landlord of such
premises; provided, however, that the approval of the Medical Group, which shall
not be unreasonably withheld, shall be required in the event of any substantial
changes in the terms of such lease, and if the Medical Group does not give such
approval, the failure to enter into such new lease shall not constitute a
default of the Management Company. Each assigned lease and each new lease
entered into between the Management Company and the landlord is referred to
herein as an "Office Lease."
(b) A New Medical Office (as hereinafter defined) may be opened only upon
approval of the Operations Committee. The capital costs and start-up costs
reasonably required in connection with the opening of any New Medical Office
shall be borne as set forth in Section 5 hereof. The premises of any New Medical
Office shall be leased by the Management Company, in the Management Company's
name unless otherwise specified by the Operations Committee, and the Medical
Group shall, subject in each instance to the terms of any such lease, have the
right to use the premises of any such New Medical Office solely for the
provision of Medical Group Services in accordance with the terms of this
Agreement. In connection therewith, the Medical Group agrees in all instances to
abide by all of the terms and provisions of all such leases. Notwithstanding
anything to the contrary contained in this Agreement, the Management Company
may, in its sole discretion, determine to permanently close any New Medical
Office if such office is not, after 12 months of operation, profitable (as
determined in the sole discretion of the Management Company).
(c) Except as set forth in Sections 3.2(a) or (b) above, the closing or
relocation of any offices of the Medical Group shall be subject to agreement by
the Medical Group and the Management Company.
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(d) The services to be provided by the Management Company with respect to
the premises leased in accordance with this Section 3.2 shall include, without
limitation, the negotiation and renegotiation of leases, provision of ongoing
liaison with the landlords of the respective premises, identification of
potential new locations for Medical Group offices, financial analysis relating
to the opening, closing, and relocation of any offices, arrangement of necessary
repairs, maintenance and improvements, procurement of property insurance,
arrangement of telephone and other utility services, and hazardous waste
disposal, and all other reasonably necessary or appropriate services related to
all of the offices of the Medical Group.
(e) The Management Company also shall provide all necessary or appropriate
leasehold improvements to each of the premises, subject to prior approval as
provided in Section 8.2 hereof.
(f) The Medical Group acknowledges that the Management Company makes no
warranties or representations, expressed or implied, regarding the condition of
any of the leased premises.
3.3. Equipment.
(a) During the Term, the Management Company shall provide to the Medical
Group all equipment, including diagnostic and therapeutic medical equipment,
reasonably required by the Medical Group in connection with the provision of
Medical Group Services (collectively, the "Medical Equipment"). The Management
Company shall acquire (or lease), at its cost, all Medical Equipment, and the
Management Company shall retain ownership of (or the leasehold interest with
respect to) all Medical Equipment; provided, however, that one hundred percent
(100%) of the cost of such Medical Equipment shall be charged back to the
Medical Group on a depreciated basis. As used herein, the term
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Medical Equipment shall not include medical equipment used in connection with a
New Ancillary Service (as hereinafter defined).
(b) The Management Company also shall provide to the Medical Group, or
arrange for the provision of, all furniture, furnishings, trade fixtures, and
office equipment reasonably required in connection with the provision of Medical
Group Services pursuant to this Agreement (collectively, "FF&E"). The Management
Company shall acquire, at its cost, all FF&E, and the Management Company shall
retain ownership of all FF&E. As used herein, the term FF&E does not include
furniture, furnishings, trade fixtures, and office equipment used in connection
with a New Ancillary Service.
(c) The Medical Equipment and the FF&E are sometimes referred to
collectively as the "Equipment." The acquisition, replacement, relocation, or
other disposition of any Equipment shall require prior approval as provided in
Section 8.2 hereof.
(d) The Medical Group's right to use the Equipment shall be subordinate to
the rights of any unaffiliated third party to which the Management Company
elects, in its sole discretion, to grant any security interest, mortgage, lien
or other encumbrance in or on the Equipment. The Medical Group shall use the
Equipment only in connection with its provision of the Medical Group Services,
and the Medical Group shall not alter, repair, augment, or remove the Equipment
from the premises of the Medical Group without the prior written consent of the
Management Company and any lessor thereof, which approval may be granted or
withheld in the Management Company's or such lessor's sole discretion. To the
extent the Equipment is utilized by the Medical Group in the provision of
Medical Group Services, the Medical Group shall have the right to exercise
reasonable control over the use of such Equipment.
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(e) From time to time, and as reasonably requested by the Medical Group,
the Management Company shall use reasonable efforts to cause the Equipment
manufacturer or its authorized agent to provide service and maintenance for the
Equipment as needed to maintain the Equipment in an operable condition, so that
all such Equipment shall function continuously (subject to interruptions not
reasonably avoidable) in accordance with the manufacturer's specifications and
so that all conditions imposed by the manufacturer to maintaining the continued
effectiveness of any warranty on such Equipment shall be satisfied. The
Management Company shall take all reasonable steps to provide that all necessary
service and maintenance is obtained in a prompt and timely manner, so as to
minimize the amount of time that any of the Equipment is not available for usage
by or for patients of the Medical Group.
(f) THE MEDICAL GROUP ACKNOWLEDGES THAT THE MANAGEMENT COMPANY MAKES NO
WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER
RELATING TO THE EQUIPMENT PROVIDED TO THE MEDICAL GROUP PURSUANT TO THIS
AGREEMENT, INCLUDING, WITHOUT LIMITATION, THE DESIGN CONDITION OF THE EQUIPMENT,
THE CONFORMANCE THEREOF TO THE PROVISIONS AND SPECIFICATIONS OF ANY PURCHASE
ORDER RELATING THERETO, OR THE FITNESS OF THE EQUIPMENT FOR ANY PARTICULAR
PURPOSE. Nothing in this Agreement shall be construed to affect or limit in any
way the professional discretion of the Medical Group to select and use any
Equipment acquired by the Management Company in accordance with the terms of
this Agreement insofar as such selection or use constitutes or might constitute
the practice of medicine.
3.4. New Ancillary Services.
(a) For purposes of this Agreement, "New Ancillary Services" means the
technical component (but not the professional component) of the following,
except as set forth in Schedule I:
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(i) Physical therapy;
(ii) Rehabilitative therapy;
(iii) Occupational therapy;
(iv) Magnetic resonance imaging, CT and/or other imaging services
(except diagnostic radiology);
(v) Outpatient surgery, such as may be provided in an ambulatory
surgical center; and;
(vi) Other revenue-producing services generally recognized as
ancillary services, but excluding the following:
(A) Any services generally provided by the Medical Group
immediately prior to the Commencement Date, including
without limitation (1) plain film and other diagnostic
radiology (if any), (2) ultrasound, (3) bone densitometry,
(4) electromyogram, (5) psychological testing, and (6)
vascular studies; and
(B) Any service performed in connection with new Medical
Equipment acquired to replace existing Medical Equipment so
long as the new Medical Equipment performs substantially the
same functions as the replaced Medical Equipment.
New Ancillary Services do not include the sale or provision of (or services
rendered in connection with) prosthetics, prosthetic devices, orthotics, durable
medical equipment, braces, splints, appliances, crutches, casts, or any other
supplies or similar
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items which are billable to patients or payors, all of which are to be included
in the scope of Medical Group Services.
(b) New Ancillary Services may be established only upon agreement of the
Medical Group and the Management Company. Such agreement shall be memorialized
in a written agreement executed by the parties (or in a written amendment to
this Agreement) under which the Management Company agrees to provide all of the
Management Services described in this Section 3 in connection with such New
Ancillary Service, and for which the Management Company shall be compensated as
described in Section 5.8 of this Agreement, except as may otherwise be agreed
upon by the parties.
3.5. Administration, Finance and Accounting.
The Management Company shall provide or arrange for the provision of all
administrative, financial, and accounting functions necessary for the operation
of the Medical Group, including, without limitation, the following (if
applicable):
(a) Creation and maintenance of bank accounts.
(b) Deposits of receipts.
(c) Preparing accounts receivable summary reports, including various
analyses of delinquent accounts.
(d) Receiving appropriate approvals as required by the Medical
Group's articles of incorporation (the "Articles of
Incorporation") and its bylaws (the "Bylaws") prior to
distribution of payments to outside parties; provided, however,
that the Management Company shall not be responsible for or
liable with respect to interpretations of the Articles of
Incorporation or Bylaws.
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(e) Disbursement of payables, including payables of the Medical
Group; provided, however, that payables of the Medical Group
shall be paid from an account of the Medical Group and not from
any of the Management Company's bank accounts, and all checks
drawn on any Medical Group account shall be signed by an
authorized representative of the Medical Group.
(f) Assisting the Medical Group in the procurement and negotiation of
vendor and managed care payor contracts.
(g) Performing monthly accounting functions, including bank
reconciliations, maintenance of books and records, and
preparation of financial statements.
(h) Analyzing financial data as reasonably requested by physicians.
(i) Analyzing potential New Medical Office locations, and
coordinating all functions associated with opening New Medical
Office locations.
(j) Preparing monthly financial and medical practice statistics
reports by satellite office and by physician, and the Management
Company shall use its reasonable efforts to have such reports
available, with respect to any given month, 20 days after the end
of such month.
(k) If requested by the Medical Group, providing from the Medical
Group's bank account(s) compensation payments to physicians and
professional corporations pursuant to service agreements, monthly
profit and loss
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distributions, and quarterly bonus calculations; provided,
however, that the Management Company shall not be responsible for
or liable with respect to interpretations of the Articles of
Incorporation or Bylaws; provided, further, that all checks drawn
on any Medical Group bank account shall be signed by an
authorized representative of the Medical Group.
(l) Calculating physicians' annual earnings based on the Medical
Group's physician compensation formulas.
(m) Ongoing day-to-day communication with the managing partner,
member or stockholder (or other manager of the Medical Group) and
assisting such person in fulfilling his responsibilities.
(n) Preparing agendas and information packages for Medical Group
meetings.
(o) Developing budgets and long-term strategies for the Medical
Group, including an initial long-term plan and capital
expenditures budget and the Management Company shall use its
reasonable efforts to have such plan and budget delivered to the
Medical Group within 180 days and 90 days, respectively, after
the Commencement Date.
(p) Coordinating payroll processing and payroll tax payments.
(q) Providing ongoing personnel FTE analysis.
(r) Sponsoring employee benefit plans and providing administrative
services relating
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thereto for the Medical Personnel (as hereinafter defined),
provided that if the Medical Group elects not to participate in
the employee benefit plans established by the Management Company,
the Management Company shall not be required to perform the
services set forth in this clause (r).
(s) Coordinating recruitment, interviewing, and hiring of new
physicians approved by the Medical Group, in the sole discretion
of the Medical Group.
(t) Implementing fee schedule increases and/or decreases established
by the Medical Group.
(u) Coordinating depositions and court appearances.
(v) Assisting in the coordination of call schedules.
(w) Assisting in the coordination of coverage of athletic team
events.
(x) Acting as liaison to hospital administration, physical therapy,
surgery center, MRI, and other ancillary services entities.
(y) Cooperating with outside accountants in preparing various
schedules and providing other information.
(z) Interacting with legal counsel as necessary.
3.6. Billing and Collection.
(a) The Medical Group acknowledges that ownership of all Accounts (as
hereinafter defined) is transferred by the Medical Group to the Management
Company as provided in greater
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detail in Section 5.1 of this Agreement. In order to facilitate the collection
of the Accounts, the Management Company shall through its personnel retained to
work in the offices of the Medical Group (i) bill patients and third party
payors in the Medical Group's name; (ii) collect accounts receivable resulting
from such billing; (iii) receive payments and prepayments from the Medical
Group's patients, Blue Cross and Blue Shield organizations, insurance companies,
health care plans, Medicare, Medicaid, HMOs, and any and all other third party
payors; (iv) take possession of and deposit into such bank (the "Medical Group
Bank") as the Medical Group designates, in an account established by the Medical
Group in the name of the Medical Group (the "Medical Group Collections
Account"), any and all checks, insurance payments, cash, cash equivalents and
other instruments received for Medical Group Services; and (v) initiate with the
consent of the Medical Group, which consent may be withheld by the Medical Group
in its sole and absolute discretion, legal proceedings in the name of the
Medical Group to collect any Accounts and monies owed to the Medical Group, to
enforce the rights of the Medical Group as a creditor under any contract or in
connection with the rendering of any service, and to contest adjustments and
denials by governmental agencies (or their fiscal intermediaries) as third-party
payors. The Medical Group shall promptly turn over to the Management Company for
deposit into the Medical Group Collections Account in accordance with this
Agreement all checks and other payments received by the Medical Group or by any
of its partners, equity owners or employees from any patient or third party
payor for Medical Group Services rendered during the Term.
(b) From time to time at the Management Company's request, the Medical
Group shall make available to the Management Company one or more authorized
signatories (the "Authorized Signatories") of the Medical Group to sign any
letters, checks, instruments or other documents (the "Documents") on behalf of
the Medical Group that are necessary for the Management Company to
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take the actions specified in this Section 3.6 and to perform its duties under
this Agreement. If the Management Company notifies the Medical Group that an
Authorized Signatory is not signing the Documents in a timely manner, the
Management Company shall not be liable for any failure to perform its duties
hereunder or for any failure to perform the Management Services to the extent
caused by the failure of an Authorized Signatory to sign the Documents in a
timely manner.
(c) The Management Company shall submit all bills and manage the billing
process on a timely basis in accordance with the terms of this Agreement and
applicable law.
(d) Without limiting the generality of the foregoing, the Management
Company shall bill patients, bill and submit claims to third party payors,
perform appropriate coding for each bill, and collect all fees for professional
and other services rendered and for items supplied to patients by the Medical
Group, all in a timely manner and in accordance with applicable law and
parameters and criteria established by the Operations Committee (as hereinafter
defined). Additionally, the Management Company shall provide the following
services which are currently being provided by or on behalf of the Medical
Group:
(i) Receive and collect from patients at the time of visit all
appropriate payments and pre-payments, including co-pays, deductibles,
payments for non-covered medical services, and deposits for surgeries (if
applicable), and shall obtain all appropriate insurance and other
information required.
(ii) Submit claims utilizing electronic billing submission, whenever
appropriate.
(iii) Perform delinquent account collection calls and other
appropriate follow-up mechanics for
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delinquent accounts of all insurance classifications, all in a timely
fashion as determined by the Operations Committee.
(iv) Turn over to outside collection agencies all delinquent accounts
satisfying the criteria established by the Operations Committee. The
Management Company shall also follow-up on the performance of the outside
collection agencies and make changes, if necessary, and shall reconcile
each account turned over to the summary data provided by the collection
agency.
(v) Write-off account balances according to criteria approved by the
Operations Committee.
(vi) Prepare claim reviews in accordance with criteria approved by
the Operations Committee.
(vii) Bill workers' compensation medical services at rates equal to
the most recently approved Florida workers' compensation fee schedule.
(viii) Apply "insurance only" and other courtesy write-offs in
compliance with Operations Committee policy.
(ix) With respect to discounted fee-for-service contracts with
Preferred Provider Organizations (PPOs) and Health Maintenance
Organizations (HMOs), determine that payments received from such PPOs and
HMOs are in compliance with their respective contracts with the Medical
Group.
(x) With respect to capitation fee contracts with HMOs:
(A) Follow-up to ensure that payments to the Medical Group are
made on a timely basis; and
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(B) Review and audit enrollment data provided by the HMO to
ensure that the capitation payments are based on the proper
number of lives enrolled.
(xi) With respect to lien accounts, the Management Company shall:
(A) Ensure that appropriate documents are signed and agreed to
initially as between the Medical Group, attorney and
patient;
(B) Follow-up on a regular basis as to the status of the
account; and
(C) Apply the policies of the Operations Committee in resolving
open account balances.
(xii) With respect to student athlete accounts, the Management Company
shall coordinate insurance and other information in compliance with the
policy of the Operations Committee.
(xiii) With respect to amounts withheld by payors in compliance with
contracts between the payor and the Medical Group, follow-up on a timely
basis to ensure that withheld amounts are paid to the Medical Group, if
warranted, and to ensure that amounts not paid are verified and audited for
appropriateness.
(xiv) Coordinate the timely payment of refunds to patients and third
party payors when appropriate.
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3.7. Administrative Personnel.
(a) The Management Company shall retain and provide or arrange for the
retention and provision of the following non-medical personnel necessary for the
conduct of the Medical Group's business operations (collectively,
"Administrative Personnel"):
(i) Administration;
(ii) Accounting;
(iii) Billing and Collection;
(iv) Secretarial;
(v) Transcription;
(vi) Appointments;
(vii) Switchboard;
(viii) Medical Records filing and transcription;
(ix) Chart Preparation;
(x) Historians;
(xi) Clinic Support;
(xii) Marketing; and
(xiii) Contract procurement and negotiation.
(b) The Management Company shall determine and pay, or arrange for the
payment of, the salaries and fringe benefits of the Administrative Personnel,
and shall provide or arrange for other personnel services related to the
Administrative Personnel, including, but not limited to, scheduling, determining
personnel policies, administering continuing education benefits, and payroll
administration.
(c) With respect to each applicable new employee in Administrative
Personnel, the Management Company shall, as
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reasonably necessary, verify, or arrange for the verification of, educational
and employment experience, licensure, and insurability.
(d) The Management Company shall attempt, consistent with sound business
practices, to honor Medical Group requests with regard to the retention or
assignment of specific Administrative Personnel to the Medical Group. In the
event that the Management Company receives a complaint from the Medical Group
that any of the Administrative Personnel is interfering with or disrupting the
provision of Medical Group Services by the Medical Group, the Management Company
will use reasonable efforts to attempt to promptly remedy any such complaint. If
any such complaint is not remedied to the reasonable satisfaction of the Medical
Group, then the Management Company shall remove such Administrative Personnel,
if requested by the Medical Group, from the Medical Group's facilities, if and
to the extent such action by the Management Company will not violate any
applicable law.
(e) All of the services provided by the Management Company under this
Section 3.7, including the obligations set forth in Section 3.7(d), shall be
performed in compliance with all applicable laws.
3.8. Technical Personnel; Leased Employees.
(a) Subject to the conditions set forth in this Section 3.8, the Management
Company shall employ or contract with, or shall arrange for, and shall provide
to the Medical Group as leased employees, such Technical Personnel (as defined
below) as may reasonably be necessary for the conduct of the Medical Business.
(b) For purposes of this Agreement, "Technical Personnel" means nurses,
medical assistants, x-ray technicians, other technicians, and other personnel
who perform diagnostic tests or other services that are covered by Medicare or
by other
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third party payors when performed by an employee of a physician under the
physician's supervision.
(c) The Medical Group shall have the right to exercise, and shall exercise,
such supervision and control over the activities of the Technical Personnel as
may be necessary for the Technical Personnel to be considered leased employees
under the Medicare program and under applicable law. Without limiting the
generality of the foregoing, the Medical Group shall:
(i) have the right to have any Technical Personnel terminated from
employment;
(ii) furnish the Technical Personnel with the equipment and supplies
needed by the Technical Personnel for their work, which equipment and
supplies will be provided to the Medical Group by the Management Company in
accordance with the terms of this Agreement;
(iii) provide the Technical Personnel with any necessary training;
(iv) instruct the Technical Personnel regarding their activities
performed for the Medical Group;
(v) establish the hours of work for the Technical Personnel;
(vi) approve vacation time and other time off from work; and
(vii) provide that degree of supervision as is required by Medicare
and by other third party payors to satisfy applicable conditions for
coverage thereunder.
(d) With respect to each of the Technical Personnel, the Management Company
shall verify or arrange for the verification of educational and employment
experience, licensure
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and insurability, and shall review and provide the Medical Group with copies of
any complaints contained in public files with applicable state and Federal
commissions.
3.9. Medical Personnel Recruiting.
(a) The Management Company shall, upon request by the Medical Group, assist
the Medical Group in recruiting Medical Personnel. The Medical Group shall be
solely responsible for the selection and retention of Medical Personnel,
provided that any such Medical Personnel shall possess all of the licensure
required under applicable Federal and state law for such individual to perform
his or her duties. "Medical Personnel" means:
(i) Physicians (including fellows and residents, if any) providing
professional medical services who are employees or independent contractors
of the Medical Group; and
(ii) Physician assistants, nurse practitioners, and other health care
professionals who provide services that are billable to patients or third
party payors under the name of such health care professional (as
distinguished from services that are billable under the name of the
supervising physician).
(b) With respect to each of the Medical Personnel, the Management Company
shall verify, or arrange for the verification of, educational and employment
experience, licensure and insurability, and shall review and provide the Medical
Group with copies of any complaints contained in public files with applicable
state and Federal commissions.
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3.10. Inventory and Supplies.
The Management Company shall order and purchase, or arrange for the order
and purchase of, inventory and supplies on behalf of the Medical Group, and such
other ordinary or appropriate materials as the Medical Group reasonably deems
necessary for the Medical Group to carry out its Medical Group Services.
Inventory and supplies shall include, but not be limited, to:
(a) Medical supplies;
(b) Office supplies;
(c) Postage;
(d) Computer forms and supplies;
(e) Printing and stationery supplies;
(f) Printer supplies; and
(g) Linen and laundry supplies.
3.11. Taxes.
The Management Company shall provide the Medical Group with access to all
information necessary for the Medical Group to prepare its tax returns. The
Management Company shall have no responsibility for:
(a) The payment of the Medical Group's taxes; or
(b) The preparation of any income tax returns for the Medical Group.
3.12. Information Systems Management.
(a) The Management Company shall provide or arrange for the provision of
management information systems services to be utilized by the Medical Group.
These services
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shall include, but not be limited to, ongoing maintenance and
enhancement of the existing information systems used by the Medical Group in
connection with the provision of the following services:
(i) Accounts receivable - Billing/Insurance/ Collections;
(ii) On-line appointment scheduling;
(iii) Internal e-mail;
(iv) On-line transcription;
(v) Faxing subsystem;
(vi) Electronic claims submission;
(vii) Patient flow monitoring system;
(viii) Authorization module;
(ix) Prescription module;
(x) X-ray tracking system;
(xi) Voice mail;
(xii) Paperless medical records;
(xiii) Bar code chart tracking system;
(xiv) Utilization management information; and
(xv) Outcome studies.
(b) The services provided by the Management Company shall protect the
confidentiality of patient medical records to the extent required by applicable
law or the Medical Group's payor agreements; provided, however, that in no event
shall a breach of such confidentiality be deemed a default under this Agreement
if the Management Company acted reasonably and in good faith to protect such
confidentiality.
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3.13. Use of New Technologies in the Practice of Medicine.
The Management Company shall utilize reasonable efforts to promote the
integration of new technologies into the professional practice of the Medical
Group, including, without limitation, the use of satellite and other
telecommunications services that permit the provision of remote consultations,
virtual operations, and other professional services; provided, however, that the
foregoing shall be subject to the terms of Section 8.2(e) hereof.
3.14. Public Relations; Marketing and Advertising.
The Management Company shall develop and implement community outreach
programs and public relations programs designed to educate the patient
population regarding the Medical Group, the availability of its medical
services, and the availability in terms of any managed care programs in which
the Medical Group participates. The Management Company also shall develop and
implement marketing and advertising programs as reasonably required to promote
and expand the Medical Business, subject to any approved budgets. These programs
shall be developed in such manner as the Management Company (in consultation
with the Medical Group) deems practical, and shall be conducted in compliance
with applicable laws and regulations governing advertising by the medical
profession. Any promotional materials created solely for the purpose of
marketing the services provided by the Medical Group and the use of any
individual physician's name in any promotional materials shall require the
consent of the Medical Group or such physician, as the case may be.
3.15. Insurance.
The Management Company shall, to the extent permitted by applicable law,
provide the insurance coverage described in
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Section 12.1, and may obtain the insurance described in Section 12.2 of this
Agreement.
3.16. Files and Records.
(a) To the extent permitted by applicable law, the Management Company shall
supervise and maintain custody of all files and records relating to the
operation of the business of the Medical Group, including, without limitation,
accounting, billing, collection and patient medical records. The management of
all files and records shall be in compliance with applicable state and Federal
statutes. Patient medical records shall at all times be and remain the property
of the Medical Group and shall be located at a location that is readily
accessible for patient care. The Management Company shall preserve the
confidentiality of patient medical records and use information contained in such
records only for the limited purposes necessary to perform the Management
Services set forth herein; provided, however, that in no event shall a breach of
such confidentiality be deemed a default under this Agreement if the Management
Company acted reasonably and in good faith to protect such confidentiality.
(b) The Management Company shall provide all off-site storage of files and
records as required by applicable law and in conjunction with policies
established by the Operations Committee. The Management Company shall provide
the Medical Group with all requested off-site files and records on a timely
basis, consistent with the policies of the Medical Group in effect from time to
time. Any change in such policies shall be subject to the approval of the
Operations Committee.
(c) In the event of termination of this Agreement, the Management Company
shall deliver to the Medical Group at no charge a copy of the books and records
of the Medical Group in the Management Company's possession. In the event any
physician of the Medical Group terminates his affiliation with the Medical Group
during the Term, the Management Company shall, within 30
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days after receipt of written instructions from the Medical Group, deliver to
such physician a copy of the books and records pertaining to the Medical Group
Services provided by such physician during the five years prior to such
physician's departure from the Medical Group; provided that the Management
Company shall not be obligated to return any books and records pertaining to
Medical Group Services provided prior to the Commencement Date.
3.17. Managed Care Contracts.
The Management Company shall assist the Medical Group in soliciting,
negotiating and administering all managed care contracts on behalf of the
Medical Group based on parameters and criteria established by the Operations
Committee. Such services shall be performed by the Management Company as agent
of the Medical Group, and all managed care contracts shall be subject to the
Medical Group's prior approval of any such contract. The Management Company
shall prepare cost forecasts and other analyses as reasonably requested by the
Medical Group in order to allow the Medical Group to make an informed decision
with respect to each proposed contract.
3.18. Budgets.
The Management Company shall prepare, for the review and approval of the
Operations Committee, annual operating budgets (the "Budgets") reflecting in
reasonable detail projected Billings, Collections, Medical Group Costs, and
Management Company Operating Costs (all as hereinafter defined); provided,
however, that the Medical Group and the Management Company hereby agree that the
budget attached hereto as Schedule II is the Budget for the Medical Group with
respect to the initial three-month period under this Agreement. All other
budgets shall be on a calendar year basis. The Management Company shall prepare
and submit to the Operations Committee all subsequent
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Budgets on or before December 15 of the year immediately preceding the calendar
year for which such Budget is applicable.
3.19. Force Majeure.
The Management Company shall not be liable to the Medical Group for failure
to perform any of the services required herein in the event of strikes,
lock-outs, calamities, acts of God, unavailability of supplies, changes in
applicable law or regulations or other events over which the Management Company
has no control for so long as such events continue and for a reasonable time
thereafter.
SECTION 4. Consideration.
In consideration of the Medical Group's entering into this Agreement, the
Management Company shall provide to each person identified on Schedule III
attached hereto (the "Eligible Parties"), the consideration set forth opposite
such person's name on Schedule III, the allocation of which has been determined
and apportioned by the Medical Group.
SECTION 5. Costs, Compensation, and Other Payments.
5.1. Ownership of Accounts; Security.
The Medical Group hereby transfers to the Management Company ownership of
all accounts receivable and other rights to payment arising from the provision
by the Medical Group of the Medical Group Services and related services to the
general public during the Term (the "Accounts"); provided, however, that the
right to payment of Medicaid and Medicare receivables shall remain with the
Medical Group in accordance with applicable Federal and state law. The
Management Company shall have the right to grant to any lender (the "Lender") a
lien and security interest in and with respect to the Accounts, together with
all books, records, computer information and other general intangibles relating
thereto (collectively, the "Collateral"), as
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security for the obligations of the Management Company to the Lender, and the
Medical Group shall execute a financing statement (the "Financing Statement")
for the benefit of the Management Company evidencing the foregoing transfer of
the Accounts and perfecting the Management Company's ownership interests
therein. The Medical Group hereby acknowledges that the Lender is a third party
beneficiary of the benefits granted to the Management Company under this Section
5.1. The Medical Group shall cooperate with the Lender as reasonably requested
in the event the Lender seeks to enforce its rights and remedies under its
agreement with the Management Company, including granting the Lender access, to
the extent permitted by law, to all books and records associated with the
Collateral. Neither the Management Company nor the Lender shall be required to
give the Medical Group any notice in connection with any loan or related
financing arrangements affecting the Accounts or other Collateral.
5.2. Bank Accounts.
The Medical Group shall instruct the Medical Group Bank to transfer, on a
daily basis, all funds in the Medical Group Collections Account (less the amount
necessary to avoid the payment of bank charges or fees relating to the failure
to maintain a minimum balance in the Medical Group Collections Account) to a
bank (the "Management Company Bank") designated by the Management Company, for
credit to an account in the Management Company's name (the "Operating Account").
5.3. Medical Group Compensation.
(a) Monthly Draw.
(i) On each Draw Date (as hereinafter defined) during the Term
hereof, the Management Company shall distribute to the Medical Group an
amount equal to a percentage (the "Draw Percentage") of the Medical
Group's total Billings (as hereinafter defined) for Medical Group
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Services provided during the previous month (the "Monthly Draw"). The Draw
Date and the initial Draw Percentage are as set forth on Schedule IV, and
the Draw Percentage shall be adjusted as provided in Section 5.3(a)(ii).
(ii) Commencing May 15, 1998, and effective May 15 of each year
thereafter, the Draw Percentage shall be adjusted to equal a fraction, the
numerator of which is the Annual Medical Group Compensation Amount (as
hereinafter defined) for the previous year, and the denominator of which is
the total amount of Billings for the previous year. Additionally, the
Management Company shall adjust the Draw Percentage from time to time (but
in no event less than one additional time during any twelve-month period)
based on the actual Collections year-to-date in order to minimize the
amount of any annual settlement payment reasonably anticipated to be
required under Section 5.3(b).
(b) Annual Settlement.
(i) On or before April 30 of each year beginning 1998, the
Management Company shall calculate the compensation (the "Annual Medical
Group Compensation Amount") earned by the Medical Group with respect to
the prior calendar year in accordance with the following:
(A) The total Collections for all Medical Group Services
rendered during such year, minus
(B) the sum of the following:
(1) the Management Fee earned by the Management Company for
the previous calendar year; and
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(2) the Authorized Management Company Operating Costs (as
hereinafter defined) incurred by the Management Company
during such year.
(ii) If the Annual Medical Group Compensation Amount thus determined
exceeds (the "Annual Shortfall") the total of the twelve (12) Monthly Draws
paid by the Management Company to the Medical Group during the previous
calendar year (the "Annual Draw Amount"), the Management Company shall pay
to the Medical Group on or before May 15, an amount equal to the Annual
Shortfall. If the Annual Medical Group Compensation is less (the "Annual
Overpayment") than the Annual Draw Amount, the Management Company shall
withhold from the Monthly Draw otherwise payable to the Medical Group,
during each of the following six (6) months, an amount equal to one-sixth
(1/6) of such Annual Overpayment.
(iii) With respect to this Section 5.3(b), for purposes of determining
the total Collections for all Medical Group Services provided during any
calendar year or portion thereof during the Term, all Collections during
January, February, and March of such year shall be deemed to be for Medical
Group Services rendered during the previous calendar year, and all
Collections during April through December shall be deemed to be for Medical
Group Services rendered during the calendar year in which such Collections
were received. The foregoing shall also apply with respect to determining
the Management Fee earned by the Management Company for the previous
calendar year, for purposes of this Section 5.3(b).
(iv) Notwithstanding anything to the contrary set forth herein, the
first period for which the annual
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settlement described in this Section 5.3(b) shall be applicable is the
period commencing on the Commencement Date and ending on December 31, 1997.
(c) For purposes of this Agreement:
(i) "Billings" means, for any applicable period, the gross charges
of the Medical Group for all Medical Group Services furnished during such
period.
(ii) "Collections" means, for any applicable period, all cash or cash
equivalents received during such period for Medical Group Services,
including any capitation payments, less any refunds, recoupments,
repayments or reductions applied during such period.
(iii) "Medical Group Services" means the following services rendered
by, through, or on behalf of the Medical Group: all professional services
rendered by or under the supervision of any of the Medical Personnel
(including professional services rendered in connection with New Ancillary
Services); all plain film and other diagnostic radiology services rendered
by or under the supervision of any of the Medical Personnel; all other
ancillary services (other than New Ancillary Services); all ultrasound; all
prosthetics, prosthetic devices, orthotics, braces, splints, appliances,
durable medical equipment, and other items and supplies that are billable
to patients or to third party payors; depositions, record review services,
court appearances, and independent medical exams; and all other services
provided on a regular basis by the Medical Group immediately prior to the
Commencement Date (except as set forth below).
(iv) It is the intent of the parties that Billings, Collections, and
Medical Group Services not include any of the following:
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(A) New Ancillary Services (excluding professional services
rendered by Medical Personnel in connection therewith,
which professional services are included under Section
5.3(c)(iii) above);
(B) interest income;
(C) royalties payable to any Medical Group physician for
medical inventions;
(D) fees payable under consulting agreements entered into
by Medical Group physicians, including any such
agreements set forth on Annex I attached hereto;
(E) revenues from presentations, publications, medical
directorships, service as the head of a department in a
hospital or other health care facility, clinical
trials, investigations and endorsements, including any
such activities set forth on Annex I attached hereto;
(F) proceeds from the sale of any capital assets of the
Medical Group; and
(G) any income from investments.
Notwithstanding anything to the contrary contained therein, any revenues
received by any Billable Medical Personnel (as hereinafter defined) from any
source set forth in clauses (D) and (E) above, shall be included in Billings,
Collections and Medical
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Group Services if the revenues from Medical Group Services generated by such
Billable Medical Personnel during any year are materially reduced by the
Billable Medical Personnel's participation in such activities.
(v) For illustrative purposes only, an example of the computation of
the Annual Settlement is set forth on Schedule VII attached hereto.
5.4. Management Fee.
(a) The compensation payable to the Management Company for the provision of
Management Services under this Agreement (the "Management Fee"), which the
Management Company may retain from funds received by the Management Company from
time to time at its discretion, shall be equal to (i) the sum of (A) an amount
equal to the Applicable Percentage (as hereinafter defined) of Collections, (B)
an amount equal to sixty six and two-thirds percent (66-2/3%) of the
Professional Management Cost Savings (as hereinafter defined) and (C) any
amounts owed to the Management Company pursuant to Section 5.11 hereof, if any,
less (ii) an amount equal to the Medical Group's pro rata portion of the
Specialty Care Network Profit (as hereinafter defined) for such period, if any,
based on the number of claims generated by the Medical Group through the
specialty care network owned or operated by the Management Company during the
applicable period; provided, however, that in the event the Applicable
Percentage of Collections shall equal an amount that is less than $799,000 for
any calendar year ending on or before December 31, 2001, the Management Fee for
such period shall, notwithstanding anything to the contrary contained herein,
equal $799,000 plus the amounts described in clauses (B) and (C) above (the
"Guaranteed Minimum Fee"). The Guaranteed Minimum Fee shall be decreased by an
amount determined in accordance with the formula set forth below in the event
that any physician equity owner (the "Departing Physician") of the Medical Group
(1) retires from, or terminates
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his or her equity owner status in, the Medical Group and the Departing Physician
pays the Buyout Amount (as defined in the Stockholder Non-Competition
Agreement), in full, to the Management Company pursuant to Section 5 of the
Stockholder Non-Competition Agreement (as hereinafter defined), or (2) dies or
becomes permanently disabled (as such term is defined in the Restricted Stock
Agreement (as hereinafter defined)) (such death or permanent disability being
referred to herein as an "Involuntary Departure"). Any such event shall cause a
decrease in the Guaranteed Minimum Fee only for the year in which the Buyout
Amount is paid or the Involuntary Departure occurs, as the case may be. The
amount of the decrease in the Guaranteed Minimum Fee shall be determined
pursuant to the following:
Q = IC / MGC x GMF
where,
Q = the amount by which the Guaranteed Minimum Fee shall be
reduced;
IC = the aggregate Collections of the Departing Physician for the
12-month period ending on the last day of the month prior to the
date the Departing Physician leaves the Medical Group;
MGC = the aggregate Collections of the Medical Group for the
12-month period ending on the last day of the month prior to the
date the Departing Physician leaves the Medical Group; and
GMF = $799,000.
The Guaranteed Minimum Fee for the year following the year in which the
Departing Physician pays the Buyout Amount or the Involuntary Departure occurs
shall again equal $799,000. The
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Management Fee shall not include any Professional Medical Cost
Savings (as hereinafter defined), but all of such savings will
accrue for the benefit of the Medical Group. For illustrative
purposes only, an example of the computation of the Management
Fee is set forth on Schedule VII attached hereto.
(b) For purposes of this Section 5.4, the following terms have the meanings
set forth below:
(i) "Applicable Percentage" has the meaning set forth on Schedule V;
(ii) "Professional Management Cost Savings" means the actual
Professional Practice Cost Savings described in Section A.1 of Schedule VI;
(iii) "Professional Medical Cost Savings" means the actual
Professional Practice Cost Savings described in Section A.2 of Schedule VI.
(iv) "Professional Practice Cost Savings" means the actual cost
savings determined in the manner described on Schedule VI; and
(v) "Specialty Care Network Profit" means the excess of the fee(s)
received by the Management Company over the costs incurred by the
Management Company, each in connection with its ownership and/or operation
of a specialty care network.
(c) Notwithstanding anything contained herein to the contrary, during the
30 day period from September 1, 2000 to September 30, 2000 (the "Conversion
Period"), the Medical Group shall have the right, upon delivery of a written
notice (the "Conversion Notice") to the Management Company, to cause the
Management Fee to be converted from a fee based upon the Applicable Percentage
of Collections to a fee that is based upon
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the applicable Percentage of Net Operating Income (as hereinafter defined). For
purposes hereof, Net Operating Income shall mean Collections less the Management
Company Operating Costs (without deduction of the Management Fee). In such a
case, the parties will review the 12 month period from September 1, 1999 to
August 31, 2000 (the "Look Back Period") and will determine the Collections and
Management Company Operating Costs for the Look Back Period. The parties will
then determine the Management Fee payable during the Look Back Period (based
upon the Applicable Percentage of Collections) and divide such amount by the Net
Operating Income for the Look Back Period. The resulting percentage will then be
deemed to be the new Applicable Percentage, which will thereafter be multiplied
by the Net Operating Income to determine future Management Fees. In the event
the Medical Group delivers the Conversion Notice, the parties will amend this
Management Services Agreement within 90 days of the expiration of the Conversion
Period to so reflect the afore-referenced change, which amendment shall be
satisfactory to the Medical Group and the Management Company.
5.5. Management Company Costs.
(a) The Management Company shall pay all Management Company Operating Costs
and all Excluded Costs (collectively, the "Management Company Costs"). All
Management Company Costs shall be incurred in the name of the Management
Company, and not in the name of the Medical Group, except as specifically
approved by the Medical Group. Management Company Costs shall not include any
costs or expenses incurred prior to the Commencement Date.
(b) The Management Company shall provide to the Medical Group, upon
reasonable request by the Medical Group from time to time, supporting
documentation and other backup detail relating to any or all of the Management
Company Costs.
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(c) For purposes of this Agreement, "Management Company Operating Costs"
means all costs and expenses incurred in connection with the provision of the
Management Services to the Medical Group, including, without limitation, those
costs and expenses set forth in the Budget, except that any costs and expenses
defined as Medical Group Costs in Section 5.7 hereof, and any Excluded Costs (as
hereinafter defined) shall not be deemed Management Company Operating Costs. To
the extent that the Medical Group and the Management Company mutually determine
that an expenditure not included in the Budget needs to be incurred in
connection with the provision of Management Services hereunder, such expenditure
shall be included in Management Company Operating Costs for purposes of this
Agreement. "Excluded Costs" means all of the following costs and expenses
incurred in connection with the provision of the Management Services hereunder:
(i) Ancillary Service Start-Up Costs (as hereinafter defined);
(ii) New Medical Office Start-Up Costs (as hereinafter defined);
(iii) the cost of any FF&E provided by the Management Company to the
Medical Group, including the capital costs associated with any information
systems technology implemented by the Management Company (subject to the
provisions of Section 8.2(e) hereof); provided that the costs associated
with the maintenance of such technology shall be an expense included in the
Budget and shall be deemed an Authorized Management Company Operating Cost
for purposes of this Agreement;
(iv) depreciation, amortization, and interest; and
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(v) corporate overhead of the Management Company ("Corporate
Overhead") except to the extent that all of the following conditions are
satisfied, as determined by the Operations Committee:
(A) The Corporate Overhead is incurred in lieu of a pre-existing
Management Company Operating Cost;
(B) The amount of such Corporate Overhead does not exceed the
amount of the Management Company Operating Costs being
eliminated; and
(C) The Corporate Overhead is allocated to the Medical Group and
to all other medical groups utilizing such Corporate
Overhead on a pro rata basis.
Any Corporate Overhead with respect to which all of the above conditions are
satisfied shall be considered Management Company Operating Costs.
(d) For purposes of this Agreement, "Authorized Management Company
Operating Costs" means all Management Company Operating Costs incurred in any
year by the Management Company in the provision of Management Services hereunder
reduced by any or all of the following, as applicable:
(i) any costs that exceed the applicable Management Company
Operating Costs Budget which are not approved by the Operations Committee;
(ii) any costs with respect to which the Medical Group has reasonably
requested supporting documentation or other backup detail which has not
been
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furnished by the Management Company or which does not reasonably establish
the appropriateness of such costs; and
(iii) any costs that have been determined pursuant to an audit under
Section 5.9 not to have been reasonably incurred in connection with the
Management Services required to be provided under this Agreement.
5.6. New Medical Office Start-Up Costs.
(a) The Management Company shall pay, to the extent provided herein, all
New Medical Office Start-Up Costs incurred in connection with the establishment
of any New Medical Office. The Management Company shall create a separate
division (the "New Office Division") for purposes of accounting for the income,
costs, profits, and losses of any New Medical Office. The Management Company
shall utilize generally accepted accounting principles in determining and
accounting for the profits and losses related to the operations of each New
Medical Office. Notwithstanding anything to the contrary contained herein,
Corporate Overhead shall not be included in determining the costs and expenses
associated with any New Medical Office. At the end of the New Medical Office
Start-Up Period (as hereinafter defined), (i) the Management Company shall be
reimbursed for all of the Management Company Operating Costs incurred by the
Management Company for each New Medical Office, (ii) the Management Company
shall be entitled to receive the aggregate Management Fee as described in
Section 5.4 and (iii) the Medical Group shall be entitled to receive the Annual
Medical Group Compensation Amount for such new Medical Office, in each case, as
if such New Medical Office had been any other office of the Medical Group during
the New Medical Office Start-Up Period; provided, however, that notwithstanding
the foregoing, if the aggregate Collections for such New Medical Office during
the New Medical Office Start-Up Period is equal to or less than the New Medical
Office Start-Up Costs associated with such New Medical
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Office during the New Medical Office Start-up Period, then (A) the Management
Company and the Medical Group shall not be entitled to receive the Management
Fee or the Annual Medical Group Compensation Amount, as applicable, and (B) the
Management Company shall be responsible for the deficit, if any, associated with
such New Medical Office; provided that the aggregate amount of Collections
received during the New Medical Office Start-Up Period for such New Medical
Office shall belong solely to the Management Company.
(b) Except to the extent provided in Section 5.6(a) above, the billings,
collections, costs and expenses relating to any New Medical Office shall not,
during the New Medical Office Start-Up Period, be included in the computations
of Medical Group Compensation, the Management Fee, Management Company Costs,
Ancillary Services, or Medical Group Costs as described in Sections 5.3, 5.4,
5.5, 5.8, or 5.7, respectively.
(c) All Medical Equipment utilized at any New Medical Office shall be
acquired by the Management Company and provided to the Medical Group in
accordance with the terms of Section 3.3 hereof.
(d) For purposes of this Agreement, "New Medical Office" means any office
of the Medical Group other than those offices located in the premises identified
in Section 3.2(a) hereof.
(e) For purposes of this Agreement, "New Medical Office Start-Up Costs"
means the following costs incurred in connection with the establishment of a New
Medical Office during the New Medical Office Start-Up Period: all Management
Company Operating Costs and all costs associated with the development of such
New Medical Office other than Medical Group Costs, provided that, the costs
incurred in connection with any New Physician (as hereinafter defined) shall be
borne in accordance with the provisions of Section 5.11 hereof.
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(f) For purposes of this Agreement, "New Medical Office Start-Up Period"
means the period commencing on the date that any costs are incurred in
connection with the establishment of a New Medical Office and ending on the last
day of the calendar month in which a period of twelve (12) months has elapsed
from and after the date on which the New Medical Office first opened for the
treatment of patients. In the event that the New Medical Office is profitable
(as determined by the Management Company) as of the end of the New Medical
Office Start-Up Period, at all times thereafter such New Medical Office shall,
for all purposes of this Agreement, be treated as any other office of the
Medical Group.
5.7. Medical Group Costs.
Except as otherwise provided in this Agreement, the Medical Group shall pay
all of the costs specified in this Section 5.7 (the "Medical Group Costs"). All
Medical Group Costs shall be incurred in the name of the Medical Group, and not
in the name of the Management Company, and shall be paid from an account of the
Medical Group and not from any bank account of the Management Company. The
Medical Group Costs are as follows:
(a) compensation of all Medical Personnel that (i) are authorized to
directly bill patients, Medicare, Medicaid and third party payors
and (ii) are employed directly by the Medical Group (such persons
being referred to herein as the "Billable Medical Personnel");
(b) any applicable fringe benefits for all Medical Personnel,
including, but not limited to, payroll taxes, workers'
compensation, health insurance (including drug coverage), dental
insurance, disability insurance, life insurance, 401(k)
retirement plan, business
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buy-out disability insurance and continuing education; and
(c) the cost of any items which are not required to be provided by
the Management Company under this Agreement and/or which were
ordered, purchased, or incurred by the Medical Group directly,
including but not limited to the cost of accounting, legal,
consulting, or other professional or advisory services, business
meetings, and business taxes.
5.8. New Ancillary Services Costs.
(a) Any agreement by the parties to establish a New Ancillary Service as
described in Section 3.4 of this Agreement shall (unless otherwise agreed by the
parties) incorporate the following, to the extent permitted by applicable law:
(i) The Management Company shall create a separate division
("Ancillary Division") for purposes of accounting for the income, costs,
profits, and losses of any New Ancillary Service. The Management Company
shall utilize generally accepted accounting principles in determining and
accounting for the profits and losses related to the operations of each New
Ancillary Service. Notwithstanding anything to the contrary contained
herein, Corporate Overhead shall not be included in determining the costs
and expenses associated with any New Ancillary Service.
(ii) Profits and/or losses of any Ancillary Division shall be divided
equally between the Medical Group and the Management Company, and all
distributions to the Medical Group and to the Management Company shall be
made in equal amounts to each from available cash (after payment of all
currently due obligations incurred in connection with
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such New Ancillary Division, including, without limitation, any principal
and interest amounts then due and payable under Section 5.8(a)(iv) below,
and after retention of reasonable reserves) derived from the operation of
such Ancillary Division.
(iii) All diagnostic and therapeutic equipment utilized in connection
with any New Ancillary Service ("New Ancillary Service Medical Equipment")
shall be acquired by the Management Company and shall be provided to the
Medical Group on terms substantially similar to those set forth in Section
3.3 hereof.
(iv) The Management Company shall pay all of the Ancillary Service
Start-Up Costs. Beginning with the month immediately following the
expiration of the Ancillary Service Start-Up Period (as hereinafter
defined), the Management Company shall be entitled to recoup all of the
Ancillary Service Start-Up Costs previously paid by the Management Company
in sixty (60) equal monthly installments of principal, plus interest on the
unrecouped portion of such costs at the lower of the prevailing prime rate
as set forth in the Wall Street Journal or at the actual rate paid by the
Management Company with respect to any part of such costs that have been
financed by the Management Company, if applicable.
(v) The Management Company shall provide, in connection with any New
Ancillary Service, the full range of management services described in this
Agreement.
(vi) The billings, collections, costs and expenses relating to any
New Ancillary Service shall not be included in the computations of Medical
Group Compensation, the Management Fee, Management Company Costs, New
Medical
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Office Start-Up Costs, or Medical Group Costs as described in Sections 5.3,
5.4, 5.5, 5.6, or 5.7, respectively.
(b) For purposes of this Section 5.8, "Ancillary Service Start-Up Period"
means the period commencing on the date that any costs are incurred in
connection with the establishment of the New Ancillary Service and ending on the
earlier to occur of (i) the last day of the first period of two (2) consecutive
calendar months for which the New Ancillary Service shows a profit (as
determined by the Management Company) or (ii) the last day of the twelfth month
after the establishment of such New Ancillary Service.
(c) For purposes of this Section 5.8, "Ancillary Service Start-Up Costs"
means the total of all of the following costs incurred in connection with the
establishment of a New Ancillary Service during the Ancillary Service Start-Up
Period (whether such costs would otherwise be considered Management Company
Costs or Medical Group Costs):
(i) Any lease payments for New Ancillary Service Medical Equipment;
(ii) All costs of acquiring furniture, fixtures, and office
equipment;
(iii) All initial occupancy costs, if any, including but not limited
to prepaid rent, and tenant improvements;
(iv) All costs related to the acquisition of materials and supplies
related to the provision of such New Ancillary Service; and
(v) All ongoing costs of the New Ancillary Service, including but
not limited to personnel (other than the Billable Medical Personnel) and
related benefits, the
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cost of operating any equipment utilized in providing the service,
supplies, insurance, rent, repairs and maintenance, outside services,
telephone, taxes, utilities, storage and other ordinary ongoing expenses of
providing the New Ancillary Service.
5.9. Review and Audit of Books and Records.
Each of the parties shall have the right, during ordinary business hours
and upon reasonable notice, to review and make copies of, or to audit through a
qualified certified public accountant approved by the other party (which
approval shall not be unreasonably withheld), the books and records of the other
party relating to the billing, collection, and disbursement of fees, and the
determination of costs, under this Agreement. Any such review or audit shall be
performed at the cost of the requesting party; provided, however, that in the
event that such review or audit requested by the Medical Group discloses a
discrepancy indicating that the Medical Group has actually been underpaid by an
amount in excess of three percent (3%) of the total amount of Medical Group
Compensation otherwise payable to the Medical Group for the period covered by
the audit, the cost of the audit shall be borne by the Management Company. All
documents and other information obtained in the course of such review or audit
shall be held in strict confidence.
5.10. Start-Up Period.
Consistent with the provisions of Section 2 of this Agreement, the parties
acknowledge and agree that, in order to facilitate the transition of
responsibilities hereunder, certain requirements and procedures agreed to under
this Agreement may be implemented, in whole or in part and at any time during
the period commencing on the Commencement Date and ending 90 days thereafter
(subject to extension by agreement of the Medical Group and the Management
Company), rather than being fully
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implemented immediately on the Commencement Date. Accordingly, the parties
further agree that the Management Fee and Monthly Draw payable in respect of the
Management Services and the Medical Group Services applicable to such period of
time shall be computed, and any appropriate adjustments shall be made, such that
no material financial advantage or disadvantage shall accrue to either party as
a result of implementing such requirements and procedures over the course of
such start-up period rather than immediately on the Commencement Date.
5.11. New Physician Compensation Costs.
(a) Notwithstanding anything contained herein to the contrary, during the
period beginning on the New Physician Start Date (as hereinafter defined) and
ending on the Physician Breakeven Date (as hereinafter defined), the Management
Company shall be responsible for the payment of all New Physician Compensation
(as hereinafter defined) and notwithstanding anything to the contrary contained
in this Agreement, shall receive, in consideration therefor, sixty six and
two-thirds percent (66-2/3%) (such amount being referred to herein as the "New
Physician Net Collections") of all Collections generated by such New Physician
for those Medical Group Services performed by such New Physician until the
Physician Breakeven Date, and such amounts shall not be included in determining
Collections for purposes of this Agreement. The remaining thirty three and
one-third percent (33 1/3%) of such Collections shall belong to the Medical
Group until the Physician Breakeven Date, and such amounts shall not be included
in determining Collections for purposes of this Agreement. As of the Physician
Breakeven Date, the New Physician Compensation shall be payable by, and become
the responsibility of, the Medical Group in accordance with Section 5.7 hereof,
and one hundred percent (100%) of all of the Billings and Collections generated
by such New Physician thereafter shall be considered Billings and Collections of
the Medical Group for purposes of this Agreement.
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(b) "New Physician" means, any physician who, at any time after the
Commencement Date, becomes affiliated with or employed by the Medical Group;
provided that if such physician becomes affiliated with or employed by the
Medical Group pursuant to a transaction between the Management Company and such
physician or a medical group with which such physician is affiliated in which
the Management Company acquires any assets or accounts receivable from such
physician or such medical group or pays any other consideration to such
physician or such medical group in connection with such physician's affiliation
or employment with the Medical Group and/or the Management Company, then such
physician shall not be deemed to be a New Physician for purposes of this
Agreement.
(c) "Physician Breakeven Date" means, with respect to any New Physician,
the date on which the New Physician Net Collections for the period beginning on
the New Physician Start Date and ending on the date of determination first equal
or exceed (i) the aggregate amount of New Physician Compensation paid to such
New Physician for the foregoing period plus (ii) that portion of the Management
Company Costs associated with such New Physician and/or the Medical Group
Services provided by such New Physician.
(d) "New Physician Compensation" means, with respect to any New Physician
and for any period in question, the amount of compensation (wages and otherwise)
payable to such New Physician by the Medical Group.
(e) "Physician Start Date" means, with respect to any New Physician, the
date such New Physician becomes affiliated with or employed by the Medical
Group.
SECTION 6. Representations and Warranties of the Medical Group
The Medical Group hereby represents and warrants to the Management Company,
as of the Signature Date, as follows:
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6.1. Organization; Good Standing; Qualification and Power.
The Medical Group is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Florida and has all requisite power
and authority to own, lease, and operate its properties, to carry on its
business as now being conducted and as proposed to be conducted, to enter into
this Agreement, the Asset Purchase Agreement, the Assignments of Lease, the
Financing Statement and the Stockholder Non-Competition Agreements (as
hereinafter defined) (collectively, the "Medical Group Transaction Documents"),
to perform its obligations hereunder and thereunder, and to consummate the
transactions contemplated hereby and thereby. The Medical Group has delivered to
the Management Company a true and correct copy of its Articles of Incorporation
and its Bylaws, each as in effect on the date hereof.
6.2. Equity Investments.
Except as set forth on Schedule 6.2, the Medical Group currently has no
subsidiaries, nor does the Medical Group currently own any capital stock or
other proprietary interest, directly or indirectly, in any corporation,
association, trust, partnership, joint venture, or other entity.
6.3. Authority.
The execution, delivery and performance of this Agreement and the other
Medical Group Transaction Documents and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary action on the part of the Medical Group. This Agreement and the other
Medical Group Transaction Documents have been duly and validly executed and
delivered by the Medical Group and constitute the legal, valid and binding
obligations of the Medical Group enforceable in accordance with their respective
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terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the rights of
creditors generally. Neither the execution, delivery or performance of this
Agreement or any other Medical Group Transaction Document by the Medical Group
nor the consummation by the Medical Group of the transactions contemplated
hereby or thereby, nor compliance by the Medical Group with any provision hereof
or thereof will conflict with or result in a breach of any provision of the
formation documents of the Medical Group, cause a default (with due notice,
lapse of time or both), or give rise to any right of termination, cancellation
or acceleration, under any of the terms, conditions or provisions of any note,
bond, lease, mortgage, indenture, license or other instrument, obligation or
agreement to which the Medical Group is a party or by which the Medical Group or
any of its properties or assets may be bound (with respect to which defaults or
other rights all requisite waivers or consents shall have been obtained at or
prior to the date hereof) or violate any law, statute, rule or regulation or
order, writ, judgment, injunction or decree of any court, administrative agency
or governmental body applicable to the Medical Group or any of its properties or
assets or the Medical Business. Except as provided on Schedule 6.3, to the best
of the Medical Group's knowledge, no permit, authorization, consent or approval
of or by, or any notification of or filing with, any person (governmental or
private) is required in connection with the execution, delivery or performance
by the Medical Group of this Agreement or any other Medical Group Transaction
Document or the consummation of the transactions contemplated hereby and
thereby.
6.4. Financial Information.
Schedule 6.4 contains the internal statement of assets, liabilities and
stockholders' equity of the Medical Business at July 31, 1997 (the "Balance
Sheet"; and the date thereof being referred to as the "Balance Sheet Date"), and
the related
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internal statements of revenue and expenses for the seven-month period then
ended (including the notes thereto and other financial information included
therein) (collectively, the "Internal Financial Statements"), and (b) the
compiled financial statements of the Medical Business for the periods ended
December 31, 1996, December 31, 1995, and December 31, 1994 (the "Review
Financial Statements"). The Internal Financial Statements and the Review
Financial Statements (i) are in accordance with the books and records of the
Medical Business, (ii) fairly present the financial position of the Medical
Business as of the dates thereof, and (iii) have been prepared in accordance
with generally accepted accounting principles consistently applied throughout
the periods covered thereby.
6.5. Absence of Undisclosed Liabilities.
Except as set forth on Schedule 6.5, as of the Balance Sheet Date, the
Medical Business did not have any material liability of any nature (matured or
unmatured, fixed or contingent, known or unknown) which was not provided for or
disclosed on the Balance Sheet, all liability reserves established by the
Medical Business on the Balance Sheet were adequate and there were no loss
contingencies (as such term is used in Statement of Financial Accounting
Standards No. 5 issued by the Financial Accounting Standards Board in March
1975) which were not adequately provided for or disclosed on the Balance Sheet.
6.6. Absence of Changes.
Except as set forth on Schedule 6.6, since the Balance Sheet Date, the
Medical Business has been operated in the ordinary course and consistent with
past practice and there has not been:
(a) any material adverse change in the condition (financial or otherwise),
assets (including, without limitation,
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levels of working capital and the components thereof), liabilities, operations,
results of operations, earnings, business or prospects of the Medical Business;
(b) any damage, destruction or loss (whether or not covered by insurance)
in an aggregate amount exceeding $25,000 affecting any asset or property of the
Medical Business;
(c) any obligation or liability (whether absolute, accrued, contingent or
otherwise and whether due or to become due) created or incurred, or any
transaction, contract or commitment entered into, by the Medical Business other
than such items created or incurred in the ordinary course of the Medical
Business and consistent with past practice;
(d) any payment, discharge or satisfaction of any claim, lien, encumbrance,
liability or obligation by the Medical Business outside the ordinary course of
the Medical Business (whether absolute, accrued, contingent or otherwise and
whether due or to become due);
(e) any license, sale, transfer, pledge, mortgage or other disposition of
any tangible or intangible asset of the Medical Business except in the ordinary
course of the Medical Business and consistent with past practice;
(f) any write-off as uncollectible of any accounts receivable in connection
with the Medical Business or any portion thereof in excess of $5,000 in the
aggregate exclusive of all normal contractual adjustments from third party
payors;
(g) except for all normal contractual adjustments from third party payors,
any account receivable in connection with the Medical Business in an amount
greater than $10,000 which (i) has become delinquent in its payment by more than
90 days, (ii) has had asserted against it any claim, refusal to pay or right of
set-off, (iii) an account debtor has refused to pay for
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any reason or with respect to which such account debtor has become insolvent or
bankrupt or (iv) has been pledged to any third party;
(h) any cancellation of any debts or claims of, or any amendment,
termination or waiver of any rights of material value to, the Medical Business;
(i) any general uniform increase in the compensation of employees of the
Medical Group or the Medical Business (including, without limitation, any
increase pursuant to any bonus (such as that payable to Dottie Jones through
1997), pension, profit-sharing, deferred compensation arrangement or other plan
or commitment) or any increase in compensation payable to any officer, employee,
consultant or agent thereof, or the entering into of any employment contract
with any officer or employee, or the making of any loan to, or the engagement in
any transaction with, any officer of the Medical Group or the Medical Business;
(j) any change in the accounting methods or practices followed in
connection with the Medical Business or any change in depreciation or
amortization policies or rates theretofore adopted;
(k) any agreement or commitment relating to the sale of any material fixed
assets of the Medical Business;
(l) any other transaction relating to the Medical Business other than in
the ordinary course of the Medical Business and consistent with past practice;
or
(m) any agreement or understanding, whether in writing or otherwise, for
the Medical Business to take any of the actions specified in items (a) through
(l) above.
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6.7. Tax Matters.
(a) Except as set forth on Schedule 6.7, (i) all Taxes (as hereinafter
defined) relating to the Medical Business required to be paid by the Medical
Group through the date hereof have been paid and all returns, declarations of
estimated Tax, Tax reports, information returns and statements required to be
filed by the Medical Group in connection with the Medical Business prior to the
date hereof (other than those for which extensions shall have been granted prior
to the date hereof) relating to any Taxes with respect to any income, properties
or operations of the Medical Group or the constituent medical practices that
combined to form the Medical Group (the "Constituent Practices") prior to the
date hereof (collectively, "Returns") have been duly filed; (ii) as of the time
of filing, the Returns correctly reflected in all material respects (and, as to
any Returns not filed as of the date hereof, will correctly reflect in all
material respects) the facts regarding the income, business, assets, operations,
activities and status of the Medical Business and any other information required
to be shown therein; (iii) all Taxes relating to the operations of the Medical
Business that have been shown as due and payable by the Medical Group on the
Returns have been timely paid and filed or adequate provisions made to the books
and records of the Medical Business; (iv) in connection with the Medical
Business (x) the Medical Group has made provision on the Balance Sheet for all
Taxes payable by the Medical Group for any periods that end on or before the
Balance Sheet Date for which no Returns have yet been filed and for any periods
that begin on or before the Balance Sheet Date and end after the Balance Sheet
Date to the extent such Taxes are attributable to the portion of any such period
ending on the Balance Sheet Date and (y) provision has been made for all Taxes
payable by the Medical Group for any periods that end on or before the date
hereof for which no Returns have then been filed and for any periods that begin
on or before the date hereof and end after such date to the extent such Taxes
are
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attributable to the portion of any such period ending on such date; (v) no tax
liens have been filed with respect to any of the assets of the Medical Business,
and there are no pending tax audits of any Returns relating to the Medical
Business; and (vi) no deficiency or addition to Taxes, interest or penalties
applicable to the Constituent Practices for any Taxes relating to the operation
of the Medical Business has been proposed, asserted or assessed in writing (or
any member of any affiliated or combined group of which the Medical Group or any
previous operator of the Medical Business was a member for which the Medical
Group could be liable).
(b) The Medical Group is not a foreign person within the meaning of
ss.1.1445-2(b) of the Regulations under Section 1445 of the Internal Revenue
Code of 1986, as amended (the "Code").
(c) The Medical Group has provided the Management Company with true and
complete copies of all Federal, state and foreign Returns of the Medical Group
for the calendar years ending December 31, 1996 and 1995.
(d) For purposes of this Agreement, "Tax" means any of the Taxes and
"Taxes" means, with respect to any person or entity, (i) all Federal, state,
local and foreign income taxes (including any tax on or based upon net income,
or gross income, or income as specially defined, or earnings, or profits, or
selected items of income, earnings or profits) and all Federal, state, local and
foreign gross receipts, sales, use, ad valorem, transfer, franchise, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property or windfall profits taxes, alternative or add-on minimum taxes, customs
duties or other Federal, state, local and foreign taxes, fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing authority (domestic
or
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foreign) on such person or entity and (ii) any liability for the payment of
any amount of the type described in the immediately preceding clause (i) as a
result of being a 'transferee' (within the meaning of Section 6901 of the Code
or any other applicable law) of another person or entity or a member of an
affiliated or combined group.
6.8. Litigation, Etc.
Except as set forth on Schedule 6.8, there are no (a) actions, suits,
claims, investigations or legal or administrative or arbitration proceedings
pending or, to the best knowledge of the Medical Group, threatened against the
Medical Group, or any equity owner of the Medical Group, or in connection with
the Medical Business, whether at law or in equity, or before or by any Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality or (b) judgments, decrees, injunctions or orders of
any court, governmental department, commission, agency, instrumentality or
arbitrator against the Medical Group, its assets or affecting the Medical
Business. The Medical Group has delivered to the Management Company all
documents and correspondence relating to matters referred to in said Schedule
6.8.
6.9. Compliance; Governmental Authorizations.
The Medical Group and the Medical Business have complied in all material
respects with all applicable material Federal, state, local or foreign laws,
ordinances, regulations and orders. The Medical Group has all Federal, state,
local and foreign governmental licenses and permits necessary in the conduct of
the Medical Business, the lack of which would have a material adverse effect on
the Medical Group's ability to operate the Medical Business after the date
hereof on substantially the same basis as presently operated, such licenses and
permits are in full force and effect, the Medical Group has not received any
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notice indicating that any violations are or have been recorded in respect of
any thereof, and no proceeding is pending or, to the best knowledge of the
Medical Group, threatened to revoke or limit any thereof. To the best knowledge
of the Medical Group, none of such licenses and permits shall be affected in any
material respect by the transactions contemplated hereby. To the best knowledge
of the Medical Group, neither the Medical Group, nor any of the Medical
Personnel employed by the Medical Group is now or in the last four years has
been the subject of or involved in any investigation by any Federal, state or
local regulatory agency related to its or his Medicare, Medicaid or other third
party payor billing practices.
6.10. Accounts Receivable; Accounts Payable.
(a) Except as set forth on Schedule 6.10, all of the accounts receivable
owing to the Medical Group in connection with the Medical Business as of the
date hereof constitute valid and enforceable claims arising from bona fide
transactions in the ordinary course of the Medical Business, the amounts of
which are actually due and owing, and as of the date hereof, to the best
knowledge of the Medical Group, there are no claims, refusals to pay or other
rights of set-off against any thereof. Except as set forth on Schedule 6.10, as
of the date hereof, there is no account receivable or note receivable of the
Medical Business pledged to any third party. The Medical Group has provided the
Management Company with an accounts receivable aging report dated as of October
1, 1997 that is true and complete as of the date thereof.
(b) All accounts payable and notes payable by the Medical Business to third
parties arose in the ordinary course of business and, except as set forth in
Schedule 6.10, there is no account payable or note payable past due or
delinquent in its payment.
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6.11. Labor Relations; Employees.
Schedule 6.11 contains a true and complete list of the persons employed by
the Medical Group as of the date hereof (the "Employees"). Except as set forth
on Schedule 6.11, (a) the Medical Group and the Medical Business are not
delinquent in payments to any of the Employees for any wages, salaries,
commissions, bonuses or other compensation for any services performed by them to
the date hereof or amounts required to be reimbursed to the Employees; (b) to
the best knowledge of the Medical Group, upon termination of the employment of
any of the Employees, neither the Medical Group, the Medical Business nor the
Management Company will by reason of anything done prior to the date hereof, or
by reason of the consummation of the transactions contemplated hereby, be liable
for any excise taxes pursuant to Section 4980B of the Code or to any of the
Employees for severance pay or any other payments; (c) there is no unfair labor
practice complaint against the Medical Group or in connection with the Medical
Business pending before the National Labor Relations Board or any comparable
state, local or foreign agency; (d) there is no labor strike, dispute, slowdown
or stoppage actually pending or, to the best knowledge of the Medical Group,
threatened against or involving the Medical Group or Medical Business; (e) there
is no collective bargaining agreement covering any of the Employees; and (f) to
the best knowledge of the Medical Group, no Employee or consultant is in
violation of any (i) employment agreement, arrangement or policy between such
person and any previous employer (private or governmental) or (ii) agreement
restricting or prohibiting the use of any information or materials used or being
used by such person in connection with such person's employment by or
association with the Medical Group or the Medical Business.
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6.12. Employee Benefit Plans.
(a) Schedule 6.12 identifies each 'employee benefit plan', as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and all other written or oral plans, programs, policies or agreements
involving direct or indirect compensation (including any employment agreements
entered into between the Medical Group or the Medical Business and any Employee
of the Medical Group or in connection with the Medical Business, but excluding
workers' compensation, unemployment compensation and other government-mandated
programs) currently or previously maintained or entered into by the Medical
Group or in connection with the Medical Business for the benefit of any Employee
or former employee of the Medical Group or in connection with the Medical
Business under which the Medical Group, any affiliate thereof or the Medical
Business has any present or future obligation or liability (the "Employee
Plans"). The Medical Group has provided the Management Company with true and
complete salary, service and related data for Employees of the Medical Group and
in connection with the Medical Business.
(b) Schedule 6.12 lists each employment, severance or other similar
contract, arrangement or policy and each plan or arrangement (written or oral)
providing for insurance coverage (including any self-insured arrangements),
workers' compensation, disability benefits, supplemental unemployment benefits,
vacation benefits, retirement benefits, deferred compensation, profit-sharing,
bonuses, stock options, stock appreciation or other forms of incentive
compensation or post-retirement insurance, compensation or benefits currently
maintained by the Medical Group or in connection with the Medical Business.
(c) To the best knowledge of the Medical Group, except as set forth on
Schedule 6.12; (i) each Employee Plan has been operated and administered in
compliance with ERISA, the Code
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and in accordance with the provisions of all other applicable Federal and state
laws; (ii) all reporting and disclosure obligations imposed under ERISA and the
Code have been satisfied with respect to each Employee Plan; (iii) to the best
knowledge of the Medical Group, no breaches of fiduciary duty or prohibited
transactions have occurred with respect to any Employee Plan; and (iv) all
reporting, disclosure and bonding obligations have been satisfied with respect
to each Employee Plan.
(d) The Medical Group has made available to the Management Company a true
and complete copy of each Employee Plan and a true and complete copy of each of
the following documents, prepared in connection with such Employee Plan; (i)
each trust or other funding arrangement, (ii) the two most recently filed Annual
Reports (Form 5500), including attachments, for each Employee Plan, and (iii)
the most recently received IRS determination letter.
6.13. Insurance.
Schedule 6.13 contains a list of all policies of professional liability
(medical malpractice), general liability, theft, fidelity, fire, product
liability, errors and omissions, health and other property and casualty forms of
insurance held by the Medical Group covering the assets, properties or
operations of the Medical Group or the Medical Business (specifying the insurer,
amount of coverage, type of insurance, policy number and any pending claims
thereunder). All such policies of insurance are valid and enforceable policies
and are outstanding and duly in force and all premiums with respect thereto are
currently paid. Neither the Medical Group nor its predecessor in interest has,
during the last five fiscal years, been denied or had revoked or rescinded any
policy of insurance relating to the assets, properties or operations of the
Medical Group or the Medical Business.
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6.14. Real Property.
Schedule 6.14 sets forth an accurate and complete legal description of the
entire right, title and interest of the Medical Group in and to all real
property, together with all buildings, facilities, fixtures and improvements
located on such real property, owned or leased by the Medical Group (the "Real
Property"), together with an accurate description of the title insurance policy
or other evidence of title issued with respect thereto, the most current survey
of such real property and a description of the use thereof. Other than the Real
Property, the Medical Group has no other interest (leasehold or otherwise) in
real property used, held for use or intended to be used in the Medical Business.
The Medical Group has a valid leasehold interest in all Real Property leased by
the Medical Group. True and complete copies of all leases to which the Medical
Group is a party or by which the Medical Group leases space have been delivered
to the Management Company.
6.15. Burdensome Restrictions.
Except as set forth on Schedule 6.15, neither the Medical Group nor the
Medical Business is bound by any oral or written agreement or contract which by
its terms prohibits or restricts it from conducting the Medical Group or the
Medical Business (or any material part thereof).
6.16. Disclosure.
Neither the Medical Group Transaction Documents (including the Exhibits and
Schedules attached thereto) nor any other document, certificate or written
statement furnished to the Management Company by or on behalf of the Medical
Group in connection with the transactions contemplated hereby contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein and therein not misleading.
Except as set forth on Schedule
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6.16, there have been no events or transactions, or information which has come
to the attention of the Medical Group, which, as they relate directly to the
Medical Group or the Medical Business, could reasonably be expected to have a
material adverse effect on the business, operations, affairs, prospects or
condition of the Medical Group and the Medical Business.
SECTION 7. Representations and Warranties of the Management Company.
The Management Company represents and warrants to the Medical Group, as of
the Signature Date, as follows:
7.1. Organization, Good Standing and Power.
The Management Company (a) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and (b)
has all requisite corporate power and authority to own, lease and operate its
properties, to carry on its business as now being conducted, to execute and
deliver this Agreement and each of the Asset Purchase Agreement, the Restricted
Stock Agreements (as hereinafter defined), the Assignments of Lease, and the
Stockholder Non-Competition Agreements (collectively, the "Management Company
Transaction Documents"), to perform its obligations hereunder and thereunder,
and to consummate the transactions contemplated hereby and thereby.
7.2. Authority.
The execution, delivery and performance of this Agreement and the other
Management Company Transaction Documents, and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of the Management
Company. This Agreement and each Management Company Transaction Document has
been duly and validly executed and delivered by the Management
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Company, and this Agreement and each such Management Company Transaction
Document is the valid and binding obligation of the Management Company,
enforceable in accordance with its respective terms, except as enforcement may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the rights of creditors generally. Neither the execution,
delivery or performance of this Agreement or any other Management Company
Transaction Document, nor the consummation by the Management Company of the
transactions contemplated hereby or thereby, nor compliance by the Management
Company with any provision hereof or thereof, will (a) conflict with or result
in a breach of any provisions of the Amended and Restated Certificate of
Incorporation or the Bylaws of the Management Company, (b) cause a default (with
due notice, lapse of time or both), or give rise to any right of termination,
cancellation or acceleration, under any of the terms, conditions or provisions
of any material note, bond, lease, mortgage, indenture, license or other
instrument, obligation or agreement to which the Management Company is a party
or by which it or any of its properties or assets is or may be bound (with
respect to which defaults or other rights all requisite waivers or consents
shall have been obtained at or prior to the date hereof) or (c) violate any law,
statute, rule or regulation or order, writ, judgment, injunction or decree of
any court, administrative agency or governmental body applicable to the
Management Company or any of its properties or assets. Except as set forth on
Schedule 7.2, to the best of the Management Company's knowledge, no permit,
authorization, consent or approval of or by, or any notification of or filing
with, any person (governmental or private) is required in connection with the
execution, delivery or performance by the Management Company of this Agreement
or any other Management Transaction Document or the consummation by the
Management Company of the transactions contemplated hereby or thereby.
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7.3. Capitalization.
(a) The total authorized capital of the Management Company consists of
25,000,000 shares of common stock, of which 10,105,518 shares are issued and
outstanding, and 9,233,049 shares of preferred stock, of which (i) 999,999
shares of Series A Convertible Preferred Stock, (ii) 2,000,001 shares of Series
B Convertible Preferred Stock, (iii) 254,999 shares of Series C Convertible
Preferred Stock, (iv) 188,072 shares of Series D Convertible Preferred Stock,
and (v) 741,667 shares of Series E Convertible Preferred Stock are issued and
outstanding. Each of the outstanding shares of capital stock has been duly and
validly authorized and issued, is fully paid for and non-assessable, and was
issued in compliance with all applicable Federal and state securities laws.
(b) The Management Company has taken all action necessary or appropriate to
duly authorize the creation, issuance and sale of the common stock to be issued
hereunder. Such shares of common stock, when issued, sold and delivered, as
provided for herein and in the Restricted Stock Agreements, will be validly
issued, fully paid and nonassessable, with no personal liability attaching to
the ownership of the shares. The issuance of such shares of common stock will
not violate any preemptive or similar right of any person.
7.4. Financial Information.
Schedule 7.4 contains (a) the unaudited statements of assets, liabilities
and stockholders' equity of the Management Business at the date set forth
therein (the "Management Company Balance Sheet"; and the date thereof being
referred to as the "Management Company Balance Sheet Date"), and the related
unaudited statements of revenue and expenses for the periods then ended
(including the notes thereto and other financial information included therein)
(collectively, the "Unaudited Financial Statements"). The Unaudited Financial
Statements (i)
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were prepared in accordance with the books and records of the Management
Business and (ii) fairly present the financial position of the Management
Business as of the dates thereof.
7.5. Absence of Undisclosed Liabilities.
Except as set forth on Schedule 7.5, as of the Management Company Balance
Sheet Date, (a) the Management Business did not have any material liability of
any nature required to be disclosed on a balance sheet (matured or unmatured,
fixed or contingent, known or unknown) which was not provided for or disclosed
on the Management Company Balance Sheet, (b) all liability reserves established
by the Management Business on the Management Company Balance Sheet were adequate
and (c) there were no loss contingencies (as such term is used in Statement of
Financial Accounting Standards No. 5 issued by the Financial Accounting
Standards Board in March 1975) which were not adequately provided for or
disclosed on the Management Company Balance Sheet.
7.6. Absence of Changes.
Except as set forth on Schedule 7.6, since the Management Company Balance
Sheet Date, the Management Business has been operated in the ordinary course and
consistent with past practice and there has not been:
(a) any material adverse change in the condition (financial or otherwise),
assets, liabilities, operations, results of operations, earnings, business or
prospects of the Management Business;
(b) any damage, destruction or loss (whether or not covered by insurance)
in an aggregate amount exceeding $25,000 affecting any asset or property of the
Management Business;
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(c) any obligation or liability (whether absolute, accrued, contingent or
otherwise and whether due or to become due) created or incurred, or any
transaction, contract or commitment entered into, by the Management Business
other than such items created or incurred in the ordinary course of the
Management Business and consistent with past practice;
(d) any payment, discharge or satisfaction of any claim, lien, encumbrance,
liability or obligation by the Management Business outside the ordinary course
of the Management Business (whether absolute, accrued, contingent or otherwise
and whether due or to become due);
(e) any license, sale, transfer, pledge, mortgage or other disposition of
any material tangible or intangible asset of the Management Business except in
the ordinary course of the Management Business and consistent with past
practice;
(f) any cancellation of any debts or claims of, or any amendment,
termination or waiver of any rights of material value to, the Management
Business;
(g) any change in the accounting methods or practices followed in
connection with the Management Business or any change in depreciation or
amortization policies or rates theretofore adopted;
(h) any other transaction relating to the Management Business other than in
the ordinary course of the Management Business and consistent with past
practice; or
(i) any agreement or understanding, whether in writing or otherwise, for
the Management Business to take any of the actions specified in items (a)
through (h) above.
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7.7. Litigation, Etc.
Except as set forth on Schedule 7.7, there are no (a) actions, suits,
claims, investigations or legal or administrative or arbitration proceedings
pending or, to the best knowledge of the Management Company, threatened against
the Management Company or in connection with the Management Business, whether at
law or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
which, if adversely determined, could have a material adverse effect on the
Management Company or (b) judgments, decrees, injunctions or orders of any
court, governmental department, commission, agency, instrumentality or
arbitrator against the Management Company its assets or affecting the Management
Business.
7.8. Compliance; Governmental Authorizations.
The Management Company and the Management Business shall have complied in
all material respects with all applicable material Federal, state, local or
foreign laws, ordinances, regulations and orders. The Management Company has all
Federal, state, local and foreign governmental licenses and permits necessary in
the conduct of the Management Business, the lack of which would have a material
adverse effect on the Management Company's ability to operate the Management
Business after the date hereof on substantially the same basis as presently
operated, such licenses and permits are in full force and effect, the Management
Company has not received any notice indicating that any violations are or have
been recorded in respect of any thereof, and no proceeding is pending or, to the
best knowledge of the Management Company, threatened to revoke or limit any
thereof. To the best knowledge of the Management Company, none of such licenses
and permits shall be affected in any material respect by the transactions
contemplated hereby.
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7.9. Employees.
Except as set forth on Schedule 7.9, the Management Company is not
delinquent in payments to any of its employees for any wages, salaries,
commissions, bonuses or other compensation for any services performed by them
through the date hereof.
7.10. Insurance.
The Management Company has obtained such policies of insurance as are usual
and customary for businesses of the type conducted by the Management Company.
All such policies of insurance are valid and enforceable policies, and all
premiums with respect thereto are currently paid.
7.11. Burdensome Restrictions.
Except as set forth on Schedule 7.11, neither the Management Company nor
the Management Business is bound by any oral or written agreement or contract
which by its terms prohibits it from conducting the Management Company or the
Management Business (or any material part thereof).
7.12. Disclosure.
Neither the Management Company Transaction Documents (including the
Exhibits and Schedules attached thereto) nor any other document, certificate or
written statement furnished to the Medical Group by or on behalf of the
Management Company in connection with the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein and therein not
misleading.
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SECTION 8. Operations Committee.
8.1. Formation and Operation of the Operations Committee.
The Management Company and the Medical Group shall establish a committee
(the "Operations Committee") responsible for directing the Management Company in
connection with the development of certain specific management and
administrative policies for the overall operation of the Medical Group. The
Operations Committee shall consist of two (2) members. All of the equity owners
of the Medical Group shall constitute one member of the Operations Committee and
the Management Company shall designate a representative to be the other member
of the Operations Committee. The equity owners of the Medical Group shall vote
as a unit (with the vote of the majority of such equity owners determining the
vote for the Medical Group's representative to the Operations Committee). The
business of the Operations Committee shall be conducted in accordance with the
policies and procedures described in Section 8.3 hereof.
8.2. Authoritative Functions of the Operations Committee.
The Operations Committee shall perform the following functions, and the
decisions of the Operations Committee with respect to such functions shall be
binding on the Management Company and the Medical Group:
(a) Approve the annual budgets for:
(i) Billings and Collections;
(ii) Medical Group Costs;
(iii) Capital expenditures to be made by the Management Company in
fulfillment of its obligations hereunder;
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(iv) Management Company Operating Costs (which, in the absence of
approval by the Operations Committee, shall be increased by
two and one-half percent (2.5%) over the total amount
approved for the preceding period)
(b) Approve costs and expenses that exceed the Management Company
Operating Costs Budget.
(c) Establish parameters and criteria (including the location from
which such services may be provided) with respect to the
establishment and maintenance of relationships with institutional
providers and payors and managed care contracts (except with
respect to the establishment of professional fees).
(d) Establish parameters and criteria with respect to:
(i) Billings
(ii) Claims submission
(iii) Collections of fees
(iv) Delinquent account collection policies
(v) Turnover of delinquent accounts to outside collection
agencies
(vi) Write-offs of account balances
(vii) Claim review requests
(viii) "Insurance only" and other courtesy write-off policies
(ix) Lien account collection policies
(x) Student Athlete account policies
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(e) Approve the acquisition, replacement, relocation, or other
disposition of Medical Equipment and FF&E, approve the
integration of new technologies into the professional practice of
the Medical Group as contemplated by Section 3.11 hereof, and
approve the renovation and expansion of any offices of the
Medical Group ("Tenant Improvements"); provided, however, that
the approval of the Management Company also shall be required
prior to (i) the acquisition of any Equipment (including any
Medical Equipment, FF&E or other items relating to or necessary
in connection with the integration of new technologies into the
professional practice of the Medical Group), (ii) the undertaking
of any Tenant Improvements relating to patient care facilities,
or (iii) the undertaking of any other Tenant Improvements, if,
with respect to any of the foregoing, the cost would exceed
$10,000.
(f) Establish parameters and criteria for off-site storage of files
and records of the Medical Group.
(g) Identification of physician subspecialties required for the
efficient operation of the Medical Group; advice regarding all
Medical Personnel employment and recruitment contracts to be
utilized by the Medical Group.
(h) Development of long-term strategic planning objectives for the
Medical Group.
(i) Public relations, advertising, and other marketing of Medical
Group Services, including design of exterior signs.
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(j) The establishment of fees for professional services and ancillary
services rendered by the Medical Group.
(k) Access and quality issues pertaining to ancillary services.
(l) Insurance limits and insurance coverage of the Medical Group and
the Management Company, as such coverage may relate to Medical
Group operations and activities.
(m) Any matters arising in connection with the operations of the
Medical Group that are not specifically addressed in this
Agreement and as to which the Management Company or the Medical
Group requests consideration by the Operations Committee.
Notwithstanding anything to the contrary contained in this Section 8.2, the
Operations Committee does not have the power to bind the Medical Group on any
decision with respect to which discretion regarding such matters is vested in
the Medical Group under the terms of this Agreement or by applicable law and, in
such case, the Medical Group shall have ultimate responsibility for the exercise
of such discretion.
8.3. Committee Policies and Procedures.
(a) One of the equity owners of the Medical Group (which individual shall
be appointed by vote of a majority of the equity owners) shall act as Chairman
of the Committee, and the Management Company representative shall act as Vice
Chairman. Each party may substitute or change its designated Operations
Committee members at any time upon notice to the other party, and any Operations
Committee member may designate his or her own substitute at any meeting without
notice. Each member shall have one vote and shall have the right to grant his or
her proxy to another member of the Operations Committee. The Chairman, if
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present, shall preside at all meetings of the Operations Committee. In the
absence of the designated Chairman, the Vice Chairman shall preside. The only
powers of the Chairman and the Vice Chairman that differ from those of the other
members of the Operations Committee shall be to call and preside over meetings
in accordance with this Section 8.3.
(b) The Operations Committee may hold meetings without call or formal
notice at such times and places as a quorum of its members may from time to time
determine. A meeting of the Operations Committee also may be called by at least
two (2) members of the Operations Committee or by the Chairman or Vice Chairman
thereof upon at least three (3) days' written notice to the other members of the
Operations Committee. Such notice requirement shall be deemed waived with
respect to any member of the Operations Committee who attends such meeting.
Meetings may be held in person or by telephone. The Operations Committee also
may act by written consent as provided in Section 8.3(c). Minutes shall be kept
of all formal actions taken by the Operations Committee.
(c) No action of the Operations Committee shall be effective unless
authorized by the vote of both members of the Operations Committee present or
represented by proxy at the applicable meeting. A quorum of the Operations
Committee consist of both members of the Operations Committee, in person, by
telephone, or by proxy, and a quorum must remain for the duration of the
meeting. The Operations Committee may establish such procedures to act by
written consent, without a meeting, as the Operations Committee determines are
advisable, provided that both members (in person or by proxy) must sign any
written consent.
SECTION 9. Obligations of the Medical Group.
The Medical Group shall have the following obligations during the Term:
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9.1. Compliance with Laws.
The Medical Group shall use its best efforts to provide professional
services to patients in compliance at all times with those ethical standards,
laws and regulations to which they are subject, including, without limitation,
Medicare and Medicaid regulations. The Medical Group shall verify, with the
assistance of the Management Company, that each physician and other Medical
Personnel associated with the Medical Group for the purpose of providing medical
care to patients of the Medical Group is appropriately licensed. The Medical
Group shall monitor the quality of medical care practiced by physicians and
other health care personnel associated with the Medical Group. In the event that
any medical malpractice actions are filed or any disciplinary actions are
initiated against any such physician by any payor, patient, state or Federal
regulatory agency or any other person or entity, the Medical Group shall
immediately inform the Management Company of such action and its underlying
facts and circumstances.
9.2. Use of Facility.
The Medical Group shall use and occupy any Facility (as defined below)
exclusively for the practice of medicine, and shall use its best efforts to
comply with all applicable Federal, state and local rules, ordinances and
standards of medical care. The medical practice or practices conducted at any
Facility described in clause (i) of the definition of the term "Facility" shall
be conducted solely by Medical Personnel associated with the Medical Group, and
no other physician or medical practitioner shall be permitted to use or occupy
any Facility described in clause (i) below without the prior written consent of
the Management Company, which consent shall not be unreasonably withheld or
delayed. The term "Facility" shall mean (i) any medical office or laboratory
controlled, managed or operated by
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the Management Company or (ii) any hospital at which any Medical Personnel
practices medicine or maintains admitting privileges.
9.3. Choice of Braces, Splints, Appliances, Medical Supplies, and
Allografts.
The Medical Group shall have the exclusive control over the choice of
vendors and products utilized with respect to all prosthetics, prosthetic
devices, orthotics, braces, splints, appliances, medical supplies and
allografts.
9.4. Choice of Radiologists, Anesthesiologists, Hospitals, Physical
Therapy, MRI, and Other Medical Professionals and Facilities.
The Medical Group shall have exclusive control over the choice of specific
physicians and facilities to be utilized by the Medical Group with respect to
radiology, anesthesiology, hospitals, physical therapy, MRI, and other medical
professionals and facilities; provided, however, that the foregoing shall not be
considered New Ancillary Services or New Medical Offices, as the case may be,
unless the parties have agreed thereto in accordance with Section 3.4(b) or
3.2(b), as the case may be.
9.5. Insurability.
The Medical Group shall cooperate with the Management Company in (i)
ensuring that its Medical Personnel are insurable under commercially available
malpractice insurance policies or (ii) instituting proceedings to terminate
within thirty business days any Medical Personnel who is not so insurable or who
loses his or her malpractice insurance eligibility unless the Medical Group
makes (within such 30-day period) other arrangements reasonably appropriate
under the circumstances and reasonably acceptable to the Management Company. The
Medical Group shall notify the Management Company in writing of any change in
the insurance status of any Medical Personnel within two days after
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the Medical Group receives notice of any such change. The Medical Group shall
require all Medical Personnel to participate in an on-going risk management
program.
9.6. Medicare.
The Medical Group shall cause all physicians to be participating providers
and accept assignment under Medicare.
9.7. Accounts Receivable; Billing.
From the Commencement Date, the Medical Group acknowledges and agrees that
all Accounts of the Medical Group or its Medical Personnel shall be the property
of the Management Company hereunder and the Medical Group and the Medical
Personnel hereby transfer and assign all of their right, title and interest to
such Accounts to the Management Company; provided, however, that the right to
payment of Medicaid and Medicare receivables shall remain with the Medical Group
in accordance with applicable Federal law. The Medical Group's Medical Personnel
shall be responsible for providing the appropriate current CPT4 coding with
respect to the fee tickets prepared by such Medical Personnel.
9.8. Medical Personnel Hiring.
The Medical Group shall have the ultimate control over and responsibility
for the hiring, compensation, supervision, evaluation and termination of its
Medical Personnel; provided, however, that at the request of the Medical Group,
the Management Company shall consult with the Medical Group regarding such
matters.
9.9. Continuing Education.
The Medical Group and its Medical Personnel shall be solely responsible for
ongoing membership in professional
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associations and continuing professional education. The Medical Group shall
ensure that its Medical Personnel participate in such continuing professional
education as is necessary for such physician or professional to remain current
in his or her field of medical practice.
9.10. Clinical Research.
The Medical Group shall have the ultimate control over and responsibility
for any clinical research program pertaining to patients of the Medical Group.
This shall include but not be limited to research personnel interviewing,
hiring, termination, compensation, day-to-day supervision, and assignment of
responsibilities and projects. However, the Medical Group will cooperate with
and take direction from the Management Company in its nationwide efforts to
provide an effective disease management information system and outcome studies
programs.
SECTION 10. Certain Covenants.
10.1. Change of Control.
During the Term of this Agreement, the Medical Group shall not enter into
any single transaction (or group of related transactions undertaken pursuant to
a common plan) involving the admission of new stockholders, the transfer of
ownership interests, or the reorganization or restructuring of the Medical
Group, if in any such case the effect would be to transfer a majority of the
ownership interest in the Medical Group, without the prior written consent of
the Management Company, which consent shall not be unreasonably withheld or
delayed. The Management Company hereby consents to the proposed business
combination between the Medical Group and Lighthouse Orthopedic Associates, P.A.
("LOA"), as described in that certain letter agreement dated the Signature Date,
provided that such combined entity enters into a management services agreement
identical to this agreement in all material respects, and each of those
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physicians practicing within each of the Medical Group and LOA transfer his
respective medical practice to such combined entity.
SECTION 10.2. Legend on Securities.
During the Term of this Agreement, any certificate or similar evidence
representing an equity interest in the Medical Group issued by the Medical Group
shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
RESTRICTIONS ON TRANSFER CONTAINED IN THE MANAGEMENT SERVICES AGREEMENT
EFFECTIVE AS OF SEPTEMBER 1, 1997, BETWEEN ORTHOPAEDIC SURGERY ASSOCIATES,
INC., A FLORIDA CORPORATION, AND BMJ MEDICAL MANAGEMENT, INC., A DELAWARE
CORPORATION."
Nothing herein shall be construed as requiring the Medical Group to issue any
certificate or other evidence representing an equity interest in the Medical
Group, if such has not been issued prior to the date hereof.
SECTION 11. Records.
11.1. Medical Records.
Upon termination of this Agreement, the Medical Group shall retain all
patient medical records maintained by the Medical Group or the Management
Company in the name of the Medical Group.
11.2. Management Business Records.
All books and records relating in any way to the operation of the
Management Business which are not patient medical records shall at all times be
the property of the Management Company. The Management Company shall maintain
custody of such records, and the Medical Group shall, upon its
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written request, be entitled to copies of any such records relating to the
Management Services performed by the Management Company.
11.3. Access to Records Following Termination.
Following the termination of this Agreement, the Medical Group shall grant
(to the extent permitted by law) to the Management Company, for the purpose of
preparing for any actual or anticipated legal proceeding or for any other
reasonable purpose, reasonable access (which shall include making photocopies)
to the patient medical records described in Section 11.1 hereof and any other
pertinent information regarding the Medical Group during the Term. Prior to
accessing such patient medical records, the Management Company shall obtain any
required patient authorization.
Following the termination of this Agreement, the Management Company shall
provide to the Medical Group, promptly upon the Medical Group's written request,
photocopies of the Management Business records described in Section 11.2 hereof,
and shall grant to the Medical Group, for the purpose of preparing for any
actual or anticipated legal proceeding or for any other reasonable purpose, any
other pertinent information regarding the Management Company during the Term.
SECTION 12. Insurance and Indemnity.
12.1. Professional Liability Insurance.
During the Term, the Management Company shall, to the extent permitted by
applicable law and to the extent commercially available, procure and maintain
for the benefit of itself and the Medical Group comprehensive professional
liability insurance providing for (a) general liability coverage and (b) medical
malpractice coverage with limits of not less than the greater of what each
physician shareholder or the Medical Group has in place
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immediately prior to the Commencement Date or $250,000 per claim and with
aggregate policy limits of not less than $750,000 (or such higher amounts as may
be necessary to comply with any regulatory requirement and/or contractual
requirement to which such Medical Personnel or the Medical Group may be subject)
covering the Medical Group and each of the Medical Personnel of the Medical
Group , including coverage for claims made eight (8) years before, during and
eight (8) years after the termination date of this Agreement relating to events
or occurrences at any time prior thereto. The parties hereto acknowledge that
the Management Company is procuring the malpractice insurance referenced herein
to ensure that the Management Company has protection in the event it is sued as
a result of an act or omission of an employee of the Medical Group. The
Management Company shall pay the premiums for such general and medical
malpractice liability coverage, which payments shall be considered Management
Company Operating Costs under this Agreement, subject to recoupment by the
Management Company under Section 5 hereof. The Management Company shall be
designated as an additional insured under all such insurance policies.
12.2. Life Insurance; Business Interruption.
The Management Company may, at its option, obtain a $500,000 life insurance
policy for each duly licensed physician partner in or equity owner of the
Medical Group. The Medical Group shall, and shall cause each such partner in or
equity owner of the Medical Group to, cooperate with the Management Company in
the procurement of such policies. The Management Company shall be designated as
the beneficiary under any such policies. The premiums for such policies shall be
paid by the Management Company and shall not be included as Management Company
Operating Costs or otherwise charged to the Medical Group.
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12.3. Indemnification by Medical Group.
The Medical Group shall indemnify, hold harmless and defend the Management
Company, its officers, directors, shareholders, employees, agents and
independent contractors from and against any and all liabilities, losses,
damages, claims, causes of action and expenses (including reasonable attorneys'
fees and expenses), whether or not covered by insurance, caused or asserted to
have been caused, directly or indirectly, by or as a result of (i) the
performance of Medical Group Services, including without limitation the
performance of such services prior to the Commencement Date, (ii) any other acts
or omissions of the Medical Group and its Medical Personnel, including without
limitation any such acts or omissions that occurred prior to the Commencement
Date, or (iii) any breach of or failure to perform any obligation under this
Agreement or the Medical Group Transaction Documents (which, for purposes
hereof, shall be deemed to include the Restricted Stock Agreement to be signed
by the Management Company and each partner, stockholder or employee of the
Medical Group receiving stock of the Management Company, in the form of Exhibit
C attached hereto (the "Restricted Stock Agreement")) by the Medical Group
and/or the Medical Personnel and/or their respective agents and/or
subcontractors (other than the Management Company) during the Term.
12.4. Indemnification by Management Company.
The Management Company shall indemnify, hold harmless and defend the
Medical Group, its officers, directors, shareholders, employees, agents and
independent contractors from and against any and all liabilities, losses,
damages, claims, causes of action and expenses (including reasonable attorneys'
fees and expenses), whether or not covered by insurance, caused or asserted to
have been caused, directly or indirectly, by or as a result of (i) the
performance of Management Services, (ii) any other acts or omissions of the
Management Company and its
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employees or (iii) any breach of or failure to perform any obligation under this
Agreement or the Management Company Transaction Documents by the Management
Company and/or its agents, personnel and/or subcontractors (other than the
Medical Group) during the Term, including, without limitation, any such acts or
omissions that occurred prior to the Commencement Date.
SECTION 13. Termination; Rescission.
13.1. Termination by Medical Group.
The Medical Group may terminate this Agreement effective immediately by
giving written notice of termination to the Management Company (a) in the event
of the filing of a petition in voluntary bankruptcy or an assignment for the
benefit of creditors by the Management Company or upon other action taken or
suffered, voluntarily or involuntarily, under any Federal or state law for the
benefit of debtors by the Management Company, except for the filing of a
petition in involuntary bankruptcy against the Management Company which is
dismissed within ninety (90) days thereafter (a "Bankruptcy Event"), (b) in the
event the Management Company shall default in any material respect in the
performance of any duty or obligation imposed upon it by this Agreement and (i)
the Management Company shall not have cured such default within thirty (30) days
after written notice specifying the default has been given to the Management
Company by the Medical Group, (ii) if such default cannot be cured within such
thirty (30) day period, the Management Company shall not have taken reasonable
action commencing curing of such default within such thirty (30) day period or
(iii) the Management Company does not thereafter diligently prosecute such
action to completion; provided, however, that the Management Company shall have
only 10 days after written notice to cure a default arising as a result of its
failure to pay the Monthly Draw pursuant to Section 5.3(a) or any other monetary
obligation owed to the Medical Group hereunder, (c) in the event that any of the
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representations and warranties made by the Management Company in Section 7 is
untrue or misleading in any material respect, provided that the Medical Group
shall have previously given written notice to the Management Company describing
in reasonable detail the nature of the item in question and the Management
Company shall not have cured such matter within thirty (30) days of such notice,
(d) the Management Company shall have been sanctioned in writing by the Health
Care Finance Administration or the Medicaid Program Office of the Department of
Health of the State of Florida for any violation of the Social Security Act, the
Health Care Quality Improvement Act or any similar Federal or state law in a
final, nonappealable proceeding and such sanction prevents the Management
Company from fulfilling its obligations hereunder in accordance with all
applicable law; or (e) in the event that the Management Company fails to pay all
amounts due under that certain promissory note dated as of the Signature Date
(the "Promissory Note") and issued by the Management Company in favor of the
Medical Group in connection with the Asset Purchase Agreement, by March 31,
1998.
13.2. Termination by Management Company.
The Management Company may terminate this Agreement effective immediately
by giving written notice of termination to the Medical Group (a) in the event of
a Bankruptcy Event relating to the Medical Group, (b) in the event the Medical
Group shall default in any material respect in the performance of any duty or
obligation imposed upon it by this Agreement and (i) the Medical Group shall not
have cured such default within thirty (30) days after written notice specifying
the default has been given to the Medical Group by the Management Company, (ii)
if such default cannot be cured within such thirty (30) day period, the Medical
Group shall not have taken reasonable action commencing curing of such default
within such thirty (30) day period or (iii) the Medical Group does not
thereafter diligently prosecute such action to completion; provided, however,
that the Medical Group
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shall have only 10 days after written notice to cure a default arising as a
result of its failure to pay any monetary obligation owed to the Management
Company hereunder, (c) in the event that any of the representations and
warranties made by the Medical Group in Section 6 is untrue or misleading in any
material respect, provided that the Management Company shall have previously
given written notice to the Medical Group describing in reasonable detail the
nature of the item in question and the Medical Group shall not have cured such
matter within thirty (30) days of such notice, or (d) in the event the Medical
Group is excluded from the Medicaid or Medicare program for any reason and the
Medical Group has not successfully appealed such exclusion within 120 days after
the effectiveness thereof.
13.3. Termination by Medical Group or Management Company.
The Medical Group and the Management Company shall each have the right to
terminate this Agreement effective immediately by giving written notice of
termination to the other party pursuant to Section 28 of this Agreement.
13.4. Effect of Termination.
(a) Upon the termination of this Agreement in accordance with the terms
hereof, neither party hereto shall have any further obligation or liability to
the other party hereunder, except as provided in Sections 3.15(c), 5.3(b) (as
modified by Section 13.4(b) below), 13.5, 26 and this Section 13.4, and except
to pay in full and satisfy any and all outstanding obligations of the parties
accruing through the effective date of termination.
(b) Upon the termination of this Agreement, the Annual Medical Group
Compensation Amount described in Section 5.3(b) shall be calculated on or before
the end of the fourth month following the termination date, rather than on or
before
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April 30 as specified in Section 5.3(b), and the computation made under such
Section shall be made with respect to the portion of the year ending on the
termination date (if the termination date is other than December 31); provided,
however, that in the event the Medical Group terminates this Agreement pursuant
to Section 13.1, such calculation shall be made within 90 days following such
termination. In making such computation, all Collections during January,
February, and March of such year shall be excluded, and all Collections during
the three-month period following termination shall be included. All Collections
during the three-month period following termination shall continue to be owned
by the Management Company (and the Medical Group shall immediately forward any
amounts received in connection therewith to the Management Company) and all
Collections thereafter shall be owned by the Medical Group. Any payment required
under the terms of Section 5.3(b)(ii) shall be made within fifteen (15) days
after the date by which the foregoing calculation is to be made, rather than on
May 15.
(c) Upon termination of this Agreement, the Management Company agrees to
deliver to the Medical Group upon request by the Medical Group, a Financing
Statement amending the terms of any Financing Statement filed with the Secretary
of State of the State of Florida, excluding from the collateral thereunder any
accounts receivable generated after the date of termination of this Agreement.
(d) Notwithstanding anything contained herein to the contrary, in the event
that the Medical Group terminates this Agreement pursuant to Section 13.1(e)
hereof, the Medical Group shall deliver to the Management Company an amount in
cash or certified or cashier's check equal to $6,435,253.45, which amount shall,
upon delivery to the Management Company of the Promissory Note, be decreased by
an amount equal to the outstanding balance (including principal and interest) of
the Promissory Note. The Medical Group shall also cause each physician
affiliated with the
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Medical Group who received shares of capital stock of the Management Company in
connection with the execution and delivery of this Agreement to, and each such
physician shall, return and deliver to the Management Company the certificates
representing all of such shares of capital stock. Certificates delivered shall
be duly endorsed for transfer to the Management Company.
13.5. Repurchase of Assets.
Promptly following termination of this Agreement for any reason, the
Management Company shall sell, transfer, convey, and assign to the Medical
Group, and the Medical Group shall purchase, assume, and accept from the
Management Company, at such price and upon such terms as may be agreed upon by
the parties -- or, if the parties are unable to agree, at fair market value,
determined in the manner set forth below -- all of the following items which are
used in connection with the professional practice and related activities of the
Medical Group and which, in the case of items (a), (b), (c) and (d), are
physically located in any of the offices of the Medical Group, subject to any
required consent from any third party having an interest therein but otherwise
free and clear of any liens, claims or encumbrances; provided that any leased
equipment or property shall be assigned to the Medical Group subject to the
applicable lease agreement and any liens granted thereunder:
(a) the Medical Equipment owned by the Management Company and used
solely in connection with the Medical Business;
(b) the furniture, furnishings, trade fixtures, and office equipment
owned by the Management Company and used solely in connection
with the Medical Business;
(c) the Management Company's rights and interests in any equipment
leased by the Management
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Company for the sole use of the Medical Group, subject to the
Medical Group's assumption of the obligations accruing thereunder
after the date of termination of this Agreement;
(d) the supplies owned by the Management Company and used solely in
connection with the Medical Business;
(e) the Management Company's rights and interests under all of the
Office Leases, subject to the Medical Group's assumption of the
obligations accruing thereunder after the date of termination of
this Agreement; and
(f) the deposits of the Management Company relating to the Medical
Group.
Fair market value of the above described assets shall be determined by an
independent appraiser mutually agreed upon by the Medical Group and the
Management Company; provided, however, that if the Medical Group and the
Management Company are unable to agree upon such an appraiser, each of the
parties shall select an appraiser and the two appraisers thus selected shall
select a third appraiser. All of the appraisers shall appraise the assets, and
for purposes of determining the purchase price, the highest and lowest
appraisals shall be disregarded, and the remaining appraisal shall be used.
Notwithstanding anything contained herein to the contrary, the consideration
payable by the Medical Group to the Management Company under this Section 13.5
shall be reduced by the aggregate amount, if any, payable by the Management
Company to the Stockholders (as such term is defined in the Restricted Stock
Agreements).
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13.6. Rescission By Medical Group.
The Medical Group may, in its sole discretion at any time during the period
beginning August 1, 2004 and ending August 31, 2004 (such 30-day period being
referred to herein as the "Rescission Period"), rescind (the "Rescission
Option") this Agreement and disengage itself from its obligations under this
Agreement. The Medical Group may exercise its Rescission Option during the
Rescission Period by giving written notice (the "Rescission Notice") to the
Management Company and by complying with the other provisions contained in this
Section 13.6. The effective date (the "Rescission Effective Date") of the
rescission shall be that date which is 30 days after the date of the Rescission
Notice; provided that such date shall not be prior to the seventh anniversary of
the Commencement Date. The Medical Group must comply with the provisions set
forth in this Section 13.6 in order to effectively exercise its Rescission
Option.
(a) Effect of Rescission. In the event that the Medical Group exercises its
Rescission Option pursuant to this Section 13.6, the procedures set forth in
Section 13.4 above shall apply.
(b) Repurchase of Assets. Within 30 days following the Rescission Effective
Date the Management Company shall, subject to the prior receipt of any required
landlord and third party consents, transfer, convey and assign to the Medical
Group, and the Medical Group shall purchase, assume and accept from the
Management Company, the property described in Section 13.5 above according to
the provisions set forth in such Section.
(c) Repayment of Consideration. In the event that the Medical Group elects
to exercise its Rescission Option, the Medical Group shall pay to the Management
Company $2,974,184.55, half of which shall be payable in cash, by cashier's or
certified check or by wire transfer of funds delivered to a depository
institution designated by the Management Company and the other
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half of which shall be payable by delivery of a promissory note from the Medical
Group to the Management Company, which note shall bear interest (payable
quarterly) at a rate per annum equal to the greater of either the prime rate
announced from time to time by The Chase Manhattan Bank (National Association)
plus 1/2% or the "applicable Federal rate" (as defined in Section 1274(d) of the
Internal Revenue Code) in effect from time to time and shall be payable in full
12 months after the Rescission Effective Date.
(d) Repayment of Management Fee. Notwithstanding anything contained herein
to the contrary, in the event that the Medical Group exercises its Rescission
Option under this Section 13.6, the Management Company shall not be required to
refund to the Medical Group any portion of the Management Fees paid, or due to
be paid, by the Medical Group under the terms of this Agreement for the period
beginning on the Commencement Date and ending on the Rescission Effective Date.
(e) Waiver of Rescission Option. Notwithstanding anything contained herein
to the contrary, the parties hereto expressly agree and acknowledge that if the
Medical Group shall fail to deliver the Rescission Notice prior to the end of
the Rescission Period, then the Medical Group shall be deemed to have expressly
and irrevocably waived its right to rescind this Agreement and to disengage
itself from its obligations hereunder.
SECTION 14. Non-Disclosure of Confidential Information.
14.1. Non-Disclosure.
(a) Neither the Management Company nor the Medical Group, nor their
respective employees, stockholders, consultants or agents shall, at any time
after the execution and delivery hereof, directly or indirectly disclose any
Confidential or Proprietary Information relating to the other party hereto to
any person, firm, corporation, association or other entity, nor shall
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either party, or their respective employees, stockholders, consultants or agents
make use of any of such Confidential or Proprietary Information for its or their
own purposes or for the benefit of any person, firm, corporation or other entity
except the parties hereto or any subsidiary or affiliate thereof. The foregoing
obligation shall not apply to any information which a party hereto can establish
(a) to have become publicly known without breach of this Agreement by it or
them, (b) to have been given to such party by a third party who is not obligated
to maintain the confidentiality of such information, or (c) is disclosed to a
third party with the prior written consent of the other party hereto. Nothing
contained herein shall be construed to prevent any party hereto from disclosing
any Confidential or Proprietary Information of any other party to its
professional advisers for purposes of evaluating, negotiating or otherwise
assisting such party in connection with the transactions contemplated by this
Agreement; provided that such party shall be liable to such other party for the
disclosure by any of its professional advisers of such other party's
Confidential or Proprietary Information, unless such information falls within
one of the categories set forth in clauses (a), (b) or (c) of the preceding
sentence.
(b) For purposes of this Section 14, the term "Confidential or Proprietary
Information" means all information known to a party hereto, or to any of its
employees, stockholders, officers, directors or consultants, which relates to
the Transaction Documents, patient medical and billing records, trade secrets,
books and records, supplies, pricing and cost information, marketing plans,
strategies and forecasts. Nothing contained herein shall prevent a party hereto
from furnishing Confidential or Proprietary Information pursuant to a direct
order of a court of competent jurisdiction.
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SECTION 15. Non-Competition.
In consideration of the premises contained herein and the consideration to
be received hereunder, and in consideration of and as an inducement to the
Management Company to consummate the transactions contemplated hereby, the
Medical Group hereby (a) agrees to the Non-Competition covenants attached hereto
as Schedule VIII and (b) agrees to require each of the physicians receiving
capital stock of the Management Company as of the date hereof, and each person
who after the date hereof becomes entitled to receive stock (or options to
receive stock) in the Management Company in connection with his or her
performance of services for the Medical Group, to execute a Stockholder
Non-Competition Agreement substantially in the form attached hereto as Exhibit
D.
SECTION 16. Obligations of the Management Company.
16.1. No Practice of Medicine.
The Medical Group and the Management Company acknowledge that certain
Federal and state statutes severely restrict or prohibit the Management Company
from providing medical services. Accordingly, during the Term, the Management
Company shall not provide or otherwise engage in services or activities which
constitute the practice of medicine, as defined in applicable state or Federal
law, except in compliance therewith.
16.2. No Interference with Professional Judgment.
Without in any way limiting Section 16.1 hereof, during the Term, the
Management Company shall not interfere with the exercise of professional
judgment by any physician or other licensed health care professional who is a
partner, employee, or contractor of the Medical Group, nor shall the Management
Company interfere with, control, direct, or supervise any physician or
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other licensed health care professional in connection with the provision of
Medical Group Services. The foregoing shall not preclude the Management Company
from assisting in the development of professional protocols and monitoring
compliance with policies and procedures that have been instituted in accordance
with this Agreement.
16.3. Market Development Limitation.
The Management Company shall not at any time during the period beginning on
the Commencement Date and ending on May 31, 1998 (the "Exclusivity Period"),
without the prior written consent of the Medical Group (which consent shall not
be unreasonably withheld), provide management services substantially similar to
those provided to the Medical Group hereunder to any orthopedic surgeon or group
of orthopedic surgeons (other than LOA and Lauderdale Orthopaedic Surgeons) that
practices in the Combined Exclusivity Area (as hereinafter defined) nor shall
the Management Company employ any such orthopaedic surgeon; provided, however,
that notwithstanding the foregoing restrictions, the Management Company may,
without the consent of the Medical Group, provide contract management services
to an independent physician association. In the event that the Medical Group has
combined with LOA on or before May 31, 1998, the Exclusivity Period shall be
extended to August 31, 2000; provided, that if the Medical Group, as combined,
consists of at least 15 practicing orthopedic surgeons as of August 31, 2000,
the Exclusivity Period shall extend throughout the Term, but if the Medical
Group, as combined, consists of less than 15 practicing orthopedic surgeons as
of such date, the Exclusivity Period shall terminate as of August 31, 2000. As
used herein, the "Combined Exclusivity Area" means and includes the physical
land area bounded on the north by Lake Worth Road, bounded on the south by McNab
Road, bounded on the east by the Atlantic Ocean and bounded on the west by the
Everglades.
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In the event that the Medical Group and LOA have not combined on or before
May 31, 1998, the Exclusivity Period shall be extended to August 31, 2000 and
the boundaries for such exclusivity shall be reduced from the Combined
Exclusivity Area to the Simplified Exclusivity Area (as hereinafter defined),
provided, that if the Medical Group has increased the number of practicing
orthopedic surgeons within the Medical Group to eight (8) by August 31, 2000,
then the Exclusivity Period shall extend throughout the Term in the Simplified
Exclusivity Area, but if the Medical Group consists of less than eight (8)
practicing orthopedic surgeons as of such date, the Exclusivity Period shall
terminate as of August 31, 2000. As used herein, the "Simplified Exclusivity
Area" means and includes the physical land area bounded on the north by Lake
Worth Road, bounded on the south by Hillsboro, bounded on the east by the
Atlantic Ocean and bounded on the west by the Everglades.
Notwithstanding the foregoing, in the event that the Management Company
acquires (the "Acquisition") a company (the "Acquired Company") that provides
management services to orthopaedic surgeons (the "Acquired Physicians")
practicing medicine in the Combined Exclusivity Area or the Simplified Area, as
applicable, the Management Company may provide to such Acquired Physicians
management services substantially similar to those provided to the Medical Group
hereunder if, during the twelve-month period prior to the consummation of the
Acquisition, the Acquired Company earned at least 51% of its revenues through
the provision of management services to medical groups practicing in
musculoskeletal specialties; provided, however, that the Management Company
shall not permit the Acquired Company to solicit any additional orthopaedic
surgeons in the Combined Exclusivity Area or the Simplified Exclusivity Area, as
applicable, after consummation of such Acquisition.
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16.4. Physician Advisory Board.
The Management Company is developing an advisory group (the "Physician
Advisory Board") to be comprised of physicians practicing in the State of
Florida. Upon the establishment of the Physician Advisory Board, and in
accordance with the governing documents thereof, the Management Company shall,
or shall cause the Physician Advisory Board to, appoint one representative from
the Medical Group, which representative shall be a physician equity owner of the
Medical Group, to serve on the Physician Advisory Board.
16.5. Ancillary Services Facilities.
(a) The Management Company shall use its reasonable best efforts to develop
and establish (i) a diagnostic services facility within 12 months after the
Signature Date and (ii) an ambulatory surgery center within 18 months after the
Signature Date, each for use by the Medical Group.
(b) The Management Company shall perform or cause to be performed
feasibility studies for a hand center and a joint center for use by the Medical
Group, and if either such center is deemed commercially feasible, then the
Management Company shall use its best efforts to develop and establish such
center within 18 months after the Signature Date.
16.6. Business Plan.
The Management Company shall cooperate with the Operations Committee in
developing an annual business plan (the "Business Plan") for the Medical Group.
The Business Plan shall include the goals and objectives of the Medical Group,
and will set forth the efforts, methods and resources to be used by the
Management Company and the Medical Group to achieve such annual goals and
objectives. The Business Plan shall be prepared and delivered by the Operations
Committee to the Medical Group and
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the Management Company within 60 days after the end of each fiscal year. The
Management Company shall, as soon as reasonably practicable after the end of
each year, deliver to the Operations Committee a written annual report on the
completion of the goals and objectives set forth in the Business Plan.
16.7. Business Combination.
In the event the Medical Group and LOA agree to consummate a business
combination between them, the Management Company shall use its best efforts to
effectuate such combination. The Management Company shall pay all costs
(excluding legal fees and disbursements) actually incurred by any party hereto
relating to the administrative changes required in connection with such
combination.
SECTION 17. Assignment.
The Management Company shall have the right to assign its rights and
delegate its obligations hereunder for security purposes or as collateral to any
affiliate and to assign its rights hereunder to any lending institution from
which the Management Company or any affiliate obtains financing. Except as set
forth in the preceding sentence, neither the Management Company nor the Medical
Group shall have the right to assign their respective rights and delegate their
respective obligations hereunder without the prior written consent of the other
party; provided, however, that after the consummation of an initial public
offering of the Management Company's common stock, the Medical Group's consent
shall not be required in connection with any assignment by the Management
Company arising out of or in connection with a sale of all or substantially all
of the stock or assets of the Management Company or the merger, consolidation,
or reorganization of the Management Company.
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SECTION 18. Notices.
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed sufficient if personally delivered, telecopied
(with original sent by mail), sent by nationally-recognized overnight courier,
or by registered or certified mail, return receipt requested and postage
prepaid, addressed as follows:
If to the Management Company:
BMJ Medical Management, Inc.
4800 North Federal Highway, Suite 104D
Boca Raton, Florida 33431
Attention: Naresh Nagpal, M.D., President
Telecopier: (561) 391-1389;
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Jeffrey S. Held, Esq.
Telecopier: (212) 408-2420; and
If to the Medical Group:
Orthopaedic Surgery Associates, INC.
1401 N.W. 9th Avenue
Boca Raton, Florida 33486
Attention: John A. Van Houten, M.D.
Telecopier: (561) 395-4551;
with a copy to:
Strawn, Monaghan & Cohen, P.A.
54 Northeast Fourth Avenue
Delray Beach, Florida 33483
Attention: Jeffrey L. Cohen, Esq.
Telecopier: (561) 278-9462;
or to such other address as the party to whom notice is to be given may have
furnished to each other party in writing in accordance herewith. Any such notice
or communication shall be deemed to have been received (a) in the case of
personal delivery and telecopier, on the date of such delivery, (b) in the case
of nationally-recognized overnight courier, on the next business day
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after the date when sent, and (c) in the case of mailing, on the third business
day following the day on which the piece of mail containing such communication
is posted.
SECTION 19. Benefits of Agreement.
This Agreement shall bind and inure to the benefit of any successors to or
permitted assigns of the Management Company and the Medical Group.
SECTION 20. Severability.
It is the desire and intent of the parties hereto that the provisions of
this Agreement be enforced to the fullest extent permissible under the laws and
public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular provision of this Agreement shall be adjudicated
by a court of competent jurisdiction to be invalid, prohibited or unenforceable
for any reason, such provision, as to such jurisdiction, shall be ineffective,
without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction. Notwithstanding the
foregoing, if such provision could be more narrowly drawn so as not to be
invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such
jurisdiction, be so narrowly drawn, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
SECTION 21. Governing Law.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Florida without giving effect to the
laws and principles thereof, or of any other jurisdiction, which would direct
the application of the laws of another jurisdiction. The parties to this
Agreement agree that jurisdiction and venue in any action brought by any
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party hereto pursuant to this Agreement may lie in any Federal or state court
located in Broward County, Florida or the Southern District of Florida. By
execution and delivery of this Agreement, the parties hereto irrevocably submit
to the non-exclusive jurisdiction of such courts for themselves and in respect
of their property with respect to such action. Nothing in this Agreement shall
affect any right that any party may otherwise have to bring any action or
proceeding relating to this Agreement in the courts of any other jurisdiction.
The parties hereto irrevocably agree that venue would be proper in such court,
and hereby waive any objection that such court is an improper or inconvenient
forum for the resolution of such action. The parties hereto shall act in good
faith and shall refrain from taking any actions to circumvent or frustrate the
provisions of this Agreement.
SECTION 22. Headings.
Section headings are used for convenience only and shall in no way affect
the construction of this Agreement.
SECTION 23. Entire Agreement; Amendments.
This Agreement and the exhibits and schedules hereto contain the entire
understanding of the parties with respect to its subject matter, and neither
this Agreement nor any part of it may in any way be altered, amended, extended,
waived, discharged or terminated except by a written agreement signed by all of
the parties against whom enforcement is sought.
SECTION 24. Attorneys' Fees.
In the event of any dispute or controversy arising out of or relating to
this Agreement, the prevailing party shall be entitled to recover from the other
party all reasonable costs and expenses, including attorneys' fees and
accountants' fees, incurred in connection with such dispute or controversy.
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SECTION 25. Counterparts.
This Agreement may be executed in counterparts, and each such counterpart
shall be deemed to be an original instrument, but all such counterparts together
shall constitute but one agreement.
SECTION 26. Waivers.
Any party to this Agreement may, by written notice to the other party,
waive any provision of this Agreement. The waiver by any party of a breach of
any provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach.
SECTION 27. Survival of Termination.
Notwithstanding anything contained herein to the contrary, Sections 3.3(f),
11, 12.3, 12.4, 13, 14, 15, 18, 19, 20, 21, 23, 24 and this Section 27 shall
survive any expiration or termination of this Agreement.
SECTION 28. Contract Modification for Prospective Legal Events.
In the event that legal counsel for either party determines (the "Legal
Determination") that the ability of the parties to fulfill their material
obligations hereunder are materially and adversely impacted by any change in
Federal, state or local law, rules, regulations or any published official
interpretation of any of the foregoing, as applied to this Agreement, and such
Legal Determination is confirmed in writing by independent legal counsel jointly
selected by the parties, then the parties shall negotiate in good faith to amend
this Agreement to avoid such materially adverse impact, while maintaining the
material economic benefits intended to be conferred hereby, if possible. If this
Agreement is not so amended within thirty (30) days after confirmation by the
independent legal counsel, then this Agreement may be terminated
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by either party. The fees and expenses of the independent counsel shall be borne
equally by the parties if such independent counsel confirms the Legal
Determination, and shall be borne solely by the initiating party if the Legal
Determination is not so confirmed. Each party shall pay its own legal costs and
fees in connection with the foregoing.
* * * * *
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IN WITNESS WHEREOF, the parties have duly executed this Management Services
Agreement as of the date first above written.
ORTHOPAEDIC SURGERY ASSOCIATES, INC.
By:
-----------------------------------
Name:
Title:
BMJ MEDICAL MANAGEMENT, INC.
By:
-----------------------------------
Name:
Title:
Acknowledged and Agreed to
(as to Sections 4, 9.7,
12.2, 14 and 15):
- ------------------------------
Stewart Eidelson, M.D.
- ------------------------------
John VanHouten, M.D.
- ------------------------------
Robert Zann, M.D.
- ------------------------------
Eric Shapiro, M.D.
- ------------------------------
Edgar Handal, M.D.
- ------------------------------
Brandon Luskin, M.D.
<PAGE>
EXECUTION COPY
================================================================================
ASSET PURCHASE AGREEMENT
BETWEEN
BMJ MEDICAL MANAGEMENT, INC.
AND
ORTHOPAEDIC SURGERY ASSOCIATES, INC.
Effective as of September 1, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I TRANSFER OF PURCHASED ASSETS, ASSUMPTION OF
LIABILITIES AND RELATED MATTERS .......................... 2
1.1. Transfer of Assets ....................................... 2
1.2. Assets Not Being Transferred ............................. 3
1.3. Liabilities Being Assumed ................................ 3
1.4. Liabilities Not Being Assumed ............................ 3
1.5. Instruments of Conveyance and Transfer, Etc .............. 4
1.6. Right of Endorsement, Etc ................................ 4
1.7. Further Assurances ....................................... 5
1.8. Assignment of Leases ..................................... 6
1.9. Condition of Purchased Assets ............................ 6
ARTICLE II PURCHASE PRICE; ALLOCATION ............................... 7
2.1. Purchase Price; Payment .................................. 7
2.2. Allocation of Purchase Price ............................. 7
2.3. Accounts Receivable Payment .............................. 7
ARTICLE III REPRESENTATIONS AND WARRANTIES ........................... 9
3.1. Representations and Warranties of the Seller ............. 9
3.2. Representations and Warranties of the Buyer .............. 13
ARTICLE IV CONDITIONS TO CLOSING .................................... 15
4.1. Conditions to Each Party's Obligations ................... 15
4.2. Conditions to Obligations of the Buyer ................... 16
4.3. Conditions to Obligations of the Seller .................. 17
4.4. Related Agreements ....................................... 18
ARTICLE V CLOSING .................................................. 19
5.1. Date ..................................................... 19
5.2. Closing Transactions ..................................... 19
ARTICLE VI INDEMNIFICATION .......................................... 21
6.1. Definitions .............................................. 21
6.2. Indemnification Generally ................................ 23
6.3. Assertion of Claims ...................................... 23
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6.4. Notice and Defense of Third Party Claims ................. 24
6.5. Survival of Representations, Warranties and
Covenants ................................................ 25
ARTICLE VII NON-COMPETITION .......................................... 26
ARTICLE VIII REPURCHASE OF ASSETS ..................................... 26
ARTICLE IX AMENDMENT, MODIFICATION AND WAIVER ....................... 26
ARTICLE X MISCELLANEOUS ............................................ 27
10.1. Transfer Taxes, Etc ...................................... 27
10.2. Entire Agreement ......................................... 27
10.3. Descriptive Headings ..................................... 27
10.4. Notices .................................................. 27
10.5. Counterparts ............................................. 28
10.6. Bulk Sales Compliance .................................... 29
10.7. Governing Law; Jurisdiction .............................. 29
10.8. Attorneys' Fees .......................................... 29
10.9. Benefits of Agreement .................................... 30
10.10. Pronouns ................................................. 30
10.11. Change of Law ............................................ 30
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EXHIBITS
- --------
Exhibit A - Bill of Sale
Exhibit B - Assignment and Assumption Agreement
SCHEDULES
- ---------
1.1(a) - Medical Equipment
1.1(b) - Furniture, Furnishings, Trade
Fixtures, and Office Equipment
1.1(c) - Equipment Leases
1.1(d) - Supplies
1.1(e) - Accounts Receivable
1.1(f) - Office Leases
1.1(g) - Deposits
1.1(h) - Additional Items
2.2 - Allocation of Purchase Price
3.1(b) - Seller Consents
3.1(c) - Claims
3.1(d) - Seller Litigation
3.2(b) - Buyer Consents
3.2(c) Buyer Litigation
<PAGE>
Definitions
The following terms which may appear in more than one Section of this Agreement
are defined at the following pages:
TERM PAGE
- ---- ----
A/R Amount ............................................................ 7
A/R Balance ........................................................... 8
A/R Collections ....................................................... 7
A/R Shortfall ......................................................... 8
Accounts Receivable ................................................... 2
Affiliate ............................................................. 21
Articles of Incorporation ............................................. 10
Assignment and Assumption Agreement ................................... 4
Assumed Obligations ................................................... 3
Bill of Sale .......................................................... 4
bulk sales laws ....................................................... 22
Business Day .......................................................... 28
Buyer ................................................................. 1
Buyer Indemnification Event ........................................... 21
Buyer Indemnified Persons ............................................. 22
Bylaws ................................................................ 10
Claims ................................................................ 11
Closing ............................................................... 19
Closing Date .......................................................... 19
Collections ........................................................... 34
Determination Date .................................................... 8
Excluded Assets ....................................................... 3
Excluded Obligations .................................................. 4
Final Statement ....................................................... 8
Indemnified Persons ................................................... 22
Indemnifying Person ................................................... 22
Legal Determination ................................................... 30
Losses ................................................................ 22
Management Services Agreement ......................................... 1
Permitted Liens ....................................................... 11
Purchase Price ........................................................ 7
Purchased Assets ...................................................... 2
Related Agreements .................................................... 16
Remainders ............................................................ 8
Seller ................................................................ 1
Seller Indemnification Event .......................................... 22
Seller Indemnified Persons ............................................ 23
Signature Date ........................................................ 1
Statement of Allocation ............................................... 7
Subject Business ...................................................... 1
Threshold Month ....................................................... 8
<PAGE>
THIS ASSET PURCHASE AGREEMENT is
entered into on October 16, 1997 (the
"Signature Date"), effective as of
September 1, 1997 , between BMJ MEDICAL
MANAGEMENT, INC., a Delaware corporation
(the "Buyer"), and ORTHOPAEDIC SURGERY
ASSOCIATES, INC., a Florida corporation
(the "Seller").
A. The Seller is engaged in the business (the "Subject Business") of
providing orthopedic medical and surgical services and related medical and
ancillary services to patients.
B. The Buyer is engaged in the business of providing management,
administrative, financial, marketing, information technology, and related
services to professional medical organizations.
C. Concurrently herewith, the Seller and the Buyer are entering into a
Management Services Agreement (the "Management Services Agreement"), pursuant to
which the Buyer will furnish to the Seller management, administrative, and
related services.
D. The Seller desires to sell, transfer, convey and assign to the Buyer and
the Buyer desires to purchase from the Seller, certain of the assets,
properties, interests in properties and rights of the Seller used in the Subject
Business upon the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements hereinafter set forth, the
parties hereby agree as follows:
<PAGE>
ARTICLE I
TRANSFER OF PURCHASED ASSETS, ASSUMPTION OF
LIABILITIES AND RELATED MATTERS
1.1. Transfer of Assets.
On the terms and subject to the conditions of this Agreement, at the
Closing (as hereinafter defined), the Seller shall sell, transfer, convey and
assign to the Buyer, and the Buyer shall purchase, assume, and accept from the
Seller, the following assets, properties, interests in properties and rights of
the Seller (the "Purchased Assets"), as the same shall exist immediately prior
to the Closing, free and clear of all Claims (as defined below) (except
Permitted Liens (as defined below)):
(a) the medical equipment owned by the Seller and listed on Schedule
1.1(a);
(b) the furniture, furnishings, trade fixtures, and office equipment
owned by the Seller and listed on Schedule 1.1(b);
(c) the Seller's rights and interests under the equipment leases
identified on Schedule 1.1(c), subject to the Buyer's assumption of the
obligations accruing thereunder as provided in Section 1.3;
(d) the supplies described on Schedule 1.1(d);
(e) the accounts receivable described on Schedule 1.1(e) (the
"Accounts Receivable") (subject to applicable law and in accordance with
Section 1.6 hereof);
(f) the Seller's rights and interests under the office leases
identified in Schedule 1.1(f), subject to the Buyer's assumption of the
obligations accruing thereunder as provided in Section 1.3;
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(g) the deposits identified on Schedule 1.1(g); and
(h) any additional items identified on Schedule 1.1(h).
1.2. Assets Not Being Transferred.
All assets, properties, interests in properties, and rights of the Seller
not expressly identified in Section 1.1 or the Schedules referenced therein (the
"Excluded Assets") are expressly excluded from the assets of the Seller being
sold, assigned, or otherwise transferred to the Buyer.
1.3. Liabilities Being Assumed.
Except as otherwise provided herein and subject to the terms and conditions
of this Agreement, simultaneously with the sale, transfer, conveyance and
assignment to the Buyer of the Purchased Assets, the Buyer shall assume, and
hereby agrees to pay when due, those liabilities accruing after the Closing Date
(as hereinafter defined) under the equipment leases identified in Schedule
1.1(c) and the office leases identified in Schedule 1.1(f) (the "Assumed
Obligations"); provided, however, that any and all obligations and liabilities
arising under any such lease as of or prior to the Closing Date and any and all
obligations and liabilities arising out of or in connection with the Seller's
breach of any such lease as of or prior to the Closing Date shall, in each case,
remain the obligations and liabilities of the Seller.
1.4. Liabilities Not Being Assumed.
The Buyer is not assuming any liabilities or obligations of the Seller
(fixed or contingent, known or unknown, matured or unmatured) whatsoever other
than the Assumed Obligations. For convenience of reference, all liabilities and
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obligations of the Seller not being assumed by the Buyer are collectively
referred to as the "Excluded Obligations." The Seller hereby agrees to pay all
Excluded Obligations as and when such Excluded Obligations become due.
1.5. Instruments of Conveyance and Transfer, Etc.
At the Closing, the Seller shall deliver (or cause to be delivered) to the
Buyer such deeds, bills of sale, endorsements, assignments and other good and
sufficient instruments of sale, transfer, conveyance and assignment as shall be
necessary to sell, transfer, convey and assign to the Buyer, in accordance with
the terms hereof, title to the Purchased Assets, free and clear of all Claims
(except Permitted Liens), including, without limitation, the delivery of a Bill
of Sale (the "Bill of Sale") substantially in the form of Exhibit A attached
hereto and the delivery of an Assignment and Assumption Agreement (the
"Assignment and Assumption Agreement") substantially in the form of Exhibit B
attached hereto. Simultaneously therewith, the Seller shall take all steps as
may be reasonably required to put the Buyer in possession and operating control
of the Purchased Assets.
1.6. Right of Endorsement, Etc.
Effective upon the Closing, the Seller hereby constitutes and appoints the
Buyer, its successors and assigns, the true and lawful attorney-in-fact of the
Seller with full power of substitution, in the name of the Buyer, or the name of
the Seller, on behalf of and for the benefit of the Buyer, to collect all
Accounts Receivable assigned to the Buyer as provided herein, to endorse,
without recourse, checks, notes and other instruments received in payment of
such Accounts Receivable in the name of the Seller, and to institute and
prosecute, in the name of the Seller or otherwise, all proceedings which the
Buyer may deem proper in order to assert or enforce any claim, right or
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title of any kind in or to the Purchased Assets (provided that the Buyer shall
not, without the consent of the Seller, initiate any such proceeding to collect
on Accounts Receivable acquired hereunder), to defend and compromise any and all
actions, suits or proceedings in respect of any of the Purchased Assets and to
do all such acts and things in relation thereto as the Buyer may deem advisable.
The foregoing powers are coupled with an interest and shall be irrevocable by
the Seller, directly or indirectly, whether by the dissolution of the Seller or
in any manner or for any reason; provided, however that notwithstanding anything
to the contrary contained herein, collections of Medicare and Medicaid Accounts
Receivable shall first be deposited into the Medical Group Collections Account
(as defined in the Management Services Agreement) and shall thereafter be
transferred to an account designated by the Buyer in accordance with the
procedures outlined in Section 5.1 of the Management Services Agreement.
Notwithstanding anything contained herein to the contrary, the power of attorney
granted to the Buyer in this Section 1.6 shall be terminated upon the
termination of the Management Services Agreement.
1.7. Further Assurances.
The Seller shall pay or cause to be paid to the Buyer promptly any amounts
which shall be received by the Seller after the Closing which constitute
Purchased Assets, including all amounts paid to the Seller on account of the
Accounts Receivable. The Seller shall, at any time and from time to time after
the Closing, upon the reasonable request of the Buyer, execute, acknowledge,
deliver and file, or cause to be executed, acknowledged, delivered or filed and
perform or cause to be performed, all such further acts, transfers, conveyances,
assignments or assurances as may reasonably be required for better selling,
transferring, conveying, assigning and assuring to the Buyer, or for aiding and
assisting in the collection of or reducing to possession by the Buyer, any of
the assets,
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properties, interests in properties or rights being purchased by the Buyer
hereunder. Any reasonable expenses incurred in connection with the foregoing
shall be borne by the Seller.
1.8. Assignment of Leases.
Anything contained in this Agreement to the contrary notwithstanding, this
Agreement shall not constitute an agreement or attempted agreement to assign any
office lease or equipment lease if an attempted assignment thereof, without the
consent of any other party thereto, would constitute a breach thereof or in any
way affect the rights of the Buyer or the Seller thereunder. The Seller shall
use its best efforts, and the Buyer shall cooperate with the Seller, to obtain
the consent of any such third party to the assignment thereof to the Buyer. If
such consent is not obtained, the Seller shall cooperate with the Buyer in any
arrangements reasonably necessary or desirable to provide for the Buyer the
benefits (together with the obligations to perform) thereunder.
1.9. Condition of Purchased Assets.
The Buyer acknowledges that the Seller makes no representations or
warranties, express or implied, as to any matter whatsoever relating to the
Purchased Assets, except for the representations and warranties expressly set
forth in this Agreement, and except as set forth expressly herein, the condition
of the Purchased Assets shall be "as is" and "where is".
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<PAGE>
ARTICLE II
PURCHASE PRICE; ALLOCATION
2.1. Purchase Price; Payment.
The purchase price (the "Purchase Price") to be paid for the Purchased
Assets shall equal the sum of the following amounts:
(a) $4,609,299.00;
(b) $2,000,000 (the "A/R Amount"), subject to adjustment in accordance
with Section 2.3, which amount is a good faith estimate of the aggregate
face value of all Accounts Receivable outstanding as of the Signature Date
and set forth on Schedule 1.1(e); and
(c) 239,751 shares (the "Shares") of common stock, $.001 par value, of
the Buyer.
2.2. Allocation of Purchase Price.
The Purchase Price shall be allocated among the Purchased Assets in a
statement (the "Statement of Allocation") reflecting the allocation set forth in
Schedule 2.2 attached hereto. The parties shall complete their respective tax
returns for the period which includes the Closing Date in a manner that is
consistent with the Statement of Allocation.
2.3. Accounts Receivable Payment.
The portion of the Purchase Price specified in Section 2.1(b) is subject to
adjustment and shall be paid or repaid as follows:
(a) In the event that the aggregate amount of collections received by
the Buyer in payment of the Accounts Receivable (the "A/R Collections"), at
any time prior to the
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<PAGE>
first anniversary of the Signature Date (the "Determination Date"), exceeds
the A/R Amount (such excess amount being referred to herein as an "A/R
Balance"), the Buyer shall pay to the Seller on the last day of the month
occurring after the month in which the Buyer first determines such A/R
Balance exists (such month in which the Buyer determines that an A/R
Balance occurred being referred to as the "Threshold Month") an amount
equal to the A/R Balance that had accrued through the last day of the
Threshold Month and, on the last day of each month occurring thereafter
through and including the Determination Date, the Buyer shall pay to the
Seller an amount, if any, equal to the A/R Balance as of the last day of
the previous month, less, in each case, the aggregate amount previously
paid pursuant to this sentence. The Buyer shall deliver to the Seller,
within 30 days after delivery of the Final Statement (as hereinafter
defined), a check in an amount, if any, equal to the A/R Balance as of the
Determination Date less the total amount of all payments made to the Seller
prior to such date pursuant to this Section 2.3(a). Within thirty (30) days
after the Determination Date, the Buyer shall furnish to the Seller a
statement (the "Final Statement") setting forth the A/R Collections,
including detail of write-offs of any of the Accounts Receivable, the
remaining outstanding balance of the Accounts Receivable, and any other
detail relating thereto as the Seller may reasonably request. If, as of the
Determination Date, the A/R Collections are less than the A/R Amount (such
deficit being referred to herein as the "A/R Shortfall"), the Seller shall
pay the A/R Shortfall to the Buyer by check in six equal monthly
installments (the first payment due 10 days after delivery of the Final
Statement). The parties hereto acknowledge and agree that after delivery of
the Final Statement and payment in full of the A/R Balance or A/R
Shortfall, as the case may be, neither party shall have any other
obligation to the other party with respect to the Accounts Receivable,
except that all remaining uncollected Accounts Receivable (the "Remainder")
shall be turned over to the Seller for disposition in such manner as the
Seller, in its sole discretion, shall determine. If the
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<PAGE>
Buyer or any of its employees, including any Administrative Personnel (as
defined in the Management Services Agreement) assists the Seller in
collecting the Remainder, the Seller shall pay the Buyer on the first of
each month a collection fee equal to six percent (6%) of that portion of
the Remainder collected during the preceding month. Notwithstanding
anything to the contrary contained herein, in the event that the Management
Services Agreement is terminated prior to the Determination Date, such date
of termination shall be deemed the Determination Date for purposes of this
Section 2.3(a).
(b) All payments by patients and third party payors shall be accounted
for on a first-in-first-out basis unless any such payment is identified as
a payment in respect of a particular invoice or otherwise is designated as
payment of a particular invoice or for a particular service.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of the Seller.
The Seller hereby represents and warrants to the Buyer, as of the Signature
Date, as follows:
(a) Organization; Good Standing; Qualification and Power. The Seller
is a corporation duly formed, validly existing and in good standing under
the laws of the State of Florida and has all requisite power and authority
to own, lease and operate its properties and to carry on its business as
now being conducted and as proposed to be conducted, to execute and deliver
this Agreement, the Bill of Sale and the Assignment and Assumption
Agreement, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The Seller has
delivered to the Buyer a true and correct copy of its articles of
incorporation (the "Articles of
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<PAGE>
Incorporation") and its bylaws (the "Bylaws"), each as in effect on the
date hereof.
(b) Authority. The execution, delivery and performance of this
Agreement, the Bill of Sale and the Assignment and Assumption Agreement and
the consummation of the transactions contemplated hereby and thereby have
been duly and validly authorized by all necessary corporate action on the
part of the Seller. This Agreement, the Bill of Sale and the Assignment and
Assumption Agreement have been duly and validly executed and delivered by
the Seller and constitute legal, valid and binding obligations of the
Seller enforceable in accordance with their respective terms, except as
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the rights of
creditors generally. Neither the execution, delivery or performance by the
Seller of this Agreement, the Bill of Sale or the Assignment and Assumption
Agreement nor the consummation by the Seller of the transactions
contemplated hereby or thereby, nor compliance by the Seller with any
provision hereof or thereof will (i) conflict with or result in a breach of
any provision of the Articles of Incorporation or Bylaws of the Seller,
(ii) cause a default (with due notice, lapse of time or both), or give rise
to any right of termination, cancellation or acceleration, under any of the
terms, conditions or provisions of any note, bond, lease, mortgage,
indenture, license or other instrument, obligation or agreement to which
the Seller is a party or by which it or any of its respective properties or
assets may be bound or (iii) to the Seller's best knowledge, violate any
law, statute, rule or regulation or order, writ, judgment, injunction or
decree of any court, administrative agency or governmental body applicable
to the Seller or any of its respective properties or assets. Except as set
forth on Schedule 3.1(b), to the Seller's best knowledge, no permit,
authorization, consent or approval of or by, or any notification of or
filing with, any person (governmental or private) is required in connection
with the execution, delivery or
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performance by the Seller of this Agreement, the Bill of Sale or the
Assignment and Assumption Agreement or the consummation of the transactions
contemplated hereby or thereby.
(c) Title to Assets, Properties, Interests in Properties and Rights
and Related Matters.
(i) The Seller has good and valid title to all of the Purchased
Assets, free and clear of all security interests, judgments, liens,
pledges, claims, charges, escrows, encumbrances, easements, options,
rights of first refusal, rights of first offer, mortgages, indentures,
security agreements or other agreements, arrangements, contracts,
commitments, understandings or obligations, whether written or oral
and whether or not relating in any way to credit or the borrowing of
money (collectively, "Claims"), of any kind or character, except for
(A) those Claims set forth on Schedule 3.1(c) and (B) Permitted Liens.
(ii) There does not exist any condition which materially
interferes with the economic value or use (consistent with the
Seller's past practice) of any tangible personal property included in
the Purchased Assets and such property is in good operating condition
and repair, reasonable wear and tear excepted.
(iii) The Seller has the complete and unrestricted power and the
unqualified right to sell, transfer, convey and assign, and the Seller
is hereby selling, transferring conveying and assigning to the Buyer,
the Purchased Assets, free and clear of all Claims (other than those
claims set forth on Schedule 3.1(c) and Permitted Liens).
(iv) As used in this Agreement, "Permitted Liens" shall mean (A)
any lien for current taxes not yet due and payable, (B) liens of
carriers, warehousemen, mechanics and materialmen created in the
ordinary course of the Subject
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Business for amounts not yet due and payable which do not materially
detract from the value or impair the use of any property or assets,
(C) in the case of Purchased Assets, liens incurred in the ordinary
course of the Subject Business (including, without limitation, surety
bonds and appeal bonds) in connection with workers' compensation,
unemployment insurance and other types of social security benefits and
(D) statutory landlord liens securing rents not yet due and payable.
(d) Litigation. Except as set forth on Schedule 3.1(d), there are no
(i) actions, suits, claims, legal or administrative or arbitration
proceedings or, to the Seller's best knowledge, investigations pending or,
to the Seller's best knowledge, threatened against the Seller, the
Purchased Assets or the Subject Business, whether at law or in equity, or
before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality or (ii)
judgments, decrees, injunctions or orders of any court, governmental
department, commission, agency, instrumentality or arbitrator against the
Seller or affecting the Purchased Assets or the Subject Business. The
Seller has delivered to the Buyer all documents and correspondence relating
to matters referred to in said Schedule 3.1(d).
(e) Compliance; Governmental Authorizations. To the Seller's best
knowledge, the Seller has complied in all material respects with all
applicable Federal, state, local or foreign laws, ordinances, regulations
and orders. The Seller has all Federal, state, local and foreign
governmental licenses and permits necessary in the conduct of the Subject
Business the lack of which would have a material adverse effect on the
Seller's ability to operate the Subject Business after the Closing Date on
substantially the same basis as presently operated, such licenses and
permits are in full force and effect, no violations are or have been
recorded in respect of any thereof and no proceeding is pending or, to the
Seller's best knowledge, threatened to revoke
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or limit any thereof. None of such licenses and permits shall be affected
in any material respect by the transactions contemplated hereby.
(f) Disclosure. Neither this Agreement (including the Exhibits and
Schedules attached hereto), the Bill of Sale, the Assignment and Assumption
Agreement nor any other document, certificate or written statement
furnished to the Buyer by or on behalf of the Seller in connection with the
transactions contemplated hereby contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make
the statements contained herein and therein not misleading.
3.2. Representations and Warranties of the Buyer.
The Buyer represents and warrants to the Seller, as of the Signature Date,
as follows:
(a) Organization, Good Standing and Power. The Buyer (i) is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, (ii) has all requisite corporate power and
authority to own, lease and operate its properties, to carry on its
business as now being conducted, to execute and deliver this Agreement and
the Assignment and Assumption Agreement, to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated
hereby and thereby.
(b) Authority. The execution, delivery and performance of this
Agreement and the Assignment and Assumption Agreement, and the consummation
of the transactions contemplated hereby and thereby, have been duly and
validly authorized by all necessary corporate action on the part of the
Buyer. This Agreement and the Assignment and Assumption Agreement have been
duly and validly executed and delivered by the Buyer, and constitute legal,
valid and binding obligations of the Buyer, enforceable in accordance with
their respective terms except as
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enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the rights of
creditors generally. Neither the execution, delivery or performance by the
Buyer of this Agreement or the Assignment and Assumption Agreement nor the
consummation by the Buyer of the transactions contemplated hereby or
thereby, nor compliance by the Buyer with any provision hereof or thereof,
will (i) conflict with or result in a breach of any provisions of the
Certificate of Incorporation or By-laws of the Buyer, (ii) cause a default
(with due notice, lapse of time or both), or give rise to any right of
termination, cancellation or acceleration, under any of the terms,
conditions or provisions of any material note, bond, lease, mortgage,
indenture, license or other instrument, obligation or agreement to which
the Buyer is a party or by which it or any of its properties or assets is
or may be bound or (iii) violate any law, statute, rule or regulation or
order, writ, judgment, injunction or decree of any court, administrative
agency or governmental body applicable to the Buyer or any of its
properties or assets. Except as set forth on Schedule 3.2(b), no permit,
authorization, consent or approval of or by, or any notification of or
filing with, any person (governmental or private) is required in connection
with the execution, delivery or performance by the Buyer of this Agreement
or the Assignment and Assumption Agreement or the consummation by the Buyer
of the transactions contemplated hereby or thereby.
(c) Litigation. Except as set forth on Schedule 3.2(c), there are no
(i) actions, suits, claims, legal or administrative or arbitration
proceedings or, to the Buyer's best knowledge, investigations pending or,
to the Buyer's best knowledge, threatened against the Buyer, whether at law
or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality or (ii) judgments, decrees, injunctions or orders of any
court, governmental department, commission, agency, instrumentality or
arbitrator against the Buyer.
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(d) Compliance; Governmental Authorizations. To the Buyer's best
knowledge, the Buyer has complied in all material respects with all
applicable Federal, state, local or foreign laws, ordinances, regulations
and orders. The Buyer has all Federal, state, local and foreign
governmental licenses and permits necessary in the conduct of its business,
the lack of which would have a material adverse effect on the Buyer's
ability to operate its business after the Closing Date on substantially the
same basis as presently operated, such licenses and permits are in full
force and effect, no violations are or have been recorded in respect of any
thereof and no proceeding is pending or, to the Buyer's best knowledge,
threatened to revoke or limit any thereof. None of such licenses and
permits shall be affected in any material respect by the transactions
contemplated hereby.
(e) Disclosure. Neither this Agreement (including the Exhibits and
Schedules attached hereto), the Assignment and Assumption Agreement nor any
other document, certificate or written statement furnished to the Seller by
or on behalf of the Buyer in connection with the transactions contemplated
hereby contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein
and therein not misleading.
ARTICLE IV
CONDITIONS TO CLOSING
4.1. Conditions to Each Party's Obligations.
The obligations of the Seller to sell the Purchased Assets, and of the
Buyer to purchase the Purchased Assets, are subject to the satisfaction of the
following conditions unless waived in writing (to the extent such conditions can
be waived by the Seller or the Buyer, as applicable):
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(a) Legal Action. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the
consummation of the transactions contemplated hereby shall have been issued
by any Federal or state court and remain in effect. Each party agrees to
use its best efforts to have any such injunction or order lifted.
(b) Legislation. No Federal, state, local or foreign statute, rule or
regulation shall have been enacted which prohibits, restricts or delays the
consummation of the transactions contemplated by this Agreement or any of
the conditions to the consummation of such transactions.
(c) Related Agreements. Each of the related agreements identified in
Section 4.4 hereof (collectively, the "Related Agreements") shall have been
fully executed and delivered prior to or at the Closing by all of the
parties required to execute and deliver such agreements.
4.2. Conditions to Obligations of the Buyer.
The obligation of the Buyer to purchase the Purchased Assets is subject to
the satisfaction of the following conditions unless waived in writing (to the
extent such conditions can be waived) by the Buyer:
(a) Representations and Warranties. The representations and warranties
of the Seller set forth in Section 3.1 shall in each case be true and
correct in all material respects as of the Closing Date and as of the
Signature Date as though made at and as of the Signature Date.
(b) Performance of Obligations. The Seller shall have performed all
obligations required to be performed by it under this Agreement prior to
and at the Closing.
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(c) Authorization. All action necessary to authorize the execution,
delivery and performance of this Agreement, the Bill of Sale and the
Assignment and Assumption Agreement by the Seller and the consummation of
the transactions contemplated hereby and thereby shall have been duly and
validly taken by the Seller and the Seller shall have full power and right
to consummate the transactions contemplated hereby and thereby.
(d) Consents and Approvals. The Seller shall have delivered to the
Buyer duly executed copies of (i) consents to the assignment of the
equipment leases and office leases listed on Schedules 1.1(c) and 1.1(f),
respectively, and (ii) all other approvals, if any, required by this
Agreement or the Schedules, in each case in form and substance satisfactory
to the Buyer and counsel to the Buyer.
(e) Government Consents, Authorizations, Etc. All consents,
authorizations, orders or approvals of, and filings or registrations with,
any Federal, state, local or foreign governmental commission, board or
other regulatory body which are required for or in connection with the
execution and delivery by the Seller of this Agreement, the Bill of Sale
and the Assignment and Assumption Agreement and the consummation by the
Seller of the transactions contemplated hereby and thereby shall have been
obtained or made.
4.3. Conditions to Obligations of the Seller.
The obligation of the Seller to sell the Purchased Assets to the Buyer is
subject to the satisfaction of the following conditions unless waived in writing
(to the extent such conditions can be waived) by the Seller:
(a) Representations and Warranties. The representations and warranties
of the Buyer set forth in Section 3.2 shall in each case be true and
correct in all material
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respects as of the Closing Date and as of the Signature Date as though made
at and as of the Signature Date.
(b) Performance of Obligations. The Buyer shall have performed all
obligations required to be performed by it under this Agreement prior to
and at the Closing.
(c) Authorization. All action necessary to authorize the execution,
delivery and performance of this Agreement and the Assignment and
Assumption Agreement by the Buyer and the consummation of the transactions
contemplated hereby and thereby shall have been duly and validly taken by
the Buyer.
(d) Government Consents, Authorizations, Etc. All consents,
authorizations, orders or approvals of, and filings or registrations with,
any Federal, state, local or foreign governmental commission, board or
other regulatory body which are required for or in connection with the
execution and delivery by the Buyer of this Agreement and the Assignment
and Assumption Agreement and the consummation by the Buyer of the
transactions contemplated hereby and thereby shall have been obtained or
made.
4.4. Related Agreements.
The Related Agreements referred to in this Agreement consist of the
following:
(a) the Management Services Agreement between the parties hereto;
(b) the Restricted Stock Agreements between the Buyer and each of the
physicians receiving capital stock of the Buyer as of the date hereof,
respectively;
(c) the Stockholder Non-Competition Agreements among the Seller, the
Buyer, and each of the physicians receiving capital stock of the Buyer as
of the date hereof, respectively;
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(d) the Assignment of Office Leases, relating to each of the medical
office premises identified on Schedule 1.1(f), entered into between the
parties hereto;
(e) the Bill of Sale executed by the Seller; and
(f) the Assignment and Assumption Agreement between the Seller and the
Buyer.
ARTICLE V
CLOSING
5.1. Date.
The closing (the "Closing") for the consummation of the transactions
contemplated by this Agreement shall be deemed to have taken place at 12:01 a.m.
on September 1, 1997 (the "Closing Date"), irrespective of the actual date(s)
and time(s) that all of the documents required hereunder are executed and
delivered.
5.2. Closing Transactions.
At the Closing, the parties shall take the actions and deliver the
documents identified in this Section 5.2. The Closing shall not be deemed to
have taken place, and the transactions contemplated by this Agreement shall not
be deemed to have been consummated, unless all of the closing transactions
identified in this Section 5.2 have been completed or waived in writing by the
parties.
(a) The Seller shall deliver to the Buyer an executed copy of the Bill
of Sale.
(b) Each of the parties shall execute and deliver to the other a copy
of the Assignment and Assumption Agreement.
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(c) The Buyer shall deliver to the Seller the Purchase Price payable
according to the following: (i) $4,278,642.00 by cashier's check or wire
transfer of funds to an account designated in writing by the Seller, (ii) a
promissory note in the principal amount of $2,330,657.00, payable by the
Buyer to the Seller in form and substance mutually agreeable to the parties
hereto and (iii) certificates representing the Shares registered in the
names of those persons set forth on Annex I attached hereto.
(d) Each of the parties shall execute and deliver to the other a fully
executed copy of the Management Services Agreement.
(e) The Seller shall deliver Restricted Stock Agreements to the Buyer
executed by each of the physicians receiving capital stock of the Buyer as
of the date hereof, respectively, and the Buyer shall execute and deliver
to the Seller Restricted Stock Agreements for each of the physicians
receiving capital stock of the Buyer as of the date hereof, respectively.
(f) The Buyer shall deliver to the physicians receiving capital stock
of the Buyer as of the date hereof stock certificates issued in their
respective names as required under the terms of the Restricted Stock
Agreements.
(g) The Seller shall deliver to the Buyer Stockholder Non-Competition
Agreements executed by each of the physicians receiving capital stock of
the Buyer as of the date hereof.
(h) The Seller shall deliver to the Buyer a copy of the resolutions of
the Seller authorizing the transactions contemplated hereby, accompanied by
a certificate of the Seller stating that such resolution has been duly
adopted in accordance with Seller's Articles of Incorporation and By-laws.
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<PAGE>
ARTICLE VI
INDEMNIFICATION
6.1. Definitions.
As used in this Agreement, the following terms shall have the following
meanings:
(a) "Affiliate", as to any person, means any other person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with such person.
(b) "Buyer Indemnification Event" shall mean the following:
(i) (A) the untruth, inaccuracy or breach of any representation
or warranty of the Seller contained in this Agreement, any Schedule or
Exhibit attached hereto, the Bill of Sale, the Assignment and
Assumption Agreement or any certificate delivered by the Seller in
connection herewith (or any facts or circumstances constituting any
such untruth, inaccuracy or breach) or (B) the breach of any agreement
or covenant of the Seller contained in this Agreement, the Bill of
Sale, or the Assumption or Assignment Agreement which is not cured
within thirty (30) days after the Seller receives written notice of
such breach from the Buyer;
(ii) the assertion against any Buyer Indemnified Person of any
liability or obligation arising from, relating to, or in any way
connected with the operation of the Subject Business at any time prior
to the Closing;
(iii) the assertion against any Buyer Indemnified Person of any
liability or obligation arising from,
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relating to, or in any way connected with any Excluded Obligation; and
(iv) any non-compliance by the Seller with any "bulk sales laws"
to the extent that such laws may be applicable to the transactions
contemplated hereby.
(c) "Buyer Indemnified Persons" shall mean and include the Buyer, its
Affiliates and their respective officers, directors, and employees.
(d) "Indemnified Persons" shall mean the Buyer Indemnified Persons or
the Seller Indemnified Persons, as the case may be.
(e) "Indemnifying Person" shall mean the Buyer or the Seller, as the
case may be.
(f) "Losses" shall mean any and all losses, claims, damages,
liabilities, expenses (including reasonable attorneys' and accountants'
fees), assessments, tax deficiencies and taxes (including interest or
penalties thereon) sustained, suffered or incurred by any Indemnified
Person arising from any matter which is the subject of indemnification
under Section 6.2.
(g) "Seller Indemnification Event" shall mean (i) the untruth,
inaccuracy or breach of any representation or warranty of the Buyer
contained in this Agreement, any Schedule or Exhibit attached hereto, the
Assignment and Assumption Agreement or any certificate delivered by the
Buyer in connection herewith (or any facts or circumstances constituting
any such untruth, inaccuracy or breach) or (ii) the breach of any agreement
or covenant of the Buyer contained in this Agreement or the Assignment and
Assumption Agreement which is not cured within thirty (30) days after the
Buyer receives written notice of such breach from the Seller, including,
without limitation, the assertion against any Seller Indemnified Person of
any liability
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<PAGE>
or obligation arising from, relating to, or in any way connected with any
Assumed Obligation.
(h) "Seller Indemnified Persons" shall mean and include the Seller and
its equity owners, directors, officers and employees.
6.2. Indemnification Generally.
(a) The Seller shall indemnify, defend and hold harmless the Buyer
Indemnified Persons, and each of them, from and against any and all Losses
resulting from Buyer Indemnification Events.
(b) The Buyer shall indemnify, defend and hold harmless the Seller
Indemnified Persons, and each of them, from and against any and all Losses
resulting from Seller Indemnification Events.
(c) The parties hereto agree that in the event of a conflict between the
terms of this Article VI and the terms of the Management Services Agreement, the
terms and provisions of the Management Services Agreement shall prevail.
6.3. Assertion of Claims.
No claim, demand, suit or cause of action shall be brought under Section
6.2 unless the Indemnified Persons, or any of them, give the Indemnifying Person
written notice of the existence of any such claim, demand, suit or cause of
action, stating with particularity the nature and basis of said claim, and the
amount thereof, to the extent known, and providing to the extent reasonably
available all written documentation relating thereto. Such written notice shall
be delivered to the Indemnifying Person as soon as practicable upon receipt of
actual knowledge of such claim, demand, suit or cause of action; provided,
however, that the failure to provide such written
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<PAGE>
notice shall not affect the Indemnified Persons' right to indemnification
hereunder if failure to provide such written notice does not materially
adversely affect the Indemnifying Person. Upon the giving of such written notice
as aforesaid, the Indemnified Persons, or any of them, shall have the right to
commence legal proceedings subsequent to the applicable survival date, if any,
for the enforcement of their rights under Section 6.2.
6.4. Notice and Defense of Third Party Claims.
(a) In the event any action, suit or proceeding is brought by a third party
against an Indemnified Person, with respect to which an Indemnifying Person may
have liability under Section 6.2, the action, suit or proceeding shall, upon the
written agreement of the Indemnifying Person that it is obligated with respect
to such action, suit or proceeding, be defended (including all proceedings on
appeal or for review which counsel for the defendant shall deem appropriate)
and, unless otherwise provided below, controlled by such Indemnifying Person.
The Indemnified Persons shall have the right to employ its or their own counsel
in any such case, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Persons, unless (i) the employment of such counsel
shall have been authorized in writing by the Indemnifying Person in connection
with the defense of such action, suit or proceeding, (ii) the Indemnifying
Person shall fail actively and diligently to defend such action, suit or
proceeding, or (iii) the Indemnified Persons shall have reasonably concluded
that there may be one or more legal or equitable defenses available to the
Indemnified Persons which are different from or additional to those available to
the Indemnifying Person, in any of which events the Indemnifying Person shall
not have the right to direct the defense of such action, suit or proceeding on
behalf of the Indemnified Persons and that portion of any fees and expenses of
counsel related to matters covered by the indemnity agreement and contained in
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<PAGE>
Section 6.2 shall be borne by the Indemnifying Person. The Indemnified Persons
shall be kept fully informed of such action, suit or proceeding at all stages
thereof whether or not they are so represented. The Indemnifying Person shall
make available to the Indemnified Persons and their attorneys and accountants
all books and records of the Indemnifying Person relating to such action, suit
or proceeding and the parties hereto agree to render to each other such
assistance as they may reasonably require of each other in order to ensure the
proper and adequate defense of any such action, suit or proceeding.
(b) The Indemnifying Person shall not make any settlement of any action,
suit or proceeding without the written consent of the Indemnified Persons, which
consent shall not be unreasonably withheld; provided, however, that in the event
the Indemnified Persons refuse to consent to a settlement acceptable to the
Indemnifying Person which is capable of settlement by the payment of money only
and the Indemnifying Persons shall demonstrate to the reasonable satisfaction of
the Indemnified Persons their ability to pay such amount, the Indemnifying
Person may pay the amount of the proposed settlement to the Indemnified Persons
and shall thereupon be released from any further liability with respect to such
action, suit or proceeding.
6.5. Survival of Representations, Warranties and Covenants.
The representations and warranties of the Seller contained in Section 3.1
and the representations and warranties of the Buyer contained in Section 3.2
shall survive the Closing and shall terminate forty-five (45) days following the
second anniversary of the Signature Date; provided, however, that the
representations and warranties of the Seller set forth in Sections 3.1(a),
3.1(b), 3.1(c) and 3.1(e), and the representations and warranties of the Buyer
set forth in Sections 3.2(a) and 3.2(b), shall survive the Closing and remain in
full force and effect until the expiration of the statute of
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<PAGE>
limitations, if any, applicable to the matters set forth therein (and
indefinitely, if none).
ARTICLE VII
NON-COMPETITION
The parties hereby acknowledge that they have entered into an agreement
regarding non-competition, as set forth in Section 15 of the Management Services
Agreement.
ARTICLE VIII
REPURCHASE OF ASSETS
The Purchased Assets, except for the Accounts Receivable, are subject to
repurchase by the Seller from the Buyer upon termination of the Management
Services Agreement in accordance with Section 13.5 of the Management Services
Agreement.
ARTICLE IX
AMENDMENT, MODIFICATION AND WAIVER
This Agreement shall not be altered or otherwise amended except pursuant to
an instrument in writing signed by each of the parties. The waiver by one party
of the performance of any covenant, condition or promise shall not invalidate
this Agreement, nor shall it be considered as a waiver by such party of any
other covenant, condition or promise. The delay in pursuing any remedy or in
insisting upon full performance for any breach or failure of any covenant,
condition or promise shall not prevent a party from later pursuing any remedies
or insisting upon full performance for the same or any similar breach or
failure.
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<PAGE>
ARTICLE X
MISCELLANEOUS
10.1. Transfer Taxes, Etc.
The Seller shall pay all sales, use and excise taxes and all registration,
recording or transfer taxes which may be payable in connection with the
transactions contemplated by this Agreement.
10.2. Entire Agreement.
This Agreement (including the recitals hereof and the Schedules and the
Exhibits attached hereto), together with the Related Agreements referenced
herein, contains the entire agreement between the parties hereto with respect to
the transactions contemplated hereby and supersedes all prior agreements,
representations, warranties and understandings, either oral or written, between
the parties with respect thereto.
10.3. Descriptive Headings.
Descriptive headings are for convenience only and shall not control or
affect the meaning or construction of any provisions of this Agreement.
10.4. Notices.
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally or sent by
telecopier, nationally-recognized overnight courier, or certified mail, postage
prepaid, return receipt requested, addressed as follows:
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<PAGE>
(a) if to the Buyer, to:
BMJ Medical Management, Inc.
4800 North Federal Highway, Suite 104D
Boca Raton, Florida 33431
Attention: President
Telecopier: (561) 391-1389;
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Jeffrey S. Held, Esq.
Telecopier: (212) 408-2420; and
(b) if to the Seller, to:
Orthopaedic Surgery Associates, INC.
1401 N.W. 9th Avenue
Boca Raton, Florida 33486
Attention: President, M.D.
Telecopier: (561) 395-4551;
with a copy to:
Strawn, Monaghan & Cohen, P.A.
54 Northeast Fourth Avenue
Delray Beach, Florida 33483
Attention: Jeffrey L. Cohen, Esq.
Telecopier: (561) 278-9462;
or to such other address as the party to whom notice is to be given may have
furnished to each other party in writing in accordance herewith. Any such
communication shall be deemed to have been given (i) when delivered if
personally delivered or sent by telecopier, (ii) on the next Business Day after
dispatch if sent by nationally-recognized, overnight courier and (iii) on the
fifth Business Day after dispatch, if sent by mail. As used herein, "Business
Day" means a day that is not a Saturday, Sunday or a day on which banking
institutions in the state of Florida are not required to be open.
10.5. Counterparts.
This Agreement may be executed in any number of counterparts, and each such
counterpart shall be deemed to be an
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original instrument, but all such counterparts together shall constitute but one
agreement.
10.6. Bulk Sales Compliance.
The Buyer hereby waives compliance by the Seller with the provisions of the
"bulk sales laws" of any state which may be in effect and applicable to the
transactions contemplated hereby; provided, however, that the Seller shall
indemnify the Buyer in connection with such noncompliance to the extent provided
in Article 6 hereof.
10.7. Governing Law; Jurisdiction.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Florida without giving effect to the
laws and principles thereof, or of any other jurisdiction, which would direct
the application of the laws of another jurisdiction. The parties to this
Agreement agree that jurisdiction and venue in any action brought pursuant to
this Agreement by any party hereto may lie in any Federal or state court located
in Broward County, State of Florida. By execution and delivery of this
Agreement, the parties hereto irrevocably submit to the jurisdiction of such
courts for themselves and in respect of their property with respect to such
action. The parties hereto irrevocably agree that venue would be proper in such
court, and hereby waive any objection that such court is an improper or
inconvenient forum for the resolution of such action, The parties hereto shall
act in good faith and shall refrain from taking any actions to circumvent or
frustrate the provisions of this Agreement.
10.8. Attorneys' Fees.
In the event of any dispute or controversy arising out of or relating to
this Agreement, the prevailing party shall be entitled to recover from the other
party all costs and expenses,
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including attorneys' fees and accountants' fees, incurred in connection with
such dispute or controversy.
10.9. Benefits of Agreement.
The terms and provisions of this Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and permitted
assigns. Anything contained herein to the contrary notwithstanding, this
Agreement shall not be assignable by any party without the consent of the other
party hereto, and any purported assignment without such consent shall be null
and void.
10.10. Pronouns.
As used herein, all pronouns shall include the masculine, feminine, neuter,
singular and plural thereof whenever the context and facts require such
construction.
10.11. Change of Law.
In the event that legal counsel for either party reasonably determines (the
"Legal Determination") that the ability of the parties to fulfill their material
obligations hereunder are materially and adversely impacted by any change in
Federal, state or local law, rules, regulations or any published official
interpretation of any of the foregoing, as applied to this Agreement, and such
Legal Determination is confirmed in writing by independent legal counsel jointly
selected by the parties, then, the parties shall negotiate in good faith to
amend this Agreement to avoid such materially adverse impact, if possible, while
maintaining the material economic benefits intended to be conferred hereby. If
this Agreement is not so amended within ninety (90) days after confirmation by
the independent legal counsel, then this Agreement may be terminated by either
party. The fees and expenses of the independent
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<PAGE>
counsel shall be borne equally by the parties if such independent counsel
confirms the Legal Determination, and shall be borne solely by the initiating
party if the Legal Determination is not so confirmed. Each party shall pay its
own legal costs and fees in connection with the foregoing.
* * * *
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Asset
Purchase Agreement to be executed on its behalf effective as of the day and year
first above written.
BMJ MEDICAL MANAGEMENT, INC.
By:____________________________
Name:
Title:
ORTHOPAEDIC SURGERY ASSOCIATES, INC.
By:____________________________
Name:
Title:
<PAGE>
ANNEX I
Distribution of Shares
----------------------
Name Shares
---- ------
Stewart Eidelson, M.D. 56,119
John VanHouten, M.D. 55,460
Robert Zann, M.D. 52,306
Eric Shapiro, M.D. 53,119
Edgar Handal, M.D. 22,747
-------
TOTAL 239,751
<PAGE>
SCHEDULE 1.1(d)
Supplies
All of the medical supplies, office supplies, postage, and printed
materials owned by the Seller and located on the premises of any of the Seller's
offices at 12:01 a.m. on the Closing Date hereunder.
<PAGE>
SCHEDULE 1.1(e)
Accounts Receivable
All of the Accounts Receivable of the Seller the payment of which would
constitute "Collections" as defined in Section 5.3(c)(ii) of the Management
Services Agreement, determined as of 12:01 a.m. of the Closing Date hereunder.
<PAGE>
SCHEDULE 2.2
Allocation of Purchase Price
Medical Equipment, Furniture, Furnishings,
Trade Fixtures, and Office Equipment $ 500,000.00
One Hundred Percent (100%) of the estimated
collectible amount of Accounts Receivable,
subject to adjustment in accordance with
Section 2.3 $ 2,000,000.00
Purchase of intangible assets for access and
rights to same (going concern, work force in
place, access to patient records and logs,
and booked business) $ 4,109,299.00
TOTAL: $ 6,609,299.00
The Shares issued as partial consideration hereunder are also allocated to the
purchase of intangible assets for access and rights to same (going concern, work
force in place, access to patient records and logs, and booked business).
<PAGE>
SCHEDULE 3.2(b)
Buyer Consents
The authorization of the Buyer's board of directors is required in
connection with the consummation of the transactions contemplated by this
Agreement, which consent has been obtained.
<PAGE>
SCHEDULE 3.2(c)
Buyer Litigation
1. A former employee of the Parent has filed a complaint in the District
Court of Harris County, Texas, which asserts claims arising out of his
termination by the Company and an alleged stock purchase agreement
among the Parent, such employee and the individuals mentioned in item
numbered two below. The Parent has removed the case to the United
States District Court for the Southern District of Texas.
2. Certain individuals have filed a complaint in the District Court of
Harris County, Texas, which claims that the Parent has breached an
agreement for the sale of the Parent's securities to such individuals.
The Parent has removed the case to the United States District Court
for the Southern District of Texas.
<PAGE>
EXHIBIT A
BILL OF SALE
ORTHOPAEDIC SURGERY ASSOCIATES, INC., a Florida corporation (the "Seller"),
hereby sells, conveys, transfers, assigns and delivers to BMJ MEDICAL
MANAGEMENT, INC., a Delaware corporation (the "Buyer"), the following assets,
properties, interests in properties and rights of the Seller (collectively, the
"Purchased Assets"):
1. the medical equipment owned by the Seller and listed on Schedule
1.1(a) of that certain Asset Purchase Agreement between the Seller and the
Buyer entered into as of the date hereof (the "Asset Purchase Agreement");
2. the furniture, furnishings, trade fixtures, and office equipment
owned by the Seller and listed on Schedule 1.1(b) of the Asset Purchase
Agreement;
3. the Seller's rights and interests under the equipment leases
identified on Schedule 1.1(c) of the Asset Purchase Agreement, subject to
the Buyer's assumption of the obligations accruing thereunder from and
after the date hereof;
4. the supplies described on Schedule 1.1(d) of the Asset Purchase
Agreement;
5. the accounts receivable described on Schedule 1.1(e) of the Asset
Purchase Agreement;
6. the Seller's rights and interests under the office leases
identified in Schedule 1.1(f) of the Asset Purchase Agreement, subject to
the Buyer's assumption of the obligations accruing thereunder from and
after the date hereof;
7. the deposits identified on Schedule 1.1(g) of the Asset Purchase
Agreement; and
<PAGE>
8. any additional items identified on Schedule 1.1(h) of the Asset
Purchase Agreement.
All assets, properties, interests in properties, and rights of the Seller not
expressly identified above or in the schedules referenced in the Asset Purchase
Agreement (the "Excluded Assets") are expressly excluded from the assets of the
Seller being sold, assigned, or otherwise transferred to the Buyer. To the
extent that there is a conflict between the terms and provisions of this Bill of
Sale and the Asset Purchase Agreement, the terms and provisions of the Asset
Purchase Agreement shall prevail.
IN WITNESS WHEREOF, the Seller has executed this instrument on the ____ day of
October, 1997, effective as of September 1, 1997.
ORTHOPAEDIC SURGERY ASSOCIATES, INC.
By:______________________________
Name:
Title:
<PAGE>
EXHIBIT B
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS AGREEMENT (the "Agreement") is entered into on October __, 1997,
effective as of September 1, 1997, between ORTHOPAEDIC SURGERY ASSOCIATES, INC.
("Assignor") and BMJ MEDICAL MANAGEMENT, INC. ("Assignee").
A. Pursuant to the terms of the Asset Purchase Agreement dated as of the
date hereof (the "Asset Purchase Agreement"), between Assignor, as Seller, and
Assignee, as Buyer, Assignor has concurrently with the delivery hereof, sold,
conveyed, transferred, assigned and delivered to Assignee certain assets of
Assignor (the "Purchased Assets"), which are specifically identified in the
Asset Purchase Agreement.
B. In partial consideration of the Purchased Assets, the Asset Purchase
Agreement provides that Assignee shall assume certain liabilities of Assignor,
identified in Section 1.3 of the Asset Purchase Agreement.
NOW, THEREFORE, Assignor and Assignee hereby agree as follows:
1. Assignment; Assumption.
Assignor hereby assigns, transfers and delivers to Assignee, and Assignee
does hereby accept, all of Assignor's rights, titles, and interests, legal and
equitable, in, to and under the equipment leases and office leases identified in
Schedule 1.1(c) and Schedule 1.1(f) of the Asset Purchase Agreement (the
"Assigned Contracts"), and Assignee agrees to assume and to pay when due, those
liabilities accruing from and after the date hereof under the Assigned Contracts
and to observe, perform, and comply with the covenants, restrictions,
limitations, and conditions imposed upon Assignor under the
<PAGE>
Assigned Contracts; provided, however, that any and all obligations and
liabilities arising under any such lease as of or prior to the Closing Date and
any and all obligations and liabilities arising out of or in connection with the
Seller's breach of any such lease shall, in each case, remain the obligations
and liabilities of the Seller.
2. Limitation of Assumption.
2.1 Right to Contest Obligations.
Nothing contained in this Agreement shall require that Assignee perform,
pay or discharge any obligation expressly assumed hereby so long as Assignee
shall in good faith contest or cause to be contested the amount or validity
thereof.
2.2 Obligations Not Assumed.
Other than as specifically stated above, Assignee is not assuming any
liabilities or obligations of the Assignor (whether fixed or contingent, known
or unknown, matured or unmatured).
To the extent there is a conflict between the terms and provisions of this
Assignment and Assumption Agreement and the Asset Purchase Agreement, the terms
and provisions of the Asset Purchase Agreement shall prevail.
* * * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Assignment and
Assumption Agreement as of the date first above written.
ORTHOPAEDIC SURGERY ASSOCIATES,
INC.
By:______________________________
Name:
Title:
BMJ MEDICAL MANAGEMENT, INC.
By:______________________________
Name:
Title:
<PAGE>
RESTRICTED STOCK AGREEMENT
THIS RESTRICTED STOCK AGREEMENT (the "Agreement") is entered into as of
October 16, 1997, between BMJ MEDICAL MANAGEMENT, INC., a Delaware corporation
(the "Company"), and the individuals identified on the signature page hereto
(each, a "Stockholder" and collectively, the "Stockholders"). This Agreement is
entered into in connection with and concurrently with that certain Management
Services Agreement effective as of September 1, 1997 (the "Management Services
Agreement") between the Company and Orthopaedic Surgery Associates, Inc. (the
"Medical Group"). The issuance of capital stock hereunder is also consideration
under the Asset Purchase Agreement between the Company and the Medical Group.
Certain capitalized terms used herein are defined in Section 5 below.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and intending to be legally bound hereby, the Company
and each Stockholder (for himself or herself only) hereby agree as follows:
1. Purchase and Sale of Restricted Shares; Representations and Warranties
of Stockholder.
(a) Upon execution of this Agreement, the Company shall, pursuant to
Section 4 and Schedule III of the Management Services Agreement, issue to each
Stockholder that number of shares (such shares are referred to herein as the
"Restricted Shares") of common stock, $.001 par value (the "Common Stock"), of
the Company set forth opposite such Stockholder's name on Schedule A attached
hereto. The aggregate shares of Common Stock issued to the Stockholders are
referred to collectively herein as "Restricted Stock." Simultaneously with the
execution and delivery hereof, the Company is delivering to each Stockholder the
certificate(s) representing the Restricted Shares.
(b) In connection with the issuance of the Restricted Shares hereunder,
each Stockholder (as to himself or herself only) represents and warrants to the
Company that:
(i) the Restricted Shares to be issued to such Stockholder pursuant to
this Agreement shall be acquired for such Stockholder's own account, for
investment only and not with a view to, or intention of, distribution
thereof in violation of the 1933 Act, or any applicable state securities
laws, and the Restricted Shares will not be disposed of in contravention of
the 1933 Act or any applicable state securities laws;
<PAGE>
(ii) such Stockholder has generally such knowledge and experience in
business and financial matters and with respect to investments in
securities of privately held companies so as to enable such Stockholder to
understand and evaluate the risks and benefits of his or her investment in
the Restricted Shares;
(iii) such Stockholder has no need for liquidity in his or her
investment in the Restricted Shares and is able to bear the economic risk
of his or her investment in the Restricted Shares for an indefinite period
of time and understands that the Restricted Shares have not been registered
or qualified under the 1933 Act or any applicable state securities laws, by
reason of the issuance of the Restricted Shares in a transaction exempt
from the registration and qualification requirements of the 1933 Act or
such state securities laws and, therefore, cannot be sold unless
subsequently registered or qualified under the 1933 Act or such state
securities laws or an exemption from such registration or qualification is
available;
(iv) such Stockholder understands that the exemption from registration
afforded by Rule 144 (the provisions of which are known to such
Stockholder) promulgated under the 1933 Act, depends on satisfaction of
various conditions and that, if applicable, Rule 144 may only afford the
basis for sales under certain circumstances and only in limited amounts;
(v) except as set forth on Annex I attached hereto, such Stockholder
is an individual (A) whose individual net worth, or joint net worth with
his or her spouse, presently exceeds $1,000,000 or (B) who had an income in
excess of $200,000 in each of the two most recent years, or joint income
with his or her spouse in excess of $300,000 in each of those years (in
each case including foreign income, tax exempt income and the full amount
of capital gains and losses but excluding any income of other family
members and any unrealized capital appreciation) and has a reasonable
expectation of reaching the same income level in the current year; or such
Stockholder otherwise meets the requirements to be considered an accredited
investor, as defined under the 1933 Act; and
(vi) such Stockholder has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of the
Restricted Shares and has had full access to or been provided with such
other information concerning the Company as he or she has requested.
(c) This Agreement constitutes the legal, valid and binding obligation of
each Stockholder, enforceable in
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<PAGE>
accordance with its terms, and the execution, delivery and performance of this
Agreement by each such Stockholder does not and will not conflict with, violate
or cause a breach of any agreement, contract or instrument to which such
Stockholder is a party or any judgment, order or decree to which such
Stockholder is subject.
(d) As an inducement to the Company to issue the Restricted Shares to each
Stockholder and as a condition thereto, each Stockholder acknowledges and agrees
that:
(i) neither the issuance of the Restricted Shares to such Stockholder
nor any provision contained herein shall affect the right of the Company to
terminate the Management Services Agreement in accordance with its terms;
and
(ii) the Company shall only be obligated to provide to such
Stockholder substantially the same information regarding the Company that
the Company regularly discloses to its other shareholders.
2. Vesting of the Restricted Shares.
(a) Except as otherwise provided in Section 2(b) below, the Restricted
Shares held by each Stockholder shall become vested in accordance with the
following schedule, if, as of each such date, (i) the Management Services
Agreement has not been terminated, (ii) there has not been a Cessation of Active
Practice by such Stockholder (as defined in Section 2(c) below), (iii) such
Stockholder has not become permanently disabled (as described in Section
3(a)(iii) below), and (iv) such Stockholder has not died:
Anniversary Date Percentage of
of this Agreement Restricted Shares Vested
----------------- ------------------------
First 25%
Second 25%
Third 25%
Fourth 25%
For purposes of this Agreement, "Anniversary Date of this Agreement" means
September 1 of each year after 1997. Restricted Shares which have become vested
are referred to herein as "Vested Shares" and all other Restricted Shares are
referred to herein as "Unvested Shares."
(b) Notwithstanding the foregoing, in the event of the death of such
Stockholder, in addition to any shares that have vested in accordance with
Section 2(a) above, the number of Unvested Shares, if any, that would have
become Vested Shares
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<PAGE>
during the 12-month period immediately following the date of death had such
death not occurred shall be deemed Vested Shares as of the date of death.
(c) For purposes of this Agreement, "Cessation of Active Practice" means a
physician Stockholder's resignation from or termination of employment with the
Medical Group (other than by reason of death or permanent disability).
3. Forfeiture and Repurchase of Restricted Shares.
(a) Forfeiture. In the event of the Cessation of Active Practice by or the
death or permanent disability of a Stockholder (the "Forfeiture Event"), the
following provisions shall apply:
(i) Such Stockholder or the estate (in the case of death) of such
Stockholder shall transfer to the Medical Group, all of the Unvested Shares
held by such Stockholder. Such Unvested Shares shall be transferred for no
consideration from the Company and the stock certificate(s) representing
those shares shall be delivered to the Company, no later than thirty (30)
days after the Forfeiture Event, duly endorsed for transfer in accordance
with this Section 3(a). The Company shall, within thirty (30) days after
its receipt of a joinder to this Agreement executed by the Medical Group,
issue and deliver to the Medical Group a certificate representing the
Unvested Shares. Such Unvested Shares shall continue to vest according to
the vesting schedule set forth in Section 2(a) above.
(ii) The Medical Group shall not Sell (as hereinafter defined) any
Unvested Shares to any Person, other than to one or more physician
employees or equity owners of the Medical Group, who prior to the receipt
of such shares from the Medical Group had not acquired any shares of the
Company's Common Stock pursuant to the Management Services Agreement
between the Company and the Medical Group. As a condition to any such Sale,
the transferee shall execute and deliver to the Company a Restricted Stock
Agreement in substantially the form of this Agreement, effective as of the
date of transfer of such shares. Any Unvested Shares distributed according
to this Section 3(a) shall be subject to the vesting schedule set forth in
Section 2(a) hereof.
(iii) For purposes of this Agreement, if such Stockholder is insured
under a disability insurance policy, the determination under such policy as
to whether such Stockholder's condition constitutes a permanent disability
shall be binding on the parties hereto. If such Stockholder is not insured
under a policy of disability insurance, such
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<PAGE>
determination shall be made by an independent qualified physician proposed
by the Medical Group, subject to the approval of the Company, which
approval shall not be unreasonably withheld.
(b) Repurchase. In the event that the Management Services Agreement is
terminated for any reason prior to the fourth anniversary of the Commencement
Date (as defined therein) (the "Repurchase Event"), the Company shall have the
right (but not the obligation) (the "Repurchase Option"), to be exercised in its
sole discretion, to repurchase all or any portion of the Restricted Shares
(whether vested or unvested and whether held by the Stockholders or one or more
of any Stockholder's Permitted Transferees) pursuant to the terms and conditions
set forth in this Section 3(b).
(i) The Company may elect to exercise the Repurchase Option and
repurchase all or any portion of the Restricted Shares by delivering
written notice (the "Repurchase Notice") to each Stockholder within ninety
(90) days after the Repurchase Event; provided, however, that, if the
Company elects to repurchase less than all of the Restricted Shares, the
Company shall first repurchase Unvested Shares and then repurchase that
number of Vested Shares, if any, as the Company may, in its sole
discretion, elect. The Repurchase Notice shall set forth the number of
Unvested Shares and Vested Shares to be repurchased, the aggregate
consideration to be paid for such shares, and the time and place for the
closing of the transaction. The purchase price payable for each Unvested
Share shall equal $.01 and the purchase price payable for each Vested Share
shall equal the Original Value of such share. If the Company decides to
repurchase Restricted Shares from any Stockholder pursuant to this Section
3(b), then the Company must purchase that number of Restricted Shares which
it has elected to repurchase from all of the Stockholders pro rata
according to the number of shares of Restricted Stock held by all of the
Stockholders at the time of delivery of such Repurchase Notice (determined
as nearly as practicable to the nearest whole share).
(ii) The closing of the repurchase of Restricted Shares pursuant to
the Repurchase Option shall take place on the date designated by the
Company in the Repurchase Notice, which date shall not be more than sixty
(60) days nor less than five (5) days after the delivery of the Repurchase
Notice. The Company shall pay for Restricted Shares to be purchased
pursuant to the Repurchase Option by delivery of (A) a cashier's check or
wire transfer of funds, (B) subordinated note or notes payable in up to
four equal annual installments beginning on the first anniversary of the
closing of such purchase and bearing interest (payable quarterly) at a rate
per annum equal to the greater of
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<PAGE>
either the prime rate announced from time to time by The Chase Manhattan
Bank (National Association) plus 1/2% or the "applicable Federal rate" (as
defined in Section 1274(d) of the Internal Revenue Code) in effect from
time to time, or (C) a combination of both (A) and (B), in the aggregate
amount of the repurchase price for such shares; provided, however, that in
the event the Medical Group is obligated to pay to the Company any sums in
connection with the repurchase of assets by the Medical Group pursuant to
Section 13.5 of the Management Services Agreement, the total amount of such
sums may be offset by the Company against any amounts owed by the Company
to the Stockholders pursuant to this Agreement (if any such Stockholder is,
at such time, an equity owner of or partner in the Medical Group), such
offset amount to be allocated pro rata among all of the Stockholders who at
such time hold equity of or are partners in the Medical Group. Any notes
issued by the Company pursuant to this paragraph 3(b)(ii) shall be subject
to the restrictive covenants, if any, to which the Company is subject at
the time of such repurchase. The Company shall be entitled to receive
representations and warranties from such Stockholder regarding (x) such
Stockholder's power, authority and legal capacity to enter into such sale
and to transfer valid right, title and interest in such Restricted Shares,
(y) such Stockholder's ownership of such Restricted Shares and the absence
of any liens, pledges, and other encumbrances on such Restricted Shares and
(z) the absence of any violation, default, or acceleration of any agreement
or instrument pursuant to which such Stockholder or such Stockholder's
assets are bound resulting from such sale.
(iii) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of Restricted Shares by the Company under this
Section 3(b) shall be subject to applicable restrictions, if any, contained
in its certificate of incorporation, any financing agreement to which the
Company is a party, Federal law or the Delaware General Corporation Law. If
any such restrictions prohibit or otherwise delay the repurchase of
Restricted Shares hereunder which the Company is otherwise entitled or
required to make, the Company may make such repurchases as soon as it is
permitted to do so.
(iv) In the event that any Restricted Shares are repurchased pursuant
to this Section 3(b), such Stockholder and his or her successors and
assigns shall, at the Company's expense, take all reasonable steps to
obtain all required third-party, governmental and regulatory consents and
approvals and take all other reasonable actions necessary to facilitate
consummation of such repurchase in a timely manner.
-6-
<PAGE>
4.Transfer Restriction; Legend.
Except as otherwise expressly provided in Section 3 and except for
Permitted Transfers, no Stockholder may sell or transfer or agree to sell or
transfer ("Sale" or "Sell") any Restricted Shares unless such Sale shall be in
accordance with the procedures set forth in this Section 4; provided, however,
that with respect to this Section 4, Restricted Shares, at any point in time,
shall be limited to Vested Shares and at no time shall any Stockholder have the
right to Sell Unvested Shares (other than pursuant to Section 3 above):
(a) In the event that a Stockholder receives a bona fide offer from a
third party (the "Prospective Stockholder") to purchase all or any part of
the Restricted Shares owned by such Stockholder, such Stockholder shall
deliver to the Company a written notice (the "Offer Notice"), which shall
be irrevocable for a period of fifteen (15) business days after delivery
thereof (the "Offer Period"), offering (the "Offer") all of the Restricted
Shares proposed to be Sold by such Stockholder to the Prospective
Stockholder at the purchase price and on the terms of the proposed Sale to
the Prospective Stockholder (such Offer Notice shall include the foregoing
information, a copy of the Prospective Stockholder's bona fide offer and
all other relevant terms of the proposed Sale, including the identification
of the Prospective Stockholder). The Company shall have the right and
option, for a period of fifteen (15) business days after delivery of the
Offer Notice, to repurchase all or any part of the Restricted Shares so
offered at the purchase price and on the terms stated in the Offer Notice.
Such acceptance shall be made by delivering a written notice to such
Stockholder within said fifteen (15) business-day period.
(b) Sales of Restricted Shares under the terms of Section 4(a) above
shall be made on a mutually satisfactory business day within fifteen (15)
business days after the expiration of the Offer Period. Delivery of
certificates or other instruments evidencing such Restricted Shares duly
endorsed for transfer shall be made on such date against payment of the
purchase price therefor.
(c) If the Company fails to purchase all of the Restricted Shares
offered for Sale pursuant to the Offer Notice, then at any time within
sixty (60) business days after the expiration of the Offer Period such
Stockholder may Sell all or any part of the remaining Restricted Shares so
offered for Sale on terms no more favorable to the Prospective Stockholder
than the terms stated in the Offer Notice; provided, however, that such
Stockholder shall not, under any circumstances, Sell any Restricted Shares
to the Prospective Stockholder if the Board of Directors of the Company, in
its sole discretion, determines in good faith that the Prospective
Stockholder is a competitor, or an Affiliate of a competitor, of the
Company or that such
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<PAGE>
Prospective Stockholder's ownership of such Restricted Shares would be
contrary to the best interests of the Company. In the event that all of
such Restricted Shares are not Sold by such Stockholder to the Prospective
Stockholder during such period, the right of such Stockholder to Sell such
Restricted Shares to the Prospective Stockholder shall expire and the
obligations of such Stockholder pursuant to this Section 4 shall be
reinstated.
(d) Any Permitted Transferee (other than the Company) shall, as a
condition to such transfer, (i) agree to be bound by all of the provisions
of this Agreement applicable to a Stockholder and shall evidence such
agreement by executing and delivering to the Company a joinder to this
Agreement in form and substance satisfactory to the Company, and (ii) if
such transferee is a partner in or an equity owner or employee of the
Medical Group, execute a noncompetition agreement in form and substance
satisfactory to the Company (if such transferee is not, as of the date of
such transfer, a party to such an agreement with the Company).
(e) The certificate(s) representing the Restricted Shares will bear
the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES OR "BLUE-SKY"
LAWS. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR LAWS.
ADDITIONALLY, THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN REPURCHASE OPTIONS, TRANSFER RESTRICTIONS AND
CERTAIN OTHER AGREEMENTS SET FORTH IN A RESTRICTED STOCK AGREEMENT
DATED AS OF OCTOBER 16, 1997, BETWEEN THE STOCKHOLDER AND BMJ MEDICAL
MANAGEMENT, INC. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE
HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT
CHARGE."
(f) The restrictions on transfers of Vested Shares set forth in this
Section 4 shall expire, and shall be of no further force or effect, upon
the consummation of the initial public offering of the Company's Common
Stock pursuant to the 1933 Act.
5.Definitions.
(a) "Affiliate" means, with respect to any Person, (a) any director,
officer, 10% stockholder or partner of such Person and (b) any other Person
that, directly or indirectly, through one or more intermediaries, controls, or
is controlled by, or is under common control with, such Person. The term
-8-
<PAGE>
"control" includes, without limitation, the possession, directly or indirectly,
of the power to direct the management and policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.
(b) "Internal Revenue Code" means the Internal Revenue Code of 1986, as the
same may be amended or supplemented from time to time, or any successor statute,
and the rules and regulations thereunder, as the same are from time to time in
effect.
(c) "Original Value" of each share of Restricted Stock purchased hereunder
will be equal to $6.50 (as proportionately adjusted for all subsequent stock
splits, stock dividends and other recapitalizations).
(d) "Person" shall be construed broadly and shall include, without
limitation, an individual, a partnership, an investment fund, a limited
liability corporation or partnership, a corporation, an association, a joint
stock company, a trust, a joint venture, an unincorporated organization and a
governmental entity or any department, agency or political subdivision thereof.
(e) "Permitted Transferee" means, as to any Stockholder, any transferee who
acquires the Restricted Shares pursuant to a Permitted Transfer or any other
transfer made in accordance with the provisions of this Agreement.
(f) "Permitted Transfer" means, as to any Stockholder, (i) any sale or
transfer of Vested Shares to (A) the spouse or lineal descendants of such
Stockholder or (B) a trust for the benefit of any of the foregoing and (ii) any
sale or transfer of Vested Shares or Unvested Shares to any other Stockholder,
or any physician who, as of the date of such transfer, is an equity owner or
employee of the Medical Group.
(g) "Public Sale" means any sale of Restricted Stock to the public pursuant
to an offering registered under the 1933 Act or to the public through a broker,
dealer or market maker pursuant to the provisions of Rule 144 adopted under the
1933 Act.
(h) "Restricted Shares" has the meaning set forth in Section 1(a). The
Restricted Shares will continue to be Restricted Shares in the hands of any
holder (other than the Company and any transferees in a Public Sale), and except
as otherwise provided herein, each such holder of the Restricted Shares will
succeed to all rights and obligations attributable to a Stockholder as the
holder of the Restricted Shares hereunder. The Restricted Shares will also
include shares of the Company's capital stock issued with respect to the
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<PAGE>
Restricted Stock by way of a stock split, stock dividend or other
recapitalization.
(i) "1933 Act" means the Securities Act of 1933, as the same may be amended
or supplemented from time to time, or any successor statute, and the rules and
regulations thereunder, as the same are from time to time in effect.
6. Indemnification.
(a) The Company shall indemnify, defend and hold harmless each Stockholder
against all liability, loss or damage sustained by such Stockholder, together
with all reasonable costs and expenses related thereto (including reasonable
legal fees and expenses), relating to or arising from the untruth, inaccuracy or
breach of any of the representations, warranties or agreements of the Company
contained in this Agreement.
(b) Each Stockholder shall indemnify and hold harmless the Company against
all liability, loss or damage, together with all reasonable costs and expenses
related thereto (including reasonable legal fees and expenses), relating to or
arising from the untruth, inaccuracy or breach of any of the representations,
warranties or agreements of such Stockholder contained in this Agreement.
7. General Provisions.
(a) Transfers in Violation of Agreement. Any sale, transfer, assignment or
other disposition (whether with or without consideration and whether voluntarily
or involuntarily or by operation of law) (each, a "Transfer") or attempted
Transfer of any Restricted Shares in violation of any provision of this
Agreement shall be void, and the Company shall not record such Transfer on its
books or treat any purported transferee of such Restricted Shares as the owner
of such stock for any purpose.
(b) Severability. It is the desire and intent of the parties hereto that
the provisions of this Agreement be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, if any particular provision of this
Agreement shall be adjudicated by a court of competent jurisdiction to be
invalid, prohibited or unenforceable for any reason, such provision, as to such
jurisdiction, shall be ineffective, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of this
Agreement or affecting the validity or enforceability of such provision in any
other jurisdiction. Notwithstanding the foregoing, if such provision could be
more narrowly drawn so as not to be invalid, prohibited or unenforceable in such
jurisdiction, it shall, as to such jurisdiction, be so narrowly
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<PAGE>
drawn, without invalidating the remaining provisions of this Agreement or
affecting the validity or enforceability of such provision in any other
jurisdiction.
(c) Entire Agreement. This Agreement, those documents expressly referred to
herein and other documents of even date herewith embody the complete agreement
and understanding among the parties hereto with respect to the subject matter
hereof and supersede and preempt any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way.
(d) Relationship Among Stockholders. No Stockholder shall have any
responsibility for any breach of this Agreement by any other Stockholder or for
any representations, warranties, acts or omissions of any other Stockholder.
Each Stockholder is entering into this Agreement for and on behalf of such
Stockholder only, and no partnership, joint venture, unincorporated association
or any other legal entity is intended to be formed by or among the Stockholders
as a result of or in connection with this Agreement. The parties have chosen to
execute a single instrument for convenience only, and this Agreement shall be
construed as separate and several agreements among the Medical Group, the
Company and each of the respective Stockholders for all purposes. This Agreement
may be executed in separate counterparts.
(e) Counterparts. This Agreement may be executed in separate counterparts,
each of which is deemed to be an original and all of which taken together
constitute one and the same agreement.
(f) mSuccessors and Assigns. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by each
Stockholder, the Company and their respective successors, permitted assigns,
heirs, representatives and estate, as the case may be (including subsequent
holders of Restricted Stock); provided, however, that the rights and obligations
of any Stockholder under this Agreement shall not be assignable except in
connection with a Permitted Transfer of Restricted Shares hereunder.
(g) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to any
choice of law or conflicting provision or rule (whether of the State of Delaware
or any other jurisdiction), that would cause the laws of any jurisdiction other
than the State of Delaware to be applied. In furtherance of the foregoing, the
internal law of the State of Delaware will control the interpretation and
construction of this agreement, even if under such jurisdiction's choice of law
-11-
<PAGE>
or conflict of law analysis, the substantive law of some other jurisdiction
would ordinarily apply.
(h) Jurisdiction. Each of the parties hereto hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of any Florida state court or Federal court of the United States of
America sitting in Palm Beach County, Florida, and any appellate court thereof,
in any action or proceeding arising out of or relating to this Agreement or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in any such Florida state
court or, to the extent permitted by law, in such Federal court. Nothing in this
Agreement shall affect the right that any party may otherwise have to bring any
action or proceeding relating to this Agreement in the courts of any other
jurisdiction.
(i) Remedies. Each of the parties to this Agreement shall be entitled to
enforce its rights under this Agreement specifically to recover damages and
costs (including reasonable attorneys' fees) for any breach of any provision of
this Agreement, which is not cured within thirty (30) days after the breaching
party receives written notice thereof from the other party, and to exercise all
other rights existing in its favor. The parties hereto agree and acknowledge
that money damages may not be an adequate remedy for any party in the event of a
breach of the provisions of this Agreement by any other party hereto and that
each party may, in its sole discretion, apply to any court of law or equity of
competent jurisdiction for specific performance and/or other injunctive relief
in order to enforce or prevent any violations of the provisions of this
Agreement.
(j) Amendment and Waiver. The provisions of this Agreement may be amended
and waived only with the prior written consent of the Company and the
Stockholders and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall be construed as a waiver of such provisions
or affect the validity, binding effect or enforceability of this Agreement or
any provision hereof; provided, however, that the Company may, without the
consent of any Stockholder, amend Schedule A hereto upon consummation of a
Permitted Transfer of Restricted Shares hereunder by any Stockholder to reflect
the then current ownership of the Restricted Stock.
(k) Notices. Any notice provided for in this Agreement must be in writing
and must be either personally delivered, transmitted via telecopier, mailed by
first class mail (postage prepaid and return receipt requested) or sent by
nationally-recognized overnight courier service (charges prepaid) to the
recipient at the address below indicated or at such other address or to the
attention of such other person as
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<PAGE>
the recipient party has specified by prior written notice to the sending party.
Notices will be deemed to have been given hereunder and received when delivered
personally, when received if transmitted via telecopier, three business days
after deposit in the U.S. mail and one business day after deposit with a
nationally-recognized overnight courier service.
(i) If to the Company, to:
BMJ Medical Management, Inc.
4800 North Federal Highway, Suite 104D
Boca Raton, Florida 33431
Attention: Naresh Nagpal, M.D., President
Telephone: (561) 391-1311
Telecopier: (561) 391-1389;
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza, 41st Floor
New York, New York 10112
Attention: Jeffrey S. Held, Esq.
Telephone: (212) 408-2417
Telecopier: (212) 408-2420; and
(ii) If to any Stockholder, to his or her address set forth on the
signature page hereto beneath his or her name.
(l) Business Days. If any time period for giving notice or taking action
hereunder expires on a day which is a Saturday, Sunday or holiday in the State
of Florida, the time period for giving notice or taking action shall be
automatically extended to the business day immediately following such Saturday,
Sunday or holiday.
(m) Attorneys' Fees. In the event of any dispute or controversy arising out
of or relating to this Agreement, the prevailing party shall be entitled to
recover from the other party all costs and expenses, including attorneys' fees
and accountants' fees, incurred in connection with such dispute or controversy.
(n) Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
(o) Construction. Where specific language is used to clarify by example a
general statement contained herein, such specific language shall not be deemed
to modify, limit or restrict in any manner the construction of the general
statement to which it relates. The language used in this Agreement shall be
deemed to be the language chosen by the parties to express
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<PAGE>
their mutual intent, and no rule of strict construction shall be applied against
any party.
(p) Nouns and Pronouns. Whenever the context may require, any pronouns used
herein shall include the corresponding masculine, feminine or neuter forms, and
the singular form of nouns and pronouns shall include the plural and vice-versa.
(q) Change of Law. In the event that legal counsel for the Company or any
Stockholder reasonably determines (the "Legal Determination") that the payments
hereunder, or the ability of the parties to fulfill their material obligations
hereunder, are materially and adversely impacted by any change in Federal, state
or local law, rules, regulations or any published official interpretation of any
of the foregoing, as applied to this Agreement, and such Legal Determination is
confirmed in writing by independent legal counsel mutually agreeable to the
parties hereto, the parties shall negotiate in good faith to amend this
Agreement to avoid such materially adverse impact, if possible, while
maintaining the material economic benefits intended to be conferred thereby. If
this Agreement is not so amended within ninety (90) days after confirmation by
the independent legal counsel, or such amendment is not possible, then this
Agreement may be terminated by any party hereto. The fees and expenses of the
independent counsel shall be borne equally by the parties if such independent
counsel confirms the Legal Determination, and shall be borne solely by the
initiating party if the Legal Determination is not so confirmed. Each party
shall pay its own legal costs and fees in connection with the foregoing.
* * * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Restricted Stock
Agreement effective as of the date first written above.
COMPANY
-------
BMJ MEDICAL MANAGEMENT, INC.
By:_______________________________
Name:
Title:
STOCKHOLDERS:
__________________________________
Stewart Eidelson, M.D.
Address for notices:
__________________________________
__________________________________
__________________________________
John VanHouten, M.D.
Address for notices:
__________________________________
__________________________________
__________________________________
Robert Zann, M.D.
Address for notices:
__________________________________
__________________________________
<PAGE>
__________________________________
Eric Shapiro, M.D.
Address for notices:
__________________________________
__________________________________
___________________________________
Edgar Handal, M.D.
Address for notices:
__________________________________
__________________________________
__________________________________
Brandon Luskin, M.D.
Address for notices:
__________________________________
__________________________________
MEDICAL GROUP
ACCEPTED AND AGREED
AS TO PARAGRAPH 3
ORTHOPAEDIC SURGERY ASSOCIATES, INC.
By:_________________________________
Name:
Title:
<PAGE>
SCHEDULE A
Stockholders
------------
Aggregate Number of
Name Restricted Shares
---- -----------------
Stewart Eidelson, M.D. 70,149
John VanHouten, M.D. 69,325
Robert Zann, M.D. 65,383
Eric Shapiro, M.D. 66,399
Edgar Handal, M.D. 28,434
Brandon Luskin, M.D. 10,856
<PAGE>
ANNEX I
Non-accredited Investors
------------------------
Each of the Stockholders listed below is not an accredited investor, as
defined under the 1933 Act:
Edgar Handal, M.D.
Brandon Luskin, M.D.
<PAGE>
STOCKHOLDER NON-COMPETITION AGREEMENT
THIS STOCKHOLDER NON-COMPETITION AGREEMENT (the "Agreement") is entered
into as of October 16, 1997, among ORTHOPAEDIC SURGERY ASSOCIATES, INC., a
Florida corporation (the "Medical Group"), each of the individuals identified on
the signature page hereof (each, a "Stockholder" and collectively, the
"Stockholders"), and BMJ MEDICAL MANAGEMENT, INC., a Delaware corporation
("BMJ"), with reference to the following facts:
A. The Medical Group is engaged in the business of providing orthopedic
medical and surgical services and related medical and ancillary services (the
"Medical Services") to the general public.
B. Each Stockholder is a partner in or an equity owner or employee of the
Medical Group.
C. BMJ is engaged in the business of providing management, administrative,
financial, marketing, information technology and related services to
professional medical organizations.
D. The Medical Group and BMJ have entered into a Management Services
Agreement effective as of September 1, 1997 (the "Management Services
Agreement"), under which the Medical Group has agreed to cause the Stockholders
to execute this Agreement.
E. Each Stockholder is acquiring stock in BMJ in connection with the
execution of the Management Services Agreement and pursuant to a Restricted
Stock Agreement entered into among the Stockholders and BMJ dated as of the date
hereof (the "Restricted Stock Agreement").
NOW, THEREFORE, in consideration of and as an inducement to BMJ's entering
into the Management Services Agreement, the Restricted Stock Agreement, and the
other agreements related thereto, and in consideration of such Stockholder's
status as a partner in or equity owner or employee of the Medical Group, each
Stockholder (for himself or herself only) hereby agrees for the benefit of both
the Medical Group and BMJ as follows:
1. Definition.
For all purposes of this Agreement, "Competitive Business" shall mean any
business that provides (i) orthopedic medical and surgical services and related
medical and ancillary
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<PAGE>
services to the general public, as may be provided from time to time by the
Medical Group, or (ii) administrative, billing, collection, financial,
marketing, information technology and operational services to professional
medical groups relating to such groups' provision of the professional medical
and related services described in clause (i).
2. Agreement Not to Compete or Interfere with Business.
(a) Each Stockholder acknowledges that (i) he or she is receiving benefits
from the acquisition of securities from BMJ pursuant to the Restricted Stock
Agreement, (ii) the Medical Group and its affiliates conduct their business
primarily in Palm Beach County, Florida, and (iii) due to the highly competitive
nature of the Medical Group's and BMJ's businesses, the value and goodwill of
the Medical Group's and BMJ's businesses would be substantially impaired if such
Stockholder engaged in a Competitive Business. Accordingly, each Stockholder
hereby agrees that, during the period (such period being referred to herein as
the "Non-Compete Period") commencing on the date hereof and ending two years
after the earliest to occur of (x) the expiration of the Management Services
Agreement, (y) the termination of the Management Services Agreement by BMJ
pursuant to Section 13.2 thereof, or (z) the effective date of such
Stockholder's resignation or termination of equity owner status or employment
with the Medical Group (the earliest to occur of clause (x), (y) or (z) being
referred to herein as the "Exit Date"), he or she will not:
(A) engage, directly or indirectly, in any Competitive Business at any
location within twenty-five (25) miles of any Medical Group office (the
"Restricted Territory"), whether such engagement shall be as an employee,
officer, director, owner, partner, advisor, consultant, stockholder or
other participant in any Competitive Business (or in any similar capacity
in which the Stockholder derives an economic benefit from a Competitive
Business);
(B) assist others in engaging in any Competitive Business within the
Restricted Territory in the manner described in the foregoing clause(A);
(C) solicit, entice or induce any employee or stockholder of, or any
partner in, the Medical Group, BMJ, or any affiliate or subsidiary of the
Medical Group or BMJ to terminate his or her employment or partnership or
stockholder status with such entity or to engage in any Competitive
Business within the Restricted Territory;
-2-
<PAGE>
(D) solicit, entice or induce any vendor, customer or distributor of
the Medical Group, BMJ, or any affiliate or subsidiary of the Medical Group
or BMJ to terminate or materially diminish its relationship with the
Medical Group, BMJ, or any affiliate or subsidiary of the Medical Group or
BMJ; or
(E) otherwise knowingly damage, disparage or interfere with the
Medical Group, BMJ, or any affiliate or subsidiary of the Medical Group or
BMJ;
provided, however, that nothing contained in this Agreement shall prohibit any
Stockholder from (1) owning in the aggregate less than one percent (1.0%) of a
class of publicly-traded securities issued by any Competitive Business or
(2) performing those activities set forth opposite such Stockholder's name on
Annex I attached hereto.
(b) BMJ and the Medical Group acknowledge and agree that such Stockholder
shall have no further obligation pursuant to this Agreement in the event that
(i) the Medical Group terminates the Management Services Agreement pursuant to
Section 13.1 thereof, (ii) either party to the Management Services Agreement
terminates such agreement pursuant to Section 13.3 thereof, or (iii) the Medical
Group terminates the Management Services Agreement pursuant to Section 13.6
thereof.
3. Confidentiality.
(a) Each Stockholder acknowledges and agrees that certain information he or
she has received or will receive from the Medical Group and its affiliates or
from BMJ and its affiliates constitutes the confidential and proprietary trade
secrets of the Medical Group or of BMJ, as the case may be, and that such
Stockholder's non-disclosure thereof is essential to this Agreement and a
condition to such Stockholder's use and possession thereof. Each Stockholder
shall retain in strict confidence any and all such confidential information
received from the Medical Group and/or any of its affiliates (the "Medical Group
Confidential Information") or from BMJ and/or any of its affiliates (the "BMJ
Confidential Information") (collectively, the "Confidential Information") and
under no circumstances shall such Stockholder distribute or in any way
disseminate Confidential Information, directly or indirectly, to any third party
or use Confidential Information for such Stockholder's personal benefit without
the prior written consent of the Medical Group (in the case of Medical Group
Confidential Information) or without the prior written consent of BMJ (in the
case of BMJ Confidential Information).
(b) Notwithstanding the above, no Stockholder shall have any liability to
the Medical Group or its affiliates or to BMJ or its affiliates with respect to
Confidential Information which:
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<PAGE>
(i) was generally known and available in the public domain at the time
it was disclosed or becomes generally known and available in the public
domain through no fault of such Stockholder;
(ii) is disclosed with the prior written consent of the Medical Group
or BMJ, as the case may be;
(iii) becomes known to such Stockholder from a source other than the
Medical Group or its affiliates or BMJ or its affiliates without breach of
this Agreement by such Stockholder, without breach of any agreement between
the Medical Group or BMJ, as the case may be, and such source, and
otherwise not in violation of the Medical Group's or its affiliates' rights
or the rights of BMJ or its affiliates;
(iv) is disclosed pursuant to the order or requirement of a court,
administrative agency, or other governmental body; provided, however, that
such Stockholder shall provide prompt, advance notice thereof to enable the
Medical Group or its affiliate or BMJ or its affiliates to seek a
protective order or otherwise prevent such disclosure; or
(v) is disclosed pursuant to the reasonable advice of such
Stockholder's legal counsel in connection with such Stockholder's defense
against a medical malpractice claim; provided, however, that such
Stockholder shall provide prompt, advance notice thereof to enable the
Medical Group or its affiliate or BMJ or its affiliates to seek a
protective order or otherwise prevent such disclosure.
(c) Each Stockholder agrees to indemnify the Medical Group or its
affiliates and BMJ or its affiliates for any damages the same may suffer as a
result of such Stockholder's or his or her agents' failure to abide by the
provisions of this Section 3.
4. Acknowledgment.
Each Stockholder acknowledges that the provisions of this Agreement are not
designed to prevent such Stockholder from earning a living or fostering his or
her own career. The provisions of this Agreement are designed to prevent any
third party from gaining unfair advantage from such Stockholder's knowledge of
confidential and proprietary information relating to the Medical Group or BMJ or
otherwise damaging or interfering with the business of the Medical Group or BMJ
or from such Stockholder's participation in any Competitive Business. Each
Stockholder further acknowledges receiving sufficient consideration under the
Restricted Stock Agreement to compensate him or her for any losses he or she may
suffer or incur as a
-4-
<PAGE>
result of losing any employment or other professional opportunity as a result of
entering into and fulfilling his or her obligations under this Agreement.
5. Buyout of Non-Compete Covenant.
(a) At any time from and after the Exit Date, a Stockholder (if and only if
such Stockholder was, as of the Exit Date, an equity owner of the Medical Group)
may request (a "Termination Request") that BMJ and the Medical Group terminate
such Stockholder's obligations under paragraph (A) of Section 2(a) hereof;
provided, however, that if such Exit Date occurs on or before the fourth
anniversary of the Commencement Date (as defined in the Management Services
Agreement), such Stockholder may not so request, and such noncompetition
covenant shall not be terminated. The Termination Request shall be made by the
Stockholder in writing and shall be delivered to the Medical Group and BMJ in
accordance with Section 9 hereof. The copy of the Termination Request addressed
to BMJ shall be accompanied by a certified check payable to BMJ in an amount
equal to one-half of that amount (the "Buyout Amount") determined in accordance
with the calculation set forth below. The Stockholder shall deliver the
remaining one-half (the "Second Payment") of the Buyout Amount to BMJ no later
than the first anniversary of the initial payment pursuant to the previous
sentence (such one year period being referred to herein as the "Payment
Period"). Notwithstanding the foregoing, in the event the Stockholder fails to
deliver the Second Payment by the end of the Payment Period, then the terms of
this Section 5(a) shall automatically be deemed null and void and the provisions
of paragraph (A) of Section 2(a) hereof shall be deemed operative again (with
the duration of the Payment Period not to be counted as part of the Non-Compete
Period).
The Buyout Amount equals:
2 x (MF x 1/P) x T/24
where;
MF = the Management Fee (as defined in the Management Services Agreement)
payable by the Medical Group for the 12-month period ending on the
fourth anniversary of the Commencement Date (as defined in the
Management Services Agreement), provided that if the Medical Group
has, during such 12-month period, combined its medical practice with
the medical practice of Lighthouse Orthopaedic Associates, P.A.
("LOA"), then MF shall equal the sum of the Management Fees payable
for such period by each of the Medical Group and LOA;
-5-
<PAGE>
P = the aggregate number of equity owners of the Medical Group (including
the Stockholder) as of the Exit Date; and
T = the number of months remaining (rounded up to the nearest whole
number) in the Non-Compete Period (determined as of the date of the
Termination Request).
(b) Notwithstanding anything to the contrary contained herein, under no
circumstances will more than one Stockholder be permitted to terminate his
noncompetition covenant under paragraph A of Section 2(a) in any 12-month period
during the Term. In the event two or more Termination Requests are received by
the Medical Group and the Management Company, the Medical Group shall determine
which of such requests shall be approved.
(c) Nothing contained herein shall be construed to in any way limit or
reduce the remedies available to the Medical Group and BMJ hereunder in the
event of a breach of Section 2(a) hereof prior to the delivery of a Termination
Request.
(d) Notwithstanding anything to the contrary contained herein, in the event
that the Stockholder delivers a Termination Request to the Medical Group and BMJ
and complies with the other provisions of Section 5(a) above, any solicitation
by the Stockholder of those patients to which the Stockholder provided medical
services prior to the Exit Date shall not be deemed a breach of Section 2
hereof.
6. Survival; Remedies.
Each Stockholder's covenants under this Agreement shall survive termination
of his or her equity owner status or employment with the Medical Group. Each
Stockholder acknowledges that a breach or threatened breach by such Stockholder
of this Agreement will cause irreparable damage and material loss to BMJ and the
Medical Group and that a remedy at law for any breach or threatened breach of
the provisions of this Agreement would be inadequate and therefore agrees that
each of the Medical Group and BMJ shall be entitled to injunctive relief;
provided, however, that nothing contained herein shall be construed as
prohibiting the Medical Group or BMJ from pursuing any other remedies available
for any such breach or threatened breach.
7. Benefits of Agreement.
This Agreement and the rights and obligations of the parties hereto shall
bind and inure to the benefit of any successors of the Medical Group and
successors of BMJ by reorganization, merger or consolidation or otherwise and
any
-6-
<PAGE>
assignee of all or substantially all of the business and properties of the
Medical Group or BMJ.
8. Severability.
It is the desire and intent of the parties hereto that the provisions of
this Agreement shall be enforced to the fullest extent permissible under the
laws and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, if any particular provision of this Agreement shall be
adjudicated to be invalid or unenforceable, such provision shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such deletion to apply only with respect to the operation of such
provision in the particular jurisdiction in which such adjudication is made. In
addition, if any one or more of the provisions contained in this Agreement shall
for any reason be held to be excessively broad as to duration, geographical
scope, activity or subject, it shall be construed by limiting and reducing it,
so as to be enforceable to the extent compatible with the applicable law as it
shall then appear.
9. Notices.
All notices or other communications required or permitted hereunder shall
be in writing and sufficient if (a) delivered personally, (b) sent by
nationally-recognized overnight courier or (c) sent by certified mail, postage
prepaid, return receipt requested, addressed as follows:
(i) If to the Medical Group, to:
Orthopaedic Surgery Associates, Inc.
1401 N.W. 9th Avenue
Boca Raton, Florida 33486
Attention: President
Telecopier: (561) 395-4551;
with a copy to:
Strawn, Monaghan & Cohen, P.A.
54 Northeast Fourth Avenue
Delray Beach, Florida 33483
Attention: Jeffrey L. Cohen, Esq.
Telecopier: (561) 278-9462;
(ii) If to any Stockholder, to his or her address set forth on the
signature page hereto beneath his or her name; and
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<PAGE>
(iii) If to BMJ, to:
BMJ Medical Management, Inc.
4800 North Federal Highway
Suite 104D
Boca Raton, Florida 33431
Attention: Naresh Nagpal, M.D.
President
Telecopier: (561) 391-1389;
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Jeffrey S. Held, Esq.
Telecopier: (212) 408-2420;
or, in each case, to such other address as the party to whom notice is to be
given may have furnished to the other party in writing in accordance herewith.
Any such communication shall be deemed to have been given (a) when delivered, if
personally delivered, (b) on the business day after dispatch, if sent by
nationally-recognized overnight courier and (c) on the third business day after
dispatch, if sent by mail.
10. Relationship Among Stockholders.
No Stockholder shall have any responsibility for any breach of this
Agreement by any other Stockholder or for any representations, warranties, acts
or omissions of any other Stockholder. Each Stockholder is entering into this
Agreement for and on behalf of such Stockholder only, and no partnership, joint
venture, unincorporated association or any other legal entity is intended to be
formed by or among the Stockholders as a result of or in connection with this
Agreement. The parties have chosen to execute a single instrument for
convenience only, and this Agreement shall be construed as separate and several
agreements among the Medical Group, BMJ and each of the respective Stockholders
for all purposes. This Agreement may be executed in separate counterparts.
11. Entire Agreement; Amendments; Prior Agreements.
This Agreement, the Management Services Agreement and the Restricted Stock
Agreement constitute the entire agreement among the parties with respect to the
subject matter hereof and may not be amended, supplemented, canceled or
discharged except by a written instrument executed by the parties hereto. This
Agreement supersedes any and all prior agreements among the parties hereto with
respect to the matters covered hereby.
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<PAGE>
12. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Florida without regard to the laws and principles thereof
or of any other jurisdiction which would direct the application of the laws of
another jurisdiction.
13. Attorneys' Fees.
In the event of any dispute or controversy arising out of or relating to
this Agreement, the prevailing party shall be entitled to recover from the
losing party all costs and expenses, including attorneys' fees and accountants'
fees, incurred in connection with such dispute or controversy.
14. Headings.
The headings of the sections of this Agreement have been inserted for
convenience of reference only and shall not be deemed to be part of this
Agreement.
* * * *
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<PAGE>
IN WITNESS WHEREOF, this Stockholder Non-Competition Agreement has been
executed and delivered as of the date first above written.
ORTHOPAEDIC SURGERY ASSOCIATES, INC.
By:_________________________________
Name:
Title:
BMJ MEDICAL MANAGEMENT, INC.
By:_________________________________
Name:
Title:
STOCKHOLDERS:
____________________________________
Stewart Eidelson, M.D.
Address for notices:
____________________________________
____________________________________
____________________________________
John VanHouten, M.D.
Address for notices:
____________________________________
____________________________________
____________________________________
Robert Zann, M.D.
Address for notices:
____________________________________
____________________________________
<PAGE>
____________________________________
Eric Shapiro, M.D.
Address for notices:
____________________________________
____________________________________
____________________________________
Edgar Handal, M.D.
Address for notices:
____________________________________
____________________________________
____________________________________
Brandon Luskin, M.D.
Address for notices:
____________________________________
____________________________________
<PAGE>
[ELEVENTH DRAFT 11/3/97]
================================================================================
MANAGEMENT SERVICES AGREEMENT
BETWEEN
BMJ MEDICAL MANAGEMENT, INC.
AND
BROWARD INSTITUTE OF ORTHOPAEDIC SPECIALTIES, P.A.
Effective as of September 1, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1 Retention of the Management Company ......................... 2
1.1. Retention ................................................. 2
1.2. Exclusivity ............................................... 2
1.3. Relationship of Parties ................................... 2
1.4. No Referral Obligation .................................... 3
SECTION 2 TERM ........................................................ 3
SECTION 3 MANAGEMENT SERVICES ......................................... 3
3.1. Management Services Generally ............................. 3
3.2. Premises .................................................. 5
3.3. Equipment ................................................. 7
3.4. New Ancillary Services .................................... 9
3.5. Administration, Finance and Accounting .................... 11
3.6. Billing and Collection .................................... 14
3.7. Administrative Personnel .................................. 19
3.8. Technical Personnel; Leased Employees ..................... 20
3.9. Medical Personnel Recruiting .............................. 22
3.10. Inventory and Supplies .................................... 23
3.11. Taxes ..................................................... 23
3.12. Information Systems Management ............................ 23
3.13. Use of New Technologies in the Practice of Medicine ....... 24
3.14. Public Relations; Marketing and Advertising ............... 25
3.15. Insurance ................................................. 25
3.16. Files and Records ......................................... 25
3.17. Managed Care Contracts .................................... 27
3.18. Budgets ................................................... 28
3.19. Force Majeure ............................................. 29
SECTION 4 CONSIDERATION ............................................... 29
SECTION 5 COSTS, COMPENSATION, AND OTHER PAYMENTS ..................... 29
5.1. Ownership of Accounts; Security ........................... 29
5.2. Bank Accounts ............................................. 30
5.3. Medical Group Compensation ................................ 31
5.4. Management Fee ............................................ 35
5.5. Management Company Costs .................................. 37
5.6. New Medical Office Start-Up Costs ......................... 40
5.7. Medical Group Costs ....................................... 46
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Page
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5.8. New Ancillary Services Costs .............................. 47
5.9. Review and Audit of Books and Records ..................... 51
5.10. Start-Up Period ........................................... 51
5.11. New Physician Compensation Costs .......................... 52
SECTION 6 REPRESENTATIONS AND WARRANTIES OF THE MEDICAL GROUP ......... 54
6.1. Organization; Good Standing; Qualification and Power ...... 54
6.2. Equity Investments ........................................ 55
6.3. Authority ................................................. 55
6.4. Financial Information ..................................... 56
6.5. Absence of Undisclosed Liabilities ........................ 57
6.6. Absence of Changes ........................................ 57
6.7. Tax Matters ............................................... 59
6.8. Litigation, Etc ........................................... 61
6.9. Compliance; Governmental Authorizations ................... 62
6.10. Accounts Receivable; Accounts Payable ..................... 62
6.11. Labor Relations; Employees ................................ 63
6.12. Employee Benefit Plans .................................... 64
6.13. Insurance ................................................. 65
6.14. Real Property ............................................. 66
6.15. Burdensome Restrictions ................................... 66
6.16. Disclosure ................................................ 66
SECTION 7 REPRESENTATIONS AND WARRANTIES OF THE MANAGEMENT COMPANY .... 67
7.1. Organization, Good Standing and Power ..................... 67
7.2. Authority ................................................. 67
7.3. Capitalization ............................................ 68
7.4. Financial Information ..................................... 69
7.5. Absence of Undisclosed Liabilities ........................ 69
7.6. Absence of Changes ........................................ 70
7.7. Litigation, Etc ........................................... 71
7.8. Compliance; Governmental Authorizations ................... 71
7.9. Employees ................................................. 72
7.10. Insurance ................................................. 72
7.11. Burdensome Restrictions ................................... 72
7.12. Disclosure ................................................ 73
SECTION 8 OPERATIONS COMMITTEE ........................................ 73
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Page
----
8.1. Formation and Operation of the Operations Committee ........ 73
8.2. Authoritative Functions of the Operations Committee ........ 73
8.3. Advisory Functions of the Operations Committee ............. 77
8.4. Committee Policies and Procedures .......................... 78
SECTION 9 OBLIGATIONS OF THE MEDICAL GROUP ............................. 79
9.1. Compliance with Laws ....................................... 79
9.2. Use of Facility ............................................ 80
9.3. Choice of Braces, Splints, Appliances,
Medical Supplies, and Allografts ........................... 80
9.4. Choice of Radiologists, Anesthesiologists,
Hospitals, Physical Therapy, MRI, and Other
Medical Professionals and Facilities ....................... 81
9.5. Insurability ............................................... 81
9.6. Medicare ................................................... 81
9.7. Accounts Receivable; Billing ............................... 81
9.8. Medical Personnel Hiring ................................... 82
9.9. Continuing Education ....................................... 82
9.10. Clinical Research .......................................... 82
SECTION 10 CERTAIN COVENANTS ............................................ 83
10.1. Change of Control .......................................... 83
10.2. Legend on Securities ....................................... 83
SECTION 11 RECORDS ...................................................... 84
11.1. Medical Records ............................................ 84
11.2. Management Business Records ................................ 84
11.3. Access to Records Following Termination .................... 84
SECTION 12 INSURANCE AND INDEMNITY ...................................... 85
12.1. Professional Liability Insurance ........................... 85
12.2. Life Insurance ............................................. 85
12.3. Indemnification by Medical Group ........................... 86
12.4. Indemnification by Management Company ...................... 86
SECTION 13 TERMINATION .................................................. 87
13.1. Termination by Medical Group ............................... 87
13.2. Termination by Management Company .......................... 88
13.3. Termination by Medical Group or Management Company ......... 89
13.4. Effect of Termination ...................................... 89
13.5. Repurchase of Assets ....................................... 91
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Page
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SECTION 14 RESCISSION ................................................... 92
14.1. Rescission By Medical Group ................................ 92
14.2. Disengagement of Individual Member ......................... 96
SECTION 15 NON-DISCLOSURE OF CONFIDENTIAL INFORMATION ................... 97
15.1. Non-Disclosure ............................................. 97
SECTION 16 NON-COMPETITION .............................................. 98
SECTION 17 OBLIGATIONS OF THE MANAGEMENT COMPANY ........................ 98
17.1. No Practice of Medicine .................................... 98
17.2. No Interference with Professional Judgment ................. 98
17.3. Operational Evaluations .................................... 99
17.4. Physician Advisory Board ................................... 100
SECTION 18 ASSIGNMENT ................................................... 100
SECTION 19 NOTICES ...................................................... 101
SECTION 20 BENEFITS OF AGREEMENT ........................................ 102
SECTION 21 SEVERABILITY ................................................. 102
SECTION 22 GOVERNING LAW ................................................ 103
SECTION 23 HEADINGS ..................................................... 104
SECTION 24 ENTIRE AGREEMENT; AMENDMENTS ................................. 104
SECTION 25 ATTORNEYS' FEES .............................................. 104
SECTION 26 COUNTERPARTS ................................................. 104
SECTION 27 WAIVERS ...................................................... 104
SECTION 29 SURVIVAL OF TERMINATION ...................................... 104
SECTION 29 CONTRACT MODIFICATION FOR PROSPECTIVE LEGAL EVENTS ........... 105
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<PAGE>
INDEX OF DEFINED TERMS
Term Page
- ---- ----
Accounts.................................................................... 29
Addbacks.................................................................... 36
Additional Term............................................................. 3
Adjusted Operating Expenses................................................. 36
Administrative Personnel.................................................... 19
Ancillary Division.......................................................... 47
Ancillary Service Reimbursement Payment..................................... 49
Ancillary Service Start-Up Costs............................................ 50
Ancillary Service Start-Up Period........................................... 49
Annual CPI Adjustment....................................................... 74
Annual Draw Amount.......................................................... 32
Annual Medical Group Compensation Amount.................................... 32
Annual Overpayment.......................................................... 32
Annual Shortfall............................................................ 32
Applicable Percentage....................................................... 36
Articles of Incorporation................................................... 11
Asset Purchase Agreement.................................................... 1
Assignment of Lease......................................................... 5
Audit Compensation Amount................................................... 51
Authorized Management Company Operating Costs............................... 40
Authorized Signatories...................................................... 15
Average Profit.............................................................. 50
Balance Sheet............................................................... 56
Balance Sheet Date.......................................................... 56
Bankruptcy Event............................................................ 87
Base Collections Amount..................................................... 101
Base Compensation Amount.................................................... 101
Base Term................................................................... 3
Billable Medical Personnel.................................................. 47
Billings.................................................................... 33
Budgets..................................................................... 28
Bylaws...................................................................... 11
Closing Notice.............................................................. 42
Code........................................................................ 60
Collateral.................................................................. 30
Collections................................................................. 33
Commencement Date........................................................... 3
Comparison Year............................................................. 101
Confidential or Proprietary Information..................................... 97
Continuation Right.......................................................... 42
(i)
<PAGE>
Term Page
- ---- ----
Corporate Acquisition....................................................... 100
Corporate Overhead.......................................................... 39
CPIC........................................................................ 74
CPIP........................................................................ 74
Determination Period........................................................ 44
Disengaging Member.......................................................... 96
Documents................................................................... 15
Draw Percentage............................................................. 31
Eligible Parties............................................................ 29
Employee Plans.............................................................. 64
Employees................................................................... 63
Equipment................................................................... 8
ERISA....................................................................... 64
Estimated Expenses.......................................................... 52
Excluded Ancillary Employees................................................ 28
Excluded Ancillary Services................................................. 28
Excluded Costs.............................................................. 38
Facility.................................................................... 80
Fair Market Value........................................................... 94
FF&E........................................................................ 8
Financing Statement......................................................... 30
Internal Financial Statements............................................... 56
Lender...................................................................... 30
Management Business......................................................... 1
Management Company.......................................................... 1
Management Company Balance Sheet............................................ 69
Management Company Balance Sheet Date....................................... 69
Management Company Bank..................................................... 30
Management Company Costs.................................................... 37
Management Company Operating Costs.......................................... 38
Management Company Transaction Documents.................................... 67
Management Fee.............................................................. 35
Management Services......................................................... 2
Medical Business............................................................ 1
Medical Equipment........................................................... 7
Medical Group............................................................... 1
Medical Group Bank.......................................................... 15
Medical Group Collections Account........................................... 15
Medical Group Costs......................................................... 46
Medical Group Services...................................................... 33
(ii)
<PAGE>
Term Page
- ---- ----
Medical Group Transaction Documents......................................... 55
Medical Personnel........................................................... 22
Monthly Draw................................................................ 31
Nasdaq...................................................................... 94
Net Operating Income........................................................ 37
New Ancillary Employee Budget............................................... 28
New Ancillary Service Medical Equipment..................................... 48
New Ancillary Services...................................................... 9
New Medical Office.......................................................... 46
New Medical Office Start-Up Costs........................................... 46
New Medical Office Start-Up Period.......................................... 46
New Office Division......................................................... 40
New Office Net Profit Date.................................................. 45
New Office Payment.......................................................... 44
New Physician............................................................... 53
New Physician Compensation.................................................. 54
New Physician Net Collections............................................... 53
New Physician Personnel Expense............................................. 54
Note No. 1.................................................................. 1
Note No. 2.................................................................. 1
Note No. 3.................................................................. 52
Office Lease................................................................ 6
Opening Right............................................................... 43
Operating Account........................................................... 30
Operations Committee........................................................ 73
Physician Advisory Board.................................................... 100
Physician Breakeven Date.................................................... 54
Physician Start Date........................................................ 54
Prepaid Expenses............................................................ 52
Professional Management Cost Savings........................................ 37
Professional Medical Cost Savings........................................... 37
Professional Practice Cost Savings.......................................... 37
Provider Account Agreement.................................................. 31
Rescission Effective Date................................................... 93
Rescission Notice........................................................... 93
Rescission Option........................................................... 92
Rescission Period........................................................... 92
Restricted Stock Agreement.................................................. 86
Retained Accounts Receivable................................................ 29
Returns..................................................................... 59
(iii)
<PAGE>
Term Page
- ---- ----
Review Financial Statements................................................. 56
Secondary Period............................................................ 42
Signature Date.............................................................. 1
Special New Medical Office Start-Up Period.................................. 44
Specialty Care Network Profit............................................... 37
Tax......................................................................... 60
Taxes....................................................................... 60
Technical Personnel......................................................... 20
Tenant Improvements......................................................... 75
Term........................................................................ 3
Unaudited Financial Statements.............................................. 69
(iv)
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THIS MANAGEMENT SERVICES AGREEMENT (the
"Agreement") is entered into on October
31, 1997, (the "Signature Date"),
effective as of September 1, 1997, by
and between BROWARD INSTITUTE OF
ORTHOPAEDIC SPECIALTIES, P.A., a Florida
professional association (the "Medical
Group"), and BMJ MEDICAL MANAGEMENT,
INC., a Delaware corporation (the
"Management Company"), with reference to
the following facts:
A. The Medical Group is engaged in the business (the "Medical Business") of
providing orthopedic medical and surgical services and related medical and
ancillary services to the general public.
B. The Management Company is a corporation engaged in the business (the
"Management Business") of providing management, administrative, financial,
marketing, information technology, and related services to professional medical
organizations.
C. Concurrently herewith, the Management Company and the Medical Group are
entering into an Asset Purchase Agreement (the "Asset Purchase Agreement"), in
the form of Exhibit A attached hereto, pursuant to which the Management Company
is acquiring substantially all of the assets of the Medical Group. In connection
with the Asset Purchase Agreement, the Management Company is issuing two (2)
promissory notes to the Medical Group, one of which is in the aggregate
principal amount of $1,334,041.76 and is due on January 2, 1998 ("Note No. 1")
and the other of which is in the aggregate principal amount of $1,262,209.94 and
is due on the earlier of (i) the consummation of the Management Company's
initial public offering of its common stock or (ii) twelve (12) months from the
date thereof (but in no event earlier than January 2, 1998) ("Note No. 2").
D. The Management Company and the Medical Group desire to enter into this
Agreement, pursuant to which, among other
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things, the Management Company will render certain management and administrative
services to the Medical Group.
NOW, THEREFORE, the Medical Group and the Management Company hereby agree
as follows:
SECTION 1. Retention of the Management Company.
1.1. Retention.
The Medical Group hereby retains the Management Company to provide all of
the management and related services identified or referenced in Section 3 hereof
and as otherwise required by this Agreement (collectively, the "Management
Services"), and the Management Company hereby accepts such retention and agrees
to provide such services, upon the terms and subject to the conditions set forth
herein.
1.2. Exclusivity.
During the term of this Agreement, the Management Company shall be the
exclusive provider of all management and administrative services utilized by the
Medical Group; provided, however, that the Medical Group may contract directly
with or otherwise engage individuals or companies for the provision of
accounting, legal, consulting, or other professional or advisory services
(provided that such services shall be in addition to, and not in replacement of,
the services to be provided by the Management Company hereunder), all in the
sole discretion of the Medical Group and at the sole cost of the Medical Group.
1.3. Relationship of Parties.
Notwithstanding anything contained herein to the contrary, (a) the
Management Company and the Medical Group intend to act and perform as
independent contractors, and the provisions hereof are not intended to create
any partnership, joint venture, or employment relationship between the parties,
and (b) the Management Company is hereby engaged solely to provide management
and administrative services to the Medical Group and shall not interfere with,
control, direct, or supervise the Medical Group
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or any medical professional employed by the Medical Group in connection with the
provision of professional medical services.
1.4. No Referral Obligation.
The parties agree that the benefits to the Medical Group hereunder do not
require, are not payment for, and are not in any way contingent upon the
admission, referral, purchase, or any other arrangement for the provision of any
item or service to or for any of the Medical Group's patients in or from any
medical facility or laboratory or from any other entity owned, operated,
controlled, or managed by the Management Company.
SECTION 2. Term.
Provided that the Closing under the Asset Purchase Agreement shall have
occurred as provided therein, and subject to such start-up procedures as the
parties may agree upon for purposes of facilitating the transition of
responsibilities required by this Agreement, the performance of services under
this Agreement shall commence as of September 1, 1997 (the "Commencement Date")
and shall expire on the fortieth anniversary of the Commencement Date unless
terminated earlier pursuant to the terms hereof (the "Base Term"). The Base Term
of this Agreement shall be automatically extended for successive terms (each, an
"Additional Term," and together with the Base Term, the "Term") of five years
each, unless either party delivers to the other party, not less than six (6)
months nor more than nine (9) months prior to the expiration of the then-current
Term, written notice of such party's intention not to so extend the Term of this
Agreement.
SECTION 3. Management Services.
3.1. Management Services Generally.
(a) The Management Company shall be the sole and exclusive manager and
administrator of all day-to-day business functions for the Medical Group,
subject to the provisions of Section 1.2 hereof. The Management Company shall
provide all of the management and administrative services reasonably required by
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the Medical Group in connection with the provision of any and all of the Medical
Group Services (as hereinafter defined) and as otherwise provided in this
Agreement, including without limitation the services described in Sections 3.2
through 3.17 hereof.
(b) Without limiting the generality of the provisions of Section 3.1(a),
and subject to the further provisions of this Agreement, the Management Services
shall include such management and administrative services as may be reasonably
required in connection with (i) all of the offices (including New Medical
Offices, as hereinafter defined) of the Medical Group, and (ii) all professional
services and all New Ancillary Services furnished by the Medical Group.
(c) Additionally, the full range of Management Services as described in
this Agreement shall be applicable with respect to the items identified as
Medical Group Costs in Section 5.7 hereof, except that such Medical Group Costs
shall be paid by the Medical Group rather than by the Management Company.
Accordingly, the Management Company shall provide accounting, bookkeeping, and
related services with respect to all such costs.
(d) The Management Company may enter into such contracts and agreements
with outside services and suppliers as the Management Company shall reasonably
deem necessary in connection with the provision of the Management Services, and,
to the extent permitted by applicable law, such contracts and agreements shall,
except as otherwise expressly provided in this Agreement, be in the name of the
Management Company; provided, however, that without the prior approval of the
Operations Committee (as hereinafter defined), the Management Company shall not
enter into any agreement pursuant to which an unaffiliated third party will
perform substantially all of the duties of the Management Company set forth in
Section 3.6(a) hereof. The Management Company shall have no authority, directly
or indirectly, to perform, and shall not perform or enter into any agreement to
perform, Medical Group Services or any other medical
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function required by law to be performed by a licensed physician or by any other
licensed health care professional.
(e) The Management Company shall comply in all material respects with all
applicable material Federal, state and local laws, regulation, and ordinances in
connection with the provision of the Management Services hereunder.
3.2. Premises.
(a) The Medical Group, as of the Commencement Date, leases premises and
provides Medical Group Services (as hereinafter defined) at the following
locations:
4440 Sheridan Street
Hollywood, Florida 33021
4310 Sheridan Street
Hollywood, Florida 33021
3475 Sheridan Street
Hollywood, Florida 33021
601 N. Flamingo Road - #101
Pembroke Pines, Florida 33028
1845 N. Corporate Lakes Blvd.
Ft. Lauderdale, Florida 33326
1150 N. 35th Avenue - #135
Hollywood, Florida 33021
Immediately prior to the Commencement Date, all of the above-identified premises
were leased to the Medical Group, in the Medical Group's name. Effective from
and after the Commencement Date, each of the leases for such premises are to be
assigned from the Medical Group to the Management Company pursuant to an
assignment (each, an "Assignment of Lease") substantially in the form attached
hereto as Exhibit B. During the Term, the Medical Group shall, subject in all
instances to the terms of such leases, have the right to use such premises
solely for the provision of Medical Group Services in accordance with the terms
of this Agreement. In connection therewith, the Medical Group agrees in all
instances to abide by all of the
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terms and provisions of all such leases. Upon the expiration of any of the
leases assigned in accordance with this Section 3.2(a), the Management Company
shall use its best efforts to enter into a new lease, in the name of the
Management Company, with the landlord of such premises; provided, however, that
the approval of the Medical Group, which shall not be unreasonably withheld,
shall be required in the event of any substantial changes in the terms of such
lease, and if the Medical Group does not give such approval, the failure to
enter into such new lease shall not constitute a default of the Management
Company. Each assigned lease and each new lease entered into between the
Management Company and the landlord is referred to herein as an "Office Lease."
(b) A New Medical Office (as hereinafter defined) may be opened only upon
the agreement of the Operations Committee. The capital costs and start-up costs
reasonably required in connection with the opening of any New Medical Office
shall be borne as set forth in Section 5 hereof. The premises of any New Medical
Office shall be leased by the Management Company, in the Management Company's
name, and the Medical Group shall, subject in each instance to the terms of any
such lease, have the right to use the premises of any such New Medical Office
solely for the provision of Medical Group Services in accordance with the terms
of this Agreement. In connection therewith, the Medical Group agrees in all
instances to abide by all of the terms and provisions of all such leases.
Notwithstanding anything to the contrary contained in this Agreement, the
Management Company may, in its sole discretion, determine to permanently close
any New Medical Office if such office is not, after 12 months of operation,
profitable (as determined in the sole discretion of the Management Company)
(subject, however, to the right of the Medical Group pursuant to Section 5.6(c)
hereof to keep such New Medical Office open).
(c) Except as set forth in Sections 3.2(a) or (b) above, the closing or
relocation of any offices of the Medical
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Group shall be subject to agreement by the Medical Group and the Management
Company.
(d) The services to be provided by the Management Company with respect to
the premises leased in accordance with this Section 3.2 shall include, without
limitation, the negotiation and renegotiation of leases, communication with the
landlords of the respective premises, identification of potential new locations
for Medical Group offices, financial analysis relating to the opening, closing,
and relocation of any offices, arrangement of necessary repairs, maintenance and
improvements, procurement of property insurance, arrangement of telephone and
other utility services, and hazardous waste disposal, and all other reasonably
necessary or appropriate services related to all of the offices of the Medical
Group.
(e) The Management Company also shall provide all necessary or appropriate
leasehold improvements to each of the premises, subject to prior approval as
provided in Section 8.2 hereof.
(f) The Medical Group acknowledges that the Management Company makes no
warranties or representations, expressed or implied, regarding the condition of
any of the leased premises.
3.3. Equipment.
(a) During the Term, the Management Company shall provide to the Medical
Group the diagnostic and therapeutic medical equipment reasonably required by
the Medical Group in connection with the provision of Medical Group Services
(collectively, the "Medical Equipment"). The Management Company shall acquire
(or lease), at its cost, all Medical Equipment, and the Management Company shall
retain ownership of (or the leasehold interest with respect to) all Medical
Equipment. As used herein, the term Medical Equipment shall not include medical
equipment used in connection with a New Ancillary Service or Excluded Ancillary
Service (each as hereinafter defined).
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(b) The Management Company also shall provide, or arrange for the provision
of, to the Medical Group all furniture, furnishings, trade fixtures, and office
equipment reasonably required in connection with the provision of Medical Group
Services pursuant to this Agreement (collectively, "FF&E"). The Management
Company shall acquire, at its cost, all FF&E, and the Management Company shall
retain ownership of all FF&E. As used herein, the term FF&E does not include
furniture, furnishings, trade fixtures, and office equipment used in connection
with a New Ancillary Service.
(c) The Medical Equipment and the FF&E are sometimes referred to
collectively as the "Equipment." The acquisition, replacement, relocation, or
other disposition of any Equipment shall require prior approval as provided in
Section 8.2 hereof.
(d) The Medical Group's right to use the Equipment shall be subordinate to
the rights of any unaffiliated third party to which the Management Company
elects, in its sole discretion, to grant any security interest, mortgage, lien
or other encumbrance in or on the Equipment. The Medical Group shall use the
Equipment only in connection with its provision of the Medical Group Services,
and the Medical Group shall not alter, repair, augment, or remove the Equipment
from the premises of the Medical Group without the prior written consent of the
Management Company and any lessor thereof, which approval may be granted or
withheld in the Management Company's or such lessor's sole discretion. To the
extent the Equipment is utilized by the Medical Group in the provision of
Medical Group Services, the Medical Group shall have the right to exercise
reasonable control over the use of such Equipment.
(e) From time to time, and as reasonably requested by the Medical Group,
the Management Company shall use reasonable efforts to cause the Equipment
manufacturer or its authorized agent to provide service and maintenance for the
Equipment as needed to maintain the Equipment in an operable condition, so
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that all such Equipment shall function continuously (subject to interruptions
not reasonably avoidable) in accordance with the manufacturer's specifications
and so that all conditions imposed by the manufacturer to maintaining the
continued effectiveness of any warranty on such Equipment shall be satisfied.
The Management Company shall take all reasonable steps to provide that all
necessary service and maintenance is obtained in a prompt and timely manner, so
as to minimize the amount of time that any of the Equipment is not available for
usage by or for patients of the Medical Group.
(f) SOLELY WITH RESPECT TO THE EQUIPMENT INITIALLY PROVIDED TO THE MEDICAL
GROUP UPON THE EXECUTION OF THIS AGREEMENT, THE MEDICAL GROUP ACKNOWLEDGES THAT
THE MANAGEMENT COMPANY IS HEREIN MAKING NO WARRANTIES OR REPRESENTATIONS,
EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER RELATING TO THE EQUIPMENT
PROVIDED TO THE MEDICAL GROUP PURSUANT TO THIS AGREEMENT, INCLUDING, WITHOUT
LIMITATION, THE DESIGN CONDITION OF THE EQUIPMENT, THE CONFORMANCE THEREOF TO
THE PROVISIONS AND SPECIFICATIONS OF ANY PURCHASE ORDER RELATING THERETO, OR THE
FITNESS OF THE EQUIPMENT FOR ANY PARTICULAR PURPOSE. Nothing in this Agreement
shall be construed to affect or limit in any way the professional discretion of
the Medical Group to select and use any Equipment acquired by the Management
Company in accordance with the terms of this Agreement insofar as such selection
or use constitutes or might constitute the practice of medicine.
3.4. New Ancillary Services.
(a) For purposes of this Agreement, "New Ancillary Services" means the
technical component (but not the professional component) of the following,
except as set forth in Schedule I:
(i) Magnetic resonance imaging and/or other imaging services (except
diagnostic radiology);
(ii) Outpatient surgery; and
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(iii) Other revenue-producing services generally recognized as
ancillary services, but excluding the following:
(A) Any services provided on a regular basis by the Medical Group
immediately prior to the Commencement Date, including without
limitation (1) plain film and other diagnostic radiology (if
any), (2) ultrasound for pediatric patients, (3) physical
therapy; and (4) densitometry; and
(B) Any service performed in connection with new Medical Equipment
acquired to replace existing Medical Equipment so long as the new
Medical Equipment performs substantially the same functions as
the replaced Medical Equipment.
New Ancillary Services do not include the sale or provision of (or services
rendered in connection with) prosthetics, prosthetic devices, orthotics, braces,
splints, appliances, crutches, casts, or any other supplies or similar items
which are billable to patients or payors, all of which are to be included in the
scope of Medical Group Services.
(b) New Ancillary Services may be established only upon agreement of the
Medical Group and the Management Company. Such agreement shall be memorialized
in a written agreement executed by the parties (or in a written amendment to
this Agreement) under which the Management Company agrees to provide all of the
Management Services described in this Section 3 in connection with such New
Ancillary Service, and for which the Management Company shall be compensated as
described in Section
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5.8 of this Agreement, except as may otherwise be agreed upon by the parties.
3.5. Administration, Finance and Accounting.
The Management Company shall provide or arrange for the provision of all
administrative, financial, and accounting functions necessary for the operation
of the Medical Group, including, without limitation, the following (if
applicable):
(a) Creation and maintenance of bank accounts.
(b) Deposits of receipts.
(c) Preparing accounts receivable summary reports, including various
analyses of delinquent accounts.
(d) Receiving appropriate approvals as required by the Medical Group's
articles of incorporation (the "Articles of Incorporation") and its
bylaws (the "Bylaws") prior to distribution of payments to outside
parties; provided, however, that the Management Company shall not be
responsible for or liable with respect to interpretations of the
Articles of Incorporation or Bylaws.
(e) Disbursement of payables, including payables of the Medical Group;
provided, however, that payables of the Medical Group shall be paid
from an account of the Medical Group and not from any of the
Management Company's bank accounts, and all checks drawn on any
Medical Group account shall be signed by an authorized representative
of the Medical Group; provided, further, that the accounts payable
function shall be performed by personnel located at the offices where
the Medical Group performs Medical Group Services, under the
supervision
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of the Management Company personnel located at its principal offices.
(f) Negotiation of vendor contracts.
(g) Performing monthly accounting functions, including bank
reconciliations, maintenance of books and records, and preparation of
financial statements.
(h) Analyzing financial data as reasonably requested by physicians.
(i) Analyzing potential New Medical Office locations, and coordinating all
functions associated with opening New Medical Office locations.
(j) Preparing monthly financial and medical practice statistics reports by
satellite office and by physician, and the Management Company shall
use its reasonable efforts to have such reports available, with
respect to any given month, 20 days after the end of such month.
(k) Providing from the Medical Group's bank account(s) compensation
payments to physicians and professional corporations pursuant to
service agreements, monthly profit and loss distributions, and
quarterly bonus calculations; provided, however, that the Management
Company shall not be responsible for or liable with respect to
interpretations of the Articles of Incorporation or Bylaws; provided,
further, that all checks drawn on any Medical Group bank account shall
be signed by an authorized representative of the Medical Group.
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(l) Calculating physicians' annual earnings based on the Medical Group's
physician compensation formulas.
(m) Ongoing day-to-day communication with the managing partner, member or
stockholder (or other manager of the Medical Group) and assisting such
person in fulfilling his responsibilities.
(n) Preparing agendas and information packages for Medical Group meetings.
(o) Developing budgets and long-term strategies for the Medical Group,
including an initial long-term plan and capital expenditures budget
and the Management Company shall use its reasonable efforts to have
such plan and budget delivered to the Medical Group within 180 days
and 90 days, respectively, after the Commencement Date.
(p) Coordinating payroll processing and payroll tax payments.
(q) Providing ongoing personnel FTE analysis.
(r) Sponsoring employee benefit plans and providing administrative
services relating thereto for the Medical Personnel (as hereinafter
defined), provided that if the Medical Group elects not to participate
in the employee benefit plans established by the Management Company,
the Management Company shall not be required to perform the services
set forth in this clause (r).
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(s) Coordinating recruitment, interviewing, and hiring of new physicians
approved by the Medical Group, in its sole discretion.
(t) Implementing fee schedule increases and/or decreases established by
the Medical Group.
(u) Coordinating depositions and court appearances.
(v) Assisting in the coordination of call schedules.
(w) Assisting in the coordination of coverage of athletic team events.
(x) Acting as liaison to hospital administration, physical therapy,
surgery center, MRI, and other ancillary services entities.
(y) Cooperating with outside accountants in preparing various schedules
and providing other information.
(z) Interacting with legal counsel retained by the Management Company as
necessary in connection with matters directly impacting the Medical
Group, such as with respect to reviewing and negotiating new leases
and reviewing and negotiating managed care contracts.
3.6. Billing and Collection.
(a) The Medical Group acknowledges that ownership of all Accounts (as
hereinafter defined) is transferred by the Medical Group to the Management
Company as provided in greater detail in Section 5.1 of this Agreement. In order
to facilitate the collection of the Accounts, the Management Company shall (i)
bill patients and third party payors in the Medical Group's name; (ii) collect
accounts receivable resulting from such billing;
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(iii) receive payments and prepayments from the Medical Group's patients, Blue
Cross and Blue Shield organizations, insurance companies, health care plans,
Medicare, Medicaid, HMOs, and any and all other third party payors; (iv) take
possession of and deposit into such bank (the "Medical Group Bank") as the
Medical Group designates, in an account established by the Medical Group in the
name of the Medical Group (the "Medical Group Collections Account"), any and all
checks, insurance payments, cash, cash equivalents and other instruments
received for Medical Group Services; and (v) initiate with the consent of the
Medical Group, which consent may be withheld by the Medical Group in its sole
and absolute discretion, legal proceedings in the name of the Medical Group to
collect any Accounts and monies owed to the Medical Group, to enforce the rights
of the Medical Group as a creditor under any contract or in connection with the
rendering of any service, and to contest adjustments and denials by governmental
agencies (or their fiscal intermediaries) as third-party payors. The Medical
Group shall promptly turn over to the Management Company for deposit into the
Medical Group Collections Account in accordance with this Agreement all checks
and other payments received by the Medical Group or by any of its partners,
equity owners or employees from any patient or third party payor for Medical
Group Services rendered during the Term.
(b) From time to time at the Management Company's request, the Medical
Group shall make available to the Management Company one or more authorized
signatories (the "Authorized Signatories") of the Medical Group to sign any
letters, checks, instruments or other documents (the "Documents") on behalf of
the Medical Group that are necessary for the Management Company to take the
actions specified in this Section 3.6 and to perform its duties under this
Agreement. If the Management Company notifies the Medical Group that an
Authorized Signatory is not signing the Documents in a timely manner, the
Management Company shall not be liable for any failure to perform its duties
hereunder or for any failure to perform the Management Services to the extent
caused
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by the failure of an Authorized Signatory to sign the Documents in a timely
manner.
(c) The Management Company shall submit all bills and manage the billing
process on a timely basis in accordance with the terms of this Agreement and
applicable law.
(d) Without limiting the generality of the foregoing, the Management
Company shall bill patients, bill and submit claims to third party payors,
perform appropriate coding for each bill, and collect all fees for professional
and other services rendered and for items supplied to patients by the Medical
Group, all in a timely manner and in accordance with parameters and criteria
established by the Operations Committee (as hereinafter defined). Additionally,
the Management Company shall provide the following services which are currently
being provided by or on behalf of the Medical Group:
(i) Receive and collect from patients at the time of visit all
appropriate payments and pre-payments, including co-pays, deductibles,
payments for non-covered medical services, and deposits for surgeries (if
applicable), and obtain all appropriate insurance and other information
required.
(ii) Submit claims utilizing electronic billing submission, whenever
appropriate.
(iii) Perform delinquent account collection calls and other
appropriate follow-up mechanics for delinquent accounts of all insurance
classifications, all in a timely fashion as determined by the Operations
Committee.
(iv) Turn over to outside collection agencies all delinquent accounts
satisfying the criteria established by the Operations Committee. The
Management Company shall also follow-up on the performance of the outside
collection agencies and make changes, if necessary, and shall reconcile
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each account turned over to the summary data provided by the collection
agency.
(v) Write-off account balances according to criteria approved by the
Operations Committee.
(vi) Prepare claim reviews in accordance with criteria approved by the
Operations Committee.
(vii) Bill workers' compensation medical services at rates equal to
those set forth in the Medical Group's then current fee schedule; provided,
however, that the Management Company may accept in payment thereof amounts
equal to those set forth on the most recently approved Florida workers'
compensation fee schedule.
(viii) Apply "insurance only" and other courtesy write-offs in
compliance with Operations Committee policy.
(ix) With respect to discounted fee-for-service contracts with
Preferred Provider Organizations (PPOs) and Health Maintenance
Organizations (HMOs), determine that payments received from PPOs and HMOs
are in compliance with their respective contracts with the Medical Group.
(x) With respect to capitation fee contracts with HMOs:
(A) Follow-up to ensure that payments to the Medical Group are
made on a timely basis; and
(B) Review and audit enrollment data provided by the HMO to
ensure that the capitation payments are based on the proper
number of lives enrolled.
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(xi) With respect to lien accounts, the Management Company shall:
(A) Ensure that appropriate documents are signed and agreed to
initially as between the Medical Group, attorney and
patient;
(B) Follow-up on a regular basis as to the status of the
account; and
(C) Apply the policies of the Operations Committee in resolving
open account balances.
(xii) With respect to student athlete accounts, the Management Company
shall coordinate insurance and other information in compliance with the
policy of the Operations Committee.
(xiii) With respect to amounts withheld by payors in compliance with
contracts between the payor and the Medical Group, the Management Company
shall follow-up on a timely basis to ensure that withheld amounts are paid
to the Medical Group, if warranted, and to ensure that amounts not paid are
verified and audited for appropriateness.
(xiv) Coordinate the timely payment of refunds to patients and third
party payors when appropriate.
(xv) Ensure that revenues related to depositions, record review and
court appearances are accounted for, monitored, followed-up, and ultimately
collected.
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3.7. Administrative Personnel.
(a) The Management Company shall retain and provide or arrange for the
retention and provision of the following non-medical personnel necessary for the
conduct of the Medical Group's business operations (collectively,
"Administrative Personnel"):
(i) Administration;
(ii) Accounting;
(iii) Billing and Collection;
(iv) Secretarial;
(v) Transcription;
(vi) Appointments;
(vii) Switchboard;
(viii) Medical Records;
(ix) Chart Preparation;
(x) Historians;
(xi) Clinic Support; and
(xii) Marketing.
(b) The Management Company shall determine and pay, or arrange for the
payment of, the salaries and fringe benefits of the Administrative Personnel,
and shall provide or arrange for other personnel services related to the
Administrative Personnel, including, but not limited to, scheduling, determining
personnel policies, administering continuing education benefits, and payroll
administration; provided, that the Medical Group shall have the right to approve
the rates of pay of the Administrative Personnel and any changes therein.
(c) With respect to each applicable new employee in Administrative
Personnel, the Management Company shall, as
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reasonably necessary, verify, or arrange for the verification of, educational
and employment experience, licensure, insurability and compliance with those
drug-free workplace restrictions contained in the Management Company's employee
manual.
(d) The Management Company shall attempt, consistent with sound business
practices, to honor Medical Group requests with regard to the retention or
assignment of specific Administrative Personnel to the Medical Group. In the
event that the Management Company receives a complaint from the Medical Group
that any of the Administrative Personnel is interfering with or disrupting the
provision of Medical Group Services by the Medical Group, the Management Company
will use reasonable efforts to attempt to promptly remedy any such complaint. If
any such complaint is not remedied to the reasonable satisfaction of the Medical
Group, then the Management Company shall remove such Administrative Personnel,
if requested by the Medical Group, from the Medical Group's facilities, if and
to the extent such action by the Management Company will not violate any
applicable law.
(e) All of the services provided by the Management Company under this
Section 3.7, including the obligations set forth in Section 3.7(d), shall be
performed in compliance with all applicable laws.
3.8. Technical Personnel; Leased Employees.
(a) Subject to the conditions set forth in this Section 3.8, the Management
Company shall employ or contract with, or shall arrange for, and shall provide
to the Medical Group as leased employees, such Technical Personnel (as defined
below) as may reasonably be necessary for the conduct of the Medical Business.
(b) For purposes of this Agreement, "Technical Personnel" means nurses,
medical assistants, x-ray technicians, other technicians, and other personnel
who perform diagnostic tests or other services that are covered by Medicare or
by other
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third party payors when performed by an employee of a physician under the
physician's supervision.
(c) The Medical Group shall have the right to exercise, and shall exercise,
such supervision and control over the activities of the Technical Personnel and
Excluded Ancillary Employees (as hereinafter defined) as may be necessary for
the Technical Personnel and Excluded Ancillary Employees to be considered leased
employees under the Medicare program and under applicable law. Without limiting
the generality of the foregoing, the Medical Group shall:
(i) have the right to have any Technical Personnel and any Excluded
Ancillary Employees terminated from employment;
(ii) furnish the Technical Personnel and Excluded Ancillary Employees
with the equipment and supplies needed by the Technical Personnel for their
work;
(iii) provide the Technical Personnel and Excluded Ancillary Employees
with any necessary training;
(iv) instruct the Technical Personnel and Excluded Ancillary Employees
regarding their activities performed for the Medical Group;
(v) establish the hours of work for the Technical Personnel and
Excluded Ancillary Employees;
(vi) approve vacation time and other time off from work; and
(vii) provide that degree of supervision as is required by Medicare
and by other third party payors to satisfy applicable conditions for
coverage thereunder.
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(d) With respect to each of the Technical Personnel, the Management Company
shall verify or arrange for the verification of educational and employment
experience, licensure and insurability, and shall review and provide the Medical
Group with copies of any complaints contained in public files with applicable
state and Federal commissions.
3.9. Medical Personnel Recruiting.
(a) The Management Company shall, upon request by the Medical Group, assist
the Medical Group in recruiting Medical Personnel. The Medical Group shall be
solely responsible for the selection and retention of Medical Personnel,
provided that any such Medical Personnel shall possess all of the licensure
required under applicable Federal and state law for such individual to perform
his or her duties. "Medical Personnel" means:
(i) Physicians (including fellows and residents, if any) providing
professional medical services who are employees or independent contractors
of the Medical Group; and
(ii) Physician assistants, nurse practitioners, and other health care
professionals who provide services that are billable to patients or third
party payors under the name of such health care professional (as
distinguished from services that are billable under the name of the
supervising physician).
(b) With respect to each of the Medical Personnel, the Management Company
shall verify or arrange for the verification of educational and employment
experience, licensure and insurability, and shall review and provide the Medical
Group with copies of any complaints contained in public files with applicable
state and Federal commissions.
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3.10. Inventory and Supplies.
The Management Company shall order and purchase, or arrange for the order
and purchase of, inventory and supplies on behalf of the Medical Group, and such
other ordinary or appropriate materials the Medical Group reasonably deems to be
necessary for the Medical Group to carry out its Medical Group Services.
Inventory and supplies shall include, but not be limited, to:
(a) Medical supplies;
(b) Office supplies;
(c) Postage;
(d) Computer forms and supplies;
(e) Printing and stationery supplies;
(f) Printer supplies; and
(g) Linen and laundry supplies.
3.11. Taxes.
The Management Company shall provide the Medical Group with access to all
information necessary for the Medical Group to prepare its tax returns. The
Management Company shall have no responsibility for:
(a) The payment of the Medical Group's taxes; or
(b) The preparation of any income tax returns for the Medical Group.
3.12. Information Systems Management.
(a) The Management Company shall provide or arrange for the provision of
management information systems services to be utilized by the Medical Group.
These services shall include, but not be limited to, ongoing maintenance and
enhancement of the existing information systems used by the
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Medical Group in connection with the provision of the following services:
(i) Accounts receivable - Billing/Insurance/Collections;
(ii) On-line appointment scheduling;
(iii) Internal e-mail;
(iv) On-line transcription;
(v) Faxing subsystem;
(vi) Electronic claims submission;
(vii) Patient flow monitoring system;
(viii) Authorization module;
(ix) Prescription module;
(x) X-ray tracking system;
(xi) Voice mail;
(xii) Paperless medical records; and
(xiii) Bar code chart tracking system.
(b) The services provided by the Management Company shall protect the
confidentiality of patient medical records to the extent required by applicable
law or the Medical Group's payor agreements; provided, however, that in no event
shall a breach of such confidentiality be deemed a default under this Agreement
if the Management Company acted reasonably and in good faith to protect such
confidentiality.
3.13. Use of New Technologies in the Practice of Medicine.
The Management Company shall utilize reasonable efforts to promote the
integration of new technologies into the professional practice of the Medical
Group, including, without limitation, the use of satellite and other
telecommunications
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services that permit the provision of remote consultations, virtual operations,
and other professional services; provided, however, that the foregoing shall be
subject to the terms of Section 8.2(e) hereof.
3.14. Public Relations; Marketing and Advertising.
The Management Company shall develop and implement community outreach
programs and public relations programs designed to educate the patient
population regarding the Medical Group, the availability of its medical
services, and the availability in terms of any managed care programs in which
the Medical Group participates. The Management Company also shall develop and
implement marketing and advertising programs as reasonably required to promote
and expand the Medical Business, subject to any approved budgets. These programs
shall be developed in such manner as the Management Company deems practical, and
shall be conducted in compliance with applicable laws and regulations governing
advertising by the medical profession. Any promotional materials created
primarily for the purpose of marketing the services provided by the Medical
Group and the use of any individual physician's name in any promotional
materials shall require the consent of the Medical Group or such physician, as
the case may be.
3.15. Insurance.
The Management Company shall, to the extent permitted by applicable law,
provide the insurance coverage described in Section 12.1, and may obtain the
insurance described in Section 12.2 of this Agreement.
3.16. Files and Records.
(a) To the extent permitted by applicable law, the Management Company shall
supervise and maintain custody of all files and records relating to the
operation of the business of the Medical Group, including, without limitation,
accounting, billing, collection, and patient medical records. The management
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of all files and records shall be in compliance with applicable state and
Federal statutes. Patient medical records shall at all times be and remain the
property of the Medical Group and shall be located at a location that is readily
accessible for patient care. The Management Company shall preserve the
confidentiality of patient medical records and use information contained in such
records only for the limited purposes necessary to perform the Management
Services set forth herein; provided, however, that in no event shall a breach of
such confidentiality be deemed a default under this Agreement if the Management
Company acted reasonably and in good faith to protect such confidentiality.
(b) The Management Company shall provide all off-site storage of files and
records as required and in conjunction with policies established by the
Operations Committee. The Management Company shall provide the Medical Group
with all requested off-site files and records on a timely basis, consistent with
the policies of the Medical Group in effect immediately prior to the
Commencement Date. Any change in such policies shall be subject to the approval
of the Operations Committee.
(c) In the event of termination of this Agreement, the Management Company
shall deliver to the Medical Group at no charge a copy of the books and records
of the Medical Group in the Management Company's possession. In the event any
physician of the Medical Group terminates his affiliation with the Medical Group
during the Term, the Management Company shall, within 30 days after receipt of
written instructions from the Medical Group, deliver to such physician a copy of
the books and records pertaining to the Medical Group Services provided by such
physician during the five years prior to such physician's departure from the
Medical Group; provided that the Management Company shall not be obligated to
return any books and records pertaining to Medical Group Services provided prior
to the Commencement Date.
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3.17. Managed Care Contracts.
(a) The Management Company shall solicit, negotiate and administer all
managed care contracts on behalf of the Medical Group based on parameters and
criteria established by the Operations Committee. Such services shall be
performed by the Management Company as agent of the Medical Group, and all
managed care contracts shall be subject to the Medical Group's prior approval of
any such contract. The Management Company shall prepare cost forecasts and other
analyses as reasonably requested by the Medical Group in order to allow the
Medical Group to make an informed decision with respect to each proposed
contract.
(b) In the event that the Management Company, or the Management Company and
its affiliated medical practices acting together, shall enter into any contracts
with third-party payors to provide any of the services included within the
Excluded Ancillary Services (as hereinafter defined) within the geographic area
served by the Medical Group (which for purposes hereof is defined as the
geographic area within the following boundaries: (i) to the south by the Broward
County/Dade County line; (ii) to the north by route I 595; (iii) to the east by
the Atlantic Ocean; and (iv) to the west by the Collier County/Broward County
line)), then the Management Company agrees to provide the Medical Group with a
right of first refusal to provide such services within the applicable geographic
area; provided that the pricing offered by the Medical Group to perform such
services is competitive with rates generally charged by other service providers
in such area. In the event that at such time the Management Company is then
affiliated with a competing service provider that services the same geographic
area, then in order to exercise its right of first refusal the Medical Group
must provide such services at the same rate as such competing Management Company
affiliate. In the event that such right of first refusal becomes applicable, the
Management Company shall provide the Medical Group with written notice thereof
and the
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parties agree to negotiate in good faith in accordance with the provisions of
this Section 3.17(b).
3.18. Budgets.
(a) The Management Company shall prepare, for the review and approval of
the Operations Committee, annual operating budgets (the "Budgets") reflecting in
reasonable detail projected Billings, Collections, Medical Group Costs, and
Management Company Operating Costs (all as hereinafter defined); provided,
however, that the Medical Group and the Management Company hereby agree that the
budget(s) attached hereto as Schedule II is (are) the Budget(s) for the Medical
Group with respect to the time periods set forth thereon. All other budgets
shall be on a calendar year basis. The Management Company shall prepare and
submit to the Operations Committee all subsequent Budgets on or before December
1 of the year immediately preceding the calendar year for which such Budget is
applicable.
(b) In addition to the foregoing budgets, the Management Company shall
prepare, for the review and approval of the Operations Committee, an annual
budget (the "Excluded Ancillary Employee Budget") of the compensation (wages and
otherwise) payable to all employees (the "Excluded Ancillary Employees")
dedicated (part-time or full-time) to the provision of physical therapy
services, bone densitometry services and services offered by the Medical Group's
certified outpatient rehabilitation facilities (the "Excluded Ancillary
Services"); provided, however, that the Medical Group and the Management Company
hereby agree that the Excluded Ancillary Employee Budget attached as Schedule
II-A is approved with respect to the time period set forth therein. The
Management Committee shall prepare and submit to the Operations Committee all
subsequent Excluded Ancillary Employee Budgets on or before December 1 of the
year immediately preceding the calendar year for which such budget is
applicable.
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3.19. Force Majeure.
The Management Company shall not be liable to the Medical Group for failure
to perform any of the services required herein in the event of strikes,
lock-outs, calamities, acts of God, unavailability of supplies, changes in
applicable law or regulations or other extraordinary events over which the
Management Company has no control for so long as such events continue and for a
reasonable time thereafter.
SECTION 4. Consideration.
In consideration of the Medical Group's entering into this Agreement, the
Management Company shall provide to each person identified on Schedule III
attached hereto (the "Eligible Parties"), the consideration set forth opposite
such person's name on Schedule III, the allocation of which has been determined
and apportioned by the Medical Group.
SECTION 5. Costs, Compensation, and Other Payments.
5.1. Ownership of Accounts; Security.
The Medical Group hereby transfers to the Management Company ownership of
all accounts receivable and other rights to payment arising from the provision
by the Medical Group of Medical Group Services to the general public during the
Term (the "Accounts"); provided, however, that the right to payment of Medicaid
and Medicare receivables shall remain with the Medical Group in accordance with
applicable Federal and state law. The parties agree that all of the Medical
Group's accounts receivable existing as of the close of business on August 31,
1997 and any amounts owing to the Medical Group for services provided through
such date (collectively, the "Retained Accounts Receivable") shall remain the
property of the Medical Group. Notwithstanding anything to the contrary
contained herein, the collections relating to any Retained Accounts Receivable
shall not be included in the computations of Collections, the Annual Medical
Group Compensation Amount, or the Management Fee as described in Sections 5.3
and 5.4 hereof. The Management Company shall have
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the right to grant to any lender (the "Lender") a first priority lien and
security interest in and with respect to the Accounts, together with all books,
records, computer information and other general intangibles relating thereto
(collectively, the "Collateral"), as security for the obligations of the
Management Company to the Lender and the Medical Group shall execute a financing
statement (the "Financing Statement") for the benefit of the Management Company
evidencing the foregoing transfer of the Accounts and perfecting the Management
Company's ownership interests therein. The Medical Group hereby acknowledges
that the Lender is a third party beneficiary of the benefits granted to the
Management Company under this Section 5.1. The Medical Group shall cooperate
with the Lender as reasonably requested by the Lender in the event the Lender
seeks to enforce its rights and remedies under its agreement with the Management
Company, including granting the Lender access, to the extent permitted by law,
to all books and records associated with the Collateral. Neither the Management
Company nor the Lender shall be required to give the Medical Group any notice in
connection with any loan or related financing arrangements affecting the
Accounts or other Collateral.
5.2. Bank Accounts.
Except as otherwise provided in Section 13.4 hereof, the Medical Group
shall instruct the Medical Group Bank to transfer, on a daily basis, all funds
in the Medical Group Collections Account (less the amount necessary to avoid the
payment of bank charges or fees relating to the failure to maintain a minimum
balance in the Medical Group Collections Account) to a bank (the "Management
Company Bank") designated by the Management Company, for credit to an account in
the Management Company's name (the "Operating Account"). The Medical Group shall
enter into a mutually acceptable Provider Account Agreement with the Medical
Group Bank, the Management Company, and the Management Company's lender (the
"Provider Account
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Agreement"), in order to satisfy the foregoing obligation. The parties hereto
agree and acknowledge that the Medical Group will not be obligated to transfer
to the Operating Account any funds in its separate bank accounts utilized in
connection with its operation of the Excluded Ancillary Services.
5.3. Annual Medical Group Compensation Amount.
(a) Monthly Draw.
(i) On each Draw Date (as hereinafter defined) during the Term hereof,
the Management Company shall distribute to the Medical Group an amount
equal to a percentage (the "Draw Percentage") of the Medical Group's total
Billings (as hereinafter defined) for Medical Group Services provided
during the previous month (the "Monthly Draw"). The Draw Date and the
initial Draw Percentage are as set forth on Schedule IV, and the Draw
Percentage shall be adjusted as provided in Section 5.3(a)(ii).
(ii) Commencing May 15, 1998, and effective May 15 of each year
thereafter, the Draw Percentage shall be adjusted to equal a fraction, the
numerator of which is the Annual Medical Group Compensation Amount (as
hereinafter defined) for the previous year, and the denominator of which is
the total amount of Billings for the previous year. Additionally, the
Management Company may adjust the Draw Percentage from time to time based
on the actual Collections year-to-date in order to minimize the amount of
any annual settlement payment reasonably anticipated to be required under
Section 5.3(b).
(b) Annual Settlement.
(i) On or before April 30 of each year beginning 1998, the Management
Company shall determine the compensation (the "Annual Medical Group
Compensation
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Amount") earned by the Medical Group with respect to the prior calendar
year in accordance with the following calculation:
(A) The total Collections for all Medical Group Services rendered
during such year, minus
(B) the sum of the following:
(1) the Management Fee earned by the Management Company for the
previous calendar year; and
(2) the Authorized Management Company Operating Costs (as
hereinafter defined) actually paid by the Management Company
during such year.
(ii) If the Annual Medical Group Compensation Amount thus determined
exceeds (the "Annual Shortfall") the total of the twelve (12) Monthly Draws
paid by the Management Company to the Medical Group during the previous
calendar year (the "Annual Draw Amount"), the Management Company shall pay
to the Medical Group on or before May 15, an amount equal to the Annual
Shortfall, plus interest thereon at the rate of eight (8%) percent per
annum, commencing July 1 of the prior calendar year (or, with respect to
the first calendar year of this Agreement, if applicable, the Commencement
Date). If the Annual Medical Group Compensation Amount is less (the "Annual
Overpayment") than the Annual Draw Amount, the Management Company shall
withhold from the Monthly Draw otherwise payable to the Medical Group,
during each of the following six (6) months, an amount equal to one-sixth
(1/6) of such Annual Overpayment, plus interest thereon at the rate of
eight (8%)
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percent per annum, commencing July 1 of the prior calendar year (or, with
respect to the first calendar year of this Agreement, if applicable, the
Commencement Date).
(iii) With respect to this Section 5.3(b), for purposes of determining
the total Collections for all Medical Group Services provided during any
calendar year or portion thereof during the Term, all Collections during
January, February, and March of such year shall be deemed to be for Medical
Group Services rendered during the previous calendar year, and all
Collections during April through December shall be deemed to be for Medical
Group Services rendered during the calendar year in which such Collections
were received. The foregoing shall also apply with respect to determining
the Management Fee earned by the Management Company for the previous
calendar year, for purposes of this Section 5.3(b).
(iv) Notwithstanding anything to the contrary set forth herein, the
first period for which the annual settlement described in this Section
5.3(b) shall be applicable is the period commencing on the Commencement
Date and ending on December 31, 1997.
(c) For purposes of this Agreement:
(i) "Billings" means, for any applicable period, the gross charges of
the Medical Group for all Medical Group Services furnished during such
period.
(ii) "Collections" means, for any applicable period, all cash or cash
equivalents received during such period for Medical Group Services,
including any capitation payments, less any refunds paid during such
period.
(iii) "Medical Group Services" means the following services rendered
by, through, or on behalf of the
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Medical Group: all professional services rendered by or under the
supervision of any of the Medical Personnel (including professional
services rendered in connection with New Ancillary Services); all plain
film and other diagnostic radiology services rendered by or under the
supervision of any of the Medical Personnel; all other ancillary services
(other than New Ancillary Services); all ultrasound for pediatric patients;
all prosthetics, prosthetic devices, orthotics, braces, splints,
appliances, and other items and supplies that are billable to patients or
to third party payors; depositions, record review services, court
appearances, and independent medical exams; and all other services provided
on a regular basis by the Medical Group immediately prior to the
Commencement Date (except as set forth below).
(iv) It is the intent of the parties that Billings, Collections, and
Medical Group Services not include any of the following:
(A) New Ancillary Services or Excluded Ancillary Services
(excluding professional services rendered by Medical
Personnel in connection therewith, which professional
services are included under Section 5.3(c)(iii) above);
(B) interest income;
(C) royalties payable to any Medical Group physician for medical
inventions;
(D) fees payable under consulting agreements entered into by
Medical Group physicians;
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(E) revenues from presentations, publications, medical
directorships, service as the head of a hospital department,
service on hospital committees or hospital boards of
directors, and endorsements;
(F) revenues received by individual physicians from emergency
room calls where they are not seeing patients and the
physicians are paid directly by the subject hospital;
(G) proceeds from the sale of any capital assets of the Medical
Group; and
(H) any income from investments.
Notwithstanding anything to the contrary contained therein, any revenues
received by any Billable Medical Personnel (as hereinafter defined) from any
source set forth in clauses (D) and (E) above, shall be included in Billings,
Collections and Medical Group Services if the revenues from Medical Group
Services generated by such Billable Medical Personnel during any year are
materially reduced by the Billable Medical Personnel's participation in such
activities.
(v) For illustrative purposes only, an example of the computation of
the Annual Settlement is set forth on Schedule VII attached hereto.
5.4. Management Fee.
(a) The compensation payable to the Management Company for the provision of
Management Services under this Agreement (the "Management Fee"), which the
Management Company may retain from funds received by the Medical Group from time
to
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time at its discretion, shall be equal to (i) the sum of (A) an amount equal
to the Applicable Percentage (as hereinafter defined) of Net Operating Income,
(B) an amount equal to sixty six and two-thirds percent (66-2/3%) of the
Professional Management Cost Savings (as hereinafter defined) and (C) any
amounts owed to the Management Company pursuant to Section 5.11 hereof, if any,
less (ii) an amount equal to the Medical Group's pro rata portion of the
Specialty Care Network Profit (as hereinafter defined) for such period, if any,
based on the number of claims generated by the Medical Group through the
specialty care network owned or operated by the Management Company during the
applicable period. The Management Fee shall not include any Professional Medical
Cost Savings (as hereinafter defined), but all of such savings will accrue for
the benefit of the Medical Group. For illustrative purposes only, an example of
the computation of the Management Fee is set forth on Schedule VII attached
hereto.
(b) For purposes of this Section 5.4, the following terms have the meanings
set forth below:
(i) "Addbacks" means, for any applicable period, the aggregate amount
of expense incurred during such period for the benefit of the Medical Group
for each of the following line items in excess of the respective amounts
budgeted therefor in the Budget for such period: (A) entertainment and (B)
automobiles;
(ii) "Adjusted Operating Expenses" means, for any period, an amount
equal to (A) Professional Practice Cost Savings (as hereinafter defined),
plus (B) Authorized Management Company Operating Costs, minus (C) Addbacks;
(iii) "Applicable Percentage" has the meaning set forth on Schedule V;
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(iv) "Net Operating Income" means, for any period, an amount equal to
Collections minus Adjusted Operating Expenses;
(v) "Professional Management Cost Savings" means the Professional
Practice Cost Savings described in Section A.1 of Schedule VI;
(vi) "Professional Medical Cost Savings" means the Professional
Practice Cost Savings described in Section A.2 of Schedule VI;
(vii) "Professional Practice Cost Savings" means the cost savings
determined in the manner described on Schedule VI; and
(viii) "Specialty Care Network Profit" means the excess of the fee(s)
received by the Management Company over the costs incurred by the
Management Company, each in connection with its ownership and/or operation
of a specialty care network.
(c) In addition to all other payments to which the Management Company is
entitled under this Agreement, the Management Company shall be promptly
reimbursed by the Medical Group for all costs associated with employing the
Excluded Ancillary Employees, as set forth on the Excluded Ancillary Employee
Budget for the subject year. The Management Company shall be entitled to such
reimbursement in accordance with its normal payroll practices for employees
working with the Medical Group.
5.5. Management Company Costs.
(a) The Management Company shall pay all Management Company Operating Costs
and all Excluded Costs (collectively, the "Management Company Costs"). All
Management Company Costs shall be incurred in the name of the Management
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Company, and not in the name of the Medical Group, except as specifically
approved by the Medical Group. Management Company Costs shall not include any
costs or expenses incurred prior to the Commencement Date.
(b) The Management Company shall provide to the Medical Group on a monthly
basis a schedule listing all Management Company Costs paid by the Management
Company during the preceding month; provided, that the parties acknowledge that
during the initial 180-day phase-in period of this Agreement, there may be some
delays in delivering such information, which delay will not be deemed a default
hereunder. In addition, the Management Company shall provide to the Medical
Group, upon reasonable request by the Medical Group from time to time,
supporting documentation and other backup detail relating to any or all of the
Management Company Costs.
(c) For purposes of this Agreement, "Management Company Operating Costs"
means all operating costs and expenses incurred in connection with the provision
of the Management Services, including, without limitation, those costs and
expenses set forth in the Budget, except that any costs and expenses defined as
Medical Group Costs in Section 5.7 hereof, and any Excluded Costs (as
hereinafter defined) shall not be deemed Management Company Operating Costs. To
the extent that the Medical Group and the Management Company mutually determine
that an expenditure not included in the Budget needs to be incurred in
connection with the provision of Management Services hereunder, such expenditure
shall be included in Management Company Operating Costs for purposes of this
Agreement. "Excluded Costs" means all of the following costs and expenses
incurred in connection with the provision of the Management Services hereunder:
(i) Ancillary Service Start-Up Costs (as hereinafter defined);
(ii) New Medical Office Start-Up Costs;
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(iii) the cost of any FF&E provided by the Management Company to the
Medical Group, including the capital costs associated with any information
systems technology implemented by the Management Company (subject to the
provisions of Section 8.2(e) hereof); provided that the costs associated
with the maintenance of such technology shall be an expense included in the
Budget and shall be deemed an Authorized Management Company Operating Cost
for purposes of this Agreement;
(iv) depreciation, amortization, and interest; and
(v) any amounts by which Management Company Operating Costs exceed
Authorized Management Company Operating Costs; and
(vi) corporate overhead of the Management Company ("Corporate
Overhead") except to the extent that all of the following conditions are
satisfied, as determined by the Operations Committee:
(A) The Corporate Overhead is incurred in lieu of a pre-existing
Management Company Operating Cost;
(B) The amount of such Corporate Overhead does not exceed the
amount of the Management Company Operating Costs being
eliminated; and
(C) The Corporate Overhead is allocated to the Medical Group and
to all other medical groups utilizing such Corporate
Overhead on a pro rata basis.
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Any Corporate Overhead with respect to which all of the above conditions are
satisfied shall be considered Management Company Operating Costs; provided that
notwithstanding the foregoing, Corporate Overhead relating to the provision of
legal, accounting, financing, purchasing or human resources services pursuant to
the provisions of Section 3 hereof, but in each case excluding any of such
services which are solely for the benefit of or performed at the request of the
Medical Group or its stockholders, shall constitute Excluded Costs.
(d) For purposes of this Agreement, "Authorized Management Company
Operating Costs" means all Management Company Operating Costs incurred in any
year reduced by any or all of the following, as applicable:
(i) any costs that exceed the applicable Management Company Operating
Costs Budget which are not approved by the Operations Committee;
(ii) any costs with respect to which the Medical Group has reasonably
requested supporting documentation or other backup detail which has not
been furnished by the Management Company or which does not reasonably
establish the appropriateness of such costs; and
(iii) any costs that have been determined pursuant to an audit under
Section 5.9 not to have been reasonably incurred in connection with the
Management Services required to be provided under this Agreement.
5.6. New Medical Office Start-Up Costs.
(a) The Management Company shall pay, to the extent provided herein, all
New Medical Office Start-Up Costs incurred in connection with the establishment
of any New Medical Office. The Management Company shall create a separate
division (the "New Office Division") for purposes of accounting for the income,
costs, profits, and losses of any New Medical Office.
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The Management Company shall utilize generally accepted accounting principles in
determining and accounting for the profits and losses related to the operations
of each New Medical Office. Notwithstanding anything to the contrary contained
herein, Corporate Overhead shall not be included in determining the costs and
expenses associated with any New Medical Office.
(b) At the end of the New Medical Office Start-Up Period (as hereinafter
defined), the funds allocated to the New Office Division will be retroactively
included in the general accounts of the Medical Group and the Management
Company, respectively, as contemplated in Sections 5.3, 5.4, 5.5 and 5.7 of this
Agreement in accordance with the following: (i) the Management Company shall be
reimbursed for all of the Management Company Operating Costs incurred by the
Management Company for each New Medical Office, (ii) the Management Company
shall be entitled to receive the aggregate Management Fee as described in
Section 5.4 and (iii) the Medical Group shall be entitled to receive the Annual
Medical Group Compensation Amount for such new Medical Office, in each case, as
if such New Medical Office had been any other office of the Medical Group during
the New Medical Office Start-Up Period; provided, however, that notwithstanding
the foregoing, if the aggregate Collections for such New Medical Office during
the New Medical Office Start-Up Period is equal to or less than sum of (x) the
New Medical Office Start-Up Costs associated with such New Medical Office and
(y) the Management Fee payable with respect to the Collections of such New
Medical Office, in each case during the New Medical Office Start-up Period, then
(A) the Management Company and the Medical Group shall not be entitled to
receive the Management Fee or the Annual Medical Group Compensation Amount, as
applicable and (B) the Management Company shall be responsible for the deficit,
if any, associated with such New Medical Office; provided that the aggregate
amount of Collections received during the New Medical Office Start-Up Period for
such New Medical Office shall belong solely to the Management Company.
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(c) In the event that the New Medical Office is not profitable (as
reasonably determined by the Management Company) as of the end of the New
Medical Office Start-Up Period, and the Management Company desires to close such
New Medical Office, it must provide the Medical Group with written notice (the
"Closing Notice") thereof within 15 days after the end of the New Medical Office
Start-Up Period. The Medical Group shall then have the right (the "Continuation
Right"), which it must exercise by delivering written notice to the Management
Company within five (5) days after receipt of the Closing Notice, to keep the
New Medical Office open. In the event that the Medical Group exercises its
Continuation Right, then the Medical Group shall be required to fund all costs
that fall within the definition of New Medical Office Start-Up Costs incurred
during the period from the expiration of the New Medical Office Start-Up Period
through and including the date that the New Medical Office becomes profitable
(as reasonably determined by the Management Company) (the "Secondary Period").
Upon the conclusion of the Secondary Period, the funds allocated to the New
Office Division during the Secondary Period shall be included in the general
accounts of the Medical Group and the Management Company, respectively, in the
manner set forth in 5.6(b) above; provided, however, that notwithstanding the
foregoing, if the aggregate Collections for such New Medical Office during the
Secondary Period are equal to or less than the sum of (x) the costs that fall
within the definition of New Medical Office Start-Up Costs associated with such
New Medical Office and (y) the Management Fee payable with respect to the
Collections of such New Medical Office, in each case during the Secondary
Period, then (A) the Management Company and the Medical Group shall not be
entitled to receive the Management Fee or the Annual Medical Group Compensation
Amount, as applicable and (B) the Medical Group shall be responsible for the
deficit, if any, associated with such New Medical Office; provided, however,
that the aggregate amount of Collections received during the Secondary Period
for such New Medical Office shall belong solely to the Medical Group.
Notwithstanding the
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foregoing, if the Medical Group elects to close such New Medical Office prior to
its becoming profitable, the aggregate amount of Collections received during the
Secondary Period for such New Medical Office shall belong solely to the Medical
Group.
(d) Notwithstanding anything contained herein to the contrary, in the event
that either (i) the Operations Committee determines not to open a potential New
Medical Office proposed by the Medical Group, or (ii) the Operations Committee
is deadlocked as to whether to open such New Medical Office proposed by the
Medical Group, or (iii) the Operations Committee is deadlocked as to whether to
open such New Medical Office proposed by the Medical Group, and the decision of
the arbitrator pursuant to Section 8.2 hereof is not to open such New Medical
Office, then in any such event the Medical Group shall have the right (the
"Opening Right"), upon delivery of written notice to the Management Company, to
open such New Medical Office. In the event that the Medical Group exercises its
Opening Right, the Medical Group shall be required to fund all costs within the
definition of New Medical Office Start-Up Costs incurred during the Special New
Medical Office Start-Up Period (as hereinafter defined). Upon the conclusion of
the Special New Medical Office Start-Up Period, the funds allocated to the New
Office Division during the Special New Medical Office Start-Up Period shall be
included in the general accounts of the Medical Group and the Management
Company, respectively, in the manner set forth in 5.6(b) above; provided,
however, that notwithstanding the foregoing, (i) no Management Fees shall be
payable to the Management Company during the Special New Office Start-Up Period
and (ii) if the aggregate Collections for such New Medical Office during the
Special New Medical Office Start-Up Period are equal to or less than the sum of
(x) the costs that fall within the definition of New Medical Office Start-Up
Costs associated with such New Medical Office, plus (y) interest at the rate of
ten (10%) percent per annum on such costs which shall be paid to the Medical
Group, then (A) the Management Company and the Medical
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Group shall not be entitled to receive the Management Fee or the Annual Medical
Group Compensation Amount, as applicable, and (B) the Medical Group shall be
responsible for the deficit, if any, associated with such New Medical Office;
provided that the aggregate amount of Collections received during the Special
New Medical Office Start-Up Period for such New Medical Office shall belong
solely to the Medical Group. Notwithstanding the foregoing, if the Medical Group
elects to close such New Medical Office prior to its becoming profitable, then
the aggregate amount of Collections received during the Special New Medical
Office Start-Up Period for such New Medical Office shall belong solely to the
Medical Group. As used herein, "Special New Medical Office Start-Up Period"
means the period commencing on the date that any costs are incurred in
connection with the establishment of the subject New Medical Office and ending
on the date that the New Medical Office becomes profitable (i.e., generated
Collections sufficient to pay the applicable New Medical Office Start-Up Costs,
plus 10% per annum interest thereon, as reasonably determined by the Operations
Committee).
(e) In the event that the Medical Group elects to open a New Medical Office
in accordance with the provisions of Section 5.6(d) above, and does so open such
an office, the Management Company will pay the Medical Group an additional
amount of consideration (the "New Office Payment") if the following conditions
are satisfied: (i) the Net Operating Income for such New Medical Office for the
12-month period beginning on the New Office Net Profit Date (as hereinafter
defined) and ending on the first anniversary thereof (such period being referred
to herein as, the "Determination Period") is greater than zero, and (ii) the
Management Fee payable by the Medical Group pursuant to Section 5.4 hereof for
the Determination Period is at least equal to the Management Fee paid to the
Management Company by the Medical Group for the 12-month period ending on the
New Office Net Profit Date. The amount of the New Office Payment will be
determined by taking six times 15% of the Net
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Operating Income of such New Medical Office for the Determination Period, which
amount will be payable 65% in cash and 35% in shares of common stock of the
Management Company (at the Fair Market Value (as hereinafter defined) of such
common stock at such time). The Management Company shall, within 30 days after
the end of the Determination Period, notify the Medical Group if the conditions
set forth in clauses (i) and (ii) above have been satisfied and, if so, the
amount of the New Office Payment due to the Medical Group. The Management
Company shall deliver the New Office Payment to the Medical Group within 15 days
following delivery of such notice. In connection with the delivery of the New
Office Payment to the Medical Group, the Medical Group shall transfer to the
Management Company for no additional consideration all of its right, title and
interest in all of the Equipment used at such New Medical Office and, to
effectuate such transfer, the Medical Group shall execute and deliver to the
Management Company an assignment and assumption agreement and a bill of sale,
each of which shall be satisfactory to the Management Company. As used herein,
"New Office Net Profit Date" means, as to any New Medical Office, that day on
which the Operations Committee determines that the aggregate revenues of such
New Medical Office are greater than the sum of (a) those costs that fall within
the definition of New Medical Office Start-Up Costs associated with such New
Medical Office (including physician compensation), and (b) the accrued interest
payable to the Medical Group pursuant to Section 5.6(d) above with respect to
the amount of such costs.
(f) Except to the extent provided in Section 5.6(b), (c) and (d) above, the
billings, collections, costs and expenses relating to any New Medical Office
shall not, during the New Medical Office Start-Up Period or the Secondary
Period, be included in the computations of Annual Medical Group Compensation
Amount, the Management Fee, Management Company Costs, Ancillary Service Start-Up
Costs, or Medical Group Costs
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as described in Sections 5.3, 5.4, 5.5, 5.8, or 5.7, respectively.
(g) All Medical Equipment utilized at any New Medical Office shall be
acquired by the Management Company and provided to the Medical Group in
accordance with the terms of Section 3.3 hereof.
(h) For purposes of this Agreement, "New Medical Office" means any office
of the Medical Group other than those offices located in the premises identified
in Section 3.2(a) hereof.
(i) For purposes of this Agreement, "New Medical Office Start-Up Costs"
means the following costs incurred in connection with the establishment of a New
Medical Office during the New Medical Office Start-Up Period: all Management
Company Operating Costs and all costs associated with the development of such
New Medical Office other than Medical Group Costs, but not including any
Corporate Overhead, provided that, the costs incurred in connection with any New
Physician (as hereinafter defined) shall be borne in accordance with the
provisions of Section 5.11 hereof.
(j) For purposes of this Agreement, "New Medical Office Start-Up Period"
means the period commencing on the date that any costs are incurred in
connection with the establishment of a New Medical Office and ending on the last
day of the calendar month in which a period of twelve (12) months has elapsed
from and after the date on which the New Medical Office first opened for the
treatment of patients.
5.7. Medical Group Costs.
Except as otherwise provided in this Agreement, the Medical Group shall pay
all of the costs specified in this Section 5.7 (the "Medical Group Costs"). All
Medical Group Costs shall be incurred in the name of the Medical Group, and not
in the name of the Management Company, and shall be paid from an
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account of the Medical Group and not from any bank account of the Management
Company. The Medical Group Costs are as follows:
(a) compensation of all Medical Personnel that (i) are authorized to
directly bill patients, Medicare, Medicaid and third party payors and
(ii) are employed directly by the Medical Group (such persons being
referred to herein as the "Billable Medical Personnel");
(b) any applicable fringe benefits for all Medical Personnel, including,
but not limited to, payroll taxes, workers' compensation, health
insurance (including drug coverage), dental insurance, disability
insurance, life insurance, 401(k) retirement plan, business buy-out
disability insurance and continuing education; and
(c) the cost of any items which are not required to be provided by the
Management Company under this Agreement and/or which were ordered,
purchased, or incurred by the Medical Group directly, including but
not limited to the cost of accounting, legal, consulting, or other
professional or advisory services, business meetings, and business
taxes.
5.8. New Ancillary Services Costs.
(a) Any agreement by the parties to establish a New Ancillary Service as
described in Section 3.4 of this Agreement shall (unless otherwise agreed by the
parties) incorporate the following:
(i) The Management Company shall create a separate division
("Ancillary Division") for purposes of accounting for the income, costs,
profits, and losses of any New Ancillary Service. The Management Company
shall utilize
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generally accepted accounting principles in determining and accounting for
the profits and losses related to the operations of each New Ancillary
Service. Notwithstanding anything to the contrary contained herein,
Corporate Overhead shall not be included in determining the costs and
expenses associated with any New Ancillary Service.
(ii) Profits and/or losses of any Ancillary Division arising from and
after the Ancillary Service Start-Up Period shall be divided equally
between the Medical Group and the Management Company, and all distributions
to the Medical Group and to the Management Company shall be made in equal
amounts to each from available cash (after payment of all currently due
obligations incurred in connection with such New Ancillary Division,
including, without limitation, any principal and interest amounts then due
and payable under Section 5.8(a)(iv) below, and after retention of
reasonable reserves) derived from the operation of such Ancillary Division.
(iii) All diagnostic and therapeutic equipment utilized in connection
with any New Ancillary Service ("New Ancillary Service Medical Equipment")
shall be acquired by the Management Company and shall be provided to the
Medical Group on terms substantially similar to those set forth in Section
3.3 hereof.
(iv) The Management Company shall pay all of the Ancillary Service
Start-Up Costs (as hereinafter defined). Beginning with the month
immediately following the expiration of the Ancillary Service Start-Up
Period (as hereinafter defined), the Management Company shall be entitled
to recoup all of the Ancillary Service Start-Up Costs previously paid by
the Management Company in sixty (60) equal monthly installments of
principal, plus interest on the unrecouped portion of such costs at the
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prevailing prime rate as set forth in the Wall Street Journal or at the
actual rate paid by the Management Company with respect to any part of such
costs that have been financed by the Management Company, if applicable.
(v) The Management Company shall provide, in connection with any New
Ancillary Service, the full range of management services described in this
Agreement.
(vi) The billings, collections, costs and expenses relating to any New
Ancillary Service shall not be included in the computations of Annual
Medical Group Compensation Amount, the Management Fee, Management Company
Costs, New Medical Office Start-Up Costs, or Medical Group Costs as
described in Sections 5.3, 5.4, 5.5, 5.6, or 5.7, respectively.
(b) For purposes of this Section 5.8, "Ancillary Service Start-Up Period"
means the period commencing on the date that any costs are incurred in
connection with the establishment of the New Ancillary Service, which date shall
not be prior to the date of the agreement establishing such New Ancillary
Service, and ending on the earlier to occur of (i) the last day of the first
period of two (2) consecutive calendar months for which the New Ancillary
Service shows an Average Profit (as hereinafter defined) at least equal to the
amount of the Ancillary Service Reimbursement Payment (as hereinafter defined)
or (ii) the last day of the twelfth month after the establishment of such New
Ancillary Service.
(c) As used herein, "Ancillary Service Reimbursement Payment" means an
amount determined by (i) taking the total Ancillary Service Start-Up Costs for
the period ending on the date of determination, (ii) adding an amount equal to
the total of the projected interest payable on such amount during the repayment
term (which interest amount shall be a good faith
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estimate by the Management Company) and (iii) dividing the sum by 60.
(d) "Average Profit", at any point during the New Ancillary Start-Up
Period, means the average for any consecutive two month period of the remainder
(as determined in good faith by the Management Company) of the revenues less the
expenses for such New Ancillary Service.
(e) For purposes of this Section 5.8, "Ancillary Service Start-Up Costs"
means the total of all of the following costs incurred in connection with the
establishment of a New Ancillary Service during the Ancillary Service Start-Up
Period (whether such costs would otherwise be considered Management Company
Costs or Medical Group Costs):
(i) Any lease payments for New Ancillary Service Medical Equipment;
(ii) All costs of acquiring furniture, fixtures, and office equipment;
(iii) All initial occupancy costs, if any, including but not limited
to prepaid rent, and tenant improvements;
(iv) All costs related to the acquisition of materials and supplies
related to the provision of such New Ancillary Service; and
(v) All ongoing costs of the New Ancillary Service, including but not
limited to personnel (other than the Billable Medical Personnel) and
related benefits, the cost of operating any equipment utilized in providing
the service, supplies, insurance, rent, repairs and maintenance, outside
services, telephone, taxes, utilities, storage and other ordinary ongoing
expenses of providing the New Ancillary Service.
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5.9. Review and Audit of Books and Records.
Each of the parties shall have the right, during ordinary business hours
and upon reasonable notice, to review and make copies of, or to audit through a
qualified certified public accountant approved by the other party (which
approval shall not be unreasonably withheld), the books and records of the other
party relating to the billing, collection, and disbursement of fees, and the
determination of costs, under this Agreement. Any such review or audit shall be
performed at the cost of the requesting party; provided, however, that in the
event that such review or audit requested by the Medical Group discloses a
discrepancy indicating that the Medical Group has actually been underpaid by an
amount in excess of three and one half (3.5%) percent, but not more than five
percent (5%) of the total amount of Annual Medical Group Compensation Amount
otherwise payable to the Medical Group for the period covered by the audit (the
"Audit Compensation Amount"), the Management Company shall pay up to $5,000 of
the cost of such audit, and if the audit reveals an underpayment in excess of
five (5%) percent of the Audit Compensation Amount, the entire cost of the audit
shall be borne by the Management Company. All documents and other information
obtained in the course of such review or audit shall be held in strict
confidence.
5.10. Start-Up Period.
(a) Consistent with the provisions of Section 2 of this Agreement, the
parties acknowledge and agree that, in order to facilitate the transition of
responsibilities hereunder, certain requirements and procedures agreed to under
this Agreement may be implemented, in whole or in part and at any time during
the period commencing on the Commencement Date and ending 90 days thereafter
(subject to extension by agreement of the Medical Group and the Management
Company), rather than being fully implemented immediately on the Commencement
Date. Accordingly, the parties further agree that the Management Fee
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and Monthly Draw payable in respect of the Management Services and the Medical
Group Services applicable to such period of time shall be computed, and any
appropriate adjustments shall be made, such that no material financial advantage
or disadvantage shall accrue to either party as a result of implementing such
requirements and procedures over the course of such start-up period rather than
immediately on the Commencement Date.
(b) Supplementing the provisions of Section 5.10(a) above, the parties
agree that the Medical Group has heretofore funded certain costs and expenses
(collectively, the "Prepaid Expenses") incurred during the period from the
Commencement Date to the Signature Date. On the Signature Date, the Management
Company has paid to the Medical Group $800,000 (the "Estimated Expenses"), by
delivery of a promissory note to the Medical Group for such amount which is due
on January 2, 1998 ("Note No. 3"), which represents the parties' good faith
estimate of the Prepaid Expenses. The parties agree that within sixty (60) days
from the Signature Date, they will mutually determine the actual amount of the
Prepaid Expenses. If the actual amount of the Prepaid Expenses exceeds the
Estimated Expenses, the Management Company shall remit such excess amount to the
Medical Group within five (5) days of the date of determination. If the
Estimated Expenses exceed the actual amount of the Prepaid Expenses, the Medical
Group shall refund the difference to the Management Company within five (5) days
of the date of determination. The parties acknowledge that any payments for
Prepaid Expenses shall not be included in the computation of Collections and
may, subject to the reconciliation provided herein, be freely distributed by the
Medical Group to its shareholders.
5.11. New Physician Compensation Costs.
(a) Notwithstanding anything contained herein to the contrary, during the
period beginning on the New Physician Start Date (as hereinafter defined) and
ending on the Physician
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Breakeven Date (as hereinafter defined), the Management Company shall be
responsible for the payment of (or with respect to insurance benefits, for the
prompt reimbursement of the Medical Group for, to the extent applicable) all New
Physician Compensation (as hereinafter defined) and all New Physician Personnel
Expense (as hereinafter defined), and notwithstanding anything to the contrary
contained in this Agreement, shall receive, in consideration therefor, sixty six
and two-thirds percent (66-2/3%) (such amount being referred to herein as the
"New Physician Net Collections") of all Collections generated by such New
Physician for those Medical Group Services performed by such New Physician, and
such amounts shall not be included in determining Collections for purposes of
this Agreement. The remaining thirty three and one-third percent (33 1/3%) of
such Collections shall belong to the Medical Group, and such amounts shall not
be included in determining Collections for purposes of this Agreement. As of the
Physician Breakeven Date, the New Physician Compensation shall be payable by,
and become the responsibility of, the Medical Group in accordance with Section
5.7 hereof, and all of the Billings and Collections generated by such New
Physician thereafter shall be considered Billings and Collections for purposes
of this Agreement.
(b) "New Physician" means, any physician who, at any time after the
Commencement Date, becomes affiliated with or employed by the Medical Group;
provided that if such physician becomes affiliated with or employed by the
Medical Group pursuant to a transaction between the Management Company and such
physician or a medical group with which such physician is affiliated in which
the Management Company acquires any assets or accounts receivable from such
physician or such medical group or pays any other consideration to such
physician or such medical group in connection with such physician's affiliation
or employment with the Medical Group and/or the Management Company, then such
physician shall not be deemed to be a New Physician for purposes of this
Agreement.
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(c) "New Physician Breakeven Date" means, with respect to any New
Physician, the date on which the New Physician Net Collections for the period
beginning on the New Physician Start Date and ending on the date of
determination first equal or exceed (i) the aggregate amount of New Physician
Compensation paid to such New Physician for the foregoing period plus (ii) that
portion of the Medical Group Costs and Management Company Costs associated with
such New Physician and/or the Medical Group Services provided by such New
Physician.
(d) "New Physician Compensation" means, with respect to any New Physician
and for any period in question, the amount of compensation (wages and insurance
benefits) payable to or for the benefit of such New Physician by the Medical
Group.
(e) "New Physician Personnel Expense" means with respect to any New
Physician and for any period in question, the amount of compensation (wages and
otherwise) payable to any one (1) physician assistant who is retained by the
Management Company primarily to accommodate the increased patient flow generated
by such New Physician.
(f) "Physician Start Date" means, with respect to any New Physician, the
date such New Physician becomes affiliated with or employed by the Medical
Group.
SECTION 6. Representations and Warranties of the Medical Group
The Medical Group hereby represents and warrants to the Management Company,
as of the Signature Date, as follows:
6.1. Organization; Good Standing; Qualification and Power.
The Medical Group is a professional association duly organized, validly
existing, and in good standing under the laws of the State of Florida and has
all requisite power and authority to own, lease, and operate its properties, to
carry on its business as now being conducted and as proposed to be conducted, to
enter into this Agreement, the Asset Purchase Agreement, the
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Assignments of Lease, the Financing Statement, the Provider Account Agreement
and the Stockholder Non-Competition Agreements (as hereinafter defined)
(collectively, the "Medical Group Transaction Documents"), to perform its
obligations hereunder and thereunder, and to consummate the transactions
contemplated hereby and thereby. The Medical Group has delivered to the
Management Company a true and correct copy of its Articles of Incorporation and
its Bylaws, each as in effect on the date hereof.
6.2. Equity Investments.
Except as set forth on Schedule 6.2, the Medical Group currently has no
subsidiaries, nor does the Medical Group currently own any capital stock or
other proprietary interest, directly or indirectly, in any corporation,
association, trust, partnership, joint venture, or other entity.
6.3. Authority.
The execution, delivery and performance of this Agreement and the other
Medical Group Transaction Documents and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary action on the part of the Medical Group. This Agreement and the other
Medical Group Transaction Documents have been duly and validly executed and
delivered by the Medical Group and constitute the legal, valid and binding
obligations of the Medical Group enforceable in accordance with their respective
terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the rights of
creditors generally. Neither the execution, delivery or performance of this
Agreement or any other Medical Group Transaction Document by the Medical Group
nor the consummation by the Medical Group of the transactions contemplated
hereby or thereby, nor compliance by the Medical Group with any provision hereof
or thereof will conflict with or result in a breach of any provision of the
formation documents of
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the Medical Group, cause a default (with due notice, lapse of time or both), or
give rise to any right of termination, cancellation or acceleration, under any
of the terms, conditions or provisions of any note, bond, lease, mortgage,
indenture, license or other instrument, obligation or agreement to which the
Medical Group is a party or by which the Medical Group or any of its properties
or assets may be bound (with respect to which defaults or other rights all
requisite waivers or consents shall have been obtained at or prior to the date
hereof) or violate any law, statute, rule or regulation or order, writ,
judgment, injunction or decree of any court, administrative agency or
governmental body applicable to the Medical Group or any of its properties or
assets or the Medical Business. Except as provided on Schedule 6.3, to the best
of the Medical Group's knowledge, no permit, authorization, consent or approval
of or by, or any notification of or filing with, any person (governmental or
private) is required in connection with the execution, delivery or performance
by the Medical Group of this Agreement or any other Medical Group Transaction
Document or the consummation of the transactions contemplated hereby and
thereby.
6.4. Financial Information.
Schedule 6.4 contains the Medical Group's internal statement of assets,
liabilities and stockholders' equity of the Medical Business at June 30, 1997
(the "Balance Sheet"; and the date thereof being referred to as the "Balance
Sheet Date"), and the related internal statements of revenue and expenses for
the six-month period then ended (including the notes thereto and other financial
information included therein) (collectively, the "Internal Financial
Statements"), and (b) the compiled financial statements of the Medical Business
for the periods ended December 31, 1996, December 31, 1995, and December 31,
1994 (the "Review Financial Statements"). The Internal Financial Statements and
the Review Financial Statements (i) are in accordance with the books and records
of the Medical Business, (ii) fairly present the financial position of the
Medical Business as of the dates
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thereof, and (iii) are true, correct and complete in all material respects as of
the dates thereof.
6.5. Absence of Undisclosed Liabilities.
Except as set forth on Schedule 6.5, as of the Balance Sheet Date, the
Medical Business did not have any material liability of any nature (matured or
unmatured, fixed or contingent, known or unknown) which was not provided for or
disclosed on the Balance Sheet, all liability reserves established by the
Medical Business on the Balance Sheet were adequate and there were no loss
contingencies (as such term is used in Statement of Financial Accounting
Standards No. 5 issued by the Financial Accounting Standards Board in March
1975) which were not adequately provided for or disclosed on the Balance Sheet.
6.6. Absence of Changes.
Except as set forth on Schedule 6.6, since the Balance Sheet Date, the
Medical Business has been operated in the ordinary course and consistent with
past practice and there has not been:
(a) any material adverse change in the condition (financial or
otherwise), assets (including, without limitation, levels of working
capital and the components thereof), liabilities, operations, results of
operations, earnings, business or prospects of the Medical Business;
(b) any damage, destruction or loss (whether or not covered by
insurance) in an aggregate amount exceeding $25,000 affecting any asset or
property of the Medical Business;
(c) any obligation or liability (whether absolute, accrued, contingent
or otherwise and whether due or to become due) created or incurred, or any
transaction, contract or commitment entered into, by the Medical Business
other than such items created or incurred in the ordinary course of the
Medical Business and consistent with past practice;
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(d) any payment, discharge or satisfaction of any claim, lien,
encumbrance, liability or obligation by the Medical Business outside the
ordinary course of the Medical Business (whether absolute, accrued,
contingent or otherwise and whether due or to become due);
(e) any license, sale, transfer, pledge, mortgage or other disposition
of any tangible or intangible asset of the Medical Business except in the
ordinary course of the Medical Business and consistent with past practice;
(f) any write-off as uncollectible of any accounts receivable in
connection with the Medical Business or any portion thereof in excess of
$5,000 in the aggregate exclusive of all normal contractual adjustments
from third party payors;
(g) except for all normal contractual adjustments from third party
payers, any account receivable in connection with the Medical Business in
an amount greater than $10,000 which (i) has become delinquent in its
payment by more than 90 days, (ii) has had asserted against it any claim,
refusal to pay or right of set-off, (iii) an account debtor has refused to
pay for any reason or with respect to which such account debtor has become
insolvent or bankrupt or (iv) has been pledged to any third party;
(h) any cancellation of any debts or claims of, or any amendment,
termination or waiver of any rights of material value to, the Medical
Business;
(i) except for merit review increases in the ordinary course of
business, any general uniform increase in the compensation of employees of
the Medical Group or the Medical Business (including, without limitation,
any increase pursuant to any bonus, pension, profit-sharing, deferred
compensation arrangement or other plan or commitment) or any increase in
compensation payable to any officer, employee, consultant or agent thereof,
or the entering into of any employment contract with any officer or
employee, or the making of any loan to, or
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the engagement in any transaction with, any officer of the Medical Group or
the Medical Business;
(j) any change in the accounting methods or practices followed in
connection with the Medical Business or any change in depreciation or
amortization policies or rates theretofore adopted;
(k) any agreement or commitment relating to the sale of any material
fixed assets of the Medical Business;
(l) any other transaction relating to the Medical Business other than
in the ordinary course of the Medical Business and consistent with past
practice; or
(m) any agreement or understanding, whether in writing or otherwise,
for the Medical Business to take any of the actions specified in items (a)
through (l) above.
6.7. Tax Matters.
(a) Except as set forth on Schedule 6.7, (i) all Taxes (as hereinafter
defined) relating to the Medical Business required to be paid by the Medical
Group through the date hereof have been paid and all returns, declarations of
estimated Tax, Tax reports, information returns and statements required to be
filed by the Medical Group in connection with the Medical Business prior to the
date hereof (other than those for which extensions shall have been granted prior
to the date hereof) relating to any Taxes with respect to any income, properties
or operations of the Medical Group prior to the date hereof (collectively,
"Returns") have been duly filed; (ii) as of the time of filing, the Returns
correctly reflected in all material respects (and, as to any Returns not filed
as of the date hereof, will correctly reflect in all material respects) the
facts regarding the income, business, assets, operations, activities and status
of the Medical Business and any other information required to be shown therein;
(iii) all Taxes relating to the operations of the Medical Business that have
been shown as due and payable by the Medical Group on the Returns have been
timely
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paid and filed or adequate provisions made to the books and records of the
Medical Business; (iv) in connection with the Medical Business (x) the Medical
Group has made provision on the Balance Sheet for all Taxes payable by the
Medical Group for any periods that end on or before the Balance Sheet Date for
which no Returns have yet been filed and for any periods that begin on or before
the Balance Sheet Date and end after the Balance Sheet Date to the extent such
Taxes are attributable to the portion of any such period ending on the Balance
Sheet Date and (y) provision has been made for all Taxes payable by the Medical
Group for any periods that end on or before the date hereof for which no Returns
have then been filed and for any periods that begin on or before the date hereof
and end after such date to the extent such Taxes are attributable to the portion
of any such period ending on such date; (v) no tax liens have been filed with
respect to any of the assets of the Medical Business, and there are no pending
tax audits of any Returns relating to the Medical Business; and (vi) no
deficiency or addition to Taxes, interest or penalties applicable to the Medical
Group for any Taxes relating to the operation of the Medical Business has been
proposed, asserted or assessed in writing (or any member of any affiliated or
combined group of which the Medical Group or any previous operator of the
Medical Business was a member for which the Medical Group could be liable).
(b) The Medical Group is not a foreign person within the meaning of
ss.1.1445-2(b) of the Regulations under Section 1445 of the Internal Revenue
Code of 1986, as amended the "Code").
(c) The Medical Group has provided the Management Company with true and
complete copies of all Federal, state and foreign Returns of the Medical Group
for the calendar years ending December 31, 1996 and 1995.
(d) For purposes of this Agreement, "Tax" means any of the Taxes and
"Taxes" means, with respect to any person or entity, (i) all Federal, state,
local and foreign income taxes
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(including any tax on or based upon net income, or gross income, or income as
specially defined, or earnings, or profits, or selected items of income,
earnings or profits) and all Federal, state, local and foreign gross receipts,
sales, use, ad valorem, transfer, franchise, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property or windfall
profits taxes, alternative or add-on minimum taxes, customs duties or other
Federal, state, local and foreign taxes, fees, assessments or charges of any
kind whatsoever, together with any interest and any penalties, additions to tax
or additional amounts imposed by any taxing authority (domestic or foreign) on
such person or entity and (ii) any liability for the payment of any amount of
the type described in the immediately preceding clause (i) as a result of being
a 'transferee' (within the meaning of Section 6901 of the Code or any other
applicable law) of another person or entity or a member of an affiliated or
combined group.
6.8. Litigation, Etc.
Except as set forth on Schedule 6.8, there are no (a) actions, suits,
claims, investigations or legal or administrative or arbitration proceedings
pending or, to the best knowledge of the Medical Group, threatened against the
Medical Group or any partner in or stockholder of the Medical Group, or in
connection with the Medical Business, whether at law or in equity, or before or
by any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality or (b) judgments, decrees, injunctions
or orders of any court, governmental department, commission, agency,
instrumentality or arbitrator against the Medical Group, its assets or affecting
the Medical Business. The Medical Group has delivered to the Management Company
all documents and correspondence relating to matters referred to in said
Schedule 6.8.
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6.9. Compliance: Governmental Authorizations.
The Medical Group and the Medical Business have complied in all material
respects with all applicable material Federal, state, local or foreign laws,
ordinances, regulations and orders. The Medical Group has all Federal, state,
local and foreign governmental licenses and permits necessary in the conduct of
the Medical Business, the lack of which would have a material adverse effect on
the Medical Group's ability to operate the Medical Business after the date
hereof on substantially the same basis as presently operated, such licenses and
permits are in full force and effect, the Medical Group has not received any
notice indicating that any violations are or have been recorded in respect of
any thereof, and no proceeding is pending or, to the best knowledge of the
Medical Group, threatened to revoke or limit any thereof. To the best knowledge
of the Medical Group, none of such licenses and permits shall be affected in any
material respect by the transactions contemplated hereby. To the best knowledge
of the Medical Group, neither the Medical Group nor any of the Medical Personnel
employed by the Medical Group is now or in the last four years has been the
subject of or involved in any investigation by any Federal, state or local
regulatory agency related to its or his Medicare, Medicaid or other third party
payor billing practices.
6.10. Accounts Receivable: Accounts Payable.
(a) Except as set forth on Schedule 6.10, all of the accounts receivable
owing to the Medical Group in connection with the Medical Business as of the
date hereof constitute valid and enforceable claims arising from bona fide
transactions in the ordinary course of the Medical Business, the amounts of
which are actually due and owing, and as of the date hereof, to the best
knowledge of the Medical Group, there are no claims, refusals to pay or other
rights of set-off against any thereof. Except as set forth on Schedule 6.10, as
of the date hereof, there is no account receivable or note receivable of the
Medical Business
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pledged to any third party. The Medical Group has provided the Management
Company with an accounts receivable aging report dated as of June 30, 1997 that
is true and complete as of the date thereof.
(b) All accounts payable and notes payable by the Medical Business to third
parties arose in the ordinary course of business and, except as set forth in
Schedule 6.10, there is no account payable or note payable past due or
delinquent in its payment.
6.11. Labor Relations; Employees.
Schedule 6.11 contains a true and complete list of the persons employed by
the Medical Group as of the date hereof (the "Employees"). Except as set forth
on Schedule 6.11, (a) the Medical Group and the Medical Business are not
delinquent in payments to any of the Employees for any wages, salaries,
commissions, bonuses or other compensation for any services performed by them to
the date hereof or amounts required to be reimbursed to the Employees; (b) upon
termination of the employment of any of the Employees, neither the Medical
Group, the Medical Business nor the Management Company will by reason of
anything done prior to the date hereof, or by reason of the consummation of the
transactions contemplated hereby, be liable for any excise taxes pursuant to
Section 4980B of the Code or to any of the Employees for severance pay or any
other payments; (c) there is no unfair labor practice complaint against the
Medical Group or in connection with the Medical Business pending before the
National Labor Relations Board or any comparable state, local or foreign agency;
(d) there is no labor strike, dispute, slowdown or stoppage actually pending or,
to the best knowledge of the Medical Group, threatened against or involving the
Medical Group or Medical Business; (e) there is no collective bargaining
agreement covering any of the Employees; and (f) to the best knowledge of the
Medical Group, no Employee or consultant is in violation of any (i) employment
agreement, arrangement or policy
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between such person and any previous employer (private or governmental) or (ii)
agreement restricting or prohibiting the use of any information or materials
used or being used by such person in connection with such person's employment by
or association with the Medical Group or the Medical Business.
6.12. Employee Benefit Plans.
(a) Schedule 6.12 identifies each 'employee benefit plan', as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and all other written or oral plans, programs, policies or agreements
involving direct or indirect compensation (including any employment agreements
entered into between the Medical Group or the Medical Business and any Employee
of the Medical Group or in connection with the Medical Business, but excluding
workers' compensation, unemployment compensation and other government-mandated
programs) currently or previously maintained or entered into, within the six
years prior to the Closing Date, by the Medical Group or in connection with the
Medical Business for the benefit of any Employee or former employee of the
Medical Group or in connection with the Medical Business under which the Medical
Group, any affiliate thereof or the Medical Business has any present or future
obligation or liability (the "Employee Plans"). The Medical Group has provided
the Management Company with true and complete salary, service and related data
for Employees of the Medical Group and in connection with the Medical Business.
(b) Schedule 6.12 lists each employment, severance or other similar
contract, arrangement or policy and each plan or arrangement (written or oral)
providing for insurance coverage (including any self-insured arrangements),
workers' compensation, disability benefits, supplemental unemployment benefits,
vacation benefits, retirement benefits, deferred compensation, profit-sharing,
bonuses, stock options, stock appreciation or other forms of incentive
compensation or post-retirement
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insurance, compensation or benefits currently maintained by the Medical Group or
in connection with the Medical Business.
(c) Except as set forth on Schedule 6.12; (i) to the best knowledge of the
Medical Group, each Employee Plan has been operated and administered in
compliance with ERISA, the Code and in accordance with the provisions of all
other applicable Federal and state laws; (ii) all reporting, disclosure and
bonding obligations imposed under ERISA and the Code have been satisfied, or
will have been satisfied when due, with respect to each Employee Plan and (iii)
to the best knowledge of the Medical Group, no breaches of fiduciary duty or
prohibited transactions have occurred with respect to any Employee Plan.
(d) The Medical Group has made available to the Management Company a true
and complete copy of each Employee Plan and a true and complete copy of each of
the following documents, prepared in connection with such Employee Plan; (i)
each trust or other funding arrangement, (ii) the two most recently filed Annual
Reports (Form 5500), if applicable, including attachments, for each Employee
Plan, and (iii) the most recently received IRS determination letter, if
applicable.
6.13. Insurance.
Schedule 6.13 contains a list of all policies of professional liability
(medical malpractice), general liability, theft, fidelity, fire, product
liability, errors and omissions, health and other property and casualty forms of
insurance held by the Medical Group covering the assets, properties or
operations of the Medical Group and the Medical Business (specifying the
insurer, amount of coverage, type of insurance, policy number and any pending
claims thereunder). All such policies of insurance are valid and enforceable
policies and are outstanding and duly in force and all premiums with respect
thereto are currently paid. Neither the Medical Group nor its predecessor in
interest has, during the last five fiscal years, been denied or had revoked or
rescinded any policy of insurance relating to the
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assets, properties or operations of the Medical Group or the Medical Business.
6.14. Real Property.
The Medical Group has a valid leasehold interest in all real property
leased by the Medical Group. True and complete copies of all leases to which the
Medical Group is a party or by which the Medical Group leases space have been
delivered to the Management Company. The Medical Group does not own any real
property.
6.15. Burdensome Restrictions.
Except as set forth on Schedule 6.15, neither the Medical Group nor the
Medical Business is bound by any oral or written agreement or contract which by
its terms prohibits or restricts it from conducting the Medical Group or the
Medical Business (or any material part thereof).
6.16. Disclosure.
Neither the Medical Group Transaction Documents (including the Exhibits and
Schedules attached thereto) nor any other document, certificate or written
statement furnished to the Management Company by or on behalf of the Medical
Group in connection with the transactions contemplated hereby contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein and therein not misleading.
Except as set forth on Schedule 6.16, there have been no events or transactions,
or information which has come to the attention of the Medical Group, which, as
they relate directly to the Medical Group or the Medical Business, could
reasonably be expected to have a material adverse effect on the business,
operations, affairs, prospects or condition of the Medical Group and the Medical
Business.
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SECTION 7. Representations and Warranties of the Management Company.
The Management Company represents and warrants to the Medical Group, as of
the Signature Date, as follows:
7.1. Organization. Good Standing and Power.
The Management Company (a) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and (b)
has all requisite corporate power and authority to own, lease and operate its
properties, to carry on its business as now being conducted, to execute and
deliver this Agreement and each of the Asset Purchase Agreement, the Restricted
Stock Agreements (as hereinafter defined), the Assignments of Lease, and the
Stockholder Non-Competition Agreements (collectively, the "Management Company
Transaction Documents"), to perform its obligations hereunder and thereunder,
and to consummate the transactions contemplated hereby and thereby.
7.2. Authority.
The execution, delivery and performance of this Agreement and the other
Management Company Transaction Documents, and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of the Management
Company. This Agreement and each Management Company Transaction Document has
been duly and validly executed and delivered by the Management Company, and this
Agreement and each such Management Company Transaction Document is the valid and
binding obligation of the Management Company, enforceable in accordance with its
respective terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the rights of
creditors generally. Neither the execution, delivery or performance of this
Agreement or any other Management Company Transaction Document, nor the
consummation by the Management Company of the transactions contemplated hereby
or
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thereby, nor compliance by the Management Company with any provision hereof or
thereof, will (a) conflict with or result in a breach of any provisions of the
Amended and Restated Certificate of Incorporation or the Bylaws of the
Management Company, (b) cause a default (with due notice, lapse of time or
both), or give rise to any right of termination, cancellation or acceleration,
under any of the terms, conditions or provisions of any material note, bond,
lease, mortgage, indenture, license or other instrument, obligation or agreement
to which the Management Company is a party or by which it or any of its
properties or assets is or may be bound (with respect to which defaults or other
rights all requisite waivers or consents shall have been obtained at or prior to
the date hereof) or (c) violate any law, statute, rule or regulation or order,
writ, judgment, injunction or decree of any court, administrative agency or
governmental body applicable to the Management Company or any of its properties
or assets. Except as set forth on Schedule 7.2, to the best of the Management
Company's knowledge, no permit, authorization, consent or approval of or by, or
any notification of or filing with, any person (governmental or private) is
required in connection with the execution, delivery or performance by the
Management Company of this Agreement or any other Management Transaction
Document or the consummation by the Management Company of the transactions
contemplated hereby or thereby.
7.3. Capitalization.
(a) The total authorized capital of the Management Company consists of
20,000,000 shares of common stock, of which 10,105,518 shares are issued and
outstanding, and 8,633,049 shares of preferred stock, of which (i) 999,999
shares of Series A Convertible Preferred Stock, (ii) 2,000,001 shares of Series
B Convertible Preferred Stock, (iii) 254,999 shares of Series C Convertible
Preferred Stock, (iv) 188,072 shares of Series D Convertible Preferred Stock,
and (v) 533,335 shares of Series E Convertible Preferred Stock are issued and
outstanding. Each of
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the outstanding shares of capital stock has been duly and validly authorized and
issued, is fully paid for and non-assessable, and was issued in compliance with
all applicable Federal and state securities laws.
(b) The Management Company has taken all action necessary or appropriate to
duly authorize the creation, issuance and sale of the common stock to be issued
hereunder. Such shares of common stock, when issued, sold and delivered, as
provided for herein and in the Restricted Stock Agreements, will be validly
issued, fully paid and nonassessable, with no personal liability attaching to
the ownership of the shares. The issuance of such shares of common stock will
not violate any preemptive or similar right of any person.
7.4. Financial Information.
Schedule 7.4 contains (a) the unaudited statements of assets, liabilities
and stockholders' equity of the Management Business as of the date set forth
therein (the "Management Company Balance Sheet"; and the date thereof being
referred to as the "Management Company Balance Sheet Date"), and the related
unaudited statements of revenue and expenses for the periods then ended
(including the notes thereto and other financial information included therein)
(collectively, the "Unaudited Financial Statements"). The Unaudited Financial
Statements (i) were prepared in accordance with the books and records of the
Management Business, (ii) fairly present the financial position of the
Management Business as of the dates thereof, and (iii) are true, correct and
complete in all material respects as of the date thereof.
7.5. Absence of Undisclosed Liabilities.
Except as set forth on Schedule 7.5, as of the Management Company Balance
Sheet Date, (a) the Management Business did not have any material liability of
any nature required to be disclosed on a balance sheet (matured or unmatured,
fixed or contingent, known or unknown) which was not
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provided for or disclosed on the Management Company Balance Sheet, (b) all
liability reserves established by the Management Business on the Management
Company Balance Sheet were adequate and (c) there were no loss contingencies (as
such term is used in Statement of Financial Accounting Standards No. 5 issued by
the Financial Accounting Standards Board in March 1975) which were not
adequately provided for or disclosed on the Management Company Balance Sheet.
7.6. Absence of Changes.
Except as set forth on Schedule 7.6, since the Management Company Balance
Sheet Date, the Management Business has been operated in the ordinary course and
consistent with past practice and there has not been:
(a) any material adverse change in the condition (financial or
otherwise), assets, liabilities, operations, results of operations,
earnings, business or prospects of the Management Business;
(b) any damage, destruction or loss (whether or not covered by
insurance) in an aggregate amount exceeding $25,000 affecting any asset or
property of the Management Business;
(c) any obligation or liability (whether absolute, accrued, contingent
or otherwise and whether due or to become due) created or incurred, or any
transaction, contract or commitment entered into, by the Management
Business other than such items created or incurred in the ordinary course
of the Management Business and consistent with past practice;
(d) any payment, discharge or satisfaction of any claim, lien,
encumbrance, liability or obligation by the Management Business outside the
ordinary course of the Management Business (whether absolute, accrued,
contingent or otherwise and whether due or to become due);
(e) any license, sale, transfer, pledge, mortgage or other disposition
of any material tangible or intangible asset
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of the Management Business except in the ordinary course of the Management
Business and consistent with past practice;
(f) any cancellation of any debts or claims of, or any amendment,
termination or waiver of any rights of material value to, the Management
Business;
(g) any change in the accounting methods or practices followed in
connection with the Management Business or any change in depreciation or
amortization policies or rates theretofore adopted;
(h) any other transaction relating to the Management Business other
than in the ordinary course of the Management Business and consistent with
past practice; or
(i) any agreement or understanding, whether in writing or otherwise,
for the Management Business to take any of the actions specified in items
(a) through (h) above.
7.7. Litigation, Etc.
Except as set forth on Schedule 7.7, there are no (a) actions, suits,
claims, investigations or legal or administrative or arbitration proceedings
pending or, to the best knowledge of the Management Company, threatened against
the Management Company or in connection with the Management Business, whether at
law or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
which, if adversely determined, could have a material adverse effect on the
Management Company or (b) judgments, decrees, injunctions or orders of any
court, governmental department, commission, agency, instrumentality or
arbitrator against the Management Company its assets or affecting the Management
Business.
7.8. Compliance; Governmental Authorizations.
The Management Company and the Management Business shall have complied in
all material respects with all applicable material Federal, state, local or
foreign laws, ordinances,
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regulations and orders. The Management Company has all Federal, state, local and
foreign governmental licenses and permits necessary in the conduct of the
Management Business, the lack of which would have a material adverse effect on
the Management Company's ability to operate the Management Business after the
date hereof on substantially the same basis as presently operated, such licenses
and permits are in full force and effect, the Management Company has not
received any notice indicating that any violations are or have been recorded in
respect of any thereof, and no proceeding is pending or, to the best knowledge
of the Management Company, threatened to revoke or limit any thereof. To the
best knowledge of the Management Company, none of such licenses and permits
shall be affected in any material respect by the transactions contemplated
hereby.
7.9. Employees.
Except as set forth on Schedule 7.9, the Management Company is not
delinquent in payments to any of its employees for any wages, salaries,
commissions, bonuses or other compensation for any services performed by them
through the date hereof.
7.10. Insurance.
The Management Company has obtained such policies of insurance as are usual
and customary for businesses of the type conducted by the Management Company.
All such policies of insurance are valid and enforceable policies, and all
premiums with respect thereto are currently paid.
7.11. Burdensome Restrictions.
Except as set forth on Schedule 7.11, neither the Management Company nor
the Management Business is bound by any oral or written agreement or contract
which by its terms prohibits it from conducting the Management Company or the
Management Business (or any material part thereof).
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7.12. Disclosure.
Neither the Management Company Transaction Documents (including the
Exhibits and Schedules attached thereto) nor any other document, certificate or
written statement furnished to the Medical Group by or on behalf of the
Management Company in connection with the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein and therein not
misleading.
SECTION 8. Operations Committee.
8.1. Formation and Operation of the Operations Committee.
The Management Company and the Medical Group shall establish a committee
(the "Operations Committee") responsible for directing the Management Company in
connection with the development of certain specific management and
administrative policies for the overall operation of the Medical Group. The
Operations Committee shall consist of up to six (6) members. The Medical Group
shall designate up to three (3) members of the Operations Committee, each of
whom shall be a physician in the Medical Group, and the Management Company shall
designate an equal number of members of the Operations Committee, not to exceed
three (3). The business of the Operations Committee shall be conducted in
accordance with the policies and procedures described in Section 8.4 hereof.
8.2. Authoritative Functions of the Operations Committee.
The Operations Committee shall perform the following functions, and the
decisions of the Operations Committee with respect to such functions shall be
binding on the Management Company and the Medical Group:
(a) Approve the annual budgets for:
(i) Billings and Collections;
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(ii) Medical Group Costs;
(iii) Capital expenditures to be made by the Management Company
in fulfillment of its obligations hereunder;
(iv) Management Company Operating Costs (which, in the absence of
approval by the Operations Committee, shall be increased by
an amount equal to the lesser of (x) five percent (5.0%)
over the total amount approved for the preceding period) or
(y) a percentage equal to the "Annual CPI Adjustment" for
such period. The Annual CPI Adjustment shall be calculated
as follows:
Annual CPI Adjustment = (CPIC - CPIP)
-----------
CPIP
Where:
"CPIC" is the U.S. Consumer Price Index (All Cities)
for the most recent month-end which is then available;
and
"CPIP" is the U.S. Consumer Price Index (All Cities)
for the month-end which is twelve (12) months prior to
the date utilized in determining the CPIC).
(b) Approve costs and expenses that exceed the Management Company
Operating Costs Budget.
(c) Establish parameters and criteria with respect to the
establishment and maintenance of relationships with institutional
providers and payors and managed care contracts (except with
respect to the establishment of professional fees).
(d) Establish parameters and criteria with respect to:
(i) Billings
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(ii) Claims submission
(iii) Collections of fees
(iv) Delinquent account collection policies
(v) Turnover of delinquent accounts to outside collection
agencies
(vi) Write-off 5 of account balances
(vii) Claim review requests
(viii) "Insurance only" and other courtesy write-off policies
(ix) Lien account collection policies
(x) Student Athlete account policies
(e) Approve the acquisition, replacement, relocation, or other
disposition of Medical Equipment and FF&E, approve the
integration of new technologies into the professional practice of
the Medical Group as contemplated by Section 3.11 hereof, and
approve the renovation and expansion of any offices of the
Medical Group ("Tenant Improvements"); provided, however, that
the approval of the Management Company also shall be required
prior to (i) the acquisition of any Equipment (including any
Medical Equipment, FF&E or other items relating to or necessary
in connection with the integration of new technologies into the
professional practice of the Medical Group) if and to the extent
that the aggregate cost of such items in any calendar year
exceeds five percent (5%) of the Management Fee for the prior
year (or, with respect to the first year of the Term, the
projected Management Fee for such year), (ii)
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the undertaking of any Tenant Improvements relating to patient
care facilities that cost more than $10,000 in the aggregate at
any one of the Medical Group's office locations in any calendar
year, or (iii) the undertaking of any other Tenant Improvements.
(f) Establish parameters and criteria for off-site storage of files
and records of the Medical Group.
(g) Any matters arising in connection with the operations of the
Medical Group that are not specifically addressed in this
Agreement and as to which the Management Company or the Medical
Group requests consideration by the Operations Committee.
(h) Determine whether a New Medical Office should be opened based
upon a feasibility study performed at the direction of the
Operations Committee, which study should strictly relate to the
factors directly involved in determining whether to open such
proposed New Medical Office, including, without limitation, all
physician compensation attributable to such New Medical Office.
In the event of any deadlock in the vote of the Operations Committee, the
parties hereto shall jointly submit such dispute to binding arbitration in
Florida, pursuant to the arbitration rules of the National Health Lawyers
Association Alternative Dispute Resolution Service. Arbitration shall take place
before one arbitrator appointed in accordance with such rules. The governing law
of the arbitration shall be the law set forth in Section 22. Any decision
rendered by the arbitrator shall clearly set forth the factual and legal basis
for such decision. The decision rendered by the arbitrator shall be
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non-appealable and enforceable in any court having jurisdiction thereof. The
administrative costs of the arbitration and the arbitrator fees shall be equally
borne by the parties. Each party shall pay its own legal costs and fees in
connection with such arbitrator.
8.3. Advisory Functions of the Operations Committee.
The Operations Committee shall review, evaluate and make recommendations to
the Medical Group and the Management Company with respect to the following
matters:
(a) Identification of physician subspecialties required for the
efficient operation of the Medical Group; advice regarding all
Medical Personnel employment and recruitment contracts to be
utilized by the Medical Group.
(b) Development of long-term strategic planning -objectives for the
Medical Group.
(c) Public relations, advertising, and other marketing of Medical
Group Services, including design of exterior signs.
(d) The establishment of fees for professional services and ancillary
services rendered by the Medical Group.
(e) Access and quality issues pertaining to ancillary services.
(f) Insurance limits and insurance coverage of the Medical Group and
the Management Company, as such coverage may relate to Medical
Group operations and activities.
The recommendations of the Operations Committee with respect to the matters
described in this Section 8.3 are intended for the advice and guidance of the
Management Company and the Medical
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Group, and except as provided herein, the Operations Committee does not have the
power to bind the Management Company or the Medical Group. Where discretion with
respect to any matters is vested in the Management Company or the Medical Group
under the terms of this Agreement, the Management Company or the Medical Group,
as the case may be, shall have ultimate responsibility for the exercise of such
discretion, notwithstanding any recommendation of the Operations Committee. The
Management Company and the Medical Group shall, however, take such
recommendations of the Operations Committee into account in good faith in the
exercise of such discretion.
8.4. Committee Policies and Procedures.
(a) The Medical Group shall designate one of its members to act as Chairman
of the Committee, and the Management Company shall designate one of its members
to act as Vice Chairman. Each party may substitute or change its designated
Operations Committee members at any time upon notice to the other party, and any
Operations Committee member may designate his or her own substitute at any
meeting without notice. Each member shall have one vote and shall have the right
to grant his or her proxy to another member of the Operations Committee. The
Chairman, if present, shall preside at all meetings of the Operations Committee.
In the absence of the designated Chairman, the Vice Chairman shall preside. The
only powers of the Chairman and the Vice Chairman that differ from those of the
other members of the Operations Committee shall be to call and preside over
meetings in accordance with this Section 8.4.
(b) The Operations Committee may hold meetings without call or formal
notice at such times and places as a quorum of its members may from time to time
determine; provided that the Medical Group will be notified of the time and
place thereof at least three days prior to any meeting so that it may notify its
stockholders thereof. A meeting of the Operations Committee also may be called
by at least two (2) members of the Operations Committee or by the Chairman or
Vice Chairman thereof
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upon at least three (3) days' written notice to the other members of the
Operations Committee. Such notice requirement shall be deemed waived with
respect to any member of the Operations Committee who attends such meeting.
Meetings may be held in person or by telephone. The Operations Committee also
may act by written consent as provided in Section 8.4(c). Minutes shall be kept
of all formal actions taken by the Operations Committee. Any stockholder of the
Medical Group may attend Operations Committee meetings in an unofficial,
non-voting capacity.
(c) No action of the Operations Committee shall be effective unless
authorized by the vote of a majority of the members of the Operations Committee
present or represented by proxy at the applicable meeting. A quorum of the
Operations Committee shall be a majority of the members of the Operations
Committee, in person, by telephone, or by proxy, and a quorum must remain for
the duration of the meeting. The Operations Committee may establish such
procedures to act by written consent, without a meeting, as the Operations
Committee determines are advisable, provided that all of the members (in person
or by proxy) must sign any written consent.
SECTION 9. Obligations of the Medical Group.
The Medical Group shall have the following obligations during the Term:
9.1. Compliance with Laws.
The Medical Group shall provide professional services to patients in
compliance at all times with those ethical standards, laws and regulations to
which they are subject, including, without limitation, Medicare and Medicaid
regulations. The Medical Group shall verify, with the assistance of the
Management Company, that each physician and other Medical Personnel associated
with the Medical Group for the purpose of providing medical care to patients of
the Medical Group is licensed by the State of Florida. The Medical Group shall
monitor the quality of medical care practiced by physicians and
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other health care personnel associated with the Medical Group. In the event that
any medical malpractice actions are filed or any disciplinary actions are
initiated against any such physician by any payor, patient, state or Federal
regulatory agency or any other person or entity which could have a material
adverse effect on the Medical Group in the Medical Business, the Medical Group
shall promptly inform the Management Company of such action and its underlying
facts and circumstances.
9.2. Use of Facility.
The Medical Group shall use and occupy any Facility (as defined below)
exclusively for the practice of medicine, and shall comply with all applicable
Federal, state and local rules, ordinances and standards of medical care. The
medical practice or practices conducted at any Facility described in clause (i)
of the definition of the term "Facility" shall be conducted solely by Medical
Personnel associated with the Medical Group, and no other physician or medical
practitioner shall be permitted to use or occupy any Facility described in
clause (i) below without the prior written consent of the Management Company,
which consent shall not be unreasonably withheld or delayed. The term "Facility"
shall mean (i) any medical office or laboratory controlled, managed or operated
by the Management Company or (ii) any hospital at which any Medical Personnel
practices medicine or maintains admitting privileges.
9.3. Choice of Braces, Splints, Appliances, Medical Supplies, and
Allografts.
The Medical Group shall have the exclusive control over the choice of
vendors and products utilized with respect to all prosthetics, prosthetic
devices, orthotics, braces, splints, appliances, medical supplies and
allografts.
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9.4. Choice of Radiologists, Anesthesiologists, Hospitals, Physical
Therapy, MRI, and Other Medical Professionals and Facilities.
The Medical Group shall have exclusive control over the choice of specific
physicians and facilities to be utilized by the Medical Group with respect to
radiology, anesthesiology, hospitals, physical therapy, MRI, and other medical
professionals and facilities; provided, however, that the foregoing shall not be
considered New Ancillary Services or New Medical Offices, as the case may be,
unless the parties have agreed thereto in accordance with Section 3.4(b) or
3.2(b), as the case may be.
9.5. Insurability.
The Medical Group shall cooperate with the Management Company in (i)
ensuring that its Medical Personnel are insurable under commercially available
malpractice insurance policies or (ii) instituting proceedings to terminate
within thirty business days any Medical Personnel who is not so insurable or who
loses his or her malpractice insurance eligibility unless the Medical Group
makes (within such 30-day period) other arrangements reasonably appropriate
under the circumstances and reasonably acceptable to the Management Company. The
Medical Group shall notify the Management Company in writing of any change in
the insurance status of any Medical Personnel within two days after the Medical
Group receives notice of any such change. The Medical Group shall require all
Medical Personnel to participate in an on-going risk management program.
9.6. Medicare.
The Medical Group shall cause all physicians to be participating providers
and accept assignment under Medicare.
9.7. Accounts Receivable; Billing.
From the Commencement Date, the Medical Group acknowledges and agrees that
all Accounts of the Medical Group or its Medical Personnel shall be the property
of the Management
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Company hereunder and the Medical Group and the Medical Personnel hereby
transfer and assign all of their right, title and interest to such Accounts to
the Management Company; provided, however, that the right to payment of Medicaid
and Medicare receivables, the Retained Accounts Receivable and Accounts arising
from the provision of Excluded Ancillary Services shall each remain with the
Medical Group in accordance with applicable Federal law. The Medical Group's
Medical Personnel shall be responsible for providing the appropriate current
CPT4 coding with respect to the fee tickets prepared by such Medical Personnel.
9.8. Medical Personnel Hiring.
The Medical Group shall have the ultimate control over and responsibility
for the hiring, compensation, supervision, evaluation and termination of its
Medical Personnel; provided, however, that at the request of the Medical Group,
the Management Company shall consult with the Medical Group regarding such
matters.
9.9. Continuing Education.
The Medical Group and its Medical Personnel shall be solely responsible for
ongoing membership in professional associations and continuing professional
education. The Medical Group shall ensure that its Medical Personnel participate
in such continuing professional education as is necessary for such physician or
professional to remain current in his or her field of medical practice.
9.10. Clinical Research.
The Medical Group shall have the ultimate control over and responsibility
for any clinical research program pertaining to patients of the Medical Group.
This shall include but not be limited to research personnel interviewing,
hiring, termination, compensation, day-to-day supervision, and assignment of
responsibilities and projects. However, the Medical Group will cooperate with
and take direction from the Management Company in
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its nationwide efforts to provide an effective disease management information
system and outcome studies programs.
SECTION 10. Certain Covenants.
10.1. Change of Control.
During the Term of this Agreement, the Medical Group shall not enter into
any single transaction (or group of related transactions undertaken pursuant to
a common plan) involving the admission of new stockholders, the transfer of
ownership interests, or the reorganization or restructuring of the Medical
Group, if in any such case the effect would be to transfer a majority of the
ownership interest in the Medical Group, without the prior written consent of
the Management Company, which consent shall not be unreasonably withheld or
delayed.
10.2. Legend on Securities.
During the Term of this Agreement, any certificate or similar evidence
representing an equity interest in the Medical Group issued by the Medical Group
shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO THE RESTRICTIONS ON TRANSFER CONTAINED IN THE MANAGEMENT
SERVICES AGREEMENT EFFECTIVE AS OF SEPTEMBER 1, 1997,
BETWEEN BROWARD INSTITUTE OF ORTHOPAEDIC SPECIALTIES, P.A.,
A FLORIDA PROFESSIONAL ASSOCIATION, AND BONE, MUSCLE AND
JOINT, INC., A DELAWARE CORPORATION."
Nothing herein shall be construed as requiring the Medical Group to issue any
certificate or other evidence representing an equity interest in the Medical
Group, if such has not been issued prior to the date hereof.
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SECTION 11. Records.
11.1. Medical Records.
Upon termination of this Agreement, the Medical Group shall retain all
patient medical records maintained by the Medical Group or the Management
Company in the name of the Medical Group.
11.2. Management Business Records.
All books and records relating in any way to the operation of the
Management Business which are not patient medical records shall at all times be
the property of the Management Company. The Management Company shall maintain
custody of such records, and the Medical Group shall, upon its written request,
be entitled to copies of any such records relating to the Management Services
performed by the Management Company.
11.3. Access to Records Following Termination.
Following the termination of this Agreement, the Medical Group shall grant
(to the extent permitted by law) to the Management Company, for the purpose of
preparing for any actual or anticipated legal proceeding or for any other
reasonable purpose, reasonable access (which shall include making photocopies)
to the patient medical records described in Section 11.1 hereof and any other
pertinent information regarding the Medical Group during the Term. Prior to
accessing such patient medical records, the Management Company shall obtain any
required patient authorization.
Following the termination of this Agreement, the Management Company shall
provide to the Medical Group, promptly upon the Medical Group's written request,
photocopies of the Management Business records described in Section 11.2 hereof,
and shall grant to the Medical Group, for the purpose of preparing for any
actual or anticipated legal proceeding or for any other
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reasonable purpose, any other pertinent information regarding the Management
Company during the Term.
SECTION 12. Insurance and Indemnity.
12.1. Professional Liability Insurance.
During the Term, the Management Company shall, to the extent permitted by
applicable law, procure and maintain for the benefit of itself and the Medical
Group comprehensive professional liability insurance providing for (a) general
liability coverage and (b) medical malpractice coverage with limits of not less
than $250,000 per claim and with aggregate policy limits of not less than
$750,000 (or such higher amounts as may be necessary to comply with any
regulatory requirement and/or contractual requirement to which such Medical
Personnel or the Medical Group may be subject) covering the Medical Group and
each of the Medical Personnel of the Medical Group, including coverage for
claims made after the Commencement Date relating to events or occurrences at any
time prior thereto. The parties hereto acknowledge that the Management Company
is procuring the malpractice insurance referenced herein to ensure that the
Management Company has protection in the event it is sued as a result of an act
or omission of an employee of the Medical Group. The Management Company shall
pay the premiums for such general and medical malpractice liability coverage,
which payments shall be considered Management Company Operating Costs under this
Agreement, subject to recoupment by the Management Company under Section 5
hereof. The Management Company shall be designated as an additional insured
under all such insurance policies.
12.2. Life Insurance.
The Management Company may, at its option, obtain a $500,000 life insurance
policy for each duly licensed physician partner in or equity owner of the
Medical Group. The Medical Group shall, and shall cause each such partner in or
equity owner of the Medical Group to, cooperate with the Management Company in
the procurement of such policies. The Management Company shall
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be designated as the beneficiary under any such policies. The premiums for such
policies shall be paid by the Management Company and shall not be included as
Management Company Operating Costs or otherwise charged to the Medical Group.
12.3. Indemnification by Medical Group.
The Medical Group shall indemnify, hold harmless and defend the Management
Company, its officers, directors, shareholders, employees, agents and
independent contractors from and against any and all liabilities, losses,
damages, claims, causes of action and expenses (including reasonable attorneys'
fees and expenses), whether or not covered by insurance, caused or asserted to
have been caused, directly or indirectly, by or as a result of (i) the
performance of Medical Group Services, including without limitation the
performance of such services prior to the Commencement Date, (ii) any other acts
or omissions of the Medical Group and its Medical Personnel, including without
limitation any such acts or omissions that occurred prior to the Commencement
Date, or (iii) any breach of or failure to perform any obligation under this
Agreement or the Medical Group Transaction Documents (which, for purposes
hereof, shall be deemed to include the Restricted Stock Agreement to be signed
by the Management Company and each partner, stockholder or employee of the
Medical Group receiving stock of the Management Company, in the form of Exhibit
C attached hereto (the "Restricted Stock Agreement")) by the Medical Group
and/or the Medical Personnel and/or their respective agents and/or
subcontractors (other than the Management Company) during the Term.
12.4. Indemnification by Management Company.
The Management Company shall indemnify, hold harmless and defend the
Medical Group, its officers, directors, shareholders, employees, agents and
independent contractors from and against any and all liabilities, losses,
damages, claims, causes of action and expenses (including reasonable attorneys'
fees and expenses), whether or not covered by insurance, caused
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or asserted to have been caused, directly or indirectly, by or as a result of
(i) the performance of Management Services, (ii) any other acts or omissions of
the Management Company and its employees or (iii) any breach of or failure to
perform any obligation under this Agreement or the Management Company
Transaction Documents by the Management Company and/or its agents, employees
and/or subcontractors (other than the Medical Group) during the Term. In
addition, the Management Company shall indemnify and hold harmless the Medical
Group, its officers, directors, shareholders, employees, agents and independent
contractors from and against any legal and related out of pocket costs actually
incurred in defending any violation or alleged violation of applicable law
arising as a direct result of the structure of this Agreement or the underlying
economic and financial arrangements thereof; provided, however, that in no event
shall the liability of the Management Company in connection with the
indemnification obligation set forth in this sentence exceed the aggregate
amount of $50,000.
SECTION 13. Termination.
13.1. Termination by Medical Group.
The Medical Group may terminate this Agreement effective immediately by
giving written notice of termination to the Management Company (a) in the event
of the filing of a petition in voluntary bankruptcy or an assignment for the
benefit of creditors by the Management Company or upon other action taken or
suffered, voluntarily or involuntarily, under any Federal or state law for the
benefit of debtors by the Management Company, except for the filing of a
petition in involuntary bankruptcy against the Management Company which is
dismissed within ninety (90) days thereafter (a "Bankruptcy Event"), (b) in the
event the Management Company shall default in any material respect in the
performance of any duty or obligation imposed upon it by this Agreement and the
Management Company shall not have taken reasonable action commencing curing of
such default within thirty
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(30) days after written notice thereof has been given to the Management Company
by the Medical Group or the Management Company does not thereafter diligently
prosecute such action to completion; provided, however, that the Management
Company shall have only 10 days after written notice to cure a default arising
as a result of its failure to pay the Monthly Draw pursuant to Section 5.3(a) or
any other monetary obligation owed to the Medical Group hereunder, (c) in the
event that any of the representations and warranties made by the Management
Company in Section 7 is untrue or misleading in any material respect, provided
that the Medical Group shall have previously given written notice to the
Management Company describing in reasonable detail the nature of the item in
question and the Management Company shall not have cured such matter within
thirty (30) days of such notice, (d) in the event the Management Company shall
have been sanctioned in writing by the Health Care Finance Administration for
any violation of the Social Security Act, the Health Care Quality Improvement
Act or any similar Federal law in a final, nonappealable proceeding and such
sanction prevents the Management Company from fulfilling its obligations
hereunder in accordance with all applicable law or (e) in the event the
Management Company shall have failed to pay any amount due pursuant to the terms
of any of Note No. 1, Note No. 2 or Note No. 3 within 30 days after such payment
was due.
13.2. Termination by Management Company.
The Management Company may terminate this Agreement effective immediately
by giving written notice of termination to the Medical Group (a) in the event of
a Bankruptcy Event relating to the Medical Group, (b) in the event the Medical
Group shall default in any material respect in the performance of any duty or
obligation imposed upon it by this Agreement and the Medical Group shall not
have taken reasonable action commencing curing of such default within thirty
(30) days after written notice thereof has been given to the Medical Group by
the Management Company or the Medical Group does not thereafter diligently
prosecute such
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action to completion; provided, however, that the Medical Group shall have only
10 days after written notice to cure a default arising as a result of its
failure to pay any monetary obligation owed to the Management Company hereunder,
(c) in the event that any of the representations and warranties made by the
Medical Group in Section 6 is untrue or misleading in any material respect,
provided that the Management Company shall have previously given written notice
to the Medical Group describing in reasonable detail the nature of the item in
question and the Medical Group shall not have cured such matter within thirty
(30) days of such notice, or (d) in the event the Medical Group is excluded from
the Medicaid or Medicare program for any reason and the Medical Group has not
successfully appealed such exclusion within 120 days after the effectiveness
thereof.
13.3. Termination by Medical Group or Management Company.
The Medical Group and the Management Company shall each have the right to
terminate this Agreement effective immediately by giving written notice of
termination to the other party pursuant to Section 27 of this Agreement.
13.4. Effect of Termination.
(a) Upon the termination of this Agreement in accordance with the terms
hereof, neither party hereto shall have any further obligation or liability to
the other party hereunder, except as provided in Sections 3.16(c), 5.3(b) (as
modified by Section 13.4(b) below), 13.5 and 26 hereof, and except to pay in
full and satisfy any and all outstanding obligations of the parties accruing
through the effective date of termination.
(b) Upon the termination of this Agreement, the Annual Medical Group
Compensation Amount described in Section 5.3(b) shall be calculated on or before
the end of the fourth month following the termination date, rather than on or
before April 30 as specified in Section 5.3(b), and the computation made under
such Section shall be made with respect to the portion of
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the year ending on the termination date (if the termination date is other than
December 31). In making such computation, all Collections during January,
February, and March of such year shall be excluded, and all Collections during
the three-month period following termination shall be included. All Collections
during the three-month period following termination shall continue to be owned
by the Management Company (and the Medical Group shall immediately forward any
amounts received in connection therewith to the Management Company) and all
Collections thereafter shall be owned by the Medical Group. Any payment required
under the terms of Section 5.3(b)(ii) shall be made within fifteen (15) days
after the date by which the foregoing calculation is to be made, rather than on
May 15. Notwithstanding anything contained herein to the contrary, in the event
that this Agreement is terminated due to the Management Company's failure to pay
an amount due pursuant to any of Note No. 1, Note No. 2 or Note No. 3, then any
such amounts which the Management Company failed to so pay shall be
automatically set-off against any amounts due (whether presently or in the
future) to the Management Company pursuant to the terms of this Agreement,
including, without limitation, for Management Fees or Management Company Costs.
(c) Upon termination of this Agreement, the Management Company agrees to
deliver to the Medical Group upon request by the Medical Group, a Financing
Statement amending the terms of any Financing Statement filed with the Secretary
of State of the state in which the principal place of business of the Medical
Group is located, excluding from the collateral thereunder any accounts
receivable generated after the date of termination of this Agreement. In
addition, the Management Company shall, within 15 days after final resolution of
the settlement described in Section 5.3(b) of this Agreement, deliver to the
Medical Group an additional Financing Statement terminating any Financing
Statement previously filed with respect
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to the Medical Group's accounts receivable, whether relating to services
performed during or after the Term.
13.5. Repurchase of Assets.
Promptly following termination of this Agreement for any reason, the
Management Company shall sell, transfer, convey, and assign to the Medical
Group, and the Medical Group shall purchase, assume, and accept from the
Management Company, at such price and upon such terms as may be agreed upon by
the parties -- or, if the parties are unable to agree, at fair market value,
determined in the manner set forth below -- all of the following items which are
used in connection with the professional practice and related activities of the
Medical Group and which, in the case of items (a), (b), (c) and (d), are
physically located in any of the offices of the Medical Group, subject to any
required consent from any third party having an interest therein but otherwise
free and clear of any liens, claims or encumbrances; provided that any leased
equipment or property shall be assigned to the Medical Group subject to the
applicable lease agreement and any liens granted thereunder:
(a) the Medical Equipment owned by the Management Company;
(b) the furniture, furnishings, trade fixtures, and office equipment owned
by the Management Company;
(c) the Management Company's rights and interests in any equipment leased
by the Management Company, subject to the Medical Group's assumption
of the obligations accruing thereunder after the date of termination
of this Agreement;
(d) the supplies owned by the Management Company;
(e) the Management Company's rights and interests under all of the Office
Leases, subject to the
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Medical Group's assumption of the obligations accruing thereunder
after the date of termination of this Agreement (provided that no
value shall be attributed to leasehold improvements); and
(f) the deposits of the Management Company relating to the Medical Group.
Fair market value of the above described assets shall be determined by an
independent appraiser mutually agreed upon by the Medical Group and the
Management Company; provided, however, that if the Medical Group and the
Management Company are unable to agree upon such an appraiser, each of the
parties shall select an appraiser and the two appraisers thus selected shall
select a third appraiser. All of the appraisers shall appraise the assets, and
for purposes of determining the purchase price, the highest and lowest
appraisals shall be disregarded, and the remaining appraisal shall be used. In
making such appraisals, no value shall be included in respect of good will,
going concern value or other similar intangibles. Notwithstanding anything
contained herein to the contrary, the consideration payable by the Medical Group
to the Management Company under this Section 13.5 shall be reduced by the
aggregate amount, if any, payable by the Management Company to the Stockholders
(as such term is defined in the Restricted Stock Agreements).
SECTION 14. Rescission.
14.1. Rescission By Medical Group.
The Medical Group may, in its sole discretion at any time during the period
beginning August 1, 2004 and ending August 31, 2004 (such 30-day period being
referred to herein as the "Rescission Period"), rescind (the "Rescission
Option") this Agreement and disengage itself from its obligations under this
Agreement. The Medical Group may exercise its Rescission Option during the
Rescission Period by giving written notice (the
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"Rescission Notice") to the Management Company and by complying with the other
provisions contained in this Section 14.1. The effective date (the "Rescission
Effective Date") of the rescission shall be that date which is 30 days after the
date of the Rescission Notice; provided that such date shall not be prior to the
seventh anniversary of the Commencement Date. The Medical Group must comply with
the provisions set forth in this Section 14.1 in order to effectively exercise
its Rescission Option.
(a) Effect of Rescission. In the event that the Medical Group exercises its
Rescission Option pursuant to this Section 14.1, the procedures set forth in
Section 13.4 above shall apply.
(b) Repurchase of Assets. Within 30 days following the Rescission Effective
Date the Management Company shall, subject to the prior receipt of any required
landlord and third party consents, transfer, convey and assign to the Medical
Group, and the Medical Group shall purchase, assume and accept from the
Management Company, the property described in Section 13.5 above according to
the provisions set forth in such Section.
(c) Repayment of Consideration.
(i) In the event that the Medical Group elects to exercise its
Rescission Option, the Medical Group shall cause each physician receiving
capital stock of the Management Company as of the date hereof to, and each
such physician shall, deliver to the Management Company, on or before the
Rescission Effective Date, stock certificates representing an aggregate
230,004 shares of common stock of the Management Company, which shares were
issued to each such physician pursuant to a Restricted Stock Agreement.
Certificates delivered pursuant to this Section 14.1(c) shall be duly
endorsed for transfer to the Management Company. In the event that any
portion of the shares to be returned pursuant to this paragraph shall have
been previously transferred by any such physician, the Fair
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Market Value of those previously transferred shares required to be
returned, determined as of September 1, 2001, shall be payable by such
physician to the Management Company in cash, by cashier's or certified
check or by wire transfer of funds delivered to a depository institution
designated by the Management Company. Notwithstanding anything contained
herein to the contrary, the Medical Group will not be obligated to return
to the Management Company any of the cash consideration received by the
Medical Group pursuant to the Asset Purchase Agreement, except as set forth
in paragraph (b) above.
(ii) As used herein, "Fair Market Value" of each share of the common
stock of the Management Company means the average of the closing prices of
the sales of the common stock on all securities exchanges on which the
common stock may at the time be listed, or, if there have been no sales on
any such exchange on any given day, the average of the last bid and asked
prices on all such exchanges at the end of such day, or, if on any given
day the common stock is not so listed, the average of the representative
bid and asked prices quoted in the Nasdaq Stock Market National Market
System ("Nasdaq") as of 4:00 P.M., New York time, or, if on any given day
the common stock is not quoted in Nasdaq, the average of the bid and asked
prices on such day in the domestic over-the-counter market as reported by
the National Quotation Bureau Incorporated, or any similar successor
organization, in each such case averaged over a period of 21 days
consisting of the day as of which the Fair Market Value is being determined
and the 20 consecutive trading days prior to such day. If at any time the
common stock is not listed on any securities exchange or quoted in Nasdaq
or the over-the-counter market, the Fair Market Value shall be that value
jointly determined by the Medical Group and the Management Company,
provided that if they cannot so agree, such value shall be determined by a
mutually
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acceptable investment banking or other qualified firm of national or
regional reputation, retained jointly by the Management Company and the
Medical Group, and all fees, expenses and other charges of such firm
incurred in connection with such determination of Fair Market Value shall
be borne and shared equally by the Management Company and the Medical
Group. In the event that the parties are unable to agree upon such an
investment banking or other qualified firm within ten (10) days after the
date on which either party may initially propose such a firm, a qualified
firm shall be selected in the following manner:
First, the Medical Group shall send a list of four such firms,
arranged in order of the Medical Group's preference, by written notice to
the Management Company within seven (7) days after the expiration of the
above referenced 10-day period. If the Medical Group does not furnish such
list to the Management Company within the required time period, the
Management Company may, within seven (7) days following expiration of the
initial seven-day period, submit a list of four such firms to the Medical
Group.
Second, the Management Company (or the Medical Group, as applicable)
shall select, within seven (7) days after receipt of the above-referenced
list, one of the firms identified on such list and shall give written
notice thereof to the other party. If the recipient of such list does not
make any such selection, the firm identified as the first choice on such
list shall be deemed acceptable and agreeable to each of the parties.
(d) Repayment of Management Fee. Notwithstanding anything contained herein
to the contrary, in the event that the Medical Group exercises its Rescission
Option under this Section 14.1, the Management Company shall not be required to
refund to
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the Medical Group any portion of the Management Fees paid, or due to be
paid, by the Medical Group under the terms of this Agreement for the period
prior to the Rescission Effective Date.
(e) Waiver of Rescission Option. Notwithstanding anything contained
herein to the contrary, the parties hereto expressly agree and acknowledge
that if the Medical Group shall fail to deliver the Rescission Notice prior
to the end of the Rescission Period, then the Medical Group shall be deemed
to have expressly and irrevocably waived its right to rescind this
Agreement and to disengage itself from its obligations hereunder.
14.2. Disengagement of Individual Member.
In the event that, during the Rescission Period, any Eligible Party
terminates his affiliation with the Medical Group (such person being referred to
herein as a "Disengaging Member"), such Disengaging Member shall return or remit
to the Management Company (a) stock certificate(s) representing that number of
shares of common stock of the Management Company as is set forth opposite such
Disengaging Member's name on Annex A attached hereto, which shares were issued
to such Disengaging Member pursuant to a Restricted Stock Agreement or (b) in
lieu of delivery of all or any portion of such stock certificates, cash,
cashier's or certified checks or a wire transfer of funds delivered to a
depository institution designated by the Management Company, in an amount equal
to the Fair Market Value, determined as of September 1, 2001, of all or such
portion, as the case may be, of shares of common stock of the Management
Company.
SECTION 15. Non-Disclosure of Confidential Information.
15.1. Non-Disclosure.
(a) Neither the Management Company nor the Medical Group, nor their
respective employees, stockholders, consultants or agents shall, at any time
after the execution and delivery hereof, directly or indirectly disclose any
Confidential or Proprietary Information relating to the other party hereto to
any
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person, firm, corporation, association or other entity, nor shall either party,
or their respective employees, stockholders, consultants or agents make use of
any of such Confidential or Proprietary Information for its or their own
purposes or for the benefit of any person, firm, corporation or other entity
except the parties hereto or any subsidiary or affiliate thereof. The foregoing
obligation shall not apply to any information which a party hereto can establish
to have (a) become publicly known without breach of this Agreement by it or
them, (b) to have been given to such party by a third party who is not obligated
to maintain the confidentiality of such information, or (c) is disclosed to a
third party with the prior written consent of the other party hereto. Nothing
contained herein shall be construed to prevent any party hereto from disclosing
any Confidential or Proprietary Information of any other party to its
professional advisers for purposes of evaluating, negotiating or otherwise
assisting such party in connection with the transactions contemplated by this
Agreement; provided that such party shall be liable to such other party for the
disclosure by any of its professional advisers of such other party's
Confidential or Proprietary Information, unless such information falls within
one of the categories set forth in clauses (a), (b) or (c) of the preceding
sentence.
(b) For purposes of this Section 14, the term "Confidential or Proprietary
Information" means all information known to a party hereto, or to any of its
employees, stockholders, officers, directors or consultants, which relates to
the Transaction Documents, patient medical and billing records, trade secrets,
books and records, supplies, pricing and cost information, marketing plans,
strategies and forecasts. Nothing contained herein shall prevent a party hereto
from furnishing Confidential or Proprietary Information pursuant to a direct
order of a court of competent jurisdiction.
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SECTION 16. Non-Competition.
In consideration of the premises contained herein and the consideration to
be received hereunder, and in consideration of and as an inducement to the
Management Company to consummate the transactions contemplated hereby, the
Medical Group hereby (a) agrees to the Non-Competition covenants attached hereto
as Schedule VIII and (b) agrees to require each of the physicians receiving
capital stock of the Management Company as of the date hereof, and each person
who after the date hereof becomes entitled to receive stock (or options to
receive stock) in the Management Company in connection with his or her
performance of services for the Medical Group, to execute a Stockholder
Non-Competition Agreement substantially in the form attached hereto as Exhibit
D.
SECTION 17. Obligations of the Management Company.
17.1. No Practice of Medicine.
The Medical Group and the Management Company acknowledge that certain
federal and state statutes severely restrict or prohibit the Management Company
from providing medical services. Accordingly, during the Term, the Management
Company shall not provide or otherwise engage in services or activities which
constitute the practice of medicine, as defined in applicable state or Federal
law, except in compliance therewith.
17.2. No Interference with Professional Judgment.
Without in any way limiting Section 16.1 hereof, during the Term, the
Management Company shall not interfere with the exercise of professional
judgment by any physician or other licensed health care professional who is a
partner, employee, or contractor of the Medical Group, nor shall the Management
Company interfere with, control, direct, or supervise any physician or other
licensed health care professional in connection with the provision of Medical
Group Services. The foregoing shall not
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preclude the Management Company from assisting in the development of
professional protocols and monitoring compliance with policies and procedures
that have been instituted in accordance with this Agreement.
17.3. Operational Evaluations.
The Management Company shall, within 180 days after the Signature Date, at
no cost to the Medical Group:
(a) begin a feasibility study for the purchase or lease of a magnetic
resonance imaging unit to be used by the Medical Group;
(b) perform a code analysis and operational review of the Medical Business
to capture lost revenues and enhance revenue recovery for the Medical
Group;
(c) evaluate the practice management requirements of the Medical Group and
implement appropriate systems therefor; and
(d) implement a new information system which will create synergy among the
multiple offices of the Medical Group. At a minimum such information
system will include the use of the same software for each of the
Medical Group's offices and will link each of the offices together
through some electronic communications system which will enable the
offices to share information electronically.
17.4. Physician Advisory Board.
The Management Company is developing an advisory group (the "Physician
Advisory Board") to be comprised of physicians practicing in the State of
Florida. Upon the establishment of the Physician Advisory Board, and in
accordance with the governing documents thereof, the Management Company shall,
or
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<PAGE>
shall cause the Physician Advisory Board to, appoint Marc Hammerman, M.D., to
serve on the Physician Advisory Board.
SECTION 18. Assignment.
(a) The Management Company shall have the right to assign its rights and
delegate its obligations hereunder for security purposes or as collateral to any
affiliate and to assign its rights hereunder to any lending institution from
which the Management Company or any affiliate obtains financing. Except as set
forth in the preceding sentence, neither the Management Company nor the Medical
Group shall have the right to assign their respective rights and delegate their
respective obligations hereunder without the prior written consent of the other
party; provided, however, that after the consummation of an initial public
offering of the Management Company's common stock, the Medical Group's consent
shall not be required in connection with any assignment by the Management
Company arising out of or in connection with a sale of all or substantially all
of the stock or assets of the Management Company or the merger, consolidation,
or reorganization of the Management Company.
(b) Notwithstanding anything contained herein to the contrary, in the event
that the Management Company is merged with or into, or any significant portion
of the Management Company's assets (being defined as at least fifty one (51%)
percent of the total book value thereof), is acquired by, Tenet Healthcare
Corp., Columbia HCA Healthcare Corp., or any of their respective affiliates (any
such case, a "Corporate Acquisition"), on or before the end of the Rescission
Period, the parties will determine (i) the aggregate Collections for the
12-month period ending immediately prior to the consummation of the Corporate
Acquisition (the "Base Collections Amount") and (ii) the aggregate Annual
Medical Group Compensation Amount payable for the 12-month period ending
immediately prior to the consummation of the Corporate Acquisition (the "Base
Compensation Amount"). Thereafter, in the event that for any subsequent 12-month
period
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<PAGE>
commencing on the date of the consummation of the Corporate Acquisition through
and including the 12 month period which includes the Rescission Period (each, a
"Comparison Year"), the Collections for such Comparison Year is at least fifteen
(15%) percent less than the Base Collections Amount, the Management Company
shall, within 30 days after such determination, pay to the Medical Group the
entire difference between the Base Compensation Amount and the Annual Medical
Group Compensation Amount for such Comparison Year. This provision shall
automatically terminate, without the need for any further action, upon the
earlier of (a) the conclusion of the Rescission Period, if no Corporate
Acquisition has been consummated by the conclusion of the Rescission Period, and
(b) the conclusion of the Comparison Year that includes the Rescission Period,
if a Corporate Acquisition has been consummated by the conclusion of the
Rescission Period.
SECTION 19. Notices.
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed sufficient if personally delivered, telecopied
(with original sent by mail), sent by nationally-recognized overnight courier,
or by registered or certified mail, return receipt requested and postage
prepaid, addressed as follows:
If to the Management Company:
BMJ Medical Management, Inc.
4800 North Federal Highway, Suite 104D
Boca Raton, Florida 33431
Attention: Naresh Nagpal, M.D., President
Telecopier: (561) 391-1389;
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Jeffrey S. Held, Esq.
Telecopier: (212) 408-2420; and
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<PAGE>
If to the Medical Group:
BROWARD INSTITUTE oF ORTHOPAEDIC
SPECIALTIES, P.A.
4440 Sheridan Street
Hollywood, Florida 33021
Attention: Administrator
Telecopier: (954) 483-4873
Telephone: (954) 962-3508
with a copy to:
Broad and Cassel
7777 Glades Road, Suite 300
Boca Raton, Florida 33434
Attention: David J. Powers, Esq.
Telecopier: (561) 483-7321;
or to such other address as the party to whom notice is to be given may have
furnished to each other party in writing in accordance herewith. Any such notice
or communication shall be deemed to have been received (a) in the case of
personal delivery and telecopier, on the date of such delivery, (b) in the case
of nationally-recognized overnight courier, on the next business day after the
date when sent, and (c) in the case of mailing, on the third business day
following the day on which the piece of mail containing such communication is
posted.
SECTION 20. Benefits of Agreement.
This Agreement shall bind and inure to the benefit of any successors to or
permitted assigns of the Management Company and the Medical Group.
SECTION 21. Severability.
It is the desire and intent of the parties hereto that the provisions of
this Agreement be enforced to the fullest extent permissible under the laws and
public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular provision of this Agreement shall be adjudicated
by a court of competent jurisdiction to be invalid, prohibited or unenforceable
for any reason, such provision, as to such jurisdiction, shall be ineffective,
without invalidating the
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<PAGE>
remaining provisions of this Agreement or affecting the validity or
enforceability of this Agreement or affecting the validity or enforceability of
such provision in any other jurisdiction. Notwithstanding the foregoing, if such
provision could be more narrowly drawn so as not to be invalid, prohibited or
unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so
narrowly drawn, without invalidating the remaining provisions of this Agreement
or affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 22. Governing Law.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Florida without giving effect to the
laws and principles thereof, or of any other jurisdiction, which would direct
the application of the laws of another jurisdiction. The parties to this
Agreement agree that jurisdiction and venue in any action brought by any party
hereto pursuant to this Agreement shall lie exclusively in any Federal or state
court located in Broward County, Florida or the Southern District of Florida. By
execution and delivery of this Agreement, the parties hereto irrevocably submit
to the exclusive jurisdiction of such courts for themselves and in respect of
their property with respect to such action. The parties hereto irrevocably agree
that venue would be proper in such court, and hereby waive any objection that
such court is an improper or inconvenient forum for the resolution of such
action. The parties hereto shall act in good faith and shall refrain from taking
any actions to circumvent or frustrate the provisions of this Agreement.
SECTION 23. Headings.
Section headings are used for convenience only and shall in no way affect
the construction of this Agreement.
SECTION 24. Entire Agreement; Amendments.
This Agreement and the exhibits and schedules hereto contain
the entire understanding of the parties with respect to
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<PAGE>
its subject matter, and neither this Agreement nor any part of it may in any way
be altered, amended, extended, waived, discharged or terminated except by a
written agreement signed by all of the parties against whom enforcement is
sought.
SECTION 25. Attorneys' Fees.
In the event of any dispute or controversy arising out of or relating to
this Agreement, the prevailing party shall be entitled to recover from the other
party all reasonable costs and expenses, including attorneys' fees and
accountants' fees, incurred in connection with such dispute or controversy.
SECTION 26. Counterparts.
This Agreement may be executed in counterparts, and each such counterpart
shall be deemed to be an original instrument, but all such counterparts together
shall constitute but one agreement.
SECTION 27. Waivers.
Any party to this Agreement may, by written notice to the other party,
waive any provision of this Agreement. The waiver by any party of a breach of
any provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach.
SECTION 28. Survival of Termination.
Notwithstanding anything contained herein to the contrary, Sections 3.3(f),
11, 12.3, 12.4, 13, 14, 15, 16, 19, 20, 21, 22, 24, 25 and this Section 28 shall
survive any expiration or termination of this Agreement.
SECTION 29. Contract Modification for Prospective Legal Events.
In the event any state or Federal laws or regulations, now existing or
enacted or promulgated after the date hereof, are interpreted by judicial
decision, a regulatory agency or legal counsel of both parties in such a manner
as to indicate that the structure of this Agreement may be in violation of such
laws or
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<PAGE>
regulations, the Medical Group and the Management Company shall amend this
Agreement as necessary to avoid such violation. To the maximum extent possible,
any such amendment shall preserve the underlying economic and financial
arrangements between the Medical Group and the Management Company. If an
amendment is not possible, either party shall have the right to terminate this
Agreement. Any dispute between the parties hereto arising under this Section 29
with respect to whether this Agreement violates any state or Federal laws or
regulations shall be jointly submitted by the parties and finally settled by
binding arbitration in Florida, pursuant to the arbitration rules of the
National Health Lawyers Association Alternative Dispute Resolution Service.
Arbitration shall take place before one arbitrator appointed in accordance with
such rules. The governing law of the arbitration shall be the law set forth in
Section 22. Any decision rendered by the arbitrator shall clearly set forth the
factual and legal basis for such decision. The decision rendered by the
arbitrator shall be non-appealable and enforceable in any court having
jurisdiction thereof. The administrative costs of the arbitration and the
arbitrator fees shall be equally borne by the parties. Each party shall pay its
own legal costs and fees in connection with such arbitration.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Management Services
Agreement as of the date first above written.
BROWARD INSTITUTE OF ORTHOPAEDIC
SPECIALTIES, P.A.
By:______________________________
Name:
Title:
BMJ MEDICAL MANAGEMENT, INC.
By:______________________________
Name:
Title:
Acknowledged and Agreed to
(as to Sections 4, 9.7, 12.2,
14, 15 and 16):
- ------------------------------
David A. Krant, M.D.
- ------------------------------
Jeffrey B. Worth, M.D.
- ------------------------------
Jeffrey A. Crantnopol, M.D.
- ------------------------------
Marc Z. Hammerman, M.D.
- ------------------------------
Gary B. Schwartz, M.D.
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<PAGE>
- ------------------------------
Marshall E. Stauber, M.D.
- ------------------------------
Thomas A. Hoffeld, M.D.
- ------------------------------
Phillip E. Greenbarg, M.D.
<PAGE>
SCHEDULE 7.2
Consents
The authorization of the Management Company's board of directors is
required in connection with the consummation of the transactions contemplated by
this Agreement.
<PAGE>
SCHEDULE 7.4
Financial Information
See attached.
<PAGE>
SCHEDULE 7.5
Absence of Undisclosed Liabilities
The Management Company has incurred the following liabilities:
Loan and Security Agreement dated as of July 11, 1997 between the Management
Company and HCFP Funding, Inc. (the "Senior Lender"), for a working capital loan
in the aggregate principal amount of $1,000,000.
Subordinated Loan and Security Agreement dated as of August 1, 1997, between the
Management Company and Comdisco, Inc., for a subordinated loan in the aggregate
principal amount of $5,000,000.
Subordinated Loan and Security Agreement dated as of August 22, 1997, between
the Management Company and Galtney Corporate Services, Inc., for a subordinated
loan in the aggregate principal amount of $1,500,000.
Secured Term Note dated as of October 14, 1997 between the Senior Lender and the
Management Company for a loan in the aggregate principal amount of $2,500,000.
Loan and Security Agreement dated as of October 14, 1997 between the Management
Company and the Senior Lender for a working capital loan in the aggregate
principal amount of $2,000,000.
<PAGE>
Loan and Security Agreement dated as of October 14, 1997 between the Management
Company and the Senior Lender for a working capital loan in the aggregate
principal amount of $1,000,000.
Note Agreement dated as of October 15, 1997 among the Management Company and the
Purchasers named therein for a loan in the aggregate principal amount of
$3,375.000.
<PAGE>
SCHEDULE 7.6
Absence of Changes
None.
<PAGE>
SCHEDULE 7.7
Litigation, Etc.
A former employee of the Parent has filed a complaint in the District Court of
Harris County, Texas, which asserts claims arising out of his termination by the
Company and an alleged stock purchase agreement among the Parent, such employee
and the individuals mentioned in item numbered two below. The Parent has removed
the case to the United States District Court for the Southern District of Texas.
Certain individuals have filed a complaint in the District Court of Harris
County, Texas, which claims that the Parent has breached an agreement for the
sale of the Parent's securities to such individuals. The Parent has removed the
case to the United States District Court for the Southern District of Texas.
<PAGE>
SCHEDULE 7.8
Employees
None.
<PAGE>
SCHEDULE 7.11
Burdensome Restrictions
None.
<PAGE>
Annex A
Disengaging Shares Being Returned Upon Rescission
Member
David A. Krant, M.D. 23,389
Jeffrey B. Worth, M.D. 32,487
Jeffrey A. Crastnopol, M.D. 27,225
Marc Z. Hammerman, M.D. 53,493
Gary B. Schwartz, M.D. 23,608
Marshall E. Stauber, M.D. 28,088
Thomas A. Hoffeld, M.D. 22,400
Phillip E. Greenbarg, M.D. 19,547
========
230,237
<PAGE>
ATTACHMENTS
SCHEDULES
- ---------
SCHEDULE I -- New Ancillary Services -- Exceptions
SCHEDULE II -- Management Company Operating Cost Budget
SCHEDULE III -- Equity Participation
SCHEDULE IV -- Draw Date and Draw Percentage
SCHEDULE V -- Management Fee -- Applicable Percentage
SCHEDULE VI -- Professional Practice Cost Savings
SCHEDULE VII -- Computation Example
SCHEDULE VIII -- Non-Competition
SCHEDULE 6.2 -- Equity Investments
SCHEDULE 6.3 -- Consents
SCHEDULE 6.4 -- Financial Information
SCHEDULE 6.5 -- Absence of Undisclosed Liabilities
SCHEDULE 6.6 -- Absence of Changes
SCHEDULE 6.7 -- Tax Matters
SCHEDULE 6.8 -- Litigation, Etc.
SCHEDULE 6.10 -- Accounts Receivable; Accounts Payable
SCHEDULE 6.11 -- Labor Relations; Employees
SCHEDULE 6.12 -- Employee Benefit Plans
SCHEDULE 6.13 -- Insurance
SCHEDULE 6.15 -- Burdensome Restrictions
SCHEDULE 6.16 -- Disclosure
SCHEDULE 7.2 -- Consents
SCHEDULE 7.4 -- Financial Information
SCHEDULE 7.5 -- Absence of Undisclosed Liabilities
SCHEDULE 7.6 -- Absence of Changes
SCHEDULE 7.7 -- Litigation, Etc.
SCHEDULE 7.9 -- Employees
SCHEDULE 7.11 -- Burdensome Restrictions
<PAGE>
EXHIBITS
- --------
EXHIBIT A -- Asset Purchase Agreement
EXHIBIT B -- Assignment of Lease
EXHIBIT C -- Restricted Stock Agreement
EXHIBIT D -- Stockholder Non-Competition Agreement
<PAGE>
===============================================================================
ASSET PURCHASE AGREEMENT
BETWEEN
BMJ MEDICAL MANAGEMENT, INC.
AND
BROWARD INSTITUTE OF ORTHOPAEDIC SPECIALTIES, P.A.
Effective as of September 1, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I TRANSFER OF PURCHASED ASSETS, ASSUMPTION OF
LIABILITIES AND RELATED MATTERS .............................. 2
1.1. Transfer of Assets ........................................... 2
1.2. Assets Not Being Transferred ................................. 3
1.3. Liabilities Being Assumed .................................... 3
1.4. Liabilities Not Being Assumed ................................ 3
1.5. Instruments of Conveyance and Transfer, Etc .................. 3
1.6. Further Assurances ........................................... 4
1.7. Assignment of Leases ......................................... 5
1.8. Condition of Purchased Assets ................................ 5
ARTICLE II PURCHASE PRICE; ALLOCATION ................................... 5
2.1. Purchase Price; Payment ...................................... 5
2.2. Allocation of Purchase Price ................................. 6
2.3. Accounts Receivable .......................................... 6
ARTICLE III REPRESENTATIONS AND WARRANTIES ............................... 7
3.1. Representations and Warranties of the Seller ................. 7
3.2. Representations and Warranties of the Buyer .................. 11
ARTICLE IV CONDITIONS TO CLOSING ........................................ 13
4.1. Conditions to Each Party's Obligations ....................... 13
4.2. Conditions to Obligations of the Buyer ....................... 13
4.3. Conditions to Obligations of the Seller ...................... 14
4.4. Related Agreements ........................................... 15
ARTICLE V CLOSING ...................................................... 16
5.1. Date ......................................................... 16
5.2. Closing Transactions ......................................... 16
ARTICLE VI INDEMNIFICATION .............................................. 18
6.1. Definitions .................................................. 18
6.2. Indemnification Generally .................................... 19
6.3. Assertion of Claims .......................................... 20
6.4. Notice and Defense of Third Party Claims ..................... 20
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<PAGE>
Page
----
6.5. Survival of Representations, Warranties and Covenants ........ 22
ARTICLE VII NON-COMPETITION .............................................. 22
ARTICLE VIII REPURCHASE OF ASSETS ......................................... 22
ARTICLE IX AMENDMENT, MODIFICATION AND WAIVER ........................... 23
ARTICLE X MISCELLANEOUS ................................................ 23
10.1. Transfer Taxes, Etc .......................................... 23
10.2. Entire Agreement ............................................. 23
10.3. Descriptive Headings ......................................... 24
10.4. Notices ...................................................... 24
10.5. Counterparts ................................................. 25
10.6. Bulk Sales Compliance ........................................ 25
10.7. Governing Law; Jurisdiction .................................. 25
10.8. Attorneys' Fees .............................................. 26
10.9. Benefits of Agreement ........................................ 26
10.10 Pronouns ..................................................... 26
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<PAGE>
EXHIBITS
- --------
Exhibit A - Bill of Sale
Exhibit B - Assignment and Assumption Agreement
Exhibits C-1 and C-1 - Promissory Notes
SCHEDULES
- ---------
1.1(a) - Medical Equipment
1.1(b) - Furniture, Furnishings, Trade
Fixtures, and Office Equipment
1.1(c) - Equipment Leases
1.1(d) - Supplies
1.1(e) - Office Leases
1.1(f) - Deposits
1.1(g) - Additional Items
2.2 - Allocation of Purchase Price
3.1(b) - Seller Consents
3.1(c) - Claims
3.1(d) - Litigation
3.2(b) - Buyer Consents
<PAGE>
Definitions
The following terms which may appear in more than one Section of this Agreement
are defined at the following pages:
TERM PAGE
- ---- ----
Accounts Receivable .................................................... 6
Affiliate .............................................................. 18
Appraisal Period ....................................................... 6
Assignment and Assumption Agreement .................................... 4
Assumed Obligations .................................................... 3
Bill of Sale ........................................................... 4
bulk sales laws ........................................................ 18
Business Day ........................................................... 25
Buyer .................................................................. 1
Buyer Indemnification Event ............................................ 18
Buyer Indemnified Persons .............................................. 19
Bylaws ................................................................. 7
Certificate of Incorporation ........................................... 7
Claims ................................................................. 9
Closing ................................................................ 16
Closing Date ........................................................... 16
Excluded Assets ........................................................ 3
Excluded Obligations ................................................... 3
Fixed Assets ........................................................... 5
Indemnified Persons .................................................... 19
Indemnifying Person .................................................... 19
Losses ................................................................. 19
Management Services Agreement .......................................... 1
New Appraisal .......................................................... 6
Permitted Liens ........................................................ 9
Purchase Price ......................................................... 5
Purchased Assets ....................................................... 2
Related Agreements ..................................................... 13
Seller ................................................................. 1
Seller Indemnification Event ........................................... 19
Seller Indemnified Persons ............................................. 19
Signature Date ......................................................... 1
Statement of Allocation ................................................ 6
Subject Business ....................................................... 1
<PAGE>
THIS ASSET PURCHASE
AGREEMENT is entered into on
October 31, 1997 (the "Signature
Date"), effective as of September
1, 1997, between BMJ MEDICAL
MANAGEMENT, INC., a Delaware
corporation (the "Buyer"), and
BROWARD INSTITUTE OF ORTHOPAEDIC
SPECIALTIES, P.A., a Florida
professional association (the
"Seller").
A. The Seller is engaged in the business (the "Subject Business") of
providing orthopedic medical and surgical services and related medical and
ancillary services to patients.
B. The Buyer is engaged in the business of providing management,
administrative, financial, marketing, information technology, and related
services to professional medical organizations.
C. Concurrently herewith, the Seller and the Buyer are entering into a
Management Services Agreement (the "Management Services Agreement"), pursuant to
which the Buyer will furnish to the Seller management, administrative, and
related services.
D. The Seller desires to sell, transfer, convey and assign to the Buyer and
the Buyer desires to purchase from the Seller, certain of the assets,
properties, interests in properties and rights of the Seller used in the Subject
Business upon the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements hereinafter set forth, the
parties hereby agree as follows:
<PAGE>
ARTCILE I
TRANSFER OF PURCHASED ASSETS, ASSUMPTION OF
LIABILITIES AND RELATED MATTERS
1.1. Transfer of Assets.
On the terms and subject to the conditions of this Agreement, at the
Closing (as hereinafter defined), the Seller shall sell, transfer, convey and
assign to the Buyer, and the Buyer shall purchase, assume, and accept from the
Seller, the following assets, properties, interests in properties and rights of
the Seller (the "Purchased Assets"), as the same shall exist immediately prior
to the Closing, free and clear of all Claims (as defined below) (except
Permitted Liens (as defined below)):
(a) the medical equipment owned by the Seller and listed on Schedule
1.1(a);
(b) the furniture, furnishings, trade fixtures, and office equipment
owned by the Seller and listed on Schedule 1.1(b);
(c) the Seller's rights and interests under the equipment leases
identified on Schedule 1.1(c), subject to the Buyer's assumption of the
obligations accruing thereunder as provided in Section 1.3;
(d) the supplies described on Schedule 1.1(d);
(e) the Seller's rights and interests under the office leases
identified in Schedule 1.1(e), subject to the Buyer's assumption of the
obligations accruing thereunder as provided in Section 1.3;
(f) the deposits identified on Schedule 1.1(f); and
(g) any additional items identified on Schedule 1.1(g).
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<PAGE>
1.2. Assets Not Being Transferred.
All assets, properties, interests in properties, and rights of the Seller
not expressly identified in Section 1.1 or the Schedules referenced therein (the
"Excluded Assets") are expressly excluded from the assets of the Seller being
sold, assigned, or otherwise transferred to the Buyer.
1.3. Liabilities Being Assumed.
Except as otherwise provided herein and subject to the terms and conditions
of this Agreement, simultaneously with the sale, transfer, conveyance and
assignment to the Buyer of the Purchased Assets, the Buyer shall assume, and
hereby agrees to pay when due, those liabilities accruing after the Closing Date
(as hereinafter defined) under the equipment leases identified in Schedule
1.1(c) and the office leases identified in Schedule 1.1(e) (the "Assumed
Obligations"); provided, however, that any and all obligations and liabilities
arising under any such lease as of or prior to the Closing Date and any and all
obligations and liabilities arising out of or in connection with the Seller's
breach of any such lease shall, in each case, remain the obligations and
liabilities of the Seller.
1.4. Liabilities Not Being Assumed.
The Buyer is not assuming any liabilities or obligations of the Seller
(fixed or contingent, known or unknown, matured or unmatured) whatsoever other
than the Assumed Obligations. For convenience of reference, all liabilities and
obligations of the Seller not being assumed by the Buyer are collectively
referred to as the "Excluded Obligations." The Seller hereby agrees to pay all
Excluded Obligations as and when such Excluded Obligations become due.
1.5. Instruments of Conveyance and Transfer, Etc.
At the Closing, the Seller shall deliver (or cause to be delivered) to the
Buyer such deeds, bills of sale,
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<PAGE>
endorsements, assignments and other good and sufficient instruments of sale,
transfer, conveyance and assignment as shall be necessary to sell, transfer,
convey and assign to the Buyer, in accordance with the terms hereof, title to
the Purchased Assets, free and clear of all Claims (except Permitted Liens),
including, without limitation, the delivery of a Bill of Sale (the "Bill of
Sale") substantially in the form of Exhibit A attached hereto and the delivery
of an Assignment and Assumption Agreement (the "Assignment and Assumption
Agreement") substantially in the form of Exhibit B attached hereto.
Simultaneously therewith, the Seller shall take all steps as may be reasonably
required to put the Buyer in possession and operating control of the Purchased
Assets.
1.6. Further Assurances.
The Seller shall pay or cause to be paid to the Buyer promptly any amounts
which shall be received by the Seller after the Closing which constitute
Purchased Assets. The Seller shall, at any time and from time to time after the
Closing, upon the reasonable request of the Buyer, execute, acknowledge, deliver
and file, or cause to be executed, acknowledged, delivered or filed, and perform
or cause to be performed all such further acts, transfers, conveyances,
assignments or assurances as may reasonably be required for better selling,
transferring, conveying, assigning and assuring to the Buyer, or for aiding and
assisting in the collection of or reducing to possession by the Buyer, any of
the assets, properties, interests in properties or rights being purchased by the
Buyer hereunder. Any reasonable expenses incurred in connection with the
foregoing shall be borne by the Seller; provided that such expenses shall not
exceed $10,000 nor shall the provisions of this Section be interpreted to
require that the Seller litigate, arbitrate or mediate any matters pursuant
hereto.
-4-
<PAGE>
1.7. Assignment of Leases.
Anything contained in this Agreement to the contrary notwithstanding, this
Agreement shall not constitute an agreement or attempted agreement to assign any
office lease or equipment lease if an attempted assignment thereof, without the
consent of any other party thereto, would constitute a breach thereof or in any
way affect the rights of the Buyer or the Seller thereunder. The Seller shall
use its best efforts, and the Buyer shall cooperate with the Seller, to obtain
the consent of any such third party to the assignment thereof to the Buyer. If
such consent is not obtained, the Seller shall cooperate with the Buyer in any
arrangements reasonably necessary or desirable to provide for the Buyer the
benefits (together with the obligations to perform) thereunder.
1.8. Condition of Purchased Assets.
The Buyer acknowledges that the Seller makes no representations or
warranties, express or implied, as to any matter whatsoever relating to the
Purchased Assets, except for the representations and warranties expressly set
forth in this Agreement, and except as set forth expressly herein, the condition
of the Purchased Assets shall be "as is" and "where is".
ARTICLE II
PURCHASE PRICE; ALLOCATION
2.1. Purchase Price; Payment.
The purchase price (the "Purchase Price") to be paid for the Purchased
Assets shall equal $2,691,562.70. A portion of the Purchase Price for the assets
described as "Medical Equipment, Furniture, Furnishings, Trade Fixtures, and
Other Equipment" on Schedule 2.2 hereof (collectively, the "Fixed Assets") was
computed based upon the value of the Purchased Assets determined by an appraisal
of the Fixed Assets performed
-5-
<PAGE>
prior to the date hereof at the request of the Seller. Notwithstanding the
foregoing, the Seller shall have the right, exercisable on or before November
14, 1997 (the "Appraisal Period"), to have a second appraisal (the "New
Appraisal") done on the Fixed Assets. The parties hereto agree that in the event
the Seller elects to have such New Appraisal done within the Appraisal Period,
and such New Appraisal reflects a different value for the Fixed Assets, the
parties will adjust the Purchase Price (either upward or downward as
appropriate) based upon such New Appraisal; provided that in no event shall the
Purchase Price be adjusted by more than $46,500. In the event of such a change
in the Purchase Price, the principal amount of Note No. 2 (as hereinafter
defined) and the amount of the Purchase Price allocated to the Fixed Assets on
Schedule 2.2 hereof shall each be deemed changed accordingly, effective as of
the Signature Date.
2.2. Allocation of Purchase Price.
The Purchase Price shall be allocated among the Purchased Assets in a
statement (the "Statement of Allocation") reflecting the allocation set forth in
Schedule 2.2 attached hereto. The parties shall complete their respective tax
returns for the period which includes the Closing Date in a manner that is
consistent with the Statement of Allocation.
2.3. Accounts Receivable.
(a) All of the Seller's accounts receivable and other rights to
payment existing as of the close of business on August 31, 1997 and any
amounts owing to the Seller for services provided through such date
(collectively, the "Accounts Receivable") shall remain the property of the
Seller. The Buyer agrees to use its reasonable best efforts (which shall
not require the institution or participation in any litigation) to collect
the Seller's Accounts Receivable in the normal and ordinary course of
business and shall cooperate in all reasonable
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respects with the Seller's efforts to collect the Accounts Receivable. The
Buyer agrees to promptly, but at least monthly, account for and pay to the
Seller all monies paid to or received by the Buyer in respect of the
Accounts Receivable.
(b) All payments by patients and third-party payors shall be accounted
for on a first in-first out basis unless any such payment is identified as
a payment in respect of a particular invoice or otherwise is designated as
payment of a particular invoice or for a particular service.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of the Seller.
The Seller hereby represents and warrants to the Buyer, as of the Signature
Date, as follows:
(a) Organization; Good Standing; Qualification and Power. The Seller
is a professional association duly formed, validly existing and in good
standing under the laws of the State of Florida and has all requisite power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted and as proposed to be conducted, to execute
and deliver this Agreement, the Bill of Sale and the Assignment and
Assumption Agreement, to perform its obligations hereunder and thereunder
and to consummate the transactions contemplated hereby and thereby. The
Seller has delivered to the Buyer a true and correct copy of its articles
of incorporation (the "Articles of Incorporation") and its bylaws (the
"Bylaws"), each as in effect on the date hereof.
(b) Authority. The execution, delivery and performance of this
Agreement, the Bill of Sale and the Assignment and Assumption Agreement and
the consummation of the transactions contemplated hereby and thereby have
been duly and validly authorized by all necessary corporate action the
part of the Seller. This Agreement, the Bill of Sale and the
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Assignment and Assumption Agreement have been duly and validly executed and
delivered by the Seller and constitute legal, valid and binding obligations
of the Seller enforceable in accordance with their respective terms, except
as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the rights of
creditors generally. Neither the execution, delivery or performance by the
Seller of this Agreement, the Bill of Sale or the Assignment and Assumption
Agreement nor the consummation by the Seller of the transactions
contemplated hereby or thereby, nor compliance by the Seller with any
provision hereof or thereof will (i) conflict with or result in a breach of
any provisions of the Articles of Incorporation or Bylaws of the Seller,
(ii) cause a default (with due notice, lapse of time or both), or give rise
to any right of termination, cancellation or acceleration, under any of the
terms, conditions or provisions of any note, bond, lease, mortgage,
indenture, license or other instrument, obligation or agreement to which
the Seller is a party or by which it or any of its respective properties or
assets may be bound or (iii) violate any law, statute, rule or regulation
or order, writ, judgment, injunction or decree of any court, administrative
agency or governmental body applicable to the Seller or any of its
properties or assets. Except as set forth on Schedule 3.1(b), no permit,
authorization, consent or approval of or by, or any notification of or
filing with, any person (governmental or private) is required in connection
with the execution, delivery or performance by the Seller of this
Agreement, the Bill of Sale or the Assignment and Assumption Agreement or
the consummation of the transactions contemplated hereby or thereby.
(c) Title to Assets, Properties, Interest in Properties and Rights and
Related Matters.
(i) The Seller has good and valid title to all of the Purchased
Assets, free and clear of all security interests, judgments, liens,
pledges, claims, charges, escrows, encumbrances, easements, options,
rights of first refusal, rights of first offer, mortgages, indentures,
security agreements or
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other agreements, arrangements, contracts, commitments, understandings
or obligations, whether written or oral and whether or not relating in
any way to credit or the borrowing of money (collectively, "Claims"),
of any kind or character, except for (A) those Claims set forth on
Schedule 3.1(c) and (B) Permitted Liens.
(ii) There does not exist any condition which materially
interferes with the economic value or use (consistent with the
Seller's past practice) of any tangible personal property included in
the Purchased Assets and such property is in good operating condition
and repair, reasonable wear and tear excepted.
(iii) The Seller has the complete and unrestricted power and the
unqualified right to sell, transfer, convey and assign, and the Seller
is hereby selling, transferring, conveying and assigning to the Buyer,
the Purchased Assets free and clear of all Claims except the Permitted
Liens.
(iv) As used in this Agreement, "Permitted Liens" shall mean (A)
any lien for current taxes not yet due and payable, (B) liens of
carriers, warehousemen, mechanics and materialmen created in the
ordinary course of the Subject Business for amounts not yet due and
payable which do not materially detract from the value or impair the
use of any property or assets, (C) in the case of Purchased Assets,
liens incurred in the ordinary course of the Subject Business
(including, without limitation, surety bonds and and appeal bond) in
connection with workers' compensation, unemployment insurance and
other types of social security benefits and (D) statutory landlord
liens securing rents not yet due and payable.
(d) Litigation. Except as set forth on Schedule 3.1(d), there are no
(i) actions, suits, claims, investigations or legal or administrative or
arbitration proceedings pending or, to the best knowledge of the Seller,
threatened against the Seller, the Purchased Assets or the Subject
Business, whether at
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law or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality or (ii) judgments, decrees, injunctions or orders of any
court, governmental department, commission, agency, instrumentality or
arbitrator against the Seller or affecting the Purchased Assets or the
Subject Business. The Seller has delivered to the Buyer all documents and
correspondence relating to matters referred to in said Schedule 3.1(d).
(e) Compliance; Governmental Authorizations. To the best of its
knowledge, the Seller has complied in all material respects with all
applicable Federal, state, local or foreign laws, ordinances, regulations
and orders. The Seller has all Federal, state, local and foreign
governmental licenses and permits necessary in the conduct of the Subject
Business the lack of which would have a material adverse effect on the
Seller's ability to operate the Subject Business after the Closing Date on
substantially the same basis as presently operated, such licenses and
permits are in full force and effect, no violations are or have been
recorded in respect of any thereof and no proceeding is pending or, to the
Seller's best knowledge, threatened to revoke or limit any thereof. None of
such licenses and permits shall be affected in any material respect by the
transactions contemplated hereby.
(f) Disclosure. Neither this Agreement (including the Exhibits and
Schedules attached hereto), the Bill of Sale, the Assignment and Assumption
Agreement nor any other document, certificate or written statement
furnished to the Buyer by or on behalf of the Seller in connection with the
transactions contemplated hereby contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make
the statements contained herein and therein not misleading.
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3.2. Representations and Warranties of the Buyer.
The Buyer represents and warrants to the Seller, as of the Signature Date
hereof, as follows:
(a) Organization, Good Standing and Power. The Buyer (i) is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, (ii) has all requisite corporate power and
authority to own, lease and operate its properties, to carry on its
business as now being conducted, to execute and deliver this Agreement and
the Assignment and Assumption Agreement, to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated
hereby and thereby.
(b) Authority. The execution, delivery and performance of this
Agreement and the Assignment and Assumption Agreement, and the consummation
of the transactions contemplated hereby and thereby, have been duly and
validly authorized by all necessary corporate action on the part of the
Buyer. This Agreement and the Assignment and Assumption Agreement have been
duly and validly executed and delivered by the Buyer, and constitute legal,
valid and binding obligations of the Buyer, enforceable in accordance with
their respective terms except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally. Neither the execution,
delivery or performance by the Buyer of this Agreement or the Assignment
and Assumption Agreement nor the consummation by the Buyer of the
transactions contemplated hereby or thereby, nor compliance by the Buyer
with any provision hereof or thereof, will (i) conflict with or result in a
breach of any provisions of the Certificate of Incorporation or By-laws of
the Buyer, (ii) cause a default (with due notice, lapse of time or both),
or give rise to any right of termination, cancellation or acceleration,
under any of the terms, conditions or provisions of any material note,
bond, lease, mortgage, indenture, license or other instrument, obligation
or agreement to which the Buyer is a party or by which
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it or any of its properties or assets is or may be bound or (iii) violate
any law, statute, rule or regulation or order, writ, judgment, injunction
or decree of any court, administrative agency or governmental body
applicable to the Buyer or any of its properties or assets. Except as set
forth on Schedule 3.2(b), no permit, authorization, consent or approval of
or by, or any notification of or filing with, any person (governmental or
private) is required in connection with the execution, delivery or
performance by the Buyer of this Agreement or the Assignment and Assumption
Agreement or the consummation by the Buyer of the transactions contemplated
hereby or thereby.
(c) Litigation. Except as set forth on Schedule 3.2(c), there are no
(i) actions, suits, claims, investigations or legal or administrative or
arbitration proceedings pending or, to the best knowledge of the Buyer,
threatened against the Buyer, whether at law or in equity, or before or by
any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality or (ii) judgments, decrees,
injunctions or orders of any court, governmental department, commission,
agency, instrumentality or arbitrator against the Buyer. The Buyer has
delivered to the Seller all documents and correspondence relating to
matters referred to in said Schedule 3.2(c).
(d) Compliance; Governmental Authorizations. To the best of its
knowledge, the Buyer has complied in all material respects with all
applicable Federal, state, local or foreign laws, ordinances, regulations
and orders.
(e) Disclosure. Neither this Agreement (including the Exhibits and
Schedules attached hereto), the Assignment and Assumption Agreement nor any
other document, certificate or written statement furnished to the Seller by
or on behalf of the Buyer in connection with the transactions contemplated
hereby contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein
and therein not misleading.
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ARTICLE IV
CONDITIONS TO CLOSING
4.1. Conditions to Each Party's Obligations.
The obligations of the Seller to sell the Purchased Assets, and of the
Buyer to purchase the Purchased Assets, are subject to the satisfaction of the
following conditions unless waived in writing (to the extent such conditions can
be waived by the Seller or the Buyer, as applicable):
(a) Legal Action. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the
consummation of the transactions contemplated hereby shall have been issued
by any Federal or state court and remain in effect. Each party agrees to
use its reasonable best efforts to have any such injunction or order
lifted.
(b) Legislation. No Federal, state, local or foreign statute, rule or
regulation shall have been enacted which prohibits, restricts or delays the
consummation of the transactions contemplated by this Agreement or any of
the conditions to the consummation of such transactions.
(c) Related Agreements. Each of the related agreements identified in
Section 4.4 hereof (collectively, the "Related Agreements") shall have been
fully executed and delivered prior to or at the Closing by all of the
parties required to execute and deliver such agreements.
4.2. Conditions to Obligations of the Buyer.
The obligation of the Buyer to purchase the Purchased Assets is subject to
the satisfaction of the following conditions unless waived in writing (to the
extent such conditions can be waived) by the Buyer:
(a) Representations and Warranties. The representations and warranties
of the Seller set forth in Section 3.1 shall in each case be true and
correct in all material
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respects as of the Closing Date and as of the Signature Date as though made
at and as of the Signature Date.
(b) Performance of Obligations. The Seller shall have performed all
obligations required to be performed by it under this Agreement prior to
and at the Closing.
(c) Authorization. All action necessary to authorize the execution,
delivery and performance of this Agreement, the Bill of Sale and the
Assignment and Assumption Agreement by the Seller and the consummation of
the transactions contemplated hereby and thereby shall have been duly and
validly taken by the Seller and the Seller shall have full power and right
to consummate the transactions contemplated hereby and thereby.
(d) Consents and Approvals. The Seller shall have delivered to the
Buyer duly executed copies of (i) consents to the assignment of the
equipment leases and office leases listed on Schedule 1.1(c) and Schedule
1.1(e), and (ii) all other approvals, if any, required by this Agreement or
the Schedules, in each case in form and substance satisfactory to the Buyer
and counsel to the Buyer.
(e) Government Consents, Authorizations, Etc. All consents,
authorizations, orders or approvals of, and filings or registrations with,
any Federal, state, local or foreign governmental commission, board or
other regulatory body which are required for or in connection with the
execution and delivery by the Seller of this Agreement, the Bill of Sale
and the Assignment and Assumption Agreement and the consummation by the
Seller of the transactions contemplated hereby and thereby shall have been
obtained or made.
4.3. Conditions to Obligations of the Seller.
The obligation of the Seller to sell the Purchased Assets to the Buyer is
subject to the satisfaction of the
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following conditions unless waived in writing (to the extent such conditions can
be waived) by the Seller:
(a) Representations and Warranties. The representations and warranties
of the Buyer set forth in Section 3.2 shall in each case be true and
correct in all material respects as of the Closing Date and as of the
Signature Date as though made at and as of the Signature Date.
(b) Performance of Obligations. The Buyer shall have performed all
obligations required to be performed by it under this Agreement prior to
and at the Closing.
(c) Authorization. All action necessary to authorize the execution,
delivery and performance of this Agreement and the Assignment and
Assumption Agreement by the Buyer and the consummation of the transactions
contemplated hereby and thereby shall have been duly and validly taken by
the Buyer.
(d) Government Consents, Authorizations, Etc. All consents,
authorizations, orders or approvals of, and filings or registrations with,
any Federal, state, local or foreign governmental commission, board or
other regulatory body which are required for or in connection with the
execution and delivery by the Buyer of this Agreement and the Assignment
and Assumption Agreement and the consummation by the Buyer of the
transactions contemplated hereby and thereby shall have been obtained or
made.
4.4 Related Agreements.
The Related Agreements referred to in this Agreement consist of the
following:
(a) the Management Services Agreement between the parties hereto;
(b) the Restricted Stock Agreements between the Buyer and each of the
physicians receiving capital stock of the Buyer as of the date hereof,
respectively;
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(c) the Stockholder Non-Competition Agreements among the Seller, the
Buyer, and each of the physicians receiving capital stock of the Buyer as
of the date hereof, respectively;
(d) the Assignment of Office Leases, relating to each of the medical
office premises identified on Schedule 1.1(e), between the parties hereto;
(e) the Bill of Sale executed by the Seller; and
(f) the Assignment and Assumption Agreement between the Seller and the
Buyer.
ARTICLE V
CLOSING
5.1. Date.
The closing (the "Closing") for the consummation of the transactions
contemplated by this Agreement shall be deemed to have taken place at 12:01 a.m.
on September 1, 1997 (the "Closing Date"), irrespective of the actual date(s)
and time(s) that all of the documents required hereunder are executed and
delivered.
5.2. Closing Transactions.
At the Closing, the parties shall take the actions and deliver the
documents identified in this Section 5.2. The Closing shall not be deemed to
have taken place, and the transactions contemplated by this Agreement shall not
be deemed to have been consumated, unless all of the closing transactions
identified in this Section 5.2 have been completed or waived in writing by the
parties.
(a) The Seller shall deliver to the Buyer an executed copy of the Bill
of Sale;
(b) Each of the parties shall execute and deliver to the other a copy
of the Assignment and Assumption Agreement;
(c) Buyer shall deliver to the Seller the Purchase Price by (i) wire
transfer to the Seller's account of
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immediately available funds of $95,311.00; (ii) delivery of a promissory
note in the principal amount of $1,334,041.76, substantially in the form of
Exhibit C-1 attached hereto and (iii) delivery of a promissory note in the
principal amount of $1,262,209.94 (subject to adjustment as provided in
Section 2.1 hereof), substantially in the form of Exhibit C-2 attached
hereto. In addition, the Buyer shall wire transfer to the Seller's account
$24,000 to reimburse a portion of the Seller's legal fees.
(d) Each of the parties shall execute and deliver to the other a fully
executed copy of the Management Services Agreement;
(e) The Seller shall deliver Restricted Stock Agreements to the Buyer
executed by each of the physicians receiving capital stock of the Buyer as
of the date hereof, respectively, and the Buyer shall execute and deliver
to the Seller Restricted Stock Agreements for each of the physicians
receiving capital stock of the Buyer as of the date hereof, respectively.
(f) The Buyer shall deliver to the physicians receiving capital stock
of the Buyer as of the date hereof stock certificates issued in their
respective names as required under the terms of the Restricted Stock
Agreements; and
(g) The Seller shall deliver to the Buyer Stockholder Non-Competition
Agreements executed by each of the physicians receiving capital stock of
the Buyer as of the date hereof; and
(h) The Seller shall deliver to the Buyer a copy of the resolutions of
the Seller authorizing the transactions contemplated hereby, accompanied by
a certificate of the Seller stating that such resolution has been duly
adopted in accordance with the Seller's Articles of Incorporation and
Bylaws.
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ARTICLE VI
INDEMNIFICATION
6.1 Definitions
As used in this Agreement, the following terms shall have the following
meanings:
(a) "Affiliate", as to any person, means any other person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with such person.
(b) "Buyer Indemnification Event" shall mean the following:
(i) (A) the untruth, inaccuracy or breach of any representation
or warranty of the Seller contained in this Agreement, any Schedule or
Exhibit attached hereto, the Bill of Sale, the Assignment and
Assumption Agreement or any certificate delivered by the Seller in
connection herewith (or any facts or circumstances constituting any
such untruth, inaccuracy or breach) or (B) the breach of any agreement
or covenant of the Seller contained in this Agreement, the Bill of
Sale, or the Assumption or Assignment Agreement;
(ii) the assertion against any Buyer Indemnified Person of any
liability or obligation arising from, relating to, or in any way
connected with the operation of the Subject Business at any time prior
to the Closing;
(iii) the assertion against any Buyer Indemnified Person of any
liability or obligation arising from, relating to, or in any way
connected with any Excluded Obligation; and
(iv) any non-compliance by the Seller with the "bulk sales laws"
of Florida to the extent that such laws are in effect and may be
applicable to the transactions contemplated hereby.
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(c) "Buyer Indemnified Persons" shall mean and include the Buyer, its
Affiliates and their respective officers, directors, and employees.
(d) "Indemnified Persons" shall mean the Buyer Indemnified Persons or
the Seller Indemnified Persons, as the case may be.
(e) "Indemnifying Person" shall mean the Buyer or the Seller, as the
case may be.
(f) "Losses" shall mean any and all losses, claims, damages,
liabilities, expenses (including reasonable attorneys' and accountants'
fees), assessments, tax deficiencies and taxes (including interest or
penalties thereon) sustained, suffered or incurred by any Indemnified
Person arising from any matter which is the subject of indemnification
under Section 6.2.
(g) "Seller Indemnification Event" shall mean (i) the untruth,
inaccuracy or breach of any representation or warranty of the Buyer
contained in this Agreement, any Schedule or Exhibit attached hereto, the
Assignment and Assumption Agreement or any certificate delivered by the
Buyer in connection herewith (or any facts or circumstances constituting
any such untruth, inaccuracy or breach) or (ii) the breach of any agreement
or covenant of the Buyer contained in this Agreement or the Assignment and
Assumption Agreement, including, without limitation, the assertion against
the Seller or any Seller Indemnified Person of any liability or obligation
arising from, relating to, or in any way connected with any Assumed
Obligation.
(h) "Seller Indemnified Persons" shall mean and include the Seller and
its equity owners, directors, officers and employees.
6.2. Indemnification Generally.
(a) The Seller shall indemnify, defend and hold harmless the Buyer
Indemnified Persons, and each of them, from
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and against any and all Losses resulting from Buyer Indemnification Events.
(b) The Buyer shall indemnify, defend and hold harmless the Seller
Indemnified Persons, and each of them, from and against any and all Losses
resulting from Seller Indemnification Events.
(c) The parties hereto agree that in the event of a conflict between
the terms of this Article VI and the terms of the Management Services
Agreement, the terms and provisions of the Management Services Agreement
shall prevail.
6.3. Assertion of Claims.
No claim, demand, suit or cause of action shall be brought under Section
6.2 unless the Indemnified Persons, or any of them, give the Indemnifying Person
written notice of the existence of any such claim, demand, suit or cause of
action, stating with particularity the nature and basis of said claim, and the
amount thereof, to the extent known, and providing to the extent reasonably
available all written documentation relating thereto. Such written notice shall
be delivered to the Indemnifying Person as soon as practicable upon receipt of
actual knowledge of such claim, demand, suit or cause of action; provided,
however, that the failure to provide such written notice shall not affect the
Indemnified Persons' right to indemnification hereunder if failure to provide
such written notice does not materially adversely affect the Indemnifying
Person. Upon the giving of such written notice as aforesaid, the Indemnified
Persons, or any of them, shall have the right to commence legal proceedings
subsequent to the applicable survival date, if any, for the enforcement of their
rights under Section 6.2.
6.4. Notice and Defense of Third Party Claims.
(a) In the event any action, suit or proceeding is brought by a third
party against an Indemnified Person, with
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respect to which an Indemnifying Person may have liability under Section
6.2, the action, suit or proceeding shall, upon the written agreement of
the Indemnifying Person that it is obligated with respect to such action,
suit or proceeding, be defended (including all proceedings on appeal or for
review which counsel for the defendant shall deem appropriate) and, unless
otherwise provided below, controlled by such Indemnifying Person. The
Indemnified Persons shall have the right to employ its or their own counsel
in any such case, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Persons, unless (i) the employment of such
counsel shall have been authorized in writing by the Indemnifying Person in
connection with the defense of such action, suit or proceeding, (ii) the
Indemnifying Person shall fail actively and diligently to defend such
action, suit or proceeding, or (iii) the Indemnified Persons shall have
reasonably concluded that there may be one or more legal or equitable
defenses available to the Indemnified Persons which are different from or
additional to those available to the Indemnifying Person, in any of which
events the Indemnifying Person shall not have the right to direct the
defense of such action, suit or proceeding on behalf of the Indemnified
Persons and that portion of any fees and expenses of counsel related to
matters covered by the indemnity agreement and contained in Section 6.2
shall be borne by the Indemnifying Person. The Indemnified Persons shall be
kept fully informed of such action, suit or proceeding at all stages
thereof whether or not they are so represented. The Indemnifying Person
shall make available to the Indemnified Persons and their attorneys and
accountants all books and records of the Indemnifying Person relating to
such action, suit or proceeding and the parties hereto agree to render to
each other such assistance as they may reasonably require of each other in
order to ensure the proper and adequate defense of any such action, suit or
proceeding.
(b) The Indemnifying Person shall not make any settlement of any
action, suit or proceeding without the written
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consent of the Indemnified Persons, which consent shall not be unreasonably
withheld; provided, however, that in the event the Indemnified Persons
refuse to consent to a settlement acceptable to the Indemnifying Person
which is capable of settlement by the payment of money only and the
Indemnifying Persons shall demonstrate to the reasonable satisfaction of
the Indemnified Persons their ability to pay such amount, the Indemnifying
Person may pay the amount of the proposed settlement to the Indemnified
Persons and shall thereupon be released from any further liability with
respect to such action, suit or proceeding.
6.5. Survival of Representations, Warranties and Covenants.
The representations and warranties of the Seller contained in Section 3.1
and the representations and warranties of the Buyer contained in Section 3.2
shall survive the Closing and shall terminate forty-five (45) days following the
second anniversary of the Signature Date; provided, however, that the
representations and warranties of the Seller set forth in Sections 3.1(a),
3.1(b), 3.1(c) and 3.1(e), and the representations and warranties of the Buyer
set forth in Sections 3.2(a) and 3.2(b), shall survive the Closing and remain in
full force and effect until the expiration of the statute of limitations, if
any, applicable to the matters set forth therein (and indefinitely, if none).
ARTICLE VII
NON-COMPETITION
The parties hereby acknowledge that they have entered into an agreement
regarding non-competition, as set forth in Section 16 of the Management Services
Agreement.
ARTICLE VIII
REPURCHASE OF ASSETS
The Purchased Assets are subject to repurchase by the Seller from the Buyer
upon termination or rescission of the
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Management Services Agreement in accordance with Section 13.5 or Section 14.1,
respectively, of the Management Services Agreement.
ARTICLE IX
AMENDMENT, MODIFICATION AND WAIVER
This Agreement shall not be altered or otherwise amended except pursuant to
an instrument in writing signed by each of the parties. The waiver by one party
of the performance of any covenant, condition or promise shall not invalidate
this Agreement, nor shall it be considered as a waiver by such party of any
other covenant, condition or promise. The delay in pursuing any remedy or in
insisting upon full performance for any breach or failure of any covenant,
condition or promise shall not prevent a party from later pursuing any remedies
or insisting upon full performance for the same or any similar breach or
failure.
ARTICLE X
MISCELLANEOUS
10.1. Transfer Taxes, Etc.
The Seller shall pay all sales, use and excise taxes and all registration,
recording or transfer taxes which may be payable in connection with the
transactions contemplated by this Agreement.
10.2. Entire Agreement.
This Agreement (including the recitals hereof and the Schedules and the
Exhibits attached hereto), together with the Related Agreements referenced
herein, contains the entire agreement between the parties hereto with respect to
the transactions contemplated hereby and supersedes all prior agreements,
representations, warranties and understandings, either oral or written, between
the parties with respect thereto.
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10.3. Descriptive Headings.
Descriptive headings are for convenience only and shall not control or
affect the meaning or construction of any provisions of this Agreement.
10.4. Notices.
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally or sent by
telecopier, nationally-recognized overnight courier, or certified mail, postage
prepaid, return receipt requested, addressed as follows:
(a) if to the Buyer, to:
BMJ Medical Management, Inc.
4800 North Federal Highway, Suite 104D
Boca Raton, Florida 33431
Attention: President
Telecopier: (561) 391-1389;
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Jeffrey S. Held, Esq.
Telecopier: (212) 408-2420; and
(b) if to the Seller, to:
Broward Institute of Orthopaedic
Specialties, P.A.
4440 Sheridan Street
Hollywood, Florida 33021
Attention: Administrator
Telephone: (954) 962-3508
Telecopier: (954) 989-4873
with a copy to:
Broad and Cassel
7777 Glades Road, Suite 300
Boca Raton, Florida 33434
Attention: David J. Powers, Esq.
Telecopier: (561) 483-7321;
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<PAGE>
or to such other address as the party to whom notice is to be given may have
furnished to each other party in writing in accordance herewith. Any such
communication shall be deemed to have been given (i) when delivered if
personally delivered or sent by telecopier, (ii) on the Business Day after
dispatch if sent by nationally-recognized, overnight courier and (iii) on the
fifth Business Day after dispatch, if sent by mail. As used herein, "Business
Day" means a day that is not a Saturday, Sunday or a day on which banking
institutions in the state of Florida are not required to be open.
10.5. Counterparts.
This Agreement may be executed in any number of counterparts, and each such
counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
10.6. Bulk Sales Compliance.
The Buyer hereby waives compliance by the Seller with the provisions of the
"bulk sales laws" of any state which may be in effect and applicable to the
transactions contemplated hereby; provided, however, that the Seller shall
indemnify the Buyer in connection with such noncompliance to the extent provided
in Article 6 hereof.
10.7. Governing Law; Jurisdiction.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Florida without giving effect to the
laws and principles thereof, or of any other jurisdiction, which would direct
the application of the laws of another jurisdiction. The parties to this
Agreement agree that jurisdiction and venue in any action brought pursuant to
this Agreement by any party hereto shall lie exclusively in any Federal or state
court located in Broward County, State of Florida. By execution and delivery of
this Agreement, the
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<PAGE>
parties hereto irrevocably submit to the jurisdiction of such courts for
themselves and in respect of their property with respect to such action. The
parties hereto irrevocably agree that venue would be proper in such court, and
hereby waive any objection that such court is an improper or inconvenient forum
for the resolution of such action. The parties hereto shall act in good faith
and shall refrain from taking any actions to circumvent or frustrate the
provisions of this Agreement.
10.8. Attorneys' Fees.
In the event of any dispute or controversy arising out of or relating to
this Agreement, the prevailing party shall be entitled to recover from the other
party all costs and expenses, including attorneys' fees and accountants' fees,
incurred in connection with such dispute or controversy.
10.9. Benefits of Agreement.
The terms and provisions of this Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and permitted
assigns. Anything contained herein to the contrary notwithstanding, this
Agreement shall not be assignable by any party without the consent of the other
party hereto, and any purported assignment without such consent shall be null
and void.
10.10. Pronouns.
As used herein, all pronouns shall include the masculine, feminine, neuter,
singular and plural thereof whenever the context and facts require such
construction.
* * * *
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IN WITNESS WHEREOF, each of the parties hereto has caused this Asset
Purchase Agreement to be executed on its behalf effective as of the day and year
first above written.
BMJ MEDICAL MANAGEMENT, INC.
By:____________________________
Name:
Title:
BROWARD INSTITUTE oF ORTHOPAEDIC
SPECIALTIES, P.A.
By:____________________________
Name:
Title:
<PAGE>
RESTRICTED STOCK AGREEMENT
THIS RESTRICTED STOCK AGREEMENT (the "Agreement") is entered into as of
October 31, 1997, between BMJ MEDICAL MANAGEMENT, INC., a Delaware corporation
(the "Company"), and the individuals identified on the signature page hereto
(each, a "Stockholder" and collectively, the "Stockholders"). This Agreement is
entered into in connection with and concurrently with that certain Management
Services Agreement effective as of September 1, 1997 (the "Management Services
Agreement") between the Company and Broward Institute of Orthopaedic
Specialists, P.A. (the "Medical Group"). Certain capitalized terms used herein
are defined in Section 5 below.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and intending to be legally bound hereby, the Company
and each Stockholder (for himself or herself only) hereby agree as follows:
1. Purchase and Sale of Restricted Shares; Representations and Warranties
of Stockholder.
(a) Upon execution of this Agreement, the Company shall, pursuant to
Section 4 and Schedule III of the Management Services Agreement, issue to each
Stockholder that number of shares (such shares are referred to herein as the
"Restricted Shares") of common stock, $.001 par value (the "Common Stock"), of
the Company set forth opposite such Stockholder's name on Schedule A attached
hereto. The aggregate shares of Common Stock issued to the Stockholders are
referred to collectively herein as "Restricted Stock." Simultaneously with the
execution and delivery hereof, the Company is delivering to each Stockholder the
certificate(s) representing the Restricted Shares.
(b) In connection with the issuance of the Restricted Shares hereunder,
each Stockholder represents and warrants to the Company that:
(i) the Restricted Shares to be issued to such Stockholder pursuant to
this Agreement shall be acquired for such Stockholder's own account, for
investment only and not with a view to, or intention of, distribution
thereof in violation of the 1933 Act, or any applicable state securities
laws, and the Restricted Shares will not be disposed of in contravention of
the 1933 Act or any applicable state securities laws;
<PAGE>
(ii) such Stockholder has generally such knowledge and experience in
business and financial matters and with respect to investments in
securities of privately held companies so as to enable such Stockholder to
understand and evaluate the risks and benefits of his or her investment in
the Restricted Shares;
(iii) such Stockholder has no need for liquidity in his or her
investment in the Restricted Shares and is able to bear the economic risk
of his or her investment in the Restricted Shares for an indefinite period
of time and understands that the Restricted Shares have not been registered
or qualified under the 1933 Act or any applicable state securities laws, by
reason of the issuance of the Restricted Shares in a transaction exempt
from the registration and qualification requirements of the 1933 Act or
such state securities laws and, therefore, cannot be sold unless
subsequently registered or qualified under the 1933 Act or such state
securities laws or an exemption from such registration or qualification is
available;
(iv) such Stockholder understands that the exemption from registration
afforded by Rule 144 (the provisions of which are known to such
Stockholder) promulgated under the 1933 Act, depends on satisfaction of
various conditions and that, if applicable, Rule 144 may only afford the
basis for sales under certain circumstances and only in limited amounts;
(v) such Stockholder is an individual (A) whose individual net worth,
or joint net worth with his or her spouse, presently exceeds $1,000,000 or
(B) who had an income in excess of $200,000 in each of the two most recent
years, or joint income with his or her spouse in excess of $300,000 in each
of those years (in each case including foreign income, tax exempt income
and the full amount of capital gains and losses but excluding any income of
other family members and any unrealized capital appreciation) and has a
reasonable expectation of reaching the same income level in the current
year; or such Stockholder otherwise meets the requirements to be considered
an accredited investor, as defined under the 1933 Act; and
(vi) such Stockholder has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of the
Restricted Shares and has had full access to or been provided with such
other information concerning the Company as he or she has requested.
(c) This Agreement constitutes the legal, valid and binding obligation of
each Stockholder, enforceable in accordance with its terms, and the execution,
delivery and
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<PAGE>
performance of this Agreement by each such Stockholder does not and will not
conflict with, violate or cause a breach of any agreement, contract or
instrument to which such Stockholder is a party or any judgment, order or decree
to which such Stockholder is subject.
(d) As an inducement to the Company to issue the Restricted Shares to each
Stockholder and as a condition thereto, each Stockholder acknowledges and agrees
that:
(i) neither the issuance of the Restricted Shares to such Stockholder
nor any provision contained herein shall affect the right of the Company to
terminate the Management Services Agreement in accordance with its terms;
and
(ii) the Company shall only be obligated to provide to such
Stockholder substantially the same information regarding the Company that
the Company regularly discloses to its other shareholders.
2. Vesting of the Restricted Shares.
(a) Except as otherwise provided in Section 2(b) below, the Restricted
Shares held by each Stockholder shall become vested in accordance with the
following schedule, if, as of each such date, (i) the Management Services
Agreement has not been terminated, (ii) there has not been a Cessation of Active
Practice by such Stockholder (as defined in Section 2(c) below), (iii) such
Stockholder has not become permanently disabled (as described in Section
3(a)(iii) below), and (iv) such Stockholder has not died:
Anniversary Date Percentage of
of this Agreement Restricted Shares Vested
----------------- ------------------------
First 25%
Second 25%
Third 25%
Fourth 25%
For purposes of this Agreement, "Anniversary Date of this Agreement" means
August 1 of each year after 1997. Restricted Shares which have become vested are
referred to herein as "Vested Shares" and all other Restricted Shares are
referred to herein as "Unvested Shares."
(b) Notwithstanding the foregoing, in the event of the death of such
Stockholder, in addition to any shares that have vested in accordance with
Section 2(a) above, the number of Unvested Shares, if any, that would have
become Vested Shares during the 12-month period immediately following the date
of
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<PAGE>
death had such death not occurred shall be deemed Vested Shares as of the date
of death.
(c) For purposes of this Agreement, "Cessation of Active Practice" means a
physician Stockholder's resignation from or termination of employment with the
Medical Group (other than by reason of death or permanent disability).
3. Forfeiture and Repurchase of Restricted Shares.
(a) Forfeiture. In the event of the Cessation of Active Practice by or the
death or permanent disability of a Stockholder (the "Forfeiture Event"), the
following provisions shall apply.
(i) Such Stockholder or the estate (in the case of death) of such
Stockholder shall transfer to the Medical Group, all of the Unvested Shares
held by such Stockholder. Such Unvested Shares shall be transferred for no
consideration and the stock certificate(s) representing those shares shall
be delivered to the Company, no later than thirty (30) days after the
Forfeiture Event, duly endorsed for transfer in accordance with this
Section 3(a). The Company shall, within thirty (30) days after its receipt
of a joinder to this Agreement executed by the Medical Group, issue and
deliver to the Medical Group a certificate representing the Unvested
Shares. Such Unvested Shares shall continue to Vest according to the
vesting schedule set forth in Section 2(a) above.
(ii) The Medical Group shall not Sell (as hereinafter defined) any
Unvested Shares to any Person, other than to one or more physician
employees or equity owners of the Medical Group, who prior to the receipt
of such shares from the Medical Group had not acquired any shares of the
Company's Common Stock through the affiliation transaction between the
Company and the Medical Group. As a condition to any such Sale, the
transferee shall execute and deliver to the Company a Restricted Stock
Agreement in substantially the form of this Agreement, effective as of the
date of transfer of such shares. The Unvested Shares distributed according
to this Section 3(a) shall be subject to a vesting schedule, identical to
the schedule set forth in Section 2(a) hereof.
(iii) For purposes of this Agreement, if such Stockholder is insured
under a disability insurance policy, the determination under such policy as
to whether such Stockholder's condition constitutes a permanent disability
shall be binding on the parties hereto. If such Stockholder is not insured
under a policy of disability insurance, such determination shall be made by
an independent qualified physician proposed by the Medical Group, subject
to the
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<PAGE>
approval of the Company, which approval shall not be unreasonably
withheld.
(b) Repurchase. In the event that the Management Services Agreement is
terminated for any reason prior to the fourth anniversary of the Commencement
Date (as defined therein) (the "Repurchase Event"), the Company shall have the
right (but not the obligation) (the "Repurchase Option"), to be exercised in its
sole discretion, to repurchase all or any portion of the Restricted Shares
(whether vested or unvested and whether held by the Stockholders or one or more
of any Stockholder's Permitted Transferees) pursuant to the terms and conditions
set forth in this Section 3(b).
(i) The Company may elect to exercise the Repurchase Option and
repurchase all or any portion of the Restricted Shares by delivering
written notice (the "Repurchase Notice") to each Stockholder within ninety
(90) days after the Repurchase Event; provided, however, that, if the
Company elects to repurchase less than all of the Restricted Shares, the
Company shall first repurchase Unvested Shares and then repurchase that
number of Vested Shares, if any, as the Company may, in its sole
discretion, elect. The Repurchase Notice shall set forth the number of
Unvested Shares and Vested Shares to be repurchased, the aggregate
consideration to be paid for such shares, and the time and place for the
closing of the transaction. The purchase price payable for each Unvested
Share shall equal $.01 and the purchase price payable for each Vested Share
shall equal the Original Value of such share. If the Company decides to
repurchase Restricted Shares from any Stockholder pursuant to this Section
3(b), then the Company must purchase that number of Restricted Shares which
it has elected to repurchase from all of the Stockholders pro rata
according to the number of shares of Restricted Stock held by all of the
Stockholders at the time of delivery of such Repurchase Notice (determined
as nearly as practicable to the nearest whole share).
(ii) The closing of the repurchase of Restricted Shares pursuant to
the Repurchase Option shall take place on the date designated by the
Company in the Repurchase Notice, which date shall not be more than sixty
(60) days nor less than five (5) days after the delivery of the Repurchase
Notice. The Company shall pay for Restricted Shares to be purchased
pursuant to the Repurchase Option by delivery of a locally drawn cashier's
check or wire transfer of funds in the aggregate amount of the repurchase
price for such shares; provided, however, that in the event the Medical
Group is obligated to pay to the Company any sums in connection with the
repurchase of assets by the Medical Group pursuant to Section 13.5 of the
Management Services Agreement, the total amount of such sums may be offset
by
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<PAGE>
the Company against any amounts owed by the Company to the Stockholders
pursuant to this Agreement (if any such Stockholder is, at such time, an
equity owner of or partner in the Medical Group), such offset amount to be
allocated pro rata among all of the Stockholders who at such time hold
equity of or are partners in the Medical Group. The Company shall be
entitled to receive representations and warranties from such Stockholder
regarding (x) such Stockholder's power, authority and legal capacity to
enter into such sale and to transfer valid right, title and interest in
such Restricted Shares, (y) such Stockholder's ownership of such Restricted
Shares and the absence of any liens, pledges, and other encumbrances on
such Restricted Shares and (z) the absence of any violation, default, or
acceleration of any agreement or instrument pursuant to which such
Stockholder or such Stockholder's assets are bound resulting from such
sale.
(iii) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of Restricted Shares by the Company under this
Section 3(b) shall be subject to applicable restrictions, if any, contained
in its certificate of incorporation, any financing agreement to which the
Company is a party, Federal law or the Delaware General Corporation Law. If
any such restrictions prohibit or otherwise delay the repurchase of
Restricted Shares hereunder which the Company is otherwise entitled or
required to make, the Company may make such repurchases as soon as it is
permitted to do so.
(iv) In the event that any Restricted Shares are repurchased pursuant
to this Section 3(b), such Stockholder and his or her successors and
assigns shall, at the Company's expense, take all reasonable steps to
obtain all required third-party, governmental and regulatory consents and
approvals and take all other reasonable actions necessary to facilitate
consummation of such repurchase in a timely manner
4. Transfer Restriction; Legend.
Except as otherwise expressly provided in Section 3 and except for
Permitted Transfers, no Stockholder may sell or transfer or agree to sell or
transfer ("Sale" or "Sell") any Restricted Shares unless such Sale shall be in
accordance with the procedures set forth in this Section 4; provided, however,
that with respect to this Section 4, Restricted Shares, at any point in time,
shall be limited to Vested Shares and at no time shall any Stockholder have the
right to Sell Unvested Shares (other than pursuant to Section 3 above):
(a) In the event that a Stockholder receives a bona fide offer from a
third party (the "Prospective Stockholder") to
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<PAGE>
purchase all or any part of the Restricted Shares owned by such
Stockholder, such Stockholder shall deliver to the Company a written notice
(the "Offer Notice"), which shall be irrevocable for a period of fifteen
(15) business days after delivery thereof (the "Offer Period"), offering
(the "Offer") all of the Restricted Shares proposed to be Sold by such
Stockholder to the Prospective Stockholder at the purchase price and on the
terms of the proposed Sale to the Prospective Stockholder (such Offer
Notice shall include the foregoing information, a copy of the Prospective
Stockholder's bona fide offer and all other relevant terms of the proposed
Sale, including the identification of the Prospective Stockholder). The
Company shall have the right and option, for a period of fifteen (15)
business days after delivery of the Offer Notice, to repurchase all of the
Restricted Shares so offered at the purchase price and on the terms stated
in the Offer Notice. Such acceptance shall be made by delivering a written
notice to such Stockholder within said fifteen (15) business-day period.
(b) Sales of Restricted Shares under the terms of Section 4(a) above
shall be made on a mutually satisfactory business day within fifteen (15)
business days after the expiration of the Offer Period. Delivery of
certificates or other instruments evidencing such Restricted Shares duly
endorsed for transfer shall be made on such date against payment of the
purchase price therefor.
(c) If the Company fails to purchase all of the Restricted Shares
offered for Sale pursuant to the Offer Notice, then at any time within
sixty (60) business days after the expiration of the Offer Period such
Stockholder may Sell all or any part of the remaining Restricted Shares so
offered for Sale on terms no more favorable to the Prospective Stockholder
than the terms stated in the Offer Notice; provided, however, that such
Stockholder shall not, under any circumstances, Sell any Restricted Shares
to the Prospective Stockholder if the Board of Directors of the Company, in
its sole discretion, determines in good faith that the Prospective
Stockholder is a competitor, or an Affiliate of a competitor, of the
Company or that such Prospective Stockholder's ownership of such Restricted
Shares would be contrary to the best interests of the Company. In the event
that all of such Restricted Shares are not Sold by such Stockholder to the
Prospective Stockholder during such period, the right of such Stockholder
to Sell such Restricted Shares to the Prospective Stockholder shall expire
and the obligations of such Stockholder pursuant to this Section 4 shall be
reinstated.
(d) Any Permitted Transferee (other than the Company) shall, as a
condition to such transfer, (i) agree to be bound by all of the provisions
of this Agreement applicable to such Stockholder and shall evidence such
agreement by executing and delivering to the Company a joinder to this
Agreement in form and substance satisfactory to the Company, and (ii) if
such
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<PAGE>
transferee is a partner in or an equity owner or employee of the Medical
Group, execute a noncompetition agreement in form and substance
satisfactory to the Company (if such transferee is not, as of the date of
such transfer, a party to such an agreement with the Company).
(e) The certificate(s) representing the Restricted Shares will bear
the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES OR "BLUE-SKY"
LAWS. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR LAWS.
ADDITIONALLY, THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN REPURCHASE OPTIONS, TRANSFER RESTRICTIONS AND
CERTAIN OTHER AGREEMENTS SET FORTH IN A RESTRICTED STOCK AGREEMENT
DATED AS OF OCTOBER 31, 1997, BETWEEN THE STOCKHOLDER AND BMJ MEDICAL
MANAGEMENT, INC. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE
HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT
CHARGE."
(f) The restrictions on transfers of Vested Shares set forth in this
Section 4 shall expire, and shall be of no further force or effect, upon
the consummation of the initial public offering of the Company's Common
Stock pursuant to the 1933 Act.
5. Definitions.
(a) "Affiliate" means, with respect to any Person, (a) any director,
officer, 10% stockholder or partner of such Person and (b) any other Person
that, directly or indirectly, through one or more intermediaries, controls, or
is controlled by, or is under common control with, such Person. The term
"control" includes, without limitation, the possession, directly or indirectly,
of the power to direct the management and policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.
(b) "Internal Revenue Code" means the Internal Revenue Code of 1986, as the
same may be amended or supplemented from time to time, or any successor statute,
and the rules and regulations thereunder, as the same are from time to time in
effect.
(c) "Original Value" of each share of Restricted Stock purchased hereunder
will be equal to $6.50 (as
-8-
<PAGE>
proportionately adjusted for all subsequent stock splits, stock dividends and
other recapitalizations).
(d) "Person" shall be construed broadly and shall include, without
limitation, an individual, a partnership, an investment fund, a limited
liability corporation or partnership, a corporation, an association, a joint
stock company, a trust, a joint venture, an unincorporated organization and a
governmental entity or any department, agency or political subdivision thereof.
(e) "Permitted Transferee" means, as to the Stockholder, any transferee who
acquires the Restricted Shares pursuant to a Permitted Transfer or any other
transfer made in accordance with the provisions of this Agreement.
(f) "Permitted Transfer" means, as to any Stockholder, any sale or transfer
of Vested Shares to (A) the spouse or lineal descendants of such Stockholder or
(B) a trust for the benefit of any of the foregoing.
(g) "Public Sale" means any sale of Restricted Stock to the public pursuant
to an offering registered under the 1933 Act or to the public through a broker,
dealer or market maker pursuant to the provisions of Rule 144 adopted under the
1933 Act.
(h) "Restricted Shares" has the meaning set forth in Section 1(a). The
Restricted Shares will continue to be Restricted Shares in the hands of any
holder (other than the Company and any transferees in a Public Sale), and except
as otherwise provided herein, each such other holder of the Restricted Shares
will succeed to all rights and obligations attributable to a Stockholder as the
holder of the Restricted Shares hereunder. The Restricted Shares will also
include shares of the Company's capital stock issued with respect to the
Restricted Stock by way of a stock split, stock dividend or other
recapitalization.
(i) "1933 Act" means the Securities Act of 1933, as the same may be amended
or supplemented from time to time, or any successor statute, and the rules and
regulations thereunder, as the same are from time to time in effect.
6. Indemnification.
(a) The Company shall indemnify, defend and hold harmless each Stockholder
against all liability, loss or damage sustained by such Stockholder, together
with all reasonable costs and expenses related thereto (including reasonable
legal fees and expenses), relating to or arising from the untruth,
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<PAGE>
inaccuracy or breach of any of the representations, warranties or agreements of
the Company contained in this Agreement.
(b) Each Stockholder shall indemnify and hold harmless the Company against
all liability, loss or damage, together with all reasonable costs and expenses
related thereto (including reasonable legal fees and expenses), relating to or
arising from the untruth, inaccuracy or breach of any of the representations,
warranties or agreements of such Stockholder contained in this Agreement.
7. General Provisions.
(a) Transfers in Violation of Agreement. Any sale, transfer, assignment or
other disposition (whether with or without consideration and whether voluntarily
or involuntarily or by operation of law) (each, a "Transfer") or attempted
Transfer of any Restricted Shares in violation of any provision of this
Agreement shall be void, and the Company shall not record such Transfer on its
books or treat any purported transferee of such Restricted Shares as the owner
of such stock for any purpose.
(b) Binding Effect of Management Services Agreement. The Stockholder hereby
agrees to be bound by the provisions of Section 14 of the Management Services
Agreement, which provisions such Stockholder has reviewed.
(c) Severability. It is the desire and intent of the parties hereto that
the provisions of this Agreement be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, if any particular provision of this
Agreement shall be adjudicated by a court of competent jurisdiction to be
invalid, prohibited or unenforceable for any reason, such provision, as to such
jurisdiction, shall be ineffective, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of this
Agreement or affecting the validity or enforceability of such provision in any
other jurisdiction. Notwithstanding the foregoing, if such provision could be
more narrowly drawn so as not to be invalid, prohibited or unenforceable in such
jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
(d) Entire Agreement. This Agreement, those documents expressly referred to
herein and other documents of even date herewith embody the complete agreement
and understanding among the parties hereto with respect to the subject matter
hereof and supersede and preempt any prior understandings, agreements or
representations by or among the
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<PAGE>
parties, written or oral, which may have related to the subject matter hereof in
any way.
(e) Relationship Among Stockholders. No Stockholder shall have any
responsibility for any breach of this Agreement by any other Stockholder or for
any representations, warranties, acts or omissions of any other Stockholder.
Each Stockholder is entering into this Agreement for and on behalf of such
Stockholder only, and no partnership, joint venture, unincorporated association
or any other legal entity is intended to be formed by or among the Stockholders
as a result of or in connection with this Agreement. The parties have chosen to
execute a single instrument for convenience only, and this Agreement shall be
construed as separate and several agreements among the Medical Group, the
Company and each of the respective Stockholders for all purposes. This Agreement
may be executed in separate counterparts.
(f) Counterparts. This Agreement may be executed in separate counterparts,
each of which is deemed to be an original and all of which taken together
constitute one and the same agreement.
(g) Successors and Assigns. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by each
Stockholder, the Company and their respective successors, permitted assigns,
heirs, representatives and estate, as the case may be (including subsequent
holders of Restricted Stock); provided, however, that the rights and obligations
of any Stockholder under this Agreement shall not be assignable except in
connection with a Permitted Transfer of Restricted Shares hereunder.
(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to any
choice of law or conflicting provision or rule (whether of the State of Delaware
or any other jurisdiction), that would cause the laws of any jurisdiction other
than the State of Delaware to be applied. In furtherance of the foregoing, the
internal law of the State of Delaware will control the interpretation and
construction of this agreement, even if under such jurisdiction's choice of law
or conflict of law analysis, the substantive law of some other jurisdiction
would ordinarily apply.
(i) Jurisdiction. Each of the parties hereto hereby irrevocably and
unconditionally submits, for itself and its property, to the exclusive
jurisdiction of any state court or Federal court of the United States of America
sitting in Broward County, Florida, and any appellate court thereof, in any
action or proceeding arising out of or relating to this Agreement or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees
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<PAGE>
that all claims in respect of any such action or proceeding may be heard and
determined in any such Florida state court or, to the extent permitted by law,
in such Federal court. Each of the parties hereto agrees that a final judgment
in any such action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided by
law.
(j) Remedies. Each of the parties to this Agreement shall be entitled to
enforce its rights under this Agreement specifically to recover damages and
costs (including reasonable attorneys' fees) for any breach of any provision of
this Agreement and to exercise all other rights existing in its favor. The
parties hereto agree and acknowledge that money damages may not be an adequate
remedy for the Company in the event of a breach of the provisions of this
Agreement by any Stockholder and that the Company may, in its sole discretion,
apply to any court of law or equity of competent jurisdiction for specific
performance and/or other injunctive relief (without posting any bond or deposit)
in order to enforce or prevent any violations of the provisions of this
Agreement.
(k) Amendment and Waiver. The provisions of this Agreement may be amended
and waived only with the prior written consent of the Company and the
Stockholders and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall be construed as a waiver of such provisions
or affect the validity, binding effect or enforceability of this Agreement or
any provision hereof; provided, however, that the Company may, without any
Stockholder's consent, amend Schedule A hereto upon consummation of a Permitted
Transfer of Restricted Shares hereunder by any Shareholder to reflect the then
current ownership of the Restricted Stock.
(l) Notices. Any notice provided for in this Agreement must be in writing
and must be either personally delivered, transmitted via telecopier, mailed by
first class mail (postage prepaid and return receipt requested) or sent by
nationally-recognized overnight courier service (charges prepaid) to the
recipient at the address below indicated or at such other address or to the
attention of such other person as the recipient party has specified by prior
written notice to the sending party. Notices will be deemed to have been given
hereunder and received when delivered personally, when received if transmitted
via telecopier, three business days after deposit in the U.S. mail and one
business day after deposit with a nationally-recognized overnight courier
service.
-12-
<PAGE>
(i) If to the Company, to:
BMJ Medical Management, Inc.
4800 North Federal Highway, Suite 104D
Boca Raton, Florida 33431
Attention: Naresh Nagpal, M.D., President
Telephone: (561) 391-1311
Telecopier: (561) 391-1389;
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza, 41st Floor
New York, New York 10112
Attention: Jeffrey S. Held, Esq.
Telephone: (212) 408-2417
Telecopier: (212) 408-2420; and
(ii) If to any Stockholder, to his or her address set forth on the
signature page hereto beneath his or her name;
with copies to:
Broward Institute Of Orthopaedic
Specialties, P.A.
4440 Sheridan Street
Hollywood, Florida 33021
Attention: Administrator
Telephone: (954) 962-3508
Telecopier: (954) 989-4873; and
Broad and Cassel
7777 Glades Road, Suite 300
Boca Raton, Florida 33434
Attention: David J. Powers, Esq.
Telephone: (561) 483-7000
Telecopier: (561) 483-7321.
(m) Business Days. If any time period for giving notice or taking action
hereunder expires on a day which is a Saturday, Sunday or holiday in the State
of Florida, the time period for giving notice or taking action shall be
automatically extended to the business day immediately following such Saturday,
Sunday or holiday.
(n) Attorneys' Fees. In the event of any dispute or controversy arising out
of or relating to this Agreement, the prevailing party shall be entitled to
recover from the other party all costs and expenses, including attorneys' fees
-13-
<PAGE>
and accountants' fees, incurred in connection with such dispute or controversy.
(o) Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
(p) Construction. Where specific language is used to clarify by example a
general statement contained herein, such specific language shall not be deemed
to modify, limit or restrict in any manner the construction of the general
statement to which it relates. The language used in this Agreement shall be
deemed to be the language chosen by the parties to express their mutual intent,
and no rule of strict construction shall be applied against any party.
(q) Nouns and Pronouns. Whenever the context may require, any pronouns used
herein shall include the corresponding masculine, feminine or neuter forms, and
the singular form of nouns and pronouns shall include the plural and vice-versa.
* * * *
-14-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Restricted Stock
Agreement as of the date first written above.
COMPANY
BMJ MEDICAL MANAGEMENT, INC.
By:__________________________
Name:
Title:
STOCKHOLDERS
_____________________________
David A. Krant, M.D.
Address for notices:
4440 Sheridan Street
Hollywood, FL 33021
_____________________________
Jeffrey B. Worth, M.D.
Address for notices:
4440 Sheridan Street
Hollywood, FL 33021
_____________________________
Jeffrey A. Crastnopol, M.D.
Address for notices:
4440 Sheridan Street
Hollywood, FL 33021
<PAGE>
_____________________________
Marc Z. Hammerman, M.D.
Address for notices:
4310 Sheridan Street
Hollywood, FL 33021
_____________________________
Gary B. Schwartz, M.D.
Address for notices:
4310 Sheridan Street
Hollywood, FL 33021
_____________________________
Marshall E. Stauber, M.D.
Address for notices:
4310 Sheridan Street
Hollywood, FL 33021
_____________________________
Thomas A. Hoffeld, M.D.
Address for notices:
3475 Sheridan Street
Hollywood, FL 33021
_____________________________
Phillip E. Greenbarg, M.D.
Address for notices:
3475 Sheridan Street
Hollywood, FL 33021
<PAGE>
MEDICAL GROUP
ACCEPTED AND AGREED
AS TO PARAGRAPH 3
BROWARD INSTITUTE OF ORTHOPAEDIC
SPECIALISTS, P.A.
By:_________________________
Name:
Title:
<PAGE>
SCHEDULE A
Stockholders
------------
Number of
Name Restricted Shares
---- -----------------
David A. Krant, M.D. 25,929
Jeffrey B. Worth, M.D. 36,014
Jeffrey A. Crastnopol, M.D. 30,181
Marc Z. Hammerman, M.D. 59,301
Gary B. Schwartz, M.D. 26,172
Marshall E. Stauber, M.D. 31,138
Thomas A. Hoffeld, M.D. 24,832
Phillip E. Greenbarg, M.D. 21,670
<PAGE>
STOCKHOLDER NON-COMPETITION AGREEMENT
THIS STOCKHOLDER NON-COMPETITION AGREEMENT (the "Agreement") is entered
into as of October 31, 1997, among BROWARD INSTITUTE OF ORTHOPAEDIC SPECIALTIES,
P.A., a Florida professional association (the "Medical Group"), each of the
individuals identified on the signature page hereof (each, a "Stockholder" and
collectively, the "Stockholders"), and BMJ MEDICAL MANAGEMENT, INC., a Delaware
corporation ("BMJ"), with reference to the following facts:
(A) The Medical Group is engaged in the business of providing
orthopedic medical and surgical services and related medical and ancillary
services (the "Medical Services") to the general public.
(B) Each Stockholder is a partner in or stockholder or employee of the
Medical Group.
(C) BMJ is engaged in the business of providing management,
administrative, financial, marketing, information technology and related
services to professional medical organizations.
(D) The Medical Group and BMJ have entered into a Management Services
Agreement effective as of August 1, 1997 (the "Management Services
Agreement"), under which the Medical Group has agreed to cause the
Stockholders to execute this Agreement.
(E) Each Stockholder is acquiring stock in BMJ in connection with the
execution of the Management Services Agreement and pursuant to a Restricted
Stock Agreement entered into among the Stockholders and BMJ dated as of the
date hereof (the "Restricted Stock Agreement").
NOW, THEREFORE, in consideration of and as an inducement to BMJ's entering
into the Management Services Agreement, the Restricted Stock Agreement, and the
other agreements related thereto, and in consideration of such Stockholder's
status as an equity owner or employee of the Medical Group, each Stockholder
(for himself or herself only) hereby agrees for the benefit of both the Medical
Group and BMJ as follows:
1. Definition.
For all purposes of this Agreement, "Competitive Business" shall mean any
business that provides (i) orthopedic medical and surgical services and related
medical and ancillary services to the general public, or (ii) administrative,
billing, collection, financial, marketing, information technology and
<PAGE>
operational services to professional medical groups relating to such groups'
provision of the professional medical and related services described in clause
(i), or (iii) any other services provided by BMJ.
2. Agreement Not to Compete or Interfere with Business.
(a) Each Stockholder acknowledges that (i) he or she is receiving
benefits from the acquisition of securities from BMJ pursuant to the
Restricted Stock Agreement, (ii) the Medical Group and its affiliates
conduct their business primarily in Broward County, Florida, and (iii) due
to the highly competitive nature of the Medical Group's and BMJ's
businesses, the value and goodwill of the Medical Group's and BMJ's
businesses would be substantially impaired if such Stockholder engaged in a
Competitive Business. Accordingly, each Stockholder hereby agrees that,
during the period (such period being referred to herein as the "Non-Compete
Period") commencing on the date hereof and ending two years after the
earliest to occur of (x) the expiration of the Management Services
Agreement, (y) the termination of the Management Services Agreement by BMJ
pursuant to Section 13.2 thereof, or (z) the effective date of such
Stockholder's resignation or termination of equity owner status or
employment with the Medical Group (the earliest to occur of clause x, (y)
or (z) being referred to herein as the "Exit Date"), he or she will not:
(A) engage, directly or indirectly, in any Competitive Business
at any location within twenty-five (25) miles of any Medical Group
office (the "Restricted Territory"), whether such engagement shall be
as an employee, officer, director, owner, partner, advisor,
consultant, stockholder or other participant in any Competitive
Business (or in any similar capacity in which the Stockholder derives
an economic benefit from a Competitive Business);
(B) assist others in engaging in any Competitive Business within
the Restricted Territory in the manner described in the foregoing
clause (A);
(C) solicit, entice or induce any employee or stockholder of, or
any partner in, the Medical Group, BMJ, or any affiliate or subsidiary
of the Medical Group or BMJ to terminate his or her employment or
equity owner or stockholder status with such entity or to engage in
any Competitive Business within the Restricted Territory;
(D) solicit, entice or induce any vendor, customer or distributor
of the Medical Group, BMJ, or any affiliate or subsidiary of the
Medical Group or BMJ to terminate or materially diminish its
relationship with the Medical Group,
-2-
<PAGE>
BMJ, or any affiliate or subsidiary of the Medical Group or BMJ; or
(E) otherwise knowingly damage, disparage or interfere with the
Medical Group, BMJ, or any affiliate or subsidiary of the Medical
Group or BMJ;
provided, however, that nothing contained in this Agreement shall prohibit
the Stockholder from owning in the aggregate less than three percent (3.0%)
of a class of publicly-traded securities issued by any Competitive
Business.
(b) BMJ and the Medical Group acknowledge and agree that such
Stockholder shall have no further obligation pursuant to this Agreement in
the event that (i) the Medical Group terminates the Management Services
Agreement pursuant to Section 13.1 thereof, (ii) either party to the
Management Services Agreement terminates such agreement pursuant to Section
13.3 thereof, (iii) the Medical Group exercises the Rescission Option set
forth in Section 14 of the Management Services Agreement or (iv) the
Stockholder exercises his disengagement right set forth in Section 14.2 of
the Management Services Agreement.
3. Confidentiality.
(a) Each Stockholder acknowledges and agrees that certain information
he or she has received or will receive from the Medical Group and its
affiliates or from BMJ and its affiliates constitutes the confidential and
proprietary trade secrets of the Medical Group or of BMJ, as the case may
be, and that such Stockholder's non-disclosure thereof is essential to this
Agreement and a condition to such Stockholder's use and possession thereof.
Each Stockholder shall retain in strict confidence any and all such
confidential information received from the Medical Group and/or any of its
affiliates (the "Medical Group Confidential Information") or from BMJ
and/or any of its affiliates (the "BMJ Confidential Information")
(collectively, the "Confidential Information") and under no circumstances
shall such Stockholder distribute or in any way disseminate Confidential
Information, directly or indirectly, to any third party or use Confidential
Information for such Stockholder's personal benefit without the prior
written consent of the Medical Group (in the case of Medical Group
Confidential Information) or without the prior written consent of BMJ (in
the case of BMJ Confidential Information).
(b) Notwithstanding the above, each Stockholder shall have no
liability to the Medical Group or its affiliates or to BMJ or its
affiliates with respect to Confidential Information which:
(i)was generally known and available in the public domain at the
time it was disclosed or becomes
-3-
<PAGE>
generally known and available in the public domain through no fault of
such Stockholder;
(ii) is disclosed with the prior written consent of the Medical
Group or BMJ, as the case may be;
(iii) becomes known to such Stockholder from a source other than
the Medical Group or its affiliates or BMJ or its affiliates without
breach of this Agreement by such Stockholder, without breach of any
agreement between the Medical Group or BMJ, as the case may be, and
such source, and otherwise not in violation of the Medical Group's or
its affiliates' rights or the rights of BMJ or its affiliates; or
(iv) is disclosed pursuant to the order or requirement of a
court, administrative agency, or other governmental body; provided,
however, that such Stockholder shall provide prompt, advance notice
thereof to enable the Medical Group or its affiliate or BMJ or its
affiliates to seek a protective order or otherwise prevent such
disclosure.
(c) Each Stockholder agrees to indemnify the Medical Group or its
affiliates and BMJ or its affiliates for any damages the same may suffer as
a result of such Stockholder's or his or her agents' failure to abide by
the provisions of this Section 3.
4. Acknowledgment.
Each Stockholder acknowledges that the provisions of this Agreement are not
designed to prevent such Stockholder from earning a living or fostering his or
her own career. The provisions of this Agreement are designed to prevent any
third party from gaining unfair advantage from a Stockholder's knowledge of
confidential and proprietary information relating to the Medical Group or BMJ or
otherwise damaging or interfering with the business of the Medical Group or BMJ
or from a Stockholder's participation in any Competitive Business. Each
Stockholder further acknowledges receiving sufficient consideration under the
Restricted Stock Agreement to compensate him or her for any losses he or she may
suffer or incur as a result of losing any employment or other professional
opportunity as a result of entering into and fulfilling his or her obligations
under this Agreement.
5. Buyout of Non-Compete Covenant.
(a) At any time from and after the Exit Date, each Stockholder (if and
only if such Stockholder was, as of the Exit Date, an equity owner of the
Medical Group) may request (a "Termination Request") that BMJ and the
Medical Group terminate
-4-
<PAGE>
such Stockholder's obligations under paragraph (A) of Section 2(a) hereof.
Such request shall be made by a Stockholder in writing and shall be
delivered to the Medical Group and BMJ in accordance with Section 9 hereof.
The copy of the Termination Request addressed to BMJ shall be accompanied
by a certified check payable to BMJ in an amount equal to one-half of that
amount (the "Buyout Amount") determined in accordance with the calculation
set forth below. The requesting Stockholder shall deliver the remaining
one-half (the "Second Payment") of the Buyout Amount to BMJ no later than
the first anniversary of the initial payment pursuant to the previous
sentence (such one year period being referred to herein as the "Payment
Period"). Notwithstanding the foregoing, in the event the requesting
Stockholder fails to deliver the Second Payment by the end of the Payment
Period, then the terms of this Section 5(a) shall automatically be deemed
null and void and the provisions of paragraph (A) of Section 2(a) hereof
shall be deemed operative again (with the duration of the Payment Period
not to be counted as part of the Non-Compete Period).
The Buyout Amount equals:
2 x (MF x 1/P) x T/24
where;
MF = the Management Fee (as defined in the Management
Services Agreement) payable by the Medical Group for
the calendar year prior to the Exit Date;
P = the aggregate number of equity owners of the Medical
Group (including the Stockholder) as of the Exit Date;
and
T = the number of months remaining (rounded up to the
nearest whole number) in the Non-Compete Period
(determined as of the date of the Termination Request).
(b) Nothing contained herein shall be construed to in any way limit or
reduce the remedies available to the Medical Group and BMJ hereunder in the
event of a breach of Section 2(a) hereof prior to the delivery of a
Termination Request.
(c) Notwithstanding anything to the contrary contained herein, in the
event that a Stockholder delivers a Termination Request to the Medical
Group and BMJ and complies with the other provisions of Section 5(a) above,
any solicitation by such Stockholder of those patients to which such
Stockholder provided medical services prior to the Exit Date shall not be
deemed a breach of Section 2 hereof.
-5-
<PAGE>
6. Survival; Remedies.
Each Stockholder's covenants under this Agreement shall survive termination
of his or her equity owner status or employment with the Medical Group. Each
Stockholder acknowledges that a breach or threatened breach by such Stockholder
of this Agreement will cause irreparable damage and material loss to BMJ and the
Medical Group and that a remedy at law for any breach or threatened breach of
the provisions of this Agreement would be inadequate and therefore agrees that
each of the Medical Group and BMJ shall be entitled to injunctive relief;
provided, however, that nothing contained herein shall be construed as
prohibiting the Medical Group or BMJ from pursuing any other remedies available
for any such breach or threatened breach.
7. Benefits of Agreement.
This Agreement and the rights and obligations of the parties hereto shall
bind and inure to the benefit of any successors of the Medical Group and
successors of BMJ by reorganization, merger or consolidation or otherwise and
any assignee of all or substantially all of the business and properties of the
Medical Group or BMJ.
8. Severability.
It is the desire and intent of the parties hereto that the provisions of
this Agreement shall be enforced to the fullest extent permissible under the
laws and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, if any particular provision of this Agreement shall be
adjudicated to be invalid or unenforceable, such provision shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such deletion to apply only with respect to the operation of such
provision in the particular jurisdiction in which such adjudication is made. In
addition, if any one or more of the provisions contained in this Agreement shall
for any reason be held to be excessively broad as to duration, geographical
scope, activity or subject, it shall be construed by limiting and reducing it,
so as to be enforceable to the extent compatible with the applicable law as it
shall then appear.
9. Notices.
All notices or other communications required or permitted hereunder shall
be in writing and sufficient if (a) delivered personally, (b) sent by
nationally-recognized overnight courier or (c) sent by certified mail, postage
prepaid, return receipt requested, addressed as follows:
-6-
<PAGE>
(i) If to the Medical Group, to:
BROWARD INSTITUTE OF ORTHOPAEDIC
SPECIALTIES, P.A.
4440 Sheridan Street
Hollywood, Florida 33021
Attention: Administrator
Telephone: (954) 962-3508
Telecopier: (954) 989-4873
with a copy to:
Broad and Cassel
7777 Glades Road, Suite 300
Boca Raton, Florida 33434
Attention: David J. Powers, Esq.
Telecopier: (561) 483-7321;
(ii) If to any Stockholder, to his or her address set forth
on the signature page hereto beneath his or her name; and
(iii) If to BMJ, to:
BMJ Medical Management, Inc.
4800 North Federal Highway
Suite 104D
Boca Raton, Florida 33431
Attention: Naresh Nagpal, M.D.
President
Telecopier: (561) 391-1389;
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Jeffrey S. Held, Esq.
Telecopier: (212) 408-2420;
or, in each case, to such other address as the party to whom notice is to be
given may have furnished to the other party in writing in accordance herewith.
Any such communication shall be deemed to have been given (a) when delivered, if
personally delivered, (b) on the business day after dispatch, if sent by
nationally-recognized overnight courier and (c) on the third business day after
dispatch, if sent by mail.
10. Relationship Among Stockholders.
No Stockholder shall have any responsibility for any breach of this
Agreement by any other Stockholder or for any representations, warranties, acts
or omissions of any other
-7-
<PAGE>
Stockholder. Each Stockholder is entering into this Agreement for and on behalf
of such Stockholder only, and no partnership, joint venture, unincorporated
association or any other legal entity is intended to be formed by or among the
Stockholders as a result of or in connection with this Agreement. The parties
have chosen to execute a single instrument for convenience only, and this
Agreement shall be construed as separate and several agreements among the
Medical Group, BMJ and each of the respective Stockholders for all purposes.
This Agreement may be executed in separate counterparts.
11. Entire Agreement; Amendments; Prior Agreements.
This Agreement, the Management Services Agreement and the Restricted Stock
Agreement constitute the entire agreement between the parties with respect to
the subject matter hereof and may not be amended, supplemented, canceled or
discharged except by a written instrument executed by the parties hereto. This
Agreement supersedes any and all prior agreements among all of the parties
hereto with respect to the matters covered hereby.
12. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Florida without regard to the laws and principles thereof
or of any other jurisdiction which would direct the application of the laws of
another jurisdiction. The parties to this Agreement agree that jurisdiction and
venue in any action brought pursuant to this Agreement by any party hereto shall
lie exclusively in any Federal or state court located in Broward County, State
of Florida. By execution and delivery of this Agreement, the parties hereto
irrevocably submit to the jurisdiction of such courts for themselves and in
respect of their property with respect to such action. The parties hereto
irrevocably agree that venue would be proper in such court, and hereby waive any
objection that such court is an improper or inconvenient forum for the
resolution of such action. The parties hereto shall act in good faith and shall
refrain from taking any actions to circumvent or frustrate the provisions of
this Agreement.
13. Attorneys' Fees.
In the event of any dispute or controversy arising out of or relating to
this Agreement, the prevailing party shall be entitled to recover from the
losing party all costs and expenses, including attorneys' fees and accountants'
fees, incurred in connection with such dispute or controversy.
14. Headings.
The headings of the sections of this Agreement have been inserted for
convenience of reference only and shall not be
-8-
<PAGE>
deemed to be part of this Agreement.
* * * *
-9-
<PAGE>
IN WITNESS WHEREOF, this Stockholder Non-Competition Agreement has been
executed and delivered as of the date first above written.
BROWARD INSTITUTE OF ORTHOPAEDIC
SPECIALTIES, P.A.
By:
--------------------------
Name:
Title:
STOCKHOLDER
-----------------------------
David A. Krant, M.D.
Address for notices:
4440 Sheridan Street
Hollywood, FL 33021
-----------------------------
Jeffrey B. Worth, M.D.
Address for notices:
4440 Sheridan Street
Hollywood, FL 33021
-----------------------------
Jeffrey A. Crantnopol, M.D.
Address for notices:
4440 Sheridan Street
Hollywood, FL 33021
-----------------------------
Marc Z. Hammerman, M.D.
Address for notices:
4310 Sheridan Street
Hollywood, FL 33021
<PAGE>
-----------------------------
Gary B. Schwartz, M.D.
Address for notices:
4310 Sheridan Street
Hollywood, FL 33021
-----------------------------
Marshall E. Stauber, M.D.
Address for notices:
4310 Sheridan Street
Hollywood, FL 33021
-----------------------------
Thomas A. Hoffeld, M.D.
Address for notices:
3475 Sheridan Street
Hollywood, FL 33021
-----------------------------
Phillip E. Greenbarg, M.D.
Address for notices:
3475 Sheridan Street
Hollywood, FL 33021
BMJ MEDICAL MANAGEMENT, INC.
By:
---------------------------
Name:
Title:
<PAGE>
EXECUTION COPY
================================================================================
MANAGEMENT SERVICES AGREEMENT
BETWEEN
BMJ MEDICAL MANAGEMENT, INC.
AND
LIGHTHOUSE ORTHOPAEDIC ASSOCIATES, P.A.
Effective as of September 1, 1997
================================================================================
<PAGE>
ATTACHMENTS
-----------
SCHEDULES
- ---------
SCHEDULE I -- New Ancillary Services -- Exceptions
SCHEDULE II -- Management Company Operating Cost Budget
SCHEDULE III -- Equity Participation
SCHEDULE IV -- Draw Date and Draw Percentage
SCHEDULE V -- Management Fee -- Applicable Percentage
SCHEDULE VI -- Professional Practice Cost Savings
SCHEDULE VII -- Computation Example
SCHEDULE VIII -- Non-Competition
SCHEDULE 6.2 -- Equity Investments
SCHEDULE 6.3 -- Consents
SCHEDULE 6.4 -- Financial Information
SCHEDULE 6.5 -- Absence of Undisclosed Liabilities
SCHEDULE 6.6 -- Absence of Changes
SCHEDULE 6.7 -- Tax Matters
SCHEDULE 6.8 -- Litigation, Etc.
SCHEDULE 6.10 -- Accounts Receivable; Accounts Payable
SCHEDULE 6.11 -- Labor Relations; Employees
SCHEDULE 6.12 -- Employee Benefit Plans
SCHEDULE 6.13 -- Insurance
SCHEDULE 6.14 -- Real Property
SCHEDULE 6.15 -- Burdensome Restrictions
SCHEDULE 6.16 -- Disclosure
SCHEDULE 7.2 -- Consents
SCHEDULE 7.4 -- Financial Information
SCHEDULE 7.5 -- Absence of Undisclosed Liabilities
SCHEDULE 7.6 -- Absence of Changes
SCHEDULE 7.7 -- Litigation, Etc.
SCHEDULE 7.9 -- Employees
SCHEDULE 7.11 -- Burdensome Restrictions
<PAGE>
EXHIBITS
- --------
EXHIBIT A -- Assignment of Lease
EXHIBIT B -- Restricted Stock Agreement
EXHIBIT C -- Stockholder Non-Competition Agreement
<PAGE>
THIS MANAGEMENT
SERVICES AGREEMENT (the "Agreement") is
entered into on October 28, 1997, (the
"Signature Date"), effective as of
September 1, 1997, by and between
LIGHTHOUSE ORTHOPAEDIC ASSOCIATES, P.A.,
a Florida corporation (the "Medical
Group"), and BMJ MEDICAL MANAGEMENT,
INC., a Delaware corporation (the
"Management Company"), with reference to
the facts set forth below:
A. Each of the equity owners (the "Practicing Physicians") of the Medical
Group individually or through a professional corporation provides orthopedic
medical and surgical services and related medical and ancillary services to the
general public (each, a "Constituent Practice" and, collectively, the
"Constituent Practices"). As of the Closing Date, the Practicing Physicians have
transferred or assigned the Constituent Practices to the Medical Group and
formed a combined medical practice (such combined practice being referred to
herein as the "Medical Business").
B. The Management Company is a corporation engaged in the business (the
"Management Business") of providing management, administrative, financial,
marketing, information technology, and related services to professional medical
organizations.
C. Concurrently herewith, the Management Company and is entering into an
Asset Purchase Agreement (the "Asset Purchase Agreement"), with each of LOMG,
Lighthouse Orthopaedic Group (the "Partnership") and each Participating
Physician, pursuant to which the Management Company is acquiring substantially
all of the assets of the Medical Group.
D. The Management Company and the Medical Group desire to enter into this
Agreement, pursuant to which, among other
<PAGE>
things, the Management Company will render certain management and administrative
services to the Medical Group.
NOW, THEREFORE, the Medical Group and the Management Company hereby agree
as follows:
SECTION 1. Retention of the Management Company.
1.1 Retention.
The Medical Group hereby retains the Management Company to provide all
of the management and related services identified or referenced in Section
3 hereof and as otherwise required by this Agreement (collectively, the
"Management Services"), and the Management Company hereby accepts such
retention and agrees to provide such services, upon the terms and subject
to the conditions set forth herein.
1.2 Exclusivity.
During the term of this Agreement, the Management Company shall be the
exclusive provider of all management and administrative services utilized
by the Medical Group; provided, however, that the Medical Group may
contract directly with or otherwise engage individuals or companies for the
provision of accounting, legal, consulting, or other professional or
advisory services (provided that such services shall be in addition to, and
not in replacement of, the services to be provided by the Management
Company hereunder), all in the sole discretion of the Medical Group and at
the sole cost of the Medical Group.
1.3 Relationship of Parties.
Notwithstanding anything contained herein to the contrary, (a) the
Management Company and the Medical Group intend to act and perform as
independent contractors, and the provisions hereof are not intended to
create any partnership, joint venture, or employment relationship between
the parties, and (b) the
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<PAGE>
Management Company is hereby engaged solely to provide management and
administrative services to the Medical Group and shall not interfere with,
control, direct, or supervise the Medical Group or any medical professional
employed by the Medical Group in connection with the provision of
professional medical services.
1.4 No Referral Obligation.
The parties agree that the benefits to the Medical Group hereunder do
not require, are not payment for, and are not in any way contingent upon
the admission, referral, purchase, or any other arrangement for the
provision of any item or service to or for any of the Medical Group's
patients in or from any medical facility or laboratory or from any other
entity owned, operated, controlled, or managed by the Management Company.
SECTION 2. Term.
Provided that the Closing under the Asset Purchase Agreement shall have
occurred as provided therein, and subject to such start-up procedures as the
parties may agree upon for purposes of facilitating the transition of
responsibilities required by this Agreement, the performance of services under
this Agreement shall commence as of September 1, 1997 (the "Commencement Date")
and shall expire on the fortieth (40th) anniversary of the Commencement Date
unless terminated earlier pursuant to the terms hereof (the "Base Term"). The
Base Term of this Agreement shall be automatically extended for successive terms
(each, an "Additional Term," and together with the Base Term, the "Term") of
five years each, unless either party delivers to the other party, not less than
six (6) months nor more than nine (9) months prior to the expiration of the
then-current Term, written notice of such party's intention not to so extend the
Term of this Agreement.
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SECTION 3. Management Services.
3.1. Management Services Generally.
(a) The Management Company shall be the sole and exclusive manager and
administrator of all day-to-day business functions for the Medical Group,
subject to the provisions of Section 1.2 hereof. The Management Company
shall provide all of the management and administrative services reasonably
required by the Medical Group in connection with the provision of any and
all of the Medical Group Services (as hereinafter defined) and as otherwise
provided in this Agreement, including without limitation the services
described in Sections 3.2 through 3.17 hereof.
(b) Without limiting the generality of the provisions of Section
3.1(a), and subject to the further provisions of this Agreement, the
Management Services shall include such management and administrative
services as may be reasonably required in connection with (i) all of the
offices (including New Medical Offices, as hereinafter defined) of the
Medical Group, and (ii) all professional services and all ancillary
services furnished by the Medical Group.
(c) Additionally, the full range of Management Services as described
in this Agreement shall be applicable with respect to the items identified
as Medical Group Costs in Section 5.7 hereof, except that such Medical
Group Costs shall be paid by the Medical Group rather than by the
Management Company. Accordingly, the Management Company shall provide
accounting, bookkeeping, and related services with respect to all such
costs.
(d) The Management Company may enter into such contracts and
agreements with outside services and suppliers as the Management Company
shall reasonably deem necessary in connection with the provision of the
Management Services, and, to the extent permitted by applicable law, such
contracts and
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agreements shall, except as otherwise specified by the Operations
Committee, be in the name of the Management Company; provided, however,
that without the prior approval of the Operations Committee (as hereinafter
defined), the Management Company shall not enter into any agreement
pursuant to which an unaffiliated third party will perform substantially
all of the duties of the Management Company set forth in Section 3.6(a)
hereof. The Management Company shall have no authority, directly or
indirectly, to perform, and shall not perform or enter into any agreement
to perform, Medical Group Services or any other medical function required
by law to be performed by a licensed physician or by any other licensed
health care professional.
(e) The Management Company shall comply in all material respects with
all applicable material Federal, state and local laws, regulation, and
ordinances in connection with the provision of the Management Services
hereunder.
3.2. Premises.
(a) The Medical Group, as of the Commencement Date, has use of office
space that is leased by an affiliate of the Medical Group, and provides
Medical Group Services, at the following location(s):
1821 N.E. 25th Street
Lighthouse Point, Florida 33064
9970 Central Park Boulevard South
Suite 400
Boca Raton, Florida 33428
2464 N. Federal Highway
Units 30, 31, 32 and 33
Lighthouse Point, Florida 33064
Immediately prior to the Commencement Date, the above-identified premises
were leased to the Medical Group, in the Medical Group's name. Effective
from and after the Commencement Date, each of the leases for such premises
(except 25th Street) is to be
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assigned from the Medical Group to the Management Company pursuant to an
assignment (each, an "Assignment of Lease") substantially in the form
attached hereto as Exhibit A. During the Term, the Medical Group shall,
subject in all instances to the terms of such leases, have the right to use
such premises solely for the provision of Medical Group Services in
accordance with the terms of this Agreement. In connection therewith, the
Medical Group agrees in all instances to abide by all of the terms and
provisions of all such leases. Upon the expiration of any of the leases
assigned in accordance with this Section 3.2(a), the Management Company
shall use its best efforts to enter into a new lease, in the name of the
Management Company, with the landlord of such premises; provided, however,
that the approval of the Medical Group, which shall not be unreasonably
withheld, shall be required in the event of any substantial changes in the
terms of such lease, and if the Medical Group does not give such approval,
the failure to enter into such new lease shall not constitute a default of
the Management Company. Each assigned lease and each new lease entered into
between the Management Company and the landlord is referred to herein as an
"Office Lease."
(b) A New Medical Office (as hereinafter defined) may be opened only
upon approval of the Operations Committee. The capital costs and start-up
costs reasonably required in connection with the opening of any New Medical
Office shall be borne as set forth in Section 5 hereof. The premises of any
New Medical Office shall be leased by the Management Company, in the
Management Company's name unless otherwise specified by the Operations
Committee, and the Medical Group shall, subject in each instance to the
terms of any such lease, have the right to use the premises of any such New
Medical Office solely for the provision of Medical Group Services in
accordance with the terms of this Agreement. In connection therewith, the
Medical Group agrees in all instances to abide by all of the terms and
provisions of all such leases. Notwithstanding anything to the
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contrary contained in this Agreement, the Management Company may, in its
sole discretion, determine to permanently close any New Medical Office if
such office is not, after 12 months of operation, profitable (as determined
in the sole discretion of the Management Company).
(c) Except as set forth in Sections 3.2(a) or (b) above, the closing
or relocation of any offices of the Medical Group shall be subject to
agreement by the Medical Group and the Management Company.
(d) The services to be provided by the Management Company with respect
to the premises leased in accordance with this Section 3.2 shall include,
without limitation, the negotiation and renegotiation of leases, provision
of ongoing liaison with the landlords of the respective premises,
identification of potential new locations for Medical Group offices,
financial analysis relating to the opening, closing, and relocation of any
offices, arrangement of necessary repairs, maintenance and improvements,
procurement of property insurance, arrangement of telephone and other
utility services, and hazardous waste disposal, and all other reasonably
necessary or appropriate services related to all of the offices of the
Medical Group.
(e) The Management Company also shall provide all necessary or
appropriate leasehold improvements to each of the premises, subject to
prior approval as provided in Section 8.2 hereof.
(f) The Medical Group acknowledges that the Management Company makes
no warranties or representations, expressed or implied, regarding the
condition of any of the leased premises.
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3.3. Equipment.
(a) During the Term, the Management Company shall provide to the
Medical Group all equipment, including diagnostic and therapeutic medical
equipment, reasonably required by the Medical Group in connection with the
provision of Medical Group Services (collectively, the "Medical
Equipment"). The Management Company shall acquire (or lease), at its cost,
all Medical Equipment, and the Management Company shall retain ownership of
(or the leasehold interest with respect to) all Medical Equipment;
provided, however, that one hundred percent (100%) of the cost of such
Medical Equipment shall be charged back to the Medical Group on a
depreciated basis. As used herein, the term Medical Equipment shall not
include medical equipment used in connection with a New Ancillary Service
(as hereinafter defined).
(b) The Management Company also shall provide to the Medical Group, or
arrange for the provision of, all furniture, furnishings, trade fixtures,
and office equipment reasonably required in connection with the provision
of Medical Group Services pursuant to this Agreement (collectively,
"FF&E"). The Management Company shall acquire, at its cost, all FF&E, and
the Management Company shall retain ownership of all FF&E. As used herein,
the term FF&E does not include furniture, furnishings, trade fixtures, and
office equipment used in connection with a New Ancillary Service.
(c) The Medical Equipment and the FF&E are sometimes referred to
collectively as the "Equipment." The acquisition, replacement, relocation,
or other disposition of any Equipment shall require prior approval as
provided in Section 8.2 hereof.
(d) The Medical Group's right to use the Equipment shall be
subordinate to the rights of any unaffiliated third party to which the
Management Company elects, in its sole discretion, to grant any security
interest, mortgage, lien or
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other encumbrance in or on the Equipment. The Medical Group shall use the
Equipment only in connection with its provision of the Medical Group
Services, and the Medical Group shall not alter, repair, augment, or remove
the Equipment from the premises of the Medical Group without the prior
written consent of the Management Company and any lessor thereof, which
approval may be granted or withheld in the Management Company's or such
lessor's sole discretion. To the extent the Equipment is utilized by the
Medical Group in the provision of Medical Group Services, the Medical Group
shall have the right to exercise reasonable control over the use of such
Equipment.
(e) From time to time, and as reasonably requested by the Medical
Group, the Management Company shall use reasonable efforts to cause the
Equipment manufacturer or its authorized agent to provide service and
maintenance for the Equipment as needed to maintain the Equipment in an
operable condition, so that all such Equipment shall function continuously
(subject to interruptions not reasonably avoidable) in accordance with the
manufacturer's specifications and so that all conditions imposed by the
manufacturer to maintaining the continued effectiveness of any warranty on
such Equipment shall be satisfied. The Management Company shall take all
reasonable steps to provide that all necessary service and maintenance is
obtained in a prompt and timely manner, so as to minimize the amount of
time that any of the Equipment is not available for usage by or for
patients of the Medical Group.
(f) THE MEDICAL GROUP ACKNOWLEDGES THAT THE MANAGEMENT COMPANY MAKES
NO WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, AS TO ANY MATTER
WHATSOEVER RELATING TO THE EQUIPMENT PROVIDED TO THE MEDICAL GROUP PURSUANT
TO THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, THE DESIGN CONDITION OF
THE EQUIPMENT, THE CONFORMANCE THEREOF TO THE PROVISIONS AND SPECIFICATIONS
OF ANY PURCHASE ORDER RELATING THERETO, OR THE FITNESS OF THE EQUIPMENT FOR
ANY PARTICULAR PURPOSE. Nothing in
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this Agreement shall be construed to affect or limit in any way the
professional discretion of the Medical Group to select and use any
Equipment acquired by the Management Company in accordance with the terms
of this Agreement insofar as such selection or use constitutes or might
constitute the practice of medicine.
3.4. New Ancillary Services.
(a) For purposes of this Agreement, "New Ancillary Services" means the
technical component (but not the professional component) of the following,
except as set forth in Schedule I:
(i) Physical therapy;
(ii) Rehabilitative therapy;
(iii) Occupational therapy;
(iv) Magnetic resonance imaging, CT and/or other imaging services
(except diagnostic radiology);
(v) Outpatient surgery, such as may be provided in an ambulatory
surgical center;
(vi) Bone densitometry; and;
(vii) Other revenue-producing services generally recognized as
ancillary services, but excluding the following:
(A) Any services generally provided by the Medical Group
immediately prior to the Commencement Date, including
without limitation (1) plain film and other diagnostic
radiology (if any), and (2) ultrasound; and
(B) Any service performed in connection with new Medical
Equipment acquired to
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replace existing Medical Equipment so long as the new
Medical Equipment performs substantially the same
functions as the replaced Medical Equipment.
New Ancillary Services do not include the sale or provision of (or services
rendered in connection with) prosthetics, prosthetic devices, orthotics,
durable medical equipment, braces, splints, appliances, crutches, casts, or
any other supplies or similar items which are billable to patients or
payors, all of which are to be included in the scope of Medical Group
Services.
(b) New Ancillary Services may be established only upon agreement of
the Medical Group and the Management Company. Such agreement shall be
memorialized in a written agreement executed by the parties (or in a
written amendment to this Agreement) under which the Management Company
agrees to provide all of the Management Services described in this Section
3 in connection with such New Ancillary Service, and for which the
Management Company shall be compensated as described in Section 5.8 of this
Agreement, except as may otherwise be agreed upon by the parties.
3.5. Administration, Finance and Accounting.
The Management Company shall provide or arrange for the provision of
all administrative, financial, and accounting functions necessary for the
operation of the Medical Group, including, without limitation, the
following (if applicable):
(a) Creation and maintenance of bank accounts.
(b) Deposits of receipts.
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(c) Preparing accounts receivable summary reports, including various
analyses of delinquent accounts.
(d) Receiving appropriate approvals as required by the Medical
Group's articles of incorporation (the "Articles of
Incorporation") and its bylaws (the "Bylaws") prior to
distribution of payments to outside parties; provided, however,
that the Management Company shall not be responsible for or
liable with respect to interpretations of the Articles of
Incorporation or Bylaws.
(e) Disbursement of payables, including payables of the Medical
Group; provided, however, that payables of the Medical Group
shall be paid from an account of the Medical Group and not from
any of the Management Company's bank accounts, and all checks
drawn on any Medical Group account shall be signed by an
authorized representative of the Medical Group.
(f) Assisting the Medical Group in the procurement and negotiation of
vendor and managed care payor contracts.
(g) Performing monthly accounting functions, including bank
reconciliations, maintenance of books and records, and
preparation of financial statements.
(h) Analyzing financial data as reasonably requested by physicians.
(i) Analyzing potential New Medical Office locations, and
coordinating all functions associated with opening New Medical
Office locations.
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(j) Preparing monthly financial and medical practice statistics
reports by satellite office and by physician, and the Management
Company shall use its reasonable efforts to have such reports
available, with respect to any given month, 20 days after the end
of such month.
(k) If requested by the Medical Group, providing from the Medical
Group's bank account(s) compensation payments to physicians and
professional corporations pursuant to service agreements, monthly
profit and loss distributions, and quarterly bonus calculations;
provided, however, that the Management Company shall not be
responsible for or liable with respect to interpretations of the
Articles of Incorporation or Bylaws; provided, further, that all
checks drawn on any Medical Group bank account shall be signed by
an authorized representative of the Medical Group.
(l) Calculating physicians' annual earnings based on the Medical
Group's physician compensation formulas.
(m) Ongoing day-to-day communication with the managing partner,
member or stockholder (or other manager of the Medical Group) and
assisting such person in fulfilling his responsibilities.
(n) Preparing agendas and information packages for Medical Group
meetings.
(o) Developing budgets and long-term strategies for the Medical
Group, including an initial
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long-term plan and capital expenditures budget and the Management
Company shall use its reasonable efforts to have such plan and
budget delivered to the Medical Group within 180 days and 90
days, respectively, after the Commencement Date.
(p) Coordinating payroll processing and payroll tax payments.
(q) Providing ongoing personnel FTE analysis.
(r) Sponsoring employee benefit plans and providing administrative
services relating thereto for the Medical Personnel (as
hereinafter defined), provided that if the Medical Group elects
not to participate in the employee benefit plans established by
the Management Company, the Management Company shall not be
required to perform the services set forth in this clause (r).
(s) Coordinating recruitment, interviewing, and hiring of new
physicians approved by the Medical Group, in the sole discretion
of the Medical Group.
(t) Implementing fee schedule increases and/or decreases established
by the Medical Group.
(u) Coordinating depositions and court appearances.
(v) Assisting in the coordination of call schedules.
(w) Assisting in the coordination of coverage of athletic team
events.
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(x) Acting as liaison to hospital administration, physical therapy,
surgery center, MRI, and other ancillary services entities.
(y) Cooperating with outside accountants in preparing various
schedules and providing other information.
(z) Interacting with legal counsel as necessary.
3.6. Billing and Collection.
(a) The Medical Group acknowledges that ownership of all Accounts (as
hereinafter defined) is transferred by the Medical Group to the Management
Company as provided in greater detail in Section 5.1 of this Agreement. In
order to facilitate the collection of the Accounts, the Management Company
shall through its personnel retained to work in the offices of the Medical
Group (i) bill patients and third party payors in the Medical Group's name;
(ii) collect accounts receivable resulting from such billing; (iii) receive
payments and prepayments from the Medical Group's patients, Blue Cross and
Blue Shield organizations, insurance companies, health care plans,
Medicare, Medicaid, HMOs, and any and all other third party payors; (iv)
take possession of and deposit into such bank (the "Medical Group Bank") as
the Medical Group designates, in an account established by the Medical
Group in the name of the Medical Group (the "Medical Group Collections
Account"), any and all checks, insurance payments, cash, cash equivalents
and other instruments received for Medical Group Services; and (v) initiate
with the consent of the Medical Group, which consent may be withheld by the
Medical Group in its sole and absolute discretion, legal proceedings in the
name of the Medical Group to collect any Accounts and monies owed to the
Medical Group, to enforce the rights of the Medical Group as a creditor
under any contract or in connection with the rendering of any service, and
to contest adjustments and denials by governmental agencies (or their
fiscal
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intermediaries) as third-party payors. The Medical Group shall promptly
turn over to the Management Company for deposit into the Medical Group
Collections Account in accordance with this Agreement all checks and other
payments received by the Medical Group or by any of its partners, equity
owners or employees from any patient or third party payor for Medical Group
Services rendered during the Term.
(b) From time to time at the Management Company's request, the Medical
Group shall make available to the Management Company one or more authorized
signatories (the "Authorized Signatories") of the Medical Group to sign any
letters, checks, instruments or other documents (the "Documents") on behalf
of the Medical Group that are necessary for the Management Company to take
the actions specified in this Section 3.6 and to perform its duties under
this Agreement. If the Management Company notifies the Medical Group that
an Authorized Signatory is not signing the Documents in a timely manner,
the Management Company shall not be liable for any failure to perform its
duties hereunder or for any failure to perform the Management Services to
the extent caused by the failure of an Authorized Signatory to sign the
Documents in a timely manner.
(c) The Management Company shall submit all bills and manage the
billing process on a timely basis in accordance with the terms of this
Agreement and applicable law.
(d) Without limiting the generality of the foregoing, the Management
Company shall bill patients, bill and submit claims to third party payors,
perform appropriate coding for each bill, and collect all fees for
professional and other services rendered and for items supplied to patients
by the Medical Group, all in a timely manner and in accordance with
applicable law and parameters and criteria established by the Operations
Committee (as hereinafter defined). Additionally, the
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Management Company shall provide the following services which are currently
being provided by or on behalf of the Medical Group:
(i) Receive and collect from patients at the time of visit all
appropriate payments and pre-payments, including co-pays, deductibles,
payments for non-covered medical services, and deposits for surgeries
(if applicable), and shall obtain all appropriate insurance and other
information required.
(ii) Submit claims utilizing electronic billing submission,
whenever appropriate.
(iii) Perform delinquent account collection calls and other
appropriate follow-up mechanics for delinquent accounts of all
insurance classifications, all in a timely fashion as determined by
the Operations Committee.
(iv) Turn over to outside collection agencies all delinquent
accounts satisfying the criteria established by the Operations
Committee. The Management Company shall also follow-up on the
performance of the outside collection agencies and make changes, if
necessary, and shall reconcile each account turned over to the summary
data provided by the collection agency.
(v) Write-off account balances according to criteria approved by
the Operations Committee.
(vi) Prepare claim reviews in accordance with criteria approved
by the Operations Committee.
(vii) Bill workers' compensation medical services at rates equal
to the most recently approved Florida workers' compensation fee
schedule.
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(viii) Apply "insurance only" and other courtesy write-offs in
compliance with Operations Committee policy.
(ix) With respect to discounted fee-for-service contracts with
Preferred Provider Organizations (PPOs) and Health Maintenance
Organizations (HMOs), determine that payments received from such PPOs
and HMOs are in compliance with their respective contracts with the
Medical Group.
(x) With respect to capitation fee contracts with HMOs:
(A) Follow-up to ensure that payments to the Medical Group
are made on a timely basis; and
(B) Review and audit enrollment data provided by the HMO to
ensure that the capitation payments are based on the
proper number of lives enrolled.
(xi) With respect to lien accounts, the Management Company shall:
(A) Ensure that appropriate documents are signed and agreed
to initially as between the Medical Group, attorney and
patient;
(B) Follow-up on a regular basis as to the status of the
account; and
(C) Apply the policies of the Operations Committee in
resolving open account balances.
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(xii) With respect to student athlete accounts, the Management
Company shall coordinate insurance and other information in compliance
with the policy of the Operations Committee.
(xiii) With respect to amounts withheld by payors in compliance
with contracts between the payor and the Medical Group, follow-up on a
timely basis to ensure that withheld amounts are paid to the Medical
Group, if warranted, and to ensure that amounts not paid are verified
and audited for appropriateness.
(xiv) Coordinate the timely payment of refunds to patients and
third party payors when appropriate.
3.7. Administrative Personnel.
(a) The Management Company shall retain and provide or arrange for the
retention and provision of the following non-medical personnel necessary
for the conduct of the Medical Group's business operations (collectively,
"Administrative Personnel"):
(i) Administration;
(ii) Accounting;
(iii) Billing and Collection;
(iv) Secretarial;
(v) Transcription;
(vi) Appointments;
(vii) Switchboard;
(viii) Medical Records filing and transcription;
(ix) Chart Preparation;
(x) Historians;
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(xi) Clinic Support;
(xii) Marketing; and
(xiii) Contract procurement and negotiation.
(b) The Management Company shall determine and pay, or arrange for the
payment of, the salaries and fringe benefits of the Administrative
Personnel, and shall provide or arrange for other personnel services
related to the Administrative Personnel, including, but not limited to,
scheduling, determining personnel policies, administering continuing
education benefits, and payroll administration.
(c) With respect to each applicable new employee in Administrative
Personnel, the Management Company shall, as reasonably necessary, verify,
or arrange for the verification of, educational and employment experience,
licensure, and insurability.
(d) The Management Company shall attempt, consistent with sound
business practices, to honor Medical Group requests with regard to the
retention or assignment of specific Administrative Personnel to the Medical
Group. In the event that the Management Company receives a complaint from
the Medical Group that any of the Administrative Personnel is interfering
with or disrupting the provision of Medical Group Services by the Medical
Group, the Management Company will use reasonable efforts to attempt to
promptly remedy any such complaint. If any such complaint is not remedied
to the reasonable satisfaction of the Medical Group, then the Management
Company shall remove such Administrative Personnel, if requested by the
Medical Group, from the Medical Group's facilities, if and to the extent
such action by the Management Company will not violate any applicable law.
(e) All of the services provided by the Management Company under this
Section 3.7, including the obligations set
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forth in Section 3.7(d), shall be performed in compliance with all
applicable laws.
3.8. Technical Personnel; Leased Employees.
(a) Subject to the conditions set forth in this Section 3.8, the
Management Company shall employ or contract with, or shall arrange for, and
shall provide to the Medical Group as leased employees, such Technical
Personnel (as defined below) as may reasonably be necessary for the conduct
of the Medical Business.
(b) For purposes of this Agreement, "Technical Personnel" means
nurses, medical assistants, x-ray technicians, other technicians, and other
personnel who perform diagnostic tests or other services that are covered
by Medicare or by other third party payors when performed by an employee of
a physician under the physician's supervision.
(c) The Medical Group shall have the right to exercise, and shall
exercise, such supervision and control over the activities of the Technical
Personnel as may be necessary for the Technical Personnel to be considered
leased employees under the Medicare program and under applicable law.
Without limiting the generality of the foregoing, the Medical Group shall:
(i) have the right to have any Technical Personnel terminated
from employment;
(ii) furnish the Technical Personnel with the equipment and
supplies needed by the Technical Personnel for their work, which
equipment and supplies will be provided to the Medical Group by the
Management Company in accordance with the terms of this Agreement;
(iii) provide the Technical Personnel with any necessary
training;
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(iv) instruct the Technical Personnel regarding their activities
performed for the Medical Group;
(v) establish the hours of work for the Technical Personnel;
(vi) approve vacation time and other time off from work; and
(vii) provide that degree of supervision as is required by
Medicare and by other third party payors to satisfy applicable
conditions for coverage thereunder.
(d) With respect to each of the Technical Personnel, the Management
Company shall verify or arrange for the verification of educational and
employment experience, licensure and insurability, and shall review and
provide the Medical Group with copies of any complaints contained in public
files with applicable state and Federal commissions.
3.9. Medical Personnel Recruiting.
(a) The Management Company shall, upon request by the Medical Group,
assist the Medical Group in recruiting Medical Personnel. The Medical Group
shall be solely responsible for the selection and retention of Medical
Personnel, provided that any such Medical Personnel shall possess all of
the licensure required under applicable Federal and state law for such
individual to perform his or her duties. "Medical Personnel" means:
(i) Physicians (including fellows and residents, if any)
providing professional medical services who are employees or
independent contractors of the Medical Group; and
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(ii) Physician assistants, nurse practitioners, and other health
care professionals who provide services that are billable to patients
or third party payors under the name of such health care professional
(as distinguished from services that are billable under the name of
the supervising physician).
(b) With respect to each of the Medical Personnel, the Management
Company shall verify, or arrange for the verification of, educational and
employment experience, licensure and insurability, and shall review and
provide the Medical Group with copies of any complaints contained in public
files with applicable state and Federal commissions.
3.10. Inventory and Supplies.
The Management Company shall order and purchase, or arrange for the
order and purchase of, inventory and supplies on behalf of the Medical
Group, and such other ordinary or appropriate materials as the Medical
Group reasonably deems necessary for the Medical Group to carry out its
Medical Group Services. Inventory and supplies shall include, but not be
limited, to:
(a) Medical supplies;
(b) Office supplies;
(c) Postage;
(d) Computer forms and supplies;
(e) Printing and stationery supplies;
(f) Printer supplies; and
(g) Linen and laundry supplies.
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3.11. Taxes.
The Management Company shall provide the Medical Group with access to
all information necessary for the Medical Group to prepare its tax returns.
The Management Company shall have no responsibility for:
(a) The payment of the Medical Group's taxes; or
(b) The preparation of any income tax returns for the Medical
Group.
3.12. Information Systems Management.
(a) The Management Company shall provide or arrange for the provision
of management information systems services to be utilized by the Medical
Group. These services shall include, but not be limited to, ongoing
maintenance and enhancement of the existing information systems used by the
Medical Group in connection with the provision of the following services:
(i) Accounts receivable - Billing/Insurance/ Collections;
(ii) On-line appointment scheduling;
(iii) Internal e-mail;
(iv) On-line transcription;
(v) Faxing subsystem;
(vi) Electronic claims submission;
(vii) Patient flow monitoring system;
(viii) Authorization module;
(ix) Prescription module;
(x) X-ray tracking system;
(xi) Voice mail;
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(xii) Paperless medical records;
(xiii) Bar code chart tracking system;
(xiv) Utilization management information; and
(xv) Outcome studies.
(b) The services provided by the Management Company shall protect the
confidentiality of patient medical records to the extent required by
applicable law or the Medical Group's payor agreements; provided, however,
that in no event shall a breach of such confidentiality be deemed a default
under this Agreement if the Management Company acted reasonably and in good
faith to protect such confidentiality.
3.13. Use of New Technologies in the Practice of Medicine.
The Management Company shall utilize reasonable efforts to promote the
integration of new technologies into the professional practice of the
Medical Group, including, without limitation, the use of satellite and
other telecommunications services that permit the provision of remote
consultations, virtual operations, and other professional services;
provided, however, that the foregoing shall be subject to the terms of
Section 8.2(e) hereof.
3.14. Public Relations; Marketing and Advertising.
The Management Company shall develop and implement community outreach
programs and public relations programs designed to educate the patient
population regarding the Medical Group, the availability of its medical
services, and the availability in terms of any managed care programs in
which the Medical Group participates. The Management Company also shall
develop and implement marketing and advertising programs as reasonably
required to promote and expand the Medical Business, subject to any
approved budgets. These programs shall be
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developed in such manner as the Management Company (in consultation with
the Medical Group) deems practical, and shall be conducted in compliance
with applicable laws and regulations governing advertising by the medical
profession. Any promotional materials created solely for the purpose of
marketing the services provided by the Medical Group and the use of any
individual physician's name in any promotional materials shall require the
consent of the Medical Group or such physician, as the case may be.
3.15. Insurance.
The Management Company shall, to the extent permitted by applicable
law, provide the insurance coverage described in Section 12.1, and may
obtain the insurance described in Section 12.2 of this Agreement.
3.16. Files and Records.
(a) To the extent permitted by applicable law, the Management Company
shall supervise and maintain custody of all files and records relating to
the operation of the business of the Medical Group, including, without
limitation, accounting, billing, collection and patient medical records.
The management of all files and records shall be in compliance with
applicable state and Federal statutes. Patient medical records shall at all
times be and remain the property of the Medical Group and shall be located
at a location that is readily accessible for patient care. The Management
Company shall preserve the confidentiality of patient medical records and
use information contained in such records only for the limited purposes
necessary to perform the Management Services set forth herein; provided,
however, that in no event shall a breach of such confidentiality be deemed
a default under this Agreement if the Management Company acted reasonably
and in good faith to protect such confidentiality.
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(b) The Management Company shall provide all off-site storage of files
and records as required by applicable law and in conjunction with policies
established by the Operations Committee. The Management Company shall
provide the Medical Group with all requested off-site files and records on
a timely basis, consistent with the policies of the Medical Group in effect
from time to time. Any change in such policies shall be subject to the
approval of the Operations Committee.
(c) In the event of termination of this Agreement, the Management
Company shall deliver to the Medical Group at no charge a copy of the books
and records of the Medical Group in the Management Company's possession. In
the event any physician of the Medical Group terminates his affiliation
with the Medical Group during the Term, the Management Company shall,
within 30 days after receipt of written instructions from the Medical
Group, deliver to such physician a copy of the books and records pertaining
to the Medical Group Services provided by such physician during the five
years prior to such physician's departure from the Medical Group; provided
that the Management Company shall not be obligated to return any books and
records pertaining to Medical Group Services provided prior to the
Commencement Date.
3.17. Managed Care Contracts.
The Management Company shall assist the Medical Group in soliciting,
negotiating and administering all managed care contracts on behalf of the
Medical Group based on parameters and criteria established by the
Operations Committee. Such services shall be performed by the Management
Company as agent of the Medical Group, and all managed care contracts shall
be subject to the Medical Group's prior approval of any such contract. The
Management Company shall prepare cost forecasts and other analyses as
reasonably requested by the Medical Group in order to
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allow the Medical Group to make an informed decision with respect to each
proposed contract.
3.18. Budgets.
The Management Company shall prepare, for the review and approval of
the Operations Committee, annual operating budgets (the "Budgets")
reflecting in reasonable detail projected Billings, Collections, Medical
Group Costs, and Management Company Operating Costs (all as hereinafter
defined); provided, however, that the Medical Group and the Management
Company hereby agree that the budget attached hereto as Schedule II is the
Budget for the Medical Group with respect to the initial three-month period
under this Agreement. All other budgets shall be on a calendar year basis.
The Management Company shall prepare and submit to the Operations Committee
all subsequent Budgets on or before December 15 of the year immediately
preceding the calendar year for which such Budget is applicable.
3.19. Force Majeure.
The Management Company shall not be liable to the Medical Group for
failure to perform any of the services required herein in the event of
strikes, lock-outs, calamities, acts of God, unavailability of supplies,
changes in applicable law or regulations or other events over which the
Management Company has no control for so long as such events continue and
for a reasonable time thereafter.
3.20. Use of Acquired Goodwill.
Pursuant to asset purchase agreements effective the Commencement Date
between the Management Company and each of the Practicing Physicians (as
hereinafter defined), the Management Company acquired the personal goodwill
(the "Acquired Goodwill") of the Practicing Physicians. During the Term,
the Management
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Company shall permit the Medical Group to use the Acquired Goodwill in its
medical practice.
SECTION 4. Consideration.
In consideration of the Medical Group's entering into this Agreement,
the Management Company shall provide to each person identified on Schedule
III attached hereto (the "Eligible Parties"), the consideration set forth
opposite such person's name on Schedule III, the allocation of which has
been determined and apportioned by the Medical Group.
SECTION 5. Costs, Compensation, and Other Payments.
5.1. Ownership of Accounts; Security.
The Medical Group and each Practicing Physician hereby transfers to
the Management Company ownership of all accounts receivable and other
rights to payment arising from the provision by the Medical Group or such
Practicing Physician of the Medical Group Services and related services to
the general public during the Term (the "Accounts"); provided, however,
that the right to payment of Medicaid and Medicare receivables shall remain
with the Medical Group or such Practicing Physician, as the case may be, in
accordance with applicable Federal and state law. The Management Company
shall have the right to grant to any lender (the "Lender") a lien and
security interest in and with respect to the Accounts, together with all
books, records, computer information and other general intangibles relating
thereto (collectively, the "Collateral"), as security for the obligations
of the Management Company to the Lender, and the Medical Group and each
Practicing Physician shall execute a financing statement (the "Financing
Statement") for the benefit of the Management Company evidencing the
foregoing transfer of the Accounts and perfecting the Management Company's
ownership interests therein. The Medical Group hereby acknowledges that the
Lender is a third party beneficiary of the benefits granted to the
Management Company under this Section 5.1. The Medical Group shall
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cooperate with the Lender as reasonably requested in the event the Lender
seeks to enforce its rights and remedies under its agreement with the
Management Company, including granting the Lender access, to the extent
permitted by law, to all books and records associated with the Collateral.
Neither the Management Company nor the Lender shall be required to give the
Medical Group any notice in connection with any loan or related financing
arrangements affecting the Accounts or other Collateral.
5.2. Bank Accounts.
The Medical Group shall instruct the Medical Group Bank to transfer,
on a daily basis, all funds in the Medical Group Collections Account (less
the amount necessary to avoid the payment of bank charges or fees relating
to the failure to maintain a minimum balance in the Medical Group
Collections Account) to a bank (the "Management Company Bank") designated
by the Management Company, for credit to an account in the Management
Company's name (the "Operating Account").
5.3. Medical Group Compensation.
(a) Monthly Draw.
(i) On each Draw Date (as hereinafter defined) during the Term
hereof, the Management Company shall distribute to the Medical Group
an amount equal to a percentage (the "Draw Percentage") of the Medical
Group's total Billings (as hereinafter defined) for Medical Group
Services provided during the previous month (the "Monthly Draw"). The
Draw Date and the initial Draw Percentage are as set forth on Schedule
IV, and the Draw Percentage shall be adjusted as provided in Section
5.3(a)(ii).
(ii) Commencing May 15, 1998, and effective May 15 of each year
thereafter, the Draw Percentage shall be adjusted to equal a fraction,
the numerator of which is the
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Annual Medical Group Compensation Amount (as hereinafter defined) for
the previous year, and the denominator of which is the total amount of
Billings for the previous year. Additionally, the Management Company
shall adjust the Draw Percentage from time to time (but in no event
less than one additional time during any twelve-month period) based on
the actual Collections year-to-date in order to minimize the amount of
any annual settlement payment reasonably anticipated to be required
under Section 5.3(b).
(b) Annual Settlement.
(i) On or before April 30 of each year beginning 1998, the
Management Company shall calculate the compensation (the "Annual
Medical Group Compensation Amount") earned by the Medical Group with
respect to the prior calendar year in accordance with the following:
(A) The total Collections for all Medical Group Services
rendered during such year, minus
(B) the sum of the following:
(1) the Management Fee earned by the Management
Company for the previous calendar year; and
(2) the Authorized Management Company Operating Costs
(as hereinafter defined) incurred by the
Management Company during such year.
(ii) If the Annual Medical Group Compensation Amount thus
determined exceeds (the "Annual Shortfall") the total of the twelve
(12) Monthly Draws paid by the
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Management Company to the Medical Group during the previous calendar
year (the "Annual Draw Amount"), the Management Company shall pay to
the Medical Group on or before May 15, an amount equal to the Annual
Shortfall. If the Annual Medical Group Compensation is less (the
"Annual Overpayment") than the Annual Draw Amount, the Management
Company shall withhold from the Monthly Draw otherwise payable to the
Medical Group, during each of the following six (6) months, an amount
equal to one-sixth (1/6) of such Annual Overpayment.
(iii) With respect to this Section 5.3(b), for purposes of
determining the total Collections for all Medical Group Services
provided during any calendar year or portion thereof during the Term,
all Collections during January, February, and March of such year shall
be deemed to be for Medical Group Services rendered during the
previous calendar year, and all Collections during April through
December shall be deemed to be for Medical Group Services rendered
during the calendar year in which such Collections were received. The
foregoing shall also apply with respect to determining the Management
Fee earned by the Management Company for the previous calendar year,
for purposes of this Section 5.3(b).
(iv) Notwithstanding anything to the contrary set forth herein,
the first period for which the annual settlement described in this
Section 5.3(b) shall be applicable is the period commencing on the
Commencement Date and ending on December 31, 1997.
(c) For purposes of this Agreement:
(i) "Billings" means, for any applicable period, the gross
charges of the Medical Group for all Medical Group Services furnished
during such period.
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(ii) "Collections" means, for any applicable period, all cash or
cash equivalents received during such period for Medical Group
Services, including any capitation payments, less any refunds,
recoupments, repayments or reductions applied during such period.
(iii) "Medical Group Services" means the following services
rendered by, through, or on behalf of the Medical Group: all
professional services rendered by or under the supervision of any of
the Medical Personnel (including professional services rendered in
connection with New Ancillary Services); all plain film and other
diagnostic radiology services rendered by or under the supervision of
any of the Medical Personnel; all other ancillary services (other than
New Ancillary Services); all ultrasound; all prosthetics, prosthetic
devices, orthotics, braces, splints, appliances, durable medical
equipment, and other items and supplies that are billable to patients
or to third party payors; depositions, record review services, court
appearances, and independent medical exams; and all other services
provided on a regular basis by the Medical Group immediately prior to
the Commencement Date (except as set forth below).
(iv) It is the intent of the parties that Billings, Collections,
and Medical Group Services not include any of the following:
(A) New Ancillary Services (excluding professional services
rendered by Medical Personnel in connection therewith,
which professional services are included under Section
5.3(c)(iii) above);
(B) interest income;
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(C) royalties payable to any Medical Group physician for
medical inventions;
(D) fees payable under consulting agreements entered into
by Medical Group physicians, including any such
agreements set forth on Annex I attached hereto;
(E) revenues from presentations, publications, medical
directorships, service as the head of a department in a
hospital or other health care facility, clinical
trials, investigations and endorsements, including any
such activities set forth on Annex I attached hereto;
(F) proceeds from the sale of any capital assets of the
Medical Group; and
(G) any income from investments.
Notwithstanding anything to the contrary contained therein, any revenues
received by any Billable Medical Personnel (as hereinafter defined) from
any source set forth in clauses (D) and (E) above, shall be included in
Billings, Collections and Medical Group Services if the revenues from
Medical Group Services generated by such Billable Medical Personnel during
any year are materially reduced by the Billable Medical Personnel's
participation in such activities.
(v) For illustrative purposes only, an example of the computation
of the Annual Settlement is set forth on Schedule VII attached hereto.
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5.4. Management Fee.
(a) The compensation payable to the Management Company for the
provision of Management Services under this Agreement (the "Management
Fee"), which the Management Company may retain from funds received by the
Management Company from time to time at its discretion, shall be equal to
(i) the sum of (A) an amount equal to the Applicable Percentage (as
hereinafter defined) of Collections, (B) an amount equal to sixty six and
two-thirds percent (66-2/3%) of the Professional Management Cost Savings
(as hereinafter defined) and (C) any amounts owed to the Management Company
pursuant to Section 5.11 hereof, if any, less (ii) an amount equal to the
Medical Group's pro rata portion of the Specialty Care Network Profit (as
hereinafter defined) for such period, if any, based on the number of claims
generated by the Medical Group through the specialty care network owned or
operated by the Management Company during the applicable period; provided,
however, that in the event the Applicable Percentage of Collections shall
equal an amount that is less than $535,000 for any calendar year ending on
or before December 31, 2001, the Management Fee for such period shall,
notwithstanding anything to the contrary contained herein, equal $535,000
plus the amounts described in clauses (B) and (C) above (the "Guaranteed
Minimum Fee"). The Guaranteed Minimum Fee shall be decreased by an amount
determined in accordance with the formula set forth below in the event that
any physician equity owner (a "Departing Physician") of the Medical Group
(1) retires from, or terminates his or her equity owner status in, the
Medical Group and such Departing Physician pays the Buyout Amount (as
defined in the Stockholder Non-Competition Agreement), in full, to the
Management Company pursuant to Section 5 of the Stockholder Non-Competition
Agreement (as hereinafter defined), (2) dies or becomes permanently
disabled (as such term is defined in the Restricted Stock Agreement (as
hereinafter defined)) (such death or permanent disability being referred to
herein as an "Involuntary Departure"), or (3) terminates (a "Nonpayment
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Termination") his equity owner status in the Medical Group due to the
Management Company's failure to pay by March 31, 1997, all amounts due
under that certain promissory note dated the Signature Date and issued by
the Management Company in favor of such Departing Physician in connection
with the Asset Purchase Agreement between the Management Company and such
Departing Physician. Any such event shall cause a decrease in the
Guaranteed Minimum Fee only for the year in which the Buyout Amount is paid
or the Involuntary Departure or Nonpayment Termination occurs, as the case
may be. The amount of the decrease in the Guaranteed Minimum Fee shall be
determined pursuant to the following:
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Q = IC / MGC x GMF
where,
Q = the amount by which the Guaranteed Minimum Fee shall be reduced;
IC = the aggregate Collections of the Departing Physician for the
12-month period ending on the last day of the month prior to the date
the Departing Physician leaves the Medical Group;
MGC = the aggregate Collections of the Medical Group for the 12-month
period ending on the last day of the month prior to the date the
Departing Physician leaves the Medical Group; and
GMF = $535,000.
The Guaranteed Minimum Fee for the year following the year in which the
Departing Physician pays the Buyout Amount or the Involuntary Departure
occurs shall again equal $535,000. The Management Fee shall not include any
Professional Medical Cost Savings (as hereinafter defined), but all of such
savings will accrue for the benefit of the Medical Group. For illustrative
purposes only, an example of the computation of the Management Fee is set
forth on Schedule VII attached hereto.
(b) For purposes of this Section 5.4, the following terms have the
meanings set forth below:
(i) "Applicable Percentage" has the meaning set forth on Schedule
V;
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(ii) "Professional Management Cost Savings" means the actual
Professional Practice Cost Savings described in Section A.1 of
Schedule VI;
(iii) "Professional Medical Cost Savings" means the actual
Professional Practice Cost Savings described in Section A.2 of
Schedule VI.
(iv) "Professional Practice Cost Savings" means the actual cost
savings determined in the manner described on Schedule VI; and
(v) "Specialty Care Network Profit" means the excess of the
fee(s) received by the Management Company over the costs incurred by
the Management Company, each in connection with its ownership and/or
operation of a specialty care network.
(c) Notwithstanding anything contained herein to the contrary, during
the 30 day period from September 1, 2000 to September 30, 2000 (the
"Conversion Period"), the Medical Group shall have the right, upon delivery
of a written notice (the "Conversion Notice") to the Management Company, to
cause the Management Fee to be converted from a fee based upon the
Applicable Percentage of Collections to a fee that is based upon the
applicable Percentage of Net Operating Income (as hereinafter defined),
which fee will continue to be subject to the Guaranteed Minimum Fee. For
purposes hereof, Net Operating Income shall mean Collections less the
Management Company Operating Costs (without deduction of the Management
Fee). In such a case, the parties will review the 12 month period from
September 1, 1999 to August 31, 2000 (the "Look Back Period") and will
determine the Collections and Management Company Operating Costs for the
Look Back Period. The parties will then determine the Management Fee
payable during the Look Back Period (based upon the Applicable Percentage
of Collections) and divide such amount by the Net
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Operating Income for the Look Back Period. The resulting percentage will
then be deemed to be the new Applicable Percentage, which will thereafter
be multiplied by the Net Operating Income to determine future Management
Fees. In the event the Medical Group delivers the Conversion Notice, the
parties will amend this Management Services Agreement within 90 days of the
expiration of the Conversion Period to so reflect the afore-referenced
change, which amendment shall be satisfactory to the Medical Group and the
Management Company.
5.5. Management Company Costs.
(a) The Management Company shall pay all Management Company Operating
Costs and all Excluded Costs (collectively, the "Management Company
Costs"). All Management Company Costs shall be incurred in the name of the
Management Company, and not in the name of the Medical Group, except as
specifically approved by the Medical Group. Management Company Costs shall
not include any costs or expenses incurred prior to the Commencement Date.
(b) The Management Company shall provide to the Medical Group, upon
reasonable request by the Medical Group from time to time, supporting
documentation and other backup detail relating to any or all of the
Management Company Costs.
(c) For purposes of this Agreement, "Management Company Operating
Costs" means all costs and expenses incurred in connection with the
provision of the Management Services to the Medical Group, including,
without limitation, those costs and expenses set forth in the Budget,
except that any costs and expenses defined as Medical Group Costs in
Section 5.7 hereof, and any Excluded Costs (as hereinafter defined) shall
not be deemed Management Company Operating Costs. To the extent that the
Medical Group and the Management Company mutually determine that an
expenditure not included in the Budget needs to be incurred in connection
with the provision of Management Services
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hereunder, such expenditure shall be included in Management Company
Operating Costs for purposes of this Agreement. "Excluded Costs" means all
of the following costs and expenses incurred in connection with the
provision of the Management Services hereunder:
(i) Ancillary Service Start-Up Costs (as hereinafter defined);
(ii) New Medical Office Start-Up Costs (as hereinafter defined);
(iii) the cost of any FF&E provided by the Management Company to
the Medical Group, including the capital costs associated with any
information systems technology implemented by the Management Company
(subject to the provisions of Section 8.2(e) hereof); provided that
the costs associated with the maintenance of such technology shall be
an expense included in the Budget and shall be deemed an Authorized
Management Company Operating Cost for purposes of this Agreement;
(iv) depreciation, amortization, and interest; and
(v) corporate overhead of the Management Company ("Corporate
Overhead") except to the extent that all of the following conditions
are satisfied, as determined by the Operations Committee:
(A) The Corporate Overhead is incurred in lieu of a
pre-existing Management Company Operating Cost;
(B) The amount of such Corporate Overhead does not exceed
the amount of the
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Management Company Operating Costs being eliminated;
and
(C) The Corporate Overhead is allocated to the Medical
Group and to all other medical groups utilizing such
Corporate Overhead on a pro rata basis.
Any Corporate Overhead with respect to which all of the above
conditions are satisfied shall be considered Management Company
Operating Costs.
(d) For purposes of this Agreement, "Authorized Management
Company Operating Costs" means all Management Company Operating Costs
incurred in any year by the Management Company in the provision of
Management Services hereunder reduced by any or all of the following,
as applicable:
(i) any costs that exceed the applicable Management Company
Operating Costs Budget which are not approved by the Operations
Committee;
(ii) any costs with respect to which the Medical Group has
reasonably requested supporting documentation or other backup
detail which has not been furnished by the Management Company or
which does not reasonably establish the appropriateness of such
costs; and
(iii) any costs that have been determined pursuant to an
audit under Section 5.9 not to have been reasonably incurred in
connection with the Management Services required to be provided
under this Agreement.
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5.6. New Medical Office Start-Up Costs.
(a) The Management Company shall pay, to the extent provided herein,
all New Medical Office Start-Up Costs incurred in connection with the
establishment of any New Medical Office. The Management Company shall
create a separate division (the "New Office Division") for purposes of
accounting for the income, costs, profits, and losses of any New Medical
Office. The Management Company shall utilize generally accepted accounting
principles in determining and accounting for the profits and losses related
to the operations of each New Medical Office. Notwithstanding anything to
the contrary contained herein, Corporate Overhead shall not be included in
determining the costs and expenses associated with any New Medical Office.
At the end of the New Medical Office Start-Up Period (as hereinafter
defined), (i) the Management Company shall be reimbursed for all of the
Management Company Operating Costs incurred by the Management Company for
each New Medical Office, (ii) the Management Company shall be entitled to
receive the aggregate Management Fee as described in Section 5.4 and (iii)
the Medical Group shall be entitled to receive the Annual Medical Group
Compensation Amount for such new Medical Office, in each case, as if such
New Medical Office had been any other office of the Medical Group during
the New Medical Office Start-Up Period; provided, however, that
notwithstanding the foregoing, if the aggregate Collections for such New
Medical Office during the New Medical Office Start-Up Period is equal to or
less than the New Medical Office Start-Up Costs associated with such New
Medical Office during the New Medical Office Start-up Period, then (A) the
Management Company and the Medical Group shall not be entitled to receive
the Management Fee or the Annual Medical Group Compensation Amount, as
applicable, and (B) the Management Company shall be responsible for the
deficit, if any, associated with such New Medical Office; provided that the
aggregate amount of Collections received during the New Medical Office
Start Up
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Period for such New Medical Office shall belong solely to the Management
Company.
(b) Except to the extent provided in Section 5.6(a) above, the
billings, collections, costs and expenses relating to any New Medical
Office shall not, during the New Medical Office Start-Up Period, be
included in the computations of Medical Group Compensation, the Management
Fee, Management Company Costs, Ancillary Services, or Medical Group Costs
as described in Sections 5.3, 5.4, 5.5, 5.8, or 5.7, respectively.
(c) All Medical Equipment utilized at any New Medical Office shall be
acquired by the Management Company and provided to the Medical Group in
accordance with the terms of Section 3.3 hereof.
(d) For purposes of this Agreement, "New Medical Office" means any
office of the Medical Group other than those offices located in the
premises identified in Section 3.2(a) hereof.
(e) For purposes of this Agreement, "New Medical Office Start-Up
Costs" means the following costs incurred in connection with the
establishment of a New Medical Office during the New Medical Office
Start-Up Period: all Management Company Operating Costs and all costs
associated with the development of such New Medical Office other than
Medical Group Costs, provided that, the costs incurred in connection with
any New Physician (as hereinafter defined) shall be borne in accordance
with the provisions of Section 5.11 hereof.
(f) For purposes of this Agreement, "New Medical Office Start-Up
Period" means the period commencing on the date that any costs are incurred
in connection with the establishment of a New Medical Office and ending on
the last day of the calendar month in which a period of twelve (12) months
has elapsed from and after the date on which the New Medical Office
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first opened for the treatment of patients. In the event that the New
Medical Office is profitable (as determined by the Management Company) as
of the end of the New Medical Office Start-Up Period, at all times
thereafter such New Medical Office shall, for all purposes of this
Agreement, be treated as any other office of the Medical Group.
5.7. Medical Group Costs.
Except as otherwise provided in this Agreement, the Medical Group shall pay
all of the costs specified in this Section 5.7 (the "Medical Group Costs"). All
Medical Group Costs shall be incurred in the name of the Medical Group, and not
in the name of the Management Company, and shall be paid from an account of the
Medical Group and not from any bank account of the Management Company. The
Medical Group Costs are as follows:
(a) compensation of all Medical Personnel that (i) are authorized to
directly bill patients, Medicare, Medicaid and third party payors
and (ii) are employed directly by the Medical Group (such persons
being referred to herein as the "Billable Medical Personnel");
(b) any applicable fringe benefits for all Medical Personnel,
including, but not limited to, payroll taxes, workers'
compensation, health insurance (including drug coverage), dental
insurance, disability insurance, life insurance, 401(k)
retirement plan, business buy-out disability insurance and
continuing education; and
(c) the cost of any items which are not required to be provided by
the Management Company under this Agreement and/or which were
ordered, purchased, or incurred by the Medical Group
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directly, including but not limited to the cost of accounting,
legal, consulting, or other professional or advisory services,
business meetings, and business taxes.
5.8. New Ancillary Services Costs.
(a) Any agreement by the parties to establish a New Ancillary Service
as described in Section 3.4 of this Agreement shall (unless otherwise
agreed by the parties) incorporate the following, to the extent permitted
by applicable law:
(i) The Management Company shall create a separate division
("Ancillary Division") for purposes of accounting for the income,
costs, profits, and losses of any New Ancillary Service. The
Management Company shall utilize generally accepted accounting
principles in determining and accounting for the profits and losses
related to the operations of each New Ancillary Service.
Notwithstanding anything to the contrary contained herein, Corporate
Overhead shall not be included in determining the costs and expenses
associated with any New Ancillary Service.
(ii) Profits and/or losses of any Ancillary Division shall be
divided equally between the Medical Group and the Management Company,
and all distributions to the Medical Group and to the Management
Company shall be made in equal amounts to each from available cash
(after payment of all currently due obligations incurred in connection
with such New Ancillary Division, including, without limitation, any
principal and interest amounts then due and payable under Section
5.8(a)(iv) below, and after retention of reasonable reserves) derived
from the operation of such Ancillary Division.
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(iii) All diagnostic and therapeutic equipment utilized in
connection with any New Ancillary Service ("New Ancillary Service
Medical Equipment") shall be acquired by the Management Company and
shall be provided to the Medical Group on terms substantially similar
to those set forth in Section 3.3 hereof.
(iv) The Management Company shall pay all of the Ancillary
Service Start-Up Costs. Beginning with the month immediately following
the expiration of the Ancillary Service Start-Up Period (as
hereinafter defined), the Management Company shall be entitled to
recoup all of the Ancillary Service Start-Up Costs previously paid by
the Management Company in sixty (60) equal monthly installments of
principal, plus interest on the unrecouped portion of such costs at
the lower of the prevailing prime rate as set forth in the Wall Street
Journal or at the actual rate paid by the Management Company with
respect to any part of such costs that have been financed by the
Management Company, if applicable.
(v) The Management Company shall provide, in connection with any
New Ancillary Service, the full range of management services described
in this Agreement.
(vi) The billings, collections, costs and expenses relating to
any New Ancillary Service shall not be included in the computations of
Medical Group Compensation, the Management Fee, Management Company
Costs, New Medical Office Start-Up Costs, or Medical Group Costs as
described in Sections 5.3, 5.4, 5.5, 5.6, or 5.7, respectively.
(b) For purposes of this Section 5.8, "Ancillary Service Start-Up
Period" means the period commencing on the date that any costs are incurred
in connection with the establishment of the New Ancillary Service and
ending on the earlier to occur
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of (i) the last day of the first period of two (2) consecutive calendar
months for which the New Ancillary Service shows a profit (as determined by
the Management Company) or (ii) the last day of the twelfth month after the
establishment of such New Ancillary Service.
(c) For purposes of this Section 5.8, "Ancillary Service Start-Up
Costs" means the total of all of the following costs incurred in connection
with the establishment of a New Ancillary Service during the Ancillary
Service Start-Up Period (whether such costs would otherwise be considered
Management Company Costs or Medical Group Costs):
(i) Any lease payments for New Ancillary Service Medical
Equipment;
(ii) All costs of acquiring furniture, fixtures, and office
equipment;
(iii) All initial occupancy costs, if any, including but not
limited to prepaid rent, and tenant improvements;
(iv) All costs related to the acquisition of materials and
supplies related to the provision of such New Ancillary Service; and
(v) All ongoing costs of the New Ancillary Service, including but
not limited to personnel (other than the Billable Medical Personnel)
and related benefits, the cost of operating any equipment utilized in
providing the service, supplies, insurance, rent, repairs and
maintenance, outside services, telephone, taxes, utilities, storage
and other ordinary ongoing expenses of providing the New Ancillary
Service.
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5.9. Review and Audit of Books and Records.
Each of the parties shall have the right, during ordinary business
hours and upon reasonable notice, to review and make copies of, or to audit
through a qualified certified public accountant approved by the other party
(which approval shall not be unreasonably withheld), the books and records
of the other party relating to the billing, collection, and disbursement of
fees, and the determination of costs, under this Agreement. Any such review
or audit shall be performed at the cost of the requesting party; provided,
however, that in the event that such review or audit requested by the
Medical Group discloses a discrepancy indicating that the Medical Group has
actually been underpaid by an amount in excess of three percent (3%) of the
total amount of Medical Group Compensation otherwise payable to the Medical
Group for the period covered by the audit, the cost of the audit shall be
borne by the Management Company. All documents and other information
obtained in the course of such review or audit shall be held in strict
confidence.
5.10. Start-Up Period.
Consistent with the provisions of Section 2 of this Agreement, the
parties acknowledge and agree that, in order to facilitate the transition
of responsibilities hereunder, certain requirements and procedures agreed
to under this Agreement may be implemented, in whole or in part and at any
time during the period commencing on the Commencement Date and ending 90
days thereafter (subject to extension by agreement of the Medical Group and
the Management Company), rather than being fully implemented immediately on
the Commencement Date. Accordingly, the parties further agree that the
Management Fee and Monthly Draw payable in respect of the Management
Services and the Medical Group Services applicable to such period of time
shall be computed, and any appropriate adjustments shall be made, such that
no material financial advantage or disadvantage shall accrue
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to either party as a result of implementing such requirements and
procedures over the course of such start-up period rather than immediately
on the Commencement Date.
5.11. New Physician Compensation Costs.
(a) Notwithstanding anything contained herein to the contrary, during
the period beginning on the New Physician Start Date (as hereinafter
defined) and ending on the Physician Breakeven Date (as hereinafter
defined), the Management Company shall be responsible for the payment of
all New Physician Compensation (as hereinafter defined) and notwithstanding
anything to the contrary contained in this Agreement, shall receive, in
consideration therefor, sixty six and two-thirds percent (66-2/3%) (such
amount being referred to herein as the "New Physician Net Collections") of
all Collections generated by such New Physician for those Medical Group
Services performed by such New Physician until the Physician Breakeven
Date, and such amounts shall not be included in determining Collections for
purposes of this Agreement. The remaining thirty three and one-third
percent (33 1/3%) of such Collections shall belong to the Medical Group
until the Physician Breakeven Date, and such amounts shall not be included
in determining Collections for purposes of this Agreement. As of the
Physician Breakeven Date, the New Physician Compensation shall be payable
by, and become the responsibility of, the Medical Group in accordance with
Section 5.7 hereof, and one hundred percent (100%) of all of the Billings
and Collections generated by such New Physician thereafter shall be
considered Billings and Collections of the Medical Group for purposes of
this Agreement.
(b) "New Physician" means, any physician who, at any time after the
Commencement Date, becomes affiliated with or employed by the Medical
Group; provided that if such physician becomes affiliated with or employed
by the Medical Group pursuant to a transaction between the Management
Company and such
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physician or a medical group with which such physician is affiliated in
which the Management Company acquires any assets or accounts receivable
from such physician or such medical group or pays any other consideration
to such physician or such medical group in connection with such physician's
affiliation or employment with the Medical Group and/or the Management
Company, then such physician shall not be deemed to be a New Physician for
purposes of this Agreement.
(c) "Physician Breakeven Date" means, with respect to any New
Physician, the date on which the New Physician Net Collections for the
period beginning on the New Physician Start Date and ending on the date of
determination first equal or exceed (i) the aggregate amount of New
Physician Compensation paid to such New Physician for the foregoing period
plus (ii) that portion of the Management Company Costs associated with such
New Physician and/or the Medical Group Services provided by such New
Physician.
(d) "New Physician Compensation" means, with respect to any New
Physician and for any period in question, the amount of compensation (wages
and otherwise) payable to such New Physician by the Medical Group.
(e) "Physician Start Date" means, with respect to any New Physician,
the date such New Physician becomes affiliated with or employed by the
Medical Group.
SECTION 6. Representations and Warranties of the Medical Group
The Medical Group hereby represents and warrants to the Management Company,
as of the Signature Date, as follows:
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6.1. Organization; Good Standing; Qualification and Power.
The Medical Group is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Florida and has all
requisite power and authority to own, lease, and operate its properties, to
carry on its business as now being conducted and as proposed to be
conducted, to enter into this Agreement, the Financing Statement and the
Stockholder Non-Competition Agreements (as hereinafter defined)
(collectively, the "Medical Group Transaction Documents"), to perform its
obligations hereunder and thereunder, and to consummate the transactions
contemplated hereby and thereby. The Medical Group has delivered to the
Management Company a true and correct copy of its Articles of Incorporation
and its Bylaws, each as in effect on the date hereof.
6.2. Equity Investments.
Except as set forth on Schedule 6.2, the Medical Group currently has
no subsidiaries, nor does the Medical Group currently own any capital stock
or other proprietary interest, directly or indirectly, in any corporation,
association, trust, partnership, joint venture, or other entity.
6.3. Authority.
The execution, delivery and performance of this Agreement and the
other Medical Group Transaction Documents and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary action on the part of the Medical Group. This
Agreement and the other Medical Group Transaction Documents have been duly
and validly executed and delivered by the Medical Group and constitute the
legal, valid and binding obligations of the Medical Group enforceable in
accordance with their respective terms, except as enforcement may be
limited by applicable
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bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally. Neither the execution,
delivery or performance of this Agreement or any other Medical Group
Transaction Document by the Medical Group nor the consummation by the
Medical Group of the transactions contemplated hereby or thereby, nor
compliance by the Medical Group with any provision hereof or thereof will
conflict with or result in a breach of any provision of the formation
documents of the Medical Group, cause a default (with due notice, lapse of
time or both), or give rise to any right of termination, cancellation or
acceleration, under any of the terms, conditions or provisions of any note,
bond, lease, mortgage, indenture, license or other instrument, obligation
or agreement to which the Medical Group is a party or by which the Medical
Group or any of its properties or assets may be bound (with respect to
which defaults or other rights all requisite waivers or consents shall have
been obtained at or prior to the date hereof) or violate any law, statute,
rule or regulation or order, writ, judgment, injunction or decree of any
court, administrative agency or governmental body applicable to the Medical
Group or any of its properties or assets or the Medical Business. Except as
provided on Schedule 6.3, to the best of the Medical Group's knowledge, no
permit, authorization, consent or approval of or by, or any notification of
or filing with, any person (governmental or private) is required in
connection with the execution, delivery or performance by the Medical Group
of this Agreement or any other Medical Group Transaction Document or the
consummation of the transactions contemplated hereby and thereby.
6.4. Financial Information.
Schedule 6.4 contains the internal statement of assets, liabilities
and stockholders' equity of the Medical Business and each Constituent
Practice at August 31, 1997 (collectively, the "Balance Sheet"; and the
date thereof being referred to as the "Balance Sheet Date"), and the
related internal statements of
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revenue and expenses for the eight-month period then ended (including the
notes thereto and other financial information included therein)
(collectively, the "Internal Financial Statements"), and (b) the compiled
financial statements of the Medical Business and each Constituent Practice
for the periods ended December 31, 1996, December 31, 1995, and December
31, 1994 (collectively, the "Review Financial Statements"). The Internal
Financial Statements and the Review Financial Statements (i) are in
accordance with the books and records of the Medical Business, (ii) fairly
present the financial position of the Medical Business as of the dates
thereof, and (iii) have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods covered
thereby.
6.5. Absence of Undisclosed Liabilities.
Except as set forth on Schedule 6.5, as of the Balance Sheet Date,
neither the Medical Business nor any Constituent Practice had any material
liability of any nature (matured or unmatured, fixed or contingent, known
or unknown) which was not provided for or disclosed on the Balance Sheet,
all liability reserves established by the Medical Business or any
Constituent Practice on the Balance Sheet were adequate and there were no
loss contingencies (as such term is used in Statement of Financial
Accounting Standards No. 5 issued by the Financial Accounting Standards
Board in March 1975) which were not adequately provided for or disclosed on
the Balance Sheet.
6.6. Absence of Changes.
Except as set forth on Schedule 6.6, since the Balance Sheet Date, the
Medical Business and each Constituent Practice have been operated in the
ordinary course and consistent with past practice and there has not been:
(a) any material adverse change in the condition (financial or
otherwise), assets (including, without limitation,
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levels of working capital and the components thereof), liabilities,
operations, results of operations, earnings, business or prospects of
the Medical Business or any Constituent Practice;
(b) any damage, destruction or loss (whether or not covered by
insurance) in an aggregate amount exceeding $25,000 affecting any
asset or property of the Medical Business or any Constituent Practice;
(c) any obligation or liability (whether absolute, accrued,
contingent or otherwise and whether due or to become due) created or
incurred, or any transaction, contract or commitment entered into, by
the Medical Business or any Constituent Practice other than such items
created or incurred in the ordinary course of the Medical Business or
such Constituent Practice and consistent with past practice;
(d) any payment, discharge or satisfaction of any claim, lien,
encumbrance, liability or obligation by the Medical Business or any
Constituent Practice outside the ordinary course of the Medical
Business or such Constituent Practice (whether absolute, accrued,
contingent or otherwise and whether due or to become due);
(e) any license, sale, transfer, pledge, mortgage or other
disposition of any tangible or intangible asset of the Medical
Business or any Constituent Practice except in the ordinary course of
the Medical Business or such Constituent Practice and consistent with
past practice;
(f) any write-off as uncollectible of any accounts receivable in
connection with the Medical Business or any Constituent Practice or
any portion thereof in excess of $5,000 in the aggregate exclusive of
all normal contractual adjustments from third party payors;
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(g) except for all normal contractual adjustments from third
party payors, any account receivable in connection with the Medical
Business or any Constituent Practice in an amount greater than $10,000
which (i) has become delinquent in its payment by more than 90 days,
(ii) has had asserted against it any claim, refusal to pay or right of
set-off, (iii) an account debtor has refused to pay for any reason or
with respect to which such account debtor has become insolvent or
bankrupt or (iv) has been pledged to any third party;
(h) any cancellation of any debts or claims of, or any amendment,
termination or waiver of any rights of material value to, the Medical
Business or any Constituent Practice;
(i) any general uniform increase in the compensation of employees
of the Medical Group or the Medical Business (including, without
limitation, any increase pursuant to any bonus, pension,
profit-sharing, deferred compensation arrangement or other plan or
commitment) or any increase in compensation payable to any officer,
employee, consultant or agent thereof, or the entering into of any
employment contract with any officer or employee, or the making of any
loan to, or the engagement in any transaction with, any officer of the
Medical Group or the Medical Business;
(j) any change in the accounting methods or practices followed in
connection with the Medical Business or any Constituent Practice or
any change in depreciation or amortization policies or rates
theretofore adopted;
(k) any agreement or commitment relating to the sale of any
material fixed assets of the Medical Business or any Constituent
Practice;
(l) any other transaction relating to the Medical Business or any
Constituent Practice other than in the ordinary
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course of the Medical Business and consistent with past practice; or
(m) any agreement or understanding, whether in writing or
otherwise, for the Medical Business or any Constituent Practice to
take any of the actions specified in items (a) through (l) above.
6.7. Tax Matters.
(a) Except as set forth on Schedule 6.7, (i) all Taxes (as hereinafter
defined) relating to the Medical Business required to be paid by the
Medical Group through the date hereof have been paid and all returns,
declarations of estimated Tax, Tax reports, information returns and
statements required to be filed by the Medical Group in connection with the
Medical Business prior to the date hereof (other than those for which
extensions shall have been granted prior to the date hereof) relating to
any Taxes with respect to any income, properties or operations of the
Medical Group or the Constituent Practices prior to the date hereof
(collectively, "Returns") have been duly filed; (ii) as of the time of
filing, the Returns correctly reflected in all material respects (and, as
to any Returns not filed as of the date hereof, will correctly reflect in
all material respects) the facts regarding the income, business, assets,
operations, activities and status of the Medical Business and any other
information required to be shown therein; (iii) all Taxes relating to the
operations of the Medical Business that have been shown as due and payable
by the Medical Group on the Returns have been timely paid and filed or
adequate provisions made to the books and records of the Medical Business;
(iv) in connection with the Medical Business (x) the Medical Group has made
provision on the Balance Sheet for all Taxes payable by the Medical Group
for any periods that end on or before the Balance Sheet Date for which no
Returns have yet been filed and for any periods that begin on or before the
Balance Sheet Date and end
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after the Balance Sheet Date to the extent such Taxes are attributable to
the portion of any such period ending on the Balance Sheet Date and (y)
provision has been made for all Taxes payable by the Medical Group for any
periods that end on or before the date hereof for which no Returns have
then been filed and for any periods that begin on or before the date hereof
and end after such date to the extent such Taxes are attributable to the
portion of any such period ending on such date; (v) no tax liens have been
filed with respect to any of the assets of the Medical Business, and there
are no pending tax audits of any Returns relating to the Medical Business;
and (vi) no deficiency or addition to Taxes, interest or penalties
applicable to the Constituent Practices for any Taxes relating to the
operation of the Medical Business has been proposed, asserted or assessed
in writing (or any member of any affiliated or combined group of which the
Medical Group or any previous operator of the Medical Business was a member
for which the Medical Group could be liable).
(b) The Medical Group is not a foreign person within the meaning of
Section 1.1445-2(b) of the Regulations under Section 1445 of the Internal
Revenue Code of 1986, as amended (the "Code").
(c) The Medical Group has provided the Management Company with true
and complete copies of all Federal, state and foreign Returns of the
Medical Group for the calendar years ending December 31, 1996 and 1995.
(d) For purposes of this Agreement, "Tax" means any of the Taxes and
"Taxes" means, with respect to any person or entity, (i) all Federal,
state, local and foreign income taxes (including any tax on or based upon
net income, or gross income, or income as specially defined, or earnings,
or profits, or selected items of income, earnings or profits) and all
Federal, state, local and foreign gross receipts, sales, use, ad valorem,
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transfer, franchise, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property or windfall profits taxes,
alternative or add-on minimum taxes, customs duties or other Federal,
state, local and foreign taxes, fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax
or additional amounts imposed by any taxing authority (domestic or foreign)
on such person or entity and (ii) any liability for the payment of any
amount of the type described in the immediately preceding clause (i) as a
result of being a 'transferee' (within the meaning of Section 6901 of the
Code or any other applicable law) of another person or entity or a member
of an affiliated or combined group.
6.8. Litigation, Etc.
Except as set forth on Schedule 6.8, there are no (a) actions, suits,
claims, investigations or legal or administrative or arbitration
proceedings pending or, to the best knowledge of the Medical Group,
threatened against the Medical Group, any equity owner of the Medical
Group, or in connection with the Medical Business or any Constituent
Practice, whether at law or in equity, or before or by any Federal, state,
municipal or other governmental department, commission, board, bureau,
agency or instrumentality or (b) judgments, decrees, injunctions or orders
of any court, governmental department, commission, agency, instrumentality
or arbitrator against the Medical Group, its assets or affecting the
Medical Business or any Constituent Practice. The Medical Group has
delivered to the Management Company all documents and correspondence
relating to matters referred to in said Schedule 6.8.
6.9. Compliance; Governmental Authorizations.
The Medical Group, the Medical Business and the Constituent Practices
have complied in all material respects with
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all applicable material Federal, state, local or foreign laws, ordinances,
regulations and orders. The Medical Group has all Federal, state, local and
foreign governmental licenses and permits necessary in the conduct of the
Medical Business, the lack of which would have a material adverse effect on
the Medical Group's ability to operate the Medical Business after the date
hereof on substantially the same basis as presently operated, such licenses
and permits are in full force and effect, the Medical Group has not
received any notice indicating that any violations are or have been
recorded in respect of any thereof, and no proceeding is pending or, to the
best knowledge of the Medical Group, threatened to revoke or limit any
thereof. To the best knowledge of the Medical Group, none of such licenses
and permits shall be affected in any material respect by the transactions
contemplated hereby. To the best knowledge of the Medical Group, neither
the Medical Group, nor any of the Medical Personnel employed by the Medical
Group is now or in the last four years has been the subject of or involved
in any investigation by any Federal, state or local regulatory agency
related to its or his Medicare, Medicaid or other third party payor billing
practices.
6.10. Accounts Receivable; Accounts Payable.
(a) Except as set forth on Schedule 6.10, all of the accounts
receivable owing to the Medical Group or the Constituent Practices in
connection with the Medical Business as of the date hereof constitute valid
and enforceable claims arising from bona fide transactions in the ordinary
course of the Medical Business, the amounts of which are actually due and
owing, and as of the date hereof, to the best knowledge of the Medical
Group, there are no claims, refusals to pay or other rights of set-off
against any thereof. Except as set forth on Schedule 6.10, as of the date
hereof, there is no account receivable or note receivable of the Medical
Business pledged to any third party. The Medical Group has provided the
Management
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Company with an accounts receivable aging report dated as of September 23,
1997 that is true and complete as of the date thereof.
(b) All accounts payable and notes payable by the Medical Business to
third parties arose in the ordinary course of business and, except as set
forth in Schedule 6.10, there is no account payable or note payable past
due or delinquent in its payment.
6.11. Labor Relations; Employees.
Schedule 6.11 contains a true and complete list of the persons
employed by the Medical Group as of the date hereof (the "Employees").
Except as set forth on Schedule 6.11, (a) the Medical Group and the Medical
Business are not delinquent in payments to any of the Employees for any
wages, salaries, commissions, bonuses or other compensation for any
services performed by them to the date hereof or amounts required to be
reimbursed to the Employees; (b) to the best knowledge of the Medical
Group, upon termination of the employment of any of the Employees, neither
the Medical Group, the Medical Business nor the Management Company will by
reason of anything done prior to the date hereof, or by reason of the
consummation of the transactions contemplated hereby, be liable for any
excise taxes pursuant to Section 4980B of the Code or to any of the
Employees for severance pay or any other payments; (c) there is no unfair
labor practice complaint against the Medical Group or in connection with
the Medical Business pending before the National Labor Relations Board or
any comparable state, local or foreign agency; (d) there is no labor
strike, dispute, slowdown or stoppage actually pending or, to the best
knowledge of the Medical Group, threatened against or involving the Medical
Group or Medical Business; (e) there is no collective bargaining agreement
covering any of the Employees; and (f) to the best knowledge of the Medical
Group, no Employee or consultant is in
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violation of any (i) employment agreement, arrangement or policy between
such person and any previous employer (private or governmental) or (ii)
agreement restricting or prohibiting the use of any information or
materials used or being used by such person in connection with such
person's employment by or association with the Medical Group or the Medical
Business.
6.12. Employee Benefit Plans.
(a) Schedule 6.12 identifies each 'employee benefit plan', as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and all other written or oral plans, programs, policies
or agreements involving direct or indirect compensation (including any
employment agreements entered into between the Medical Group or the Medical
Business and any Employee of the Medical Group or in connection with the
Medical Business, but excluding workers' compensation, unemployment
compensation and other government-mandated programs) currently or
previously maintained or entered into by the Medical Group or in connection
with the Medical Business for the benefit of any Employee or former
employee of the Medical Group or in connection with the Medical Business
under which the Medical Group, any affiliate thereof or the Medical
Business has any present or future obligation or liability (the "Employee
Plans"). The Medical Group has provided the Management Company with true
and complete salary, service and related data for Employees of the Medical
Group and in connection with the Medical Business.
(b) Schedule 6.12 lists each employment, severance or other similar
contract, arrangement or policy and each plan or arrangement (written or
oral) providing for insurance coverage (including any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits, deferred
compensation, profit-sharing, bonuses, stock options, stock appreciation or
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other forms of incentive compensation or post-retirement insurance,
compensation or benefits currently maintained by the Medical Group or in
connection with the Medical Business.
(c) To the best knowledge of the Medical Group, except as set forth on
Schedule 6.12; (i) each Employee Plan has been operated and administered in
compliance with ERISA, the Code and in accordance with the provisions of
all other applicable Federal and state laws; (ii) all reporting and
disclosure obligations imposed under ERISA and the Code have been satisfied
with respect to each Employee Plan; (iii) to the best knowledge of the
Medical Group, no breaches of fiduciary duty or prohibited transactions
have occurred with respect to any Employee Plan; and (iv) all reporting,
disclosure and bonding obligations have been satisfied with respect to each
Employee Plan.
(d) The Medical Group has made available to the Management Company a
true and complete copy of each Employee Plan and a true and complete copy
of each of the following documents, prepared in connection with such
Employee Plan; (i) each trust or other funding arrangement, (ii) the two
most recently filed Annual Reports (Form 5500), including attachments, for
each Employee Plan, and (iii) the most recently received IRS determination
letter.
6.13. Insurance.
Schedule 6.13 contains a list of all policies of professional
liability (medical malpractice), general liability, theft, fidelity, fire,
product liability, errors and omissions, health and other property and
casualty forms of insurance held by the Medical Group covering the assets,
properties or operations of the Medical Group or the Medical Business
(specifying the insurer, amount of coverage, type of insurance, policy
number and any pending claims thereunder). All such policies of insurance
are valid and enforceable policies and are outstanding and duly in force
and all premiums with respect thereto are currently
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paid. Neither the Medical Group nor its predecessor in interest has, during
the last five fiscal years, been denied or had revoked or rescinded any
policy of insurance relating to the assets, properties or operations of the
Medical Group or the Medical Business.
6.14. Real Property.
Schedule 6.14 sets forth an accurate and complete legal description of
the entire right, title and interest of the Medical Group in and to all
real property, together with all buildings, facilities, fixtures and
improvements located on such real property, owned or leased by the Medical
Group (the "Real Property"), together with an accurate description of the
title insurance policy or other evidence of title issued with respect
thereto, the most current survey of such real property and a description of
the use thereof. Other than the Real Property, the Medical Group has no
other interest (leasehold or otherwise) in real property used, held for use
or intended to be used in the Medical Business. The Medical Group has a
valid leasehold interest in all Real Property leased by the Medical Group.
True and complete copies of all leases to which the Medical Group is a
party or by which the Medical Group leases space have been delivered to the
Management Company.
6.15. Burdensome Restrictions.
Except as set forth on Schedule 6.15, neither the Medical Group nor
the Medical Business is bound by any oral or written agreement or contract
which by its terms prohibits or restricts it from conducting the Medical
Group or the Medical Business (or any material part thereof).
6.16. Disclosure.
Neither the Medical Group Transaction Documents (including the
Exhibits and Schedules attached thereto) nor any
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other document, certificate or written statement furnished to the
Management Company by or on behalf of the Medical Group in connection with
the transactions contemplated hereby contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make
the statements contained herein and therein not misleading. Except as set
forth on Schedule 6.16, there have been no events or transactions, or
information which has come to the attention of the Medical Group, which, as
they relate directly to the Medical Group or the Medical Business, could
reasonably be expected to have a material adverse effect on the business,
operations, affairs, prospects or condition of the Medical Group and the
Medical Business.
6.17. Medical Practice Combination.
The Medical Business includes the complete medical practices of
Dominic Kleinhenz, M.D., Bruce Young, M.D., George Kolettis, M.D. Thomas
Goberville, M.D., and William McKay, M.D., and such physicians do not
maintain any medical practice or perform Medical Group Services
independently of the Medical Group.
SECTION 7. Representations and Warranties of the Management Company.
The Management Company represents and warrants to the Medical Group,
as of the Signature Date, as follows:
7.1. Organization, Good Standing and Power.
The Management Company (a) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and
(b) has all requisite corporate power and authority to own, lease and
operate its properties, to carry on its business as now being conducted, to
execute and deliver this Agreement and each of the Asset Purchase
Agreement, the Restricted Stock Agreements (as hereinafter defined), the
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Assignments of Lease, and the Stockholder Non-Competition Agreements
(collectively, the "Management Company Transaction Documents"), to perform
its obligations hereunder and thereunder, and to consummate the
transactions contemplated hereby and thereby.
7.2. Authority.
The execution, delivery and performance of this Agreement and the
other Management Company Transaction Documents, and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of the Management
Company. This Agreement and each Management Company Transaction Document
has been duly and validly executed and delivered by the Management Company,
and this Agreement and each such Management Company Transaction Document is
the valid and binding obligation of the Management Company, enforceable in
accordance with its respective terms, except as enforcement may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the rights of creditors generally. Neither the execution,
delivery or performance of this Agreement or any other Management Company
Transaction Document, nor the consummation by the Management Company of the
transactions contemplated hereby or thereby, nor compliance by the
Management Company with any provision hereof or thereof, will (a) conflict
with or result in a breach of any provisions of the Amended and Restated
Certificate of Incorporation or the Bylaws of the Management Company, (b)
cause a default (with due notice, lapse of time or both), or give rise to
any right of termination, cancellation or acceleration, under any of the
terms, conditions or provisions of any material note, bond, lease,
mortgage, indenture, license or other instrument, obligation or agreement
to which the Management Company is a party or by which it or any of its
properties or assets is or may be bound (with respect to which defaults or
other rights all requisite waivers or consents shall have been
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obtained at or prior to the date hereof) or (c) violate any law, statute,
rule or regulation or order, writ, judgment, injunction or decree of any
court, administrative agency or governmental body applicable to the
Management Company or any of its properties or assets. Except as set forth
on Schedule 7.2, to the best of the Management Company's knowledge, no
permit, authorization, consent or approval of or by, or any notification of
or filing with, any person (governmental or private) is required in
connection with the execution, delivery or performance by the Management
Company of this Agreement or any other Management Transaction Document or
the consummation by the Management Company of the transactions contemplated
hereby or thereby.
7.3. Capitalization.
(a) The total authorized capital of the Management Company consists of
25,000,000 shares of common stock, of which 10,422,695 shares are issued
and outstanding, and 9,233,049 shares of preferred stock, of which (i)
999,999 shares of Series A Convertible Preferred Stock, (ii) 2,000,001
shares of Series B Convertible Preferred Stock, (iii) 254,999 shares of
Series C Convertible Preferred Stock, (iv) 188,072 shares of Series D
Convertible Preferred Stock, and (v) 741,667 shares of Series E Convertible
Preferred Stock are issued and outstanding. Each of the outstanding shares
of capital stock has been duly and validly authorized and issued, is fully
paid for and non-assessable, and was issued in compliance with all
applicable Federal and state securities laws.
(b) The Management Company has taken all action necessary or
appropriate to duly authorize the creation, issuance and sale of the common
stock to be issued hereunder. Such shares of common stock, when issued,
sold and delivered, as provided for herein and in the Restricted Stock
Agreements, will be validly issued, fully paid and nonassessable, with no
personal liability
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attaching to the ownership of the shares. The issuance of such shares of
common stock will not violate any preemptive or similar right of any
person.
7.4. Financial Information.
Schedule 7.4 contains (a) the unaudited statements of assets,
liabilities and stockholders' equity of the Management Business at the date
set forth therein (the "Management Company Balance Sheet"; and the date
thereof being referred to as the "Management Company Balance Sheet Date"),
and the related unaudited statements of revenue and expenses for the
periods then ended (including the notes thereto and other financial
information included therein) (collectively, the "Unaudited Financial
Statements"). The Unaudited Financial Statements (i) were prepared in
accordance with the books and records of the Management Business and (ii)
fairly present the financial position of the Management Business as of the
dates thereof.
7.5. Absence of Undisclosed Liabilities.
Except as set forth on Schedule 7.5, as of the Management Company
Balance Sheet Date, (a) the Management Business did not have any material
liability of any nature required to be disclosed on a balance sheet
(matured or unmatured, fixed or contingent, known or unknown) which was not
provided for or disclosed on the Management Company Balance Sheet, (b) all
liability reserves established by the Management Business on the Management
Company Balance Sheet were adequate and (c) there were no loss
contingencies (as such term is used in Statement of Financial Accounting
Standards No. 5 issued by the Financial Accounting Standards Board in March
1975) which were not adequately provided for or disclosed on the Management
Company Balance Sheet.
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7.6. Absence of Changes.
Except as set forth on Schedule 7.6, since the Management Company
Balance Sheet Date, the Management Business has been operated in the
ordinary course and consistent with past practice and there has not been:
(a) any material adverse change in the condition (financial or
otherwise), assets, liabilities, operations, results of operations,
earnings, business or prospects of the Management Business;
(b) any damage, destruction or loss (whether or not covered by
insurance) in an aggregate amount exceeding $25,000 affecting any
asset or property of the Management Business;
(c) any obligation or liability (whether absolute, accrued,
contingent or otherwise and whether due or to become due) created or
incurred, or any transaction, contract or commitment entered into, by
the Management Business other than such items created or incurred in
the ordinary course of the Management Business and consistent with
past practice;
(d) any payment, discharge or satisfaction of any claim, lien,
encumbrance, liability or obligation by the Management Business
outside the ordinary course of the Management Business (whether
absolute, accrued, contingent or otherwise and whether due or to
become due);
(e) any license, sale, transfer, pledge, mortgage or other
disposition of any material tangible or intangible asset of the
Management Business except in the ordinary course of the Management
Business and consistent with past practice;
(f) any cancellation of any debts or claims of, or any amendment,
termination or waiver of any rights of material value to, the
Management Business;
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(g) any change in the accounting methods or practices followed in
connection with the Management Business or any change in depreciation
or amortization policies or rates theretofore adopted;
(h) any other transaction relating to the Management Business
other than in the ordinary course of the Management Business and
consistent with past practice; or
(i) any agreement or understanding, whether in writing or
otherwise, for the Management Business to take any of the actions
specified in items (a) through (h) above.
7.7. Litigation, Etc.
Except as set forth on Schedule 7.7, there are no (a) actions, suits,
claims, investigations or legal or administrative or arbitration
proceedings pending or, to the best knowledge of the Management Company,
threatened against the Management Company or in connection with the
Management Business, whether at law or in equity, or before or by any
Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, which, if adversely determined,
could have a material adverse effect on the Management Company or (b)
judgments, decrees, injunctions or orders of any court, governmental
department, commission, agency, instrumentality or arbitrator against the
Management Company its assets or affecting the Management Business.
7.8. Compliance; Governmental Authorizations.
The Management Company and the Management Business shall have complied
in all material respects with all applicable material Federal, state, local
or foreign laws, ordinances, regulations and orders. The Management Company
has all Federal, state, local and foreign governmental licenses and permits
necessary in the conduct of the Management Business, the lack of
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which would have a material adverse effect on the Management Company's
ability to operate the Management Business after the date hereof on
substantially the same basis as presently operated, such licenses and
permits are in full force and effect, the Management Company has not
received any notice indicating that any violations are or have been
recorded in respect of any thereof, and no proceeding is pending or, to the
best knowledge of the Management Company, threatened to revoke or limit any
thereof. To the best knowledge of the Management Company, none of such
licenses and permits shall be affected in any material respect by the
transactions contemplated hereby.
7.9. Employees.
Except as set forth on Schedule 7.9, the Management Company is not
delinquent in payments to any of its employees for any wages, salaries,
commissions, bonuses or other compensation for any services performed by
them through the date hereof.
7.10. Insurance.
The Management Company has obtained such policies of insurance as are
usual and customary for businesses of the type conducted by the Management
Company. All such policies of insurance are valid and enforceable policies,
and all premiums with respect thereto are currently paid.
7.11. Burdensome Restrictions.
Except as set forth on Schedule 7.11, neither the Management Company
nor the Management Business is bound by any oral or written agreement or
contract which by its terms prohibits it from conducting the Management
Company or the Management Business (or any material part thereof).
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7.12. Disclosure.
Neither the Management Company Transaction Documents (including the
Exhibits and Schedules attached thereto) nor any other document,
certificate or written statement furnished to the Medical Group by or on
behalf of the Management Company in connection with the transactions
contemplated hereby contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained herein and therein not misleading.
SECTION 8. Operations Committee.
8.1. Formation and Operation of the Operations Committee.
The Management Company and the Medical Group shall establish a
committee (the "Operations Committee") responsible for directing the
Management Company in connection with the development of certain specific
management and administrative policies for the overall operation of the
Medical Group. The Operations Committee shall consist of two (2) members.
All of the equity owners of the Medical Group shall constitute one member
of the Operations Committee and the Management Company shall designate a
representative to be the other member of the Operations Committee. The
equity owners of the Medical Group shall vote as a unit (with the vote of
the majority of such equity owners determining the vote for the Medical
Group's representative to the Operations Committee). The business of the
Operations Committee shall be conducted in accordance with the policies and
procedures described in Section 8.3 hereof.
8.2. Authoritative Functions of the Operations Committee.
The Operations Committee shall perform the following functions, and
the decisions of the Operations Committee with
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respect to such functions shall be binding on the Management Company and
the Medical Group:
(a) Approve the annual budgets for:
(i) Billings and Collections;
(ii) Medical Group Costs;
(iii) Capital expenditures to be made by the Management
Company in fulfillment of its obligations hereunder;
(iv) Management Company Operating Costs (which, in the
absence of approval by the Operations Committee, shall
be increased by two and one-half percent (2.5%) over
the total amount approved for the preceding period)
(b) Approve costs and expenses that exceed the Management
Company Operating Costs Budget.
(c) Establish parameters and criteria (including the location
from which such services may be provided) with respect to
the establishment and maintenance of relationships with
institutional providers and payors and managed care
contracts (except with respect to the establishment of
professional fees).
(d) Establish parameters and criteria with respect to:
(i) Billings
(ii) Claims submission
(iii) Collections of fees
(iv) Delinquent account collection policies
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(v) Turnover of delinquent accounts to outside collection
agencies
(vi) Write-offs of account balances
(vii) Claim review requests
(viii) "Insurance only" and other courtesy write-off
policies
(ix) Lien account collection policies
(x) Student Athlete account policies
(e) Approve the acquisition, replacement, relocation, or other
disposition of Medical Equipment and FF&E, approve the
integration of new technologies into the professional
practice of the Medical Group as contemplated by Section
3.11 hereof, and approve the renovation and expansion of any
offices of the Medical Group ("Tenant Improvements");
provided, however, that the approval of the Management
Company also shall be required prior to (i) the acquisition
of any Equipment (including any Medical Equipment, FF&E or
other items relating to or necessary in connection with the
integration of new technologies into the professional
practice of the Medical Group), (ii) the undertaking of any
Tenant Improvements relating to patient care facilities, or
(iii) the undertaking of any other Tenant Improvements, if,
with respect to any of the foregoing, the cost would exceed
$10,000.
(f) Establish parameters and criteria for off-site storage of
files and records of the Medical Group.
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(g) Identification of physician subspecialties required for the
efficient operation of the Medical Group; advice regarding
all Medical Personnel employment and recruitment contracts
to be utilized by the Medical Group.
(h) Development of long-term strategic planning objectives for
the Medical Group.
(i) Public relations, advertising, and other marketing of
Medical Group Services, including design of exterior signs.
(j) The establishment of fees for professional services and
ancillary services rendered by the Medical Group.
(k) Access and quality issues pertaining to ancillary services.
(l) Insurance limits and insurance coverage of the Medical Group
and the Management Company, as such coverage may relate to
Medical Group operations and activities.
(m) Any matters arising in connection with the operations of the
Medical Group that are not specifically addressed in this
Agreement and as to which the Management Company or the
Medical Group requests consideration by the Operations
Committee.
Notwithstanding anything to the contrary contained in this Section
8.2, the Operations Committee does not have the power to bind the
Medical Group on any decision with respect to which discretion
regarding such matters is vested in the Medical Group under the terms
of this Agreement or by applicable law and, in such case, the Medical
Group shall have ultimate responsibility for the exercise of such
discretion.
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8.3. Committee Policies and Procedures.
(a) One of the equity owners of the Medical Group (which individual
shall be appointed by vote of a majority of the equity owners) shall act as
Chairman of the Committee, and the Management Company representative shall
act as Vice Chairman. Each party may substitute or change its designated
Operations Committee members at any time upon notice to the other party,
and any Operations Committee member may designate his or her own substitute
at any meeting without notice. Each member shall have one vote and shall
have the right to grant his or her proxy to another member of the
Operations Committee. The Chairman, if present, shall preside at all
meetings of the Operations Committee. In the absence of the designated
Chairman, the Vice Chairman shall preside. The only powers of the Chairman
and the Vice Chairman that differ from those of the other members of the
Operations Committee shall be to call and preside over meetings in
accordance with this Section 8.3.
(b) The Operations Committee may hold meetings without call or formal
notice at such times and places as a quorum of its members may from time to
time determine. A meeting of the Operations Committee also may be called by
at least two (2) members of the Operations Committee or by the Chairman or
Vice Chairman thereof upon at least three (3) days' written notice to the
other members of the Operations Committee. Such notice requirement shall be
deemed waived with respect to any member of the Operations Committee who
attends such meeting. Meetings may be held in person or by telephone. The
Operations Committee also may act by written consent as provided in Section
8.3(c). Minutes shall be kept of all formal actions taken by the Operations
Committee.
(c) No action of the Operations Committee shall be effective unless
authorized by the vote of both members of the Operations Committee present
or represented by proxy at the
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applicable meeting. A quorum of the Operations Committee consist of both
members of the Operations Committee, in person, by telephone, or by proxy,
and a quorum must remain for the duration of the meeting. The Operations
Committee may establish such procedures to act by written consent, without
a meeting, as the Operations Committee determines are advisable, provided
that both members (in person or by proxy) must sign any written consent.
SECTION 9. Obligations of the Medical Group.
The Medical Group shall have the following obligations during the
Term:
9.1. Compliance with Laws.
The Medical Group shall use its best efforts to provide professional
services to patients in compliance at all times with those ethical
standards, laws and regulations to which they are subject, including,
without limitation, Medicare and Medicaid regulations. The Medical Group
shall verify, with the assistance of the Management Company, that each
physician and other Medical Personnel associated with the Medical Group for
the purpose of providing medical care to patients of the Medical Group is
appropriately licensed. The Medical Group shall monitor the quality of
medical care practiced by physicians and other health care personnel
associated with the Medical Group. In the event that any medical
malpractice actions are filed or any disciplinary actions are initiated
against any such physician by any payor, patient, state or Federal
regulatory agency or any other person or entity, the Medical Group shall
immediately inform the Management Company of such action and its underlying
facts and circumstances.
9.2. Use of Facility.
The Medical Group shall use and occupy any Facility (as defined below)
exclusively for the practice of medicine, and
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shall use its best efforts to comply with all applicable Federal, state and
local rules, ordinances and standards of medical care. The medical practice
or practices conducted at any Facility described in clause (i) of the
definition of the term "Facility" shall be conducted solely by Medical
Personnel associated with the Medical Group, and no other physician or
medical practitioner shall be permitted to use or occupy any Facility
described in clause (i) below without the prior written consent of the
Management Company, which consent shall not be unreasonably withheld or
delayed. The term "Facility" shall mean (i) any medical office or
laboratory controlled, managed or operated by the Management Company or
(ii) any hospital at which any Medical Personnel practices medicine or
maintains admitting privileges.
9.3. Choice of Braces, Splints, Appliances, Medical Supplies, and
Allografts.
The Medical Group shall have the exclusive control over the choice of
vendors and products utilized with respect to all prosthetics, prosthetic
devices, orthotics, braces, splints, appliances, medical supplies and
allografts.
9.4. Choice of Radiologists, Anesthesiologists, Hospitals, Physical
Therapy, MRI, and Other Medical Professionals and Facilities.
The Medical Group shall have exclusive control over the choice of
specific physicians and facilities to be utilized by the Medical Group with
respect to radiology, anesthesiology, hospitals, physical therapy, MRI, and
other medical professionals and facilities; provided, however, that the
foregoing shall not be considered New Ancillary Services or New Medical
Offices, as the case may be, unless the parties have agreed thereto in
accordance with Section 3.4(b) or 3.2(b), as the case may be.
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9.5. Insurability.
The Medical Group shall cooperate with the Management Company in (i)
ensuring that its Medical Personnel are insurable under commercially
available malpractice insurance policies or (ii) instituting proceedings to
terminate within thirty business days any Medical Personnel who is not so
insurable or who loses his or her malpractice insurance eligibility unless
the Medical Group makes (within such 30-day period) other arrangements
reasonably appropriate under the circumstances and reasonably acceptable to
the Management Company. The Medical Group shall notify the Management
Company in writing of any change in the insurance status of any Medical
Personnel within two days after the Medical Group receives notice of any
such change. The Medical Group shall require all Medical Personnel to
participate in an on-going risk management program.
9.6. Medicare.
The Medical Group shall cause all physicians to be participating
providers and accept assignment under Medicare.
9.7. Accounts Receivable; Billing.
From the Commencement Date, the Medical Group acknowledges and agrees
that all Accounts of the Medical Group or its Medical Personnel shall be
the property of the Management Company hereunder and the Medical Group and
the Medical Personnel hereby transfer and assign all of their right, title
and interest to such Accounts to the Management Company; provided, however,
that the right to payment of Medicaid and Medicare receivables shall remain
with the Medical Group in accordance with applicable Federal law. The
Medical Group's Medical Personnel shall be responsible for providing the
appropriate current CPT4 coding with respect to the fee tickets prepared by
such Medical Personnel.
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9.8. Medical Personnel Hiring.
The Medical Group shall have the ultimate control over and
responsibility for the hiring, compensation, supervision, evaluation and
termination of its Medical Personnel; provided, however, that at the
request of the Medical Group, the Management Company shall consult with the
Medical Group regarding such matters.
9.9. Continuing Education.
The Medical Group and its Medical Personnel shall be solely
responsible for ongoing membership in professional associations and
continuing professional education. The Medical Group shall ensure that its
Medical Personnel participate in such continuing professional education as
is necessary for such physician or professional to remain current in his or
her field of medical practice.
9.10. Clinical Research.
The Medical Group shall have the ultimate control over and
responsibility for any clinical research program pertaining to patients of
the Medical Group. This shall include but not be limited to research
personnel interviewing, hiring, termination, compensation, day-to-day
supervision, and assignment of responsibilities and projects. However, the
Medical Group will cooperate with and take direction from the Management
Company in its nationwide efforts to provide an effective disease
management information system and outcome studies programs.
SECTION 10. Certain Covenants.
10.1. Change of Control.
During the Term of this Agreement, the Medical Group shall not enter
into any single transaction (or group of related transactions undertaken
pursuant to a common plan) involving the
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admission of new stockholders, the transfer of ownership interests, or the
reorganization or restructuring of the Medical Group, if in any such case
the effect would be to transfer a majority of the ownership interest in the
Medical Group, without the prior written consent of the Management Company,
which consent shall not be unreasonably withheld or delayed. The Management
Company hereby consents to the proposed business combination between the
Medical Group and Orthopedic Surgery Associates, Inc. ("OSA"), as described
in that certain letter agreement dated the Signature Date, provided that
such combined entity enters into a management services agreement identical
to this agreement in all material respects, and each of those physicians
practicing within each of the Medical Group and OSA transfer his respective
medical practice to such combined entity.
10.2. Legend on Securities.
During the Term of this Agreement, any certificate or similar evidence
representing an equity interest in the Medical Group issued by the Medical
Group shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO THE RESTRICTIONS ON TRANSFER CONTAINED IN THE MANAGEMENT
SERVICES AGREEMENT EFFECTIVE AS OF SEPTEMBER 1, 1997,
BETWEEN LIGHTHOUSE ORTHOPAEDIC ASSOCIATES, P.A., A FLORIDA
CORPORATION, AND BMJ MEDICAL MANAGEMENT, INC., A DELAWARE
CORPORATION."
Nothing herein shall be construed as requiring the Medical Group to
issue any certificate or other evidence representing an equity
interest in the Medical Group, if such has not been issued prior to
the date hereof.
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SECTION 11. Records.
11.1. Medical Records.
Upon termination of this Agreement, the Medical Group shall retain all
patient medical records maintained by the Medical Group or the Management
Company in the name of the Medical Group.
11.2. Management Business Records.
All books and records relating in any way to the operation of the
Management Business which are not patient medical records shall at all
times be the property of the Management Company. The Management Company
shall maintain custody of such records, and the Medical Group shall, upon
its written request, be entitled to copies of any such records relating to
the Management Services performed by the Management Company.
11.3. Access to Records Following Termination.
Following the termination of this Agreement, the Medical Group shall
grant (to the extent permitted by law) to the Management Company, for the
purpose of preparing for any actual or anticipated legal proceeding or for
any other reasonable purpose, reasonable access (which shall include making
photocopies) to the patient medical records described in Section 11.1
hereof and any other pertinent information regarding the Medical Group
during the Term. Prior to accessing such patient medical records, the
Management Company shall obtain any required patient authorization.
Following the termination of this Agreement, the Management Company
shall provide to the Medical Group, promptly upon the Medical Group's
written request, photocopies of the Management Business records described
in Section 11.2 hereof, and
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shall grant to the Medical Group, for the purpose of preparing for any
actual or anticipated legal proceeding or for any other reasonable purpose,
any other pertinent information regarding the Management Company during the
Term.
SECTION 12. Insurance and Indemnity.
12.1. Professional Liability Insurance.
During the Term, the Management Company shall, to the extent permitted
by applicable law and to the extent commercially available, procure and
maintain for the benefit of itself and the Medical Group comprehensive
professional liability insurance providing for (a) general liability
coverage and (b) medical malpractice coverage with limits of not less than
the greater of what each physician shareholder or the Medical Group has in
place immediately prior to the Commencement Date or $250,000 per claim and
with aggregate policy limits of not less than $750,000 (or such higher
amounts as may be necessary to comply with any regulatory requirement
and/or contractual requirement to which such Medical Personnel or the
Medical Group may be subject) covering the Medical Group and each of the
Medical Personnel of the Medical Group , including coverage for claims made
eight (8) years before, during and eight (8) years after the termination
date of this Agreement relating to events or occurrences at any time prior
thereto. The parties hereto acknowledge that the Management Company is
procuring the malpractice insurance referenced herein to ensure that the
Management Company has protection in the event it is sued as a result of an
act or omission of an employee of the Medical Group. The Management Company
shall pay the premiums for such general and medical malpractice liability
coverage, which payments shall be considered Management Company Operating
Costs under this Agreement, subject to recoupment by the Management Company
under Section 5 hereof. The Management Company shall be designated as an
additional insured under all such insurance policies.
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12.2. Life Insurance; Business Interruption.
The Management Company may, at its option, obtain a $500,000 life
insurance policy for each duly licensed physician partner in or equity
owner of the Medical Group. The Medical Group shall, and shall cause each
such partner in or equity owner of the Medical Group to, cooperate with the
Management Company in the procurement of such policies. The Management
Company shall be designated as the beneficiary under any such policies. The
premiums for such policies shall be paid by the Management Company and
shall not be included as Management Company Operating Costs or otherwise
charged to the Medical Group.
12.3. Indemnification by Medical Group.
The Medical Group shall indemnify, hold harmless and defend the
Management Company, its officers, directors, shareholders, employees,
agents and independent contractors from and against any and all
liabilities, losses, damages, claims, causes of action and expenses
(including reasonable attorneys' fees and expenses), whether or not covered
by insurance, caused or asserted to have been caused, directly or
indirectly, by or as a result of (i) the performance of Medical Group
Services, including without limitation the performance of such services
prior to the Commencement Date, (ii) any other acts or omissions of the
Medical Group and its Medical Personnel, including without limitation any
such acts or omissions that occurred prior to the Commencement Date, or
(iii) any breach of or failure to perform any obligation under this
Agreement or the Medical Group Transaction Documents (which, for purposes
hereof, shall be deemed to include the Restricted Stock Agreement to be
signed by the Management Company and each partner, stockholder or employee
of the Medical Group receiving stock of the Management Company, in the form
of Exhibit B attached hereto (the "Restricted Stock Agreement")) by the
Medical Group and/or the Medical Personnel
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and/or their respective agents and/or subcontractors (other than the
Management Company) during the Term.
12.4. Indemnification by Management Company.
The Management Company shall indemnify, hold harmless and defend the
Medical Group, its officers, directors, shareholders, employees, agents and
independent contractors from and against any and all liabilities, losses,
damages, claims, causes of action and expenses (including reasonable
attorneys' fees and expenses), whether or not covered by insurance, caused
or asserted to have been caused, directly or indirectly, by or as a result
of (i) the performance of Management Services, (ii) any other acts or
omissions of the Management Company and its employees or (iii) any breach
of or failure to perform any obligation under this Agreement or the
Management Company Transaction Documents by the Management Company and/or
its agents, personnel and/or subcontractors (other than the Medical Group)
during the Term, including, without limitation, any such acts or omissions
that occurred prior to the Commencement Date.
SECTION 13. Termination; Rescission.
13.1. Termination by Medical Group.
The Medical Group may terminate this Agreement effective immediately
by giving written notice of termination to the Management Company (a) in
the event of the filing of a petition in voluntary bankruptcy or an
assignment for the benefit of creditors by the Management Company or upon
other action taken or suffered, voluntarily or involuntarily, under any
Federal or state law for the benefit of debtors by the Management Company,
except for the filing of a petition in involuntary bankruptcy against the
Management Company which is dismissed within ninety (90) days thereafter (a
"Bankruptcy Event"), (b) in the event the Management Company shall default
in any material respect in the performance of any duty or obligation
imposed upon it by this
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Agreement and (i) the Management Company shall not have cured such default
within thirty (30) days after written notice specifying the default has
been given to the Management Company by the Medical Group, (ii) if such
default cannot be cured within such thirty (30) day period, the Management
Company shall not have taken reasonable action commencing curing of such
default within such thirty (30) day period or (iii) the Management Company
does not thereafter diligently prosecute such action to completion;
provided, however, that the Management Company shall have only 10 days
after written notice to cure a default arising as a result of its failure
to pay the Monthly Draw pursuant to Section 5.3(a) or any other monetary
obligation owed to the Medical Group hereunder, (c) in the event that any
of the representations and warranties made by the Management Company in
Section 7 is untrue or misleading in any material respect, provided that
the Medical Group shall have previously given written notice to the
Management Company describing in reasonable detail the nature of the item
in question and the Management Company shall not have cured such matter
within thirty (30) days of such notice, (d) the Management Company shall
have been sanctioned in writing by the Health Care Finance Administration
or the Medicaid Program Office of the Department of Health of the State of
Florida for any violation of the Social Security Act, the Health Care
Quality Improvement Act or any similar Federal or state law in a final,
nonappealable proceeding and such sanction prevents the Management Company
from fulfilling its obligations hereunder in accordance with all applicable
law; or (e) in the event that the Management Company fails to pay all
amounts due under either of those certain promissory notes dated the
Signature Date (each, a "Medical Group Promissory Note"), and issued by the
Management Company in favor of LOMG and the Partnership, respectively, in
connection with their respective Asset Purchase Agreements, by March 31,
1998.
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13.2. Termination by Management Company.
The Management Company may terminate this Agreement effective
immediately by giving written notice of termination to the Medical Group
(a) in the event of a Bankruptcy Event relating to the Medical Group, (b)
in the event the Medical Group shall default in any material respect in the
performance of any duty or obligation imposed upon it by this Agreement and
(i) the Medical Group shall not have cured such default within thirty (30)
days after written notice specifying the default has been given to the
Medical Group by the Management Company, (ii) if such default cannot be
cured within such thirty (30) day period, the Medical Group shall not have
taken reasonable action commencing curing of such default within such
thirty (30) day period or (iii) the Medical Group does not thereafter
diligently prosecute such action to completion; provided, however, that the
Medical Group shall have only 10 days after written notice to cure a
default arising as a result of its failure to pay any monetary obligation
owed to the Management Company hereunder, (c) in the event that any of the
representations and warranties made by the Medical Group in Section 6 is
untrue or misleading in any material respect, provided that the Management
Company shall have previously given written notice to the Medical Group
describing in reasonable detail the nature of the item in question and the
Medical Group shall not have cured such matter within thirty (30) days of
such notice, or (d) in the event the Medical Group is excluded from the
Medicaid or Medicare program for any reason and the Medical Group has not
successfully appealed such exclusion within 120 days after the
effectiveness thereof.
13.3. Termination by Medical Group or Management Company.
The Medical Group and the Management Company shall each have the right
to terminate this Agreement effective immediately
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by giving written notice of termination to the other party pursuant to
Section 28 of this Agreement.
13.4. Effect of Termination.
(a) Upon the termination of this Agreement in accordance with the
terms hereof, neither party hereto shall have any further obligation or
liability to the other party hereunder, except as provided in Sections
3.15(c), 5.3(b) (as modified by Section 13.4(b) below), 13.5, 26 and this
Section 13.4, and except to pay in full and satisfy any and all outstanding
obligations of the parties accruing through the effective date of
termination.
(b) Upon the termination of this Agreement, the Annual Medical Group
Compensation Amount described in Section 5.3(b) shall be calculated on or
before the end of the fourth month following the termination date, rather
than on or before April 30 as specified in Section 5.3(b), and the
computation made under such Section shall be made with respect to the
portion of the year ending on the termination date (if the termination date
is other than December 31); provided, however, that in the event the
Medical Group terminates this Agreement pursuant to Section 13.1, such
calculation shall be made within 90 days following such termination. In
making such computation, all Collections during January, February, and
March of such year shall be excluded, and all Collections during the
three-month period following termination shall be included. All Collections
during the three-month period following termination shall continue to be
owned by the Management Company (and the Medical Group shall immediately
forward any amounts received in connection therewith to the Management
Company) and all Collections thereafter shall be owned by the Medical
Group. Any payment required under the terms of Section 5.3(b)(ii) shall be
made within fifteen (15) days after the date by which the foregoing
calculation is to be made, rather than on May 15.
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(c) Upon termination of this Agreement, the Management Company agrees
to deliver to the Medical Group upon request by the Medical Group, a
Financing Statement amending the terms of any Financing Statement filed
with the Secretary of State of the State of Florida, excluding from the
collateral thereunder any accounts receivable generated after the date of
termination of this Agreement.
(d) Notwithstanding anything contained herein to the contrary, in the
event that the Medical Group terminates this Agreement pursuant to Section
13.1(e) hereof, the Medical Group shall deliver to the Management Company
an amount in cash or by certified or cashier's check equal to
$3,704,933.69, which amount shall, upon delivery to the Management Company
of both Medical Group Promissory Notes, be decreased by an amount equal to
the sum of the outstanding balance (including principal and interest) of
each Medical Group Promissory Note. The Medical Group shall also cause each
physician affiliated with the Medical Group who received shares of capital
stock of the Management Company in connection with the execution and
delivery of this Agreement to, and each such physician shall, return and
deliver to the Management Company the certificates representing all of such
shares of capital stock. Certificates delivered shall be duly endorsed for
transfer to the Management Company.
13.5. Repurchase of Assets.
Promptly following termination of this Agreement for any reason, the
Management Company shall sell, transfer, convey, and assign to the Medical
Group, and the Medical Group shall purchase, assume, and accept from the
Management Company, at such price and upon such terms as may be agreed upon
by the parties -- or, if the parties are unable to agree, at fair market
value, determined in the manner set forth below -- all of the following
items which are used in connection with the professional practice and
related activities of the Medical Group and which, in the
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case of items (a), (b), (c) and (d), are physically located in any of the
offices of the Medical Group, subject to any required consent from any
third party having an interest therein but otherwise free and clear of any
liens, claims or encumbrances; provided that any leased equipment or
property shall be assigned to the Medical Group subject to the applicable
lease agreement and any liens granted thereunder:
(a) the Medical Equipment owned by the Management Company and used
solely in connection with the Medical Business;
(b) the furniture, furnishings, trade fixtures, and office equipment
owned by the Management Company and used solely in connection
with the Medical Business;
(c) the Management Company's rights and interests in any equipment
leased by the Management Company for the sole use of the Medical
Group, subject to the Medical Group's assumption of the
obligations accruing thereunder after the date of termination of
this Agreement;
(d) the supplies owned by the Management Company and used solely in
connection with the Medical Business;
(e) the Management Company's rights and interests under all of the
Office Leases, subject to the Medical Group's assumption of the
obligations accruing thereunder after the date of termination of
this Agreement; and
(f) the deposits of the Management Company relating to the Medical
Group.
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Fair market value of the above described assets shall be determined by an
independent appraiser mutually agreed upon by the Medical Group and the
Management Company; provided, however, that if the Medical Group and the
Management Company are unable to agree upon such an appraiser, each of the
parties shall select an appraiser and the two appraisers thus selected
shall select a third appraiser. All of the appraisers shall appraise the
assets, and for purposes of determining the purchase price, the highest and
lowest appraisals shall be disregarded, and the remaining appraisal shall
be used. Notwithstanding anything contained herein to the contrary, the
consideration payable by the Medical Group to the Management Company under
this Section 13.5 shall be reduced by the aggregate amount, if any, payable
by the Management Company to the Stockholders (as such term is defined in
the Restricted Stock Agreements).
13.6. Rescission By Medical Group.
The Medical Group may, in its sole discretion at any time during the
period beginning August 1, 2004 and ending August 31, 2004 (such 30-day
period being referred to herein as the "Rescission Period"), rescind (the
"Rescission Option") this Agreement and disengage itself from its
obligations under this Agreement. The Medical Group may exercise its
Rescission Option during the Rescission Period by giving written notice
(the "Rescission Notice") to the Management Company and by complying with
the other provisions contained in this Section 13.6. The effective date
(the "Rescission Effective Date") of the rescission shall be that date
which is 30 days after the date of the Rescission Notice; provided that
such date shall not be prior to the seventh anniversary of the Commencement
Date. The Medical Group must comply with the provisions set forth in this
Section 13.6 in order to effectively exercise its Rescission Option.
(a) Effect of Rescission. In the event that the Medical Group
exercises its Rescission Option pursuant to this
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Section 13.6, the procedures set forth in Section 13.4 above shall apply.
(b) Repurchase of Assets. Within 30 days following the Rescission
Effective Date the Management Company shall, subject to the prior receipt
of any required landlord and third party consents, transfer, convey and
assign to the Medical Group, and the Medical Group shall purchase, assume
and accept from the Management Company, the property described in Section
13.5 above according to the provisions set forth in such Section.
(c) Repayment of Consideration. In the event that the Medical Group
elects to exercise its Rescission Option, the Medical Group shall pay to
the Management Company $1,895,625.00, half of which shall be payable in
cash, by cashier's or certified check or by wire transfer of funds
delivered to a depository institution designated by the Management Company
and the other half of which shall be payable by delivery of a promissory
note from the Medical Group to the Management Company, which note shall
bear interest (payable quarterly) at a rate per annum equal to the greater
of either the prime rate announced from time to time by The Chase Manhattan
Bank (National Association) plus 1/2% or the "applicable Federal rate" (as
defined in Section 1274(d) of the Internal Revenue Code) in effect from
time to time and shall be payable in full 12 months after the Rescission
Effective Date.
(d) Repayment of Management Fee. Notwithstanding anything contained
herein to the contrary, in the event that the Medical Group exercises its
Rescission Option under this Section 13.6, the Management Company shall not
be required to refund to the Medical Group any portion of the Management
Fees paid, or due to be paid, by the Medical Group under the terms of this
Agreement for the period beginning on the Commencement Date and ending on
the Rescission Effective Date.
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(e) Waiver of Rescission Option. Notwithstanding anything contained
herein to the contrary, the parties hereto expressly agree and acknowledge
that if the Medical Group shall fail to deliver the Rescission Notice prior
to the end of the Rescission Period, then the Medical Group shall be deemed
to have expressly and irrevocably waived its right to rescind this
Agreement and to disengage itself from its obligations hereunder.
13.7. Nonpayment Termination.
In the event the Management Company fails to pay all outstanding
amounts due under the promissory note dated the Signature Date and
delivered by the Management Company to a Practicing Physician by March 31,
1998, such Practicing Physician may cease practicing medicine with the
Medical Group and must, on the date of such cessation of practice, return
to the Management Company (a) in cash or by certified or cashier's check
that amount set forth below opposite the name of such Practicing Physician,
which amount shall, upon delivery to the Management Company of such
promissory note that is in default, be decreased by an amount equal to the
outstanding balance (including principal and interest) of such promissory
note, and (b) stock certificates representing all of the shares of common
stock of the Management Company issued to such Practicing Physician under
the Restricted Stock Agreement, duly endorsed for transfer to the
Management Company.
Physician Name Repayment Amount
-------------- ----------------
Thomas Goberville, M.D. $353,841.70
Dominic Kleinhenz, M.D. $397,943.50
George Kolettis, M.D. $279,804.02
William McKay, M.D. $604,631.73
Bruce Young, M.D. $406,212.73
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SECTION 14.Non-Disclosure of Confidential Information.
14.1. Non-Disclosure.
(a) Neither the Management Company nor the Medical Group, nor their
respective employees, stockholders, consultants or agents shall, at any
time after the execution and delivery hereof, directly or indirectly
disclose any Confidential or Proprietary Information relating to the other
party hereto to any person, firm, corporation, association or other entity,
nor shall either party, or their respective employees, stockholders,
consultants or agents make use of any of such Confidential or Proprietary
Information for its or their own purposes or for the benefit of any person,
firm, corporation or other entity except the parties hereto or any
subsidiary or affiliate thereof. The foregoing obligation shall not apply
to any information which a party hereto can establish (a) to have become
publicly known without breach of this Agreement by it or them, (b) to have
been given to such party by a third party who is not obligated to maintain
the confidentiality of such information, or (c) is disclosed to a third
party with the prior written consent of the other party hereto. Nothing
contained herein shall be construed to prevent any party hereto from
disclosing any Confidential or Proprietary Information of any other party
to its professional advisers for purposes of evaluating, negotiating or
otherwise assisting such party in connection with the transactions
contemplated by this Agreement; provided that such party shall be liable to
such other party for the disclosure by any of its professional advisers of
such other party's Confidential or Proprietary Information, unless such
information falls within one of the categories set forth in clauses (a),
(b) or (c) of the preceding sentence.
(b) For purposes of this Section 14, the term "Confidential or
Proprietary Information" means all information known to a party hereto, or
to any of its employees,
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stockholders, officers, directors or consultants, which relates to the
Transaction Documents, patient medical and billing records, trade secrets,
books and records, supplies, pricing and cost information, marketing plans,
strategies and forecasts. Nothing contained herein shall prevent a party
hereto from furnishing Confidential or Proprietary Information pursuant to
a direct order of a court of competent jurisdiction.
SECTION 15. Non-Competition.
In consideration of the premises contained herein and the consideration to
be received hereunder, and in consideration of and as an inducement to the
Management Company to consummate the transactions contemplated hereby, the
Medical Group hereby (a) agrees to the Non-Competition covenants attached hereto
as Schedule VIII and (b) agrees to require each of the physicians receiving
capital stock of the Management Company as of the date hereof, and each person
who after the date hereof becomes entitled to receive stock (or options to
receive stock) in the Management Company in connection with his or her
performance of services for the Medical Group, to execute a Stockholder
Non-Competition Agreement substantially in the form attached hereto as Exhibit
C.
SECTION 16. Obligations of the Management Company.
16.1. No Practice of Medicine.
The Medical Group and the Management Company acknowledge that certain
Federal and state statutes severely restrict or prohibit the Management
Company from providing medical services. Accordingly, during the Term, the
Management Company shall not provide or otherwise engage in services or
activities which constitute the practice of medicine, as defined in
applicable state or Federal law, except in compliance therewith.
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16.2. No Interference with Professional Judgment.
Without in any way limiting Section 16.1 hereof, during the Term, the
Management Company shall not interfere with the exercise of professional
judgment by any physician or other licensed health care professional who is
a partner, employee, or contractor of the Medical Group, nor shall the
Management Company interfere with, control, direct, or supervise any
physician or other licensed health care professional in connection with the
provision of Medical Group Services. The foregoing shall not preclude the
Management Company from assisting in the development of professional
protocols and monitoring compliance with policies and procedures that have
been instituted in accordance with this Agreement.
16.3. Market Development Limitation.
(a) The Management Company shall not at any time during the period
beginning on the Commencement Date and ending on May 31, 1998 (the
"Exclusivity Period"), without the prior written consent of the Medical
Group (which consent shall not be unreasonably withheld), provide
management services substantially similar to those provided to the Medical
Group hereunder to any orthopedic surgeon or group of orthopedic surgeons
(other than OSA and Lauderdale Orthopaedic Surgeons) that practices in the
Combined Exclusivity Area (as hereinafter defined) nor shall the Management
Company employ any such orthopaedic surgeon; provided, however, that
notwithstanding the foregoing restrictions, the Management Company may,
without the consent of the Medical Group, provide contract management
services to an independent physician association. In the event that the
Medical Group has combined with OSA on or before May 31, 1998, the
Exclusivity Period shall be extended to August 31, 2000; provided, that if
the Medical Group, as combined, consists of at least 15 practicing
orthopedic surgeons as of August 31, 2000, the Exclusivity Period shall
extend throughout the Term, but if the Medical Group, as
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combined, consists of less than 15 practicing orthopedic surgeons as of
such date, the Exclusivity Period shall terminate as of August 31, 2000. As
used herein, the "Combined Exclusivity Area" means and includes the
physical land area bounded on the north by Lake Worth Road, bounded on the
south by McNab Road, bounded on the east by the Atlantic Ocean and bounded
on the west by the Everglades.
(b) In the event that the Medical Group and OSA have not combined on
or before May 31, 1998, the Exclusivity Period shall be extended to August
31, 2000 and the boundaries for such exclusivity shall be reduced from the
Combined Exclusivity Area to the Simplified Exclusivity Area (as
hereinafter defined), provided, that if the Medical Group has increased the
number of practicing orthopedic surgeons within the Medical Group to seven
(7) by August 31, 2000, then the Exclusivity Period shall extend throughout
the Term in the Simplified Exclusivity Area, but if the Medical Group
consists of less than seven (7) practicing orthopedic surgeons as of such
date, the Exclusivity Period shall terminate as of August 31, 2000. As used
herein, the "Simplified Exclusivity Area" means and includes the physical
land area bounded on the north by Linton Road, bounded on the south by
McNab Road, bounded on the east by the Atlantic Ocean and bounded on the
west by the Everglades.
(c) Notwithstanding the foregoing, in the event that the Management
Company acquires (the "Acquisition") a company (the "Acquired Company")
that provides management services to orthopaedic surgeons (the "Acquired
Physicians") practicing medicine in the Combined Exclusivity Area or the
Simplified Area, as applicable, the Management Company may provide to such
Acquired Physicians management services substantially similar to those
provided to the Medical Group hereunder if, during the twelve-month period
prior to the consummation of the Acquisition, the Acquired Company earned
at
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least 51% of its revenues through the provision of management services to
medical groups practicing in musculoskeletal specialties; provided,
however, that the Management Company shall not permit the Acquired Company
to solicit any additional orthopaedic surgeons in the Combined Exclusivity
Area or the Simplified Exclusivity Area, as applicable, after consummation
of such Acquisition.
16.4. Physician Advisory Board.
The Management Company is developing an advisory group (the "Physician
Advisory Board") to be comprised of physicians practicing in the State of
Florida. Upon the establishment of the Physician Advisory Board, and in
accordance with the governing documents thereof, the Management Company
shall, or shall cause the Physician Advisory Board to, appoint one
representative from the Medical Group, which representative shall be a
physician equity owner of the Medical Group, to serve on the Physician
Advisory Board.
16.5. Ancillary Services Facilities.
(a) The Management Company shall use its reasonable best efforts to
develop and establish (i) a diagnostic services facility within 12 months
after the Signature Date and (ii) an ambulatory surgery center within 18
months after the Signature Date, each for use by the Medical Group.
(b) The Management Company shall perform or cause to be performed
feasibility studies for a hand center and a joint center for use by the
Medical Group, and if either such center is deemed commercially feasible,
then the Management Company shall use its best efforts to develop and
establish such center within 18 months after the Signature Date.
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16.6. Business Plan.
The Management Company shall cooperate with the Operations Committee
in developing an annual business plan (the "Business Plan") for the Medical
Group. The Business Plan shall include the goals and objectives of the
Medical Group, and will set forth the efforts, methods and resources to be
used by the Management Company and the Medical Group to achieve such annual
goals and objectives. The Business Plan shall be prepared and delivered by
the Operations Committee to the Medical Group and the Management Company
within 60 days after the end of each fiscal year. The Management Company
shall, as soon as reasonably practicable after the end of each year,
deliver to the Operations Committee a written annual report on the
completion of the goals and objectives set forth in the Business Plan.
16.7. Business Combination.
In the event the Medical Group and OSA agree to consummate a business
combination between them, the Management Company shall use its best efforts
to effectuate such combination. The Management Company shall pay all costs
(excluding legal fees and disbursements) actually incurred by any party
hereto relating to the administrative changes required in connection with
such combination.
SECTION 17. Assignment.
The Management Company shall have the right to assign its rights and
delegate its obligations hereunder for security purposes or as collateral
to any affiliate and to assign its rights hereunder to any lending
institution from which the Management Company or any affiliate obtains
financing. Except as set forth in the preceding sentence, neither the
Management Company nor the Medical Group shall have the right to assign
their respective rights and delegate their respective obligations hereunder
without the prior written consent of the other party;
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provided, however, that after the consummation of an initial public
offering of the Management Company's common stock, the Medical Group's
consent shall not be required in connection with any assignment by the
Management Company arising out of or in connection with a sale of all or
substantially all of the stock or assets of the Management Company or the
merger, consolidation, or reorganization of the Management Company.
SECTION 18. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed sufficient if personally delivered,
telecopied (with original sent by mail), sent by nationally-recognized
overnight courier, or by registered or certified mail, return receipt
requested and postage prepaid, addressed as follows:
If to the Management Company:
BMJ Medical Management, Inc.
4800 North Federal Highway, Suite 104D
Boca Raton, Florida 33431
Attention: Naresh Nagpal, M.D., President
Telecopier: (561) 391-1389;
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Jeffrey S. Held, Esq.
Telecopier: (212) 408-2420; and
If to the Medical Group:
Lighthouse Orthopaedic Management Group, Inc.
1821 N.E. 25Th Street
Lighthouse Point, Florida 33064
Attention: President
Telecopier: (954) 946-7018;
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with a copy to:
Strawn, Monaghan & Cohen, P.A.
54 Northeast Fourth Avenue
Delray Beach, Florida 33483
Attention: Jeffrey L. Cohen, Esq.
Telecopier: (561) 278-9462;
or to such other address as the party to whom notice is to be given may
have furnished to each other party in writing in accordance herewith. Any
such notice or communication shall be deemed to have been received (a) in
the case of personal delivery and telecopier, on the date of such delivery,
(b) in the case of nationally-recognized overnight courier, on the next
business day after the date when sent, and (c) in the case of mailing, on
the third business day following the day on which the piece of mail
containing such communication is posted.
SECTION 19. Benefits of Agreement.
This Agreement shall bind and inure to the benefit of any successors
to or permitted assigns of the Management Company and the Medical Group.
SECTION 20. Severability.
It is the desire and intent of the parties hereto that the provisions
of this Agreement be enforced to the fullest extent permissible under the
laws and public policies applied in each jurisdiction in which enforcement
is sought. Accordingly, if any particular provision of this Agreement shall
be adjudicated by a court of competent jurisdiction to be invalid,
prohibited or unenforceable for any reason, such provision, as to such
jurisdiction, shall be ineffective, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of
this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction. Notwithstanding the foregoing, if such
provision could be more narrowly drawn so as not to be invalid, prohibited
or
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unenforceable in such jurisdiction, it shall, as to such jurisdiction, be
so narrowly drawn, without invalidating the remaining provisions of this
Agreement or affecting the validity or enforceability of such provision in
any other jurisdiction.
SECTION 21. Governing Law.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Florida without giving effect to
the laws and principles thereof, or of any other jurisdiction, which would
direct the application of the laws of another jurisdiction. The parties to
this Agreement agree that jurisdiction and venue in any action brought by
any party hereto pursuant to this Agreement may lie in any Federal or state
court located in Broward County, Florida or the Southern District of
Florida. By execution and delivery of this Agreement, the parties hereto
irrevocably submit to the non-exclusive jurisdiction of such courts for
themselves and in respect of their property with respect to such action.
Nothing in this Agreement shall affect any right that any party may
otherwise have to bring any action or proceeding relating to this Agreement
in the courts of any other jurisdiction. The parties hereto irrevocably
agree that venue would be proper in such court, and hereby waive any
objection that such court is an improper or inconvenient forum for the
resolution of such action. The parties hereto shall act in good faith and
shall refrain from taking any actions to circumvent or frustrate the
provisions of this Agreement.
SECTION 22. Headings.
Section headings are used for convenience only and shall in no way
affect the construction of this Agreement.
SECTION 23. Entire Agreement; Amendments.
This Agreement and the exhibits and schedules hereto contain the
entire understanding of the parties with respect to
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its subject matter, and neither this Agreement nor any part of it may in
any way be altered, amended, extended, waived, discharged or terminated
except by a written agreement signed by all of the parties against whom
enforcement is sought.
SECTION 24. Attorneys' Fees.
In the event of any dispute or controversy arising out of or relating
to this Agreement, the prevailing party shall be entitled to recover from
the other party all reasonable costs and expenses, including attorneys'
fees and accountants' fees, incurred in connection with such dispute or
controversy.
SECTION 25. Counterparts.
This Agreement may be executed in counterparts, and each such
counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
SECTION 26. Waivers.
Any party to this Agreement may, by written notice to the other party,
waive any provision of this Agreement. The waiver by any party of a breach
of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach.
SECTION 27. Survival of Termination.
Notwithstanding anything contained herein to the contrary, Sections
3.3(f), 11, 12.3, 12.4, 13, 14, 15, 18, 19, 20, 21, 23, 24 and this Section
27 shall survive any expiration or termination of this Agreement.
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SECTION 28. Contract Modification for Prospective Legal Events.
In the event that legal counsel for either party determines (the
"Legal Determination") that the ability of the parties to fulfill their
material obligations hereunder are materially and adversely impacted by any
change in Federal, state or local law, rules, regulations or any published
official interpretation of any of the foregoing, as applied to this
Agreement, and such Legal Determination is confirmed in writing by
independent legal counsel jointly selected by the parties, then the parties
shall negotiate in good faith to amend this Agreement to avoid such
materially adverse impact, while maintaining the material economic benefits
intended to be conferred hereby, if possible. If this Agreement is not so
amended within thirty (30) days after confirmation by the independent legal
counsel, then this Agreement may be terminated by either party. The fees
and expenses of the independent counsel shall be borne equally by the
parties if such independent counsel confirms the Legal Determination, and
shall be borne solely by the initiating party if the Legal Determination is
not so confirmed. Each party shall pay its own legal costs and fees in
connection with the foregoing.
SECTION 29. Transfer of Management Services.
Each Practicing Physician acknowledges that in the event such
physician elects to practice medicine separate from the Medical Group, such
physician will enter into a management services agreement with the
Management Company pursuant to which the Management Company will provide
services substantially similar to those set forth in this Agreement for
such physician's new medical practice, and such physician will pay the
Management Company a fee equal to twelve and one-half percent (12.5%) of
the Collections of such new medical practice as compensation therefor.
Notwithstanding the foregoing, no Practicing Physician shall be subject to
the terms of this covenant in the event that
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such Participating Physician separates from the Medical Group due to the
Management Company's failure to pay all outstanding amounts due under that
certain promissory note dated the Signature Date between the Management
Company and such Practicing Physician by March 31, 1998.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Management
Services Agreement as of the date first above written.
LIGHTHOUSE ORTHOPAEDIC ASSOCIATES, P.A.
By: /s/ Dominic Kleinhenz, M.D.
-------------------------------------
Name:
Title:
BMJ MEDICAL MANAGEMENT, INC.
By: /s/ Randal J. Farwell
-------------------------------------
Name: Randal J. Farwell
Title: VP
Acknowledged and Agreed to
(as to Sections 4, 5.1, 6, 9.7,
12.2, 13.7, 14, 15 and 29):
/s/ Bruce Young
- ------------------------------
Bruce Young, M.D.
/s/ Dominic Kleinhenz, M.D.
- ------------------------------
Dominic Kleinhenz, M.D.
/s/ William McKay
- ------------------------------
William McKay, M.D.
/s/ George Kolettis
- ------------------------------
George Kolettis, M.D.
/s/ Thomas Goberville
- ------------------------------
Thomas Goberville, M.D.
EXECUTION COPY
================================================================================
ASSET PURCHASE AGREEMENT
BETWEEN
BMJ MEDICAL MANAGEMENT, INC.
AND
LIGHTHOUSE ORTHOPAEDIC GROUP,
a Partnership
Effective as of September 1, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I TRANSFER OF PURCHASED ASSETS, ASSUMPTION OF
LIABILITIES AND RELATED MATTERS .......................... 2
1.1. Transfer of Assets ....................................... 2
1.2. Assets Not Being Transferred ............................. 3
1.3. Liabilities Being Assumed ................................ 3
1.4. Liabilities Not Being Assumed ............................ 3
1.5. Instruments of Conveyance and Transfer, Etc .............. 4
1.6. Further Assurances ....................................... 4
1.7. Assignment of Leases ..................................... 5
1.8. Condition of Purchased Assets ............................ 5
ARTICLE II PURCHASE PRICE; ALLOCATION ............................... 6
2.1. Purchase Price; Payment .................................. 6
2.2. Allocation of Purchase Price ............................. 6
ARTICLE III REPRESENTATIONS AND WARRANTIES ........................... 6
3.1. Representations and Warranties of the Seller .... ........ 6
3.2. Representations and Warranties of the Buyer .... ......... 10
ARTICLE IV CONDITIONS TO CLOSING .................................... 12
4.1. Conditions to Each Party's Obligations ................... 12
4.2. Conditions to Obligations of the Buyer ................... 13
4.3. Conditions to Obligations of the Seller .................. 14
4.4. Related Agreements ....................................... 15
ARTICLE V CLOSING .................................................. 16
5.1. Date ..................................................... 16
5.2. Closing Transactions ..................................... 16
ARTICLE VI INDEMNIFICATION .......................................... 17
6.1. Definitions .............................................. 17
6.2. Indemnification Generally ................................ 19
6.3. Assertion of Claims ...................................... 20
6.4. Notice and Defense of Third Party Claims ................. 21
6.5. Survival of Representations, Warranties and
Covenants ................................................ 22
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Page
ARTICLE VII AMENDMENT, MODIFICATION AND WAIVER 22
ARTICLE VIII MISCELLANEOUS ............................................ 23
8.1. Transfer Taxes, Etc ...................................... 23
8.2. Entire Agreement ......................................... 23
8.3. Descriptive Headings ..................................... 23
8.4. Notices .................................................. 24
8.5. Counterparts ............................................. 25
8.6. Bulk Sales Compliance .................................... 25
8.7. Governing Law; Jurisdiction .............................. 25
8.8. Attorneys' Fees .......................................... 26
8.9. Benefits of Agreement .................................... 26
8.10. Pronouns ................................................. 26
8.11. Change of Law ............................................ 26
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<PAGE>
EXHIBITS
- --------
Exhibit A - Bill of Sale
Exhibit B - Assignment and Assumption Agreement
SCHEDULES
- ---------
1.1(a) - Medical Equipment
1.1(b) - Furniture, Furnishings, Trade
Fixtures, and Office Equipment
1.1(c) - Equipment Leases
1.1(d) - Supplies
1.1(e) - Accounts Receivable
1.1(f) - Office Leases
1.1(g) - Deposits
1.1(h) - Additional Items
2.2 - Allocation of Purchase Price
3.1(b) - Seller Consents
3.1(c) - Claims
3.1(d) - Litigation
3.2(b) - Buyer Consents
3.2(c) - Buyer Litigation
<PAGE>
Definitions
-----------
The following terms which may appear in more than one Section of this Agreement
are defined at the following pages:
TERM PAGE
- ---- ----
Affiliate................................................................. 18
Assignment and Assumption Agreement....................................... 4
Assumed Obligations....................................................... 3
Bill of Sale.............................................................. 4
bulk sales laws........................................................... 18
Business Day.............................................................. 25
Buyer..................................................................... 1
Buyer Indemnification Event............................................... 18
Buyer Indemnified Persons................................................. 18
Claims.................................................................... 8
Closing................................................................... 16
Closing Date.............................................................. 16
Excluded Assets........................................................... 3
Excluded Obligations...................................................... 3
Formation Document........................................................ 7
Indemnified Persons....................................................... 19
Indemnifying Person....................................................... 19
Legal Determination....................................................... 26
Losses.................................................................... 19
Management Services Agreement............................................. 1
Medical Group............................................................. 1
Permitted Liens........................................................... 8
Practicing Physicians..................................................... 1
Purchase Price............................................................ 6
Purchased Assets.......................................................... 2
Related Agreements........................................................ 13
Seller.................................................................... 1
Seller Indemnification Event.............................................. 19
Seller Indemnified Persons................................................ 19
Signature Date............................................................ 1
Statement of Allocation................................................... 6
Subject Business.......................................................... 1
<PAGE>
THIS ASSET PURCHASE AGREEMENT is
entered into on October 28, 1997 (the
"Signature Date"), effective as of
September 1, 1997 , between BMJ MEDICAL
MANAGEMENT, INC., a Delaware corporation
(the "Buyer"), and LIGHTHOUSE
ORTHOPAEDIC GROUP, a Partnership
("Seller").
A. The Seller is engaged in the business (the "Subject Business") of
providing general management services to certain physicians (the "Practicing
Physicians"), each of whom is an equity owner of Lighthouse Orthopaedic
Associates, P.A. (the "Medical Group").
B. The Buyer is engaged in the business of providing management,
administrative, financial, marketing, information technology, and related
services to professional medical organizations.
C. Concurrently herewith, the Medical Group and the Buyer are entering into
a Management Services Agreement (the "Management Services Agreement"), pursuant
to which the Buyer will furnish to the Medical Group management, administrative,
and related services.
D. The Seller desires to sell, transfer, convey and assign to the Buyer and
the Buyer desires to purchase from the Seller, certain of the assets,
properties, interests in properties and rights of the Seller used in the Subject
Business upon the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements hereinafter set forth, the
parties hereby agree as follows:
<PAGE>
ARTICLE I
TRANSFER OF PURCHASED ASSETS, ASSUMPTION OF
LIABILITIES AND RELATED MATTERS
1.1. Transfer of Assets.
On the terms and subject to the conditions of this Agreement, at the
Closing (as hereinafter defined), the Seller shall sell, transfer, convey and
assign to the Buyer, and the Buyer shall purchase, assume, and accept from the
Seller, the following assets, properties, interests in properties and rights of
the Seller (the "Purchased Assets"), as the same shall exist immediately prior
to the Closing, free and clear of all Claims (as defined below) (except
Permitted Liens (as defined below)):
(a) the medical equipment owned by the Seller and listed on Schedule
1.1(a); --------
------
(b) the furniture, furnishings, trade fixtures, and office equipment
owned by the Seller and listed on Schedule 1.1(b);
---------------
(c) the Seller's rights and interests under the equipment leases
identified on Schedule 1.1(c), subject to the Buyer's assumption of the
---------------
obligations accruing thereunder as provided in Section 1.3;
(d) the supplies described on Schedule 1.1(d);
---------------
(e) the Seller's rights and interests under the office leases
identified in Schedule 1.1(e), subject to the Buyer's assumption of the
---------------
obligations accruing thereunder as provided in Section 1.3;
(f) the deposits identified on Schedule 1.1(f); and
---------------
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<PAGE>
(g) any additional items identified on Schedule 1.1(g).
---------------
1.2. Assets Not Being Transferred.
All assets, properties, interests in properties, and rights of the Seller
not expressly identified in Section 1.1 or the Schedules referenced therein (the
"Excluded Assets") are expressly excluded from the assets of the Seller being
sold, assigned, or otherwise transferred to the Buyer.
1.3. Liabilities Being Assumed.
Except as otherwise provided herein and subject to the terms and conditions
of this Agreement, simultaneously with the sale, transfer, conveyance and
assignment to the Buyer of the Purchased Assets, the Buyer shall assume, and
hereby agrees to pay when due, those liabilities accruing after the Closing Date
(as hereinafter defined) under the equipment leases identified in Schedule
1.1(c) and the office leases identified in Schedule 1.1(e) (the "Assumed
Obligations"); provided, however, that any and all obligations and liabilities
arising under any such lease as of or prior to the Closing Date and any and all
obligations and liabilities arising out of or in connection with the Seller's
breach of any such lease as of or prior to the Closing Date shall, in each case,
remain the obligations and liabilities of the Seller.
1.4. Liabilities Not Being Assumed.
The Buyer is not assuming any liabilities or obligations of the Seller
(fixed or contingent, known or unknown, matured or unmatured) whatsoever other
than the Assumed Obligations. For convenience of reference, all liabilities and
obligations of the Seller not being assumed by the Buyer are collectively
referred to as the "Excluded Obligations." The
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<PAGE>
Seller hereby agrees to pay all Excluded Obligations as and when such Excluded
Obligations become due.
1.5. Instruments of Conveyance and Transfer, Etc.
At the Closing, the Seller shall deliver (or cause to be delivered) to the
Buyer such deeds, bills of sale, endorsements, assignments and other good and
sufficient instruments of sale, transfer, conveyance and assignment as shall be
necessary to sell, transfer, convey and assign to the Buyer, in accordance with
the terms hereof, title to the Purchased Assets, free and clear of all Claims
(except Permitted Liens), including, without limitation, the delivery of a Bill
of Sale (the "Bill of Sale") substantially in the form of Exhibit A attached
---------
hereto and the delivery of an Assignment and Assumption Agreement (the
"Assignment and Assumption Agreement") substantially in the form of Exhibit B
---------
attached hereto. Simultaneously therewith, the Seller shall take all steps as
may be reasonably required to put the Buyer in possession and operating control
of the Purchased Assets.
1.6. Further Assurances.
The Seller shall pay or cause to be paid to the Buyer promptly any amounts
which shall be received by the Seller, any Practicing Physician or the Medical
Group after the Closing which constitute Purchased Assets. The Seller shall, at
any time and from time to time after the Closing, upon the reasonable request of
the Buyer, execute, acknowledge, deliver and file, or cause to be executed,
acknowledged, delivered or filed and perform or cause to be performed, all such
further acts, transfers, conveyances, assignments or assurances as may
reasonably be required for better selling, transferring, conveying, assigning
and assuring to the Buyer, or for aiding and assisting in the collection of or
reducing to possession by the Buyer, any of the assets, properties, interests in
properties or rights being
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<PAGE>
purchased by the Buyer hereunder. Any reasonable expenses incurred in connection
with the foregoing shall be borne by the Seller.
1.7. Assignment of Leases.
Anything contained in this Agreement to the contrary notwithstanding, this
Agreement shall not constitute an agreement or attempted agreement to assign any
office lease or equipment lease if an attempted assignment thereof, without the
consent of any other party thereto, would constitute a breach thereof or in any
way affect the rights of the Buyer or the Seller thereunder. The Seller shall
use its best efforts, and the Buyer shall cooperate with the Seller, to obtain
the consent of any such third party to the assignment thereof to the Buyer. If
such consent is not obtained, the Seller shall cooperate with the Buyer in any
arrangements reasonably necessary or desirable to provide for the Buyer the
benefits (together with the obligations to perform) thereunder.
1.8. Condition of Purchased Assets.
The Buyer acknowledges that the Seller makes no representations or
warranties, express or implied, as to any matter whatsoever relating to the
Purchased Assets, except for the representations and warranties expressly set
forth in this Agreement, and except as set forth expressly herein, the condition
of the Purchased Assets shall be "as is" and "where is".
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<PAGE>
ARTICLE II
PURCHASE PRICE; ALLOCATION
2.1. Purchase Price; Payment.
The purchase price (the "Purchase Price") to be paid for the Purchased
Assets shall equal $150,000.
2.2. Allocation of Purchase Price.
The Purchase Price shall be allocated among the Purchased Assets in a
statement (the "Statement of Allocation") reflecting the allocation set forth in
Schedule 2.2 attached hereto. The parties shall complete their respective tax
returns for the period which includes the Closing Date in a manner that is
consistent with the Statement of Allocation.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of the Seller.
The Seller hereby represents and warrants to the Buyer, as of the Signature
Date, as follows:
(a ) Organization; Good Standing; Qualification and Power. The Seller
is a partnership duly formed, validly existing and in good standing under
the laws of the State of Florida and has all requisite power and authority
to own, lease and operate its properties and to carry on its business as
now being conducted and as proposed to be conducted, to execute and deliver
this Agreement, the Bill of Sale and the Assignment and Assumption
Agreement, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The Seller has
delivered to the Buyer a true and
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<PAGE>
correct copy of its partnership agreement (the "Formation Document") as in
effect on the date hereof.
(b) Authority. The execution, delivery and performance of this
Agreement, the Bill of Sale and the Assignment and Assumption Agreement and
the consummation of the transactions contemplated hereby and thereby have
been duly and validly authorized by all necessary action on the part of the
Seller. This Agreement, the Bill of Sale and the Assignment and Assumption
Agreement have been duly and validly executed and delivered by the Seller
and constitute legal, valid and binding obligations of the Seller
enforceable in accordance with their respective terms, except as
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the rights of
creditors generally. Neither the execution, delivery or performance by the
Seller of this Agreement, the Bill of Sale or the Assignment and Assumption
Agreement nor the consummation by the Seller of the transactions
contemplated hereby or thereby, nor compliance by the Seller with any
provision hereof or thereof will (i) conflict with or result in a breach of
any provision of the Formation Document, (ii) cause a default (with due
notice, lapse of time or both), or give rise to any right of termination,
cancellation or acceleration, under any of the terms, conditions or
provisions of any note, bond, lease, mortgage, indenture, license or other
instrument, obligation or agreement to which the Seller is a party or by
which it or any of its respective properties or assets may be bound or
(iii) to the Seller's best knowledge, violate any law, statute, rule or
regulation or order, writ, judgment, injunction or decree of any court,
administrative agency or governmental body applicable to the Seller or any
of its respective properties or assets. Except as set forth on Schedule
--------
3.1(b), to the Seller's best knowledge, no permit, authorization, consent
------
or approval of or by, or any notification of or filing with, any person
(governmental or private) is required in connection with the execution,
delivery or performance by the Seller of this
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<PAGE>
Agreement, the Bill of Sale or the Assignment and Assumption Agreement or
the consummation of the transactions contemplated hereby or thereby.
(c) Title to Assets, Properties, Interests in Properties and Rights
and Related Matters.
(i) The Seller has good and valid title to all of the Purchased
Assets, free and clear of all security interests, judgments, liens,
pledges, claims, charges, escrows, encumbrances, easements, options, rights
of first refusal, rights of first offer, mortgages, indentures, security
agreements or other agreements, arrangements, contracts, commitments,
understandings or obligations, whether written or oral and whether or not
relating in any way to credit or the borrowing of money (collectively,
"Claims"), of any kind or character, except for (A) those Claims set forth
on Schedule 3.1(c) and (B) Permitted Liens.
---------------
(ii) There does not exist any condition which materially
interferes with the economic value or use (consistent with the Seller's
past practice) of any tangible personal property included in the Purchased
Assets and such property is in working condition.
(iii) The Seller has the complete and unrestricted power and the
unqualified right to sell, transfer, convey and assign, and the Seller is
hereby selling, transferring conveying and assigning to the Buyer, the
Purchased Assets, free and clear of all Claims (other than those claims set
forth on Schedule 3.1(c) and Permitted Liens).
---------------
(iv) As used in this Agreement, "Permitted Liens" shall mean (A)
any lien for current taxes not yet due and payable, (B) liens of carriers,
warehousemen, mechanics and materialmen created in the ordinary course of
the Subject Business for amounts not yet due and payable which do not
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<PAGE>
materially detract from the value or impair the use of any property or
assets, (C) in the case of Purchased Assets, liens incurred in the ordinary
course of the Subject Business (including, without limitation, surety bonds
and appeal bonds) in connection with workers' compensation, unemployment
insurance and other types of social security benefits and (D) statutory
landlord liens securing rents not yet due and payable.
(d) Litigation. Except as set forth on Schedule 3.1(d), there are no
(i) actions, suits, claims, legal or administrative or arbitration
proceedings or, to the Seller's best knowledge, investigations pending or,
to the Seller's best knowledge, threatened against the Seller, the
Purchased Assets or the Subject Business, whether at law or in equity, or
before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality or (ii)
judgments, decrees, injunctions or orders of any court, governmental
department, commission, agency, instrumentality or arbitrator against the
Seller or affecting the Purchased Assets or the Subject Business. The
Seller has delivered to the Buyer all documents and correspondence relating
to matters referred to in said Schedule 3.1(d).
---------------
(e) Compliance; Governmental Authorizations. To the Seller's best
knowledge, the Seller has complied in all material respects with all
applicable Federal, state, local or foreign laws, ordinances, regulations
and orders. The Seller has all Federal, state, local and foreign
governmental licenses and permits necessary in the conduct of the Subject
Business the lack of which would have a material adverse effect on the
Seller's ability to operate the Subject Business after the Closing Date on
substantially the same basis as presently operated, such licenses and
permits are in full force and effect, no violations are or have been
recorded in respect of any thereof and no proceeding is pending or, to the
Seller's best knowledge, threatened to revoke or limit any thereof. None of
such licenses and permits shall be
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<PAGE>
affected in any material respect by the transactions contemplated hereby.
(f) Disclosure. Neither this Agreement (including the Exhibits and
Schedules attached hereto), the Bill of Sale, the Assignment and Assumption
Agreement nor any other document, certificate or written statement
furnished to the Buyer by or on behalf of the Seller in connection with the
transactions contemplated hereby contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make
the statements contained herein and therein not misleading.
3.2. Representations and Warranties of the Buyer.
The Buyer represents and warrants to the Seller, as of the Signature Date,
as follows:
(a) Organization, Good Standing and Power. The Buyer (i) is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, (ii) has all requisite corporate power and
authority to own, lease and operate its properties, to carry on its
business as now being conducted, to execute and deliver this Agreement and
the Assignment and Assumption Agreement, to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated
hereby and thereby.
(b) Authority. The execution, delivery and performance of this
Agreement and the Assignment and Assumption Agreement, and the consummation
of the transactions contemplated hereby and thereby, have been duly and
validly authorized by all necessary corporate action on the part of the
Buyer. This Agreement and the Assignment and Assumption Agreement have been
duly and validly executed and delivered by the Buyer, and constitute legal,
valid and binding obligations of the Buyer, enforceable in accordance with
their respective terms except as enforcement may be limited by applicable
bankruptcy, insolvency,
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<PAGE>
reorganization, moratorium or similar laws affecting the rights of
creditors generally. Neither the execution, delivery or performance by the
Buyer of this Agreement or the Assignment and Assumption Agreement nor the
consummation by the Buyer of the transactions contemplated hereby or
thereby, nor compliance by the Buyer with any provision hereof or thereof,
will (i) conflict with or result in a breach of any provisions of the
Certificate of Incorporation or By-laws of the Buyer, (ii) cause a default
(with due notice, lapse of time or both), or give rise to any right of
termination, cancellation or acceleration, under any of the terms,
conditions or provisions of any material note, bond, lease, mortgage,
indenture, license or other instrument, obligation or agreement to which
the Buyer is a party or by which it or any of its properties or assets is
or may be bound or (iii) violate any law, statute, rule or regulation or
order, writ, judgment, injunction or decree of any court, administrative
agency or governmental body applicable to the Buyer or any of its
properties or assets. Except as set forth on Schedule 3.2(b), no permit,
---------------
authorization, consent or approval of or by, or any notification of or
filing with, any person (governmental or private) is required in connection
with the execution, delivery or performance by the Buyer of this Agreement
or the Assignment and Assumption Agreement or the consummation by the Buyer
of the transactions contemplated hereby or thereby.
(c) Litigation. Except as set forth on Schedule 3.2(c), there are no
(i) actions, suits, claims, legal or administrative or arbitration
proceedings or, to the Buyer's best knowledge, investigations pending or,
to the Buyer's best knowledge, threatened against the Buyer, whether at law
or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality or (ii) judgments, decrees, injunctions or orders of any
court, governmental department, commission, agency, instrumentality or
arbitrator against the Buyer.
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<PAGE>
(d) Compliance; Governmental Authorizations. To the Buyer's best
knowledge, the Buyer has complied in all material respects with all
applicable Federal, state, local or foreign laws, ordinances, regulations
and orders. The Buyer has all Federal, state, local and foreign
governmental licenses and permits necessary in the conduct of its business,
the lack of which would have a material adverse effect on the Buyer's
ability to operate its business after the Closing Date on substantially the
same basis as presently operated, such licenses and permits are in full
force and effect, no violations are or have been recorded in respect of any
thereof and no proceeding is pending or, to the Buyer's best knowledge,
threatened to revoke or limit any thereof. None of such licenses and
permits shall be affected in any material respect by the transactions
contemplated hereby.
(e) Disclosure. Neither this Agreement (including the Exhibits and
Schedules attached hereto), the Assignment and Assumption Agreement nor any
other document, certificate or written statement furnished to the Seller by
or on behalf of the Buyer in connection with the transactions contemplated
hereby contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein
and therein not misleading.
ARTICLE IV
CONDITIONS TO CLOSING
4.1. Conditions to Each Party's Obligations.
The obligations of the Seller to sell the Purchased Assets, and of the
Buyer to purchase the Purchased Assets, are subject to the satisfaction of the
following conditions unless waived in writing (to the extent such conditions can
be waived by the Seller or the Buyer, as applicable):
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<PAGE>
(a) Legal Action. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the
consummation of the transactions contemplated hereby shall have been issued
by any Federal or state court and remain in effect. Each party agrees to
use its best efforts to have any such injunction or order lifted.
(b) Legislation. No Federal, state, local or foreign statute, rule or
regulation shall have been enacted which prohibits, restricts or delays the
consummation of the transactions contemplated by this Agreement or any of
the conditions to the consummation of such transactions.
(c) Related Agreements. Each of the related agreements identified in
Section 4.4 hereof (collectively, the "Related Agreements") shall have been
fully executed and delivered prior to or at the Closing by all of the
parties required to execute and deliver such agreements.
4.2. Conditions to Obligations of the Buyer.
The obligation of the Buyer to purchase the Purchased Assets is subject to
the satisfaction of the following conditions unless waived in writing (to the
extent such conditions can be waived) by the Buyer:
(a) Representations and Warranties. The representations and warranties
of the Seller set forth in Section 3.1 shall in each case be true and
correct in all material respects as of the Closing Date and as of the
Signature Date as though made at and as of the Signature Date.
(b) Performance of Obligations. The Seller shall have performed all
obligations required to be performed by it under this Agreement prior to
and at the Closing.
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<PAGE>
(c) Authorization. All action necessary to authorize the execution,
delivery and performance of this Agreement, the Bill of Sale and the
Assignment and Assumption Agreement by the Seller and the consummation of
the transactions contemplated hereby and thereby shall have been duly and
validly taken by the Seller and the Seller shall have full power and right
to consummate the transactions contemplated hereby and thereby.
(d) Consents and Approvals. The Seller shall have delivered to the
Buyer duly executed copies of (i) consents to the assignment of the
equipment leases and office leases listed on Schedules 1.1(c) and 1.1(e),
---------------- ------
respectively, and (ii) all other approvals, if any, required by this
Agreement or the Schedules, in each case in form and substance satisfactory
to the Buyer and counsel to the Buyer.
(e) Government Consents, Authorizations, Etc. All consents,
authorizations, orders or approvals of, and filings or registrations with,
any Federal, state, local or foreign governmental commission, board or
other regulatory body which are required for or in connection with the
execution and delivery by the Seller of this Agreement, the Bill of Sale
and the Assignment and Assumption Agreement and the consummation by the
Seller of the transactions contemplated hereby and thereby shall have been
obtained or made.
4.3. Conditions to Obligations of the Seller.
The obligation of the Seller to sell the Purchased Assets to the Buyer is
subject to the satisfaction of the following conditions unless waived in writing
(to the extent such conditions can be waived) by the Seller:
(a) Representations and Warranties. The representations and warranties
of the Buyer set forth in Section 3.2 shall in each case be true and
correct in all material
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<PAGE>
respects as of the Closing Date and as of the Signature Date as though made
at and as of the Signature Date.
(b) Performance of Obligations. The Buyer shall have performed all
obligations required to be performed by it under this Agreement prior to
and at the Closing.
(c) Authorization. All action necessary to authorize the execution,
delivery and performance of this Agreement and the Assignment and
Assumption Agreement by the Buyer and the consummation of the transactions
contemplated hereby and thereby shall have been duly and validly taken by
the Buyer.
(d) Government Consents, Authorizations, Etc. All consents,
authorizations, orders or approvals of, and filings or registrations with,
any Federal, state, local or foreign governmental commission, board or
other regulatory body which are required for or in connection with the
execution and delivery by the Buyer of this Agreement and the Assignment
and Assumption Agreement and the consummation by the Buyer of the
transactions contemplated hereby and thereby shall have been obtained or
made.
4.4. Related Agreements.
The Related Agreements referred to in this Agreement consist of the
following:
(a) the Management Services Agreement between the Buyer and the
Medical Group;
(b) the Restricted Stock Agreement between the Buyer and the
Practicing Physicians;
(c) the Stockholder Non-Competition Agreements among the Medical
Group, the Buyer, and the Practicing Physicians;
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(d) the Assignment of Office Leases, relating to each of the medical
office premises identified on Schedule 1.1(e), entered into between the
parties hereto; ---------------
(e) the Bill of Sale executed by the Seller; and
(f) the Assignment and Assumption Agreement between the Seller and the
Buyer.
ARTICLE V
CLOSING
5.1. Date.
The closing (the "Closing") for the consummation of the transactions
contemplated by this Agreement shall be deemed to have taken place at 12:01 a.m.
on September 1, 1997 (the "Closing Date"), irrespective of the actual date(s)
and time(s) that all of the documents required hereunder are executed and
delivered.
5.2. Closing Transactions.
At the Closing, the parties shall take the actions and deliver the
documents identified in this Section 5.2. The Closing shall not be deemed to
have taken place, and the transactions contemplated by this Agreement shall not
be deemed to have been consummated, unless all of the closing transactions
identified in this Section 5.2 have been completed or waived in writing by the
parties.
(a) The Seller shall deliver to the Buyer an executed copy of the Bill
of Sale;
(b) Each of the parties shall execute and deliver to the other a copy
of the Assignment and Assumption Agreement;
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(c) The Buyer shall deliver to the Seller a promissory note in the
principal amount of the Purchase Price, in form and substance mutually
agreeable to the parties hereto;
(d) Each of the parties to the Management Services Agreement shall
execute and deliver to the other a fully executed copy thereof;
(e) The Medical Group shall deliver the Restricted Stock Agreement to
the Buyer executed by each of the Practicing Physicians, and the Buyer
shall execute and deliver to the Medical Group the Restricted Stock
Agreement for the Practicing Physicians;
(f) The Buyer shall deliver to the Practicing Physicians stock
certificates issued in their respective names as required under the terms
of the Restricted Stock Agreement;
(g) The Medical Group shall deliver to the Buyer the Stockholder
Non-Competition Agreement executed by each of the Practicing Physicians;
and
(h) The Seller shall deliver to the Buyer a copy of the resolutions of
the Seller authorizing the transactions contemplated hereby, accompanied by
a certificate of the Seller stating that such resolutions have been duly
adopted in accordance with Seller's Partnership Agreement.
ARTICLE VI
INDEMNIFICATION
6.1. Definitions.
As used in this Agreement, the following terms shall have the following
meanings:
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(a) "Affiliate", as to any person, means any other person that,
---------
directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with such person.
(b) "Buyer Indemnification Event" shall mean the following:
---------------------------
(i) (A) the untruth, inaccuracy or breach of any representation
or warranty of the Seller contained in this Agreement, any Schedule or
Exhibit attached hereto, the Bill of Sale, the Assignment and
Assumption Agreement or any certificate delivered by the Seller in
connection herewith (or any facts or circumstances constituting any
such untruth, inaccuracy or breach) or (B) the breach of any agreement
or covenant of the Seller contained in this Agreement, the Bill of
Sale, or the Assumption or Assignment Agreement which is not cured
within thirty (30) days after the Seller receives written notice of
such breach from the Buyer;
(ii) the assertion against any Buyer Indemnified Person of any
liability or obligation arising from, relating to, or in any way
connected with the operation of the Subject Business at any time prior
to the Closing;
(iii) the assertion against any Buyer Indemnified Person of any
liability or obligation arising from, relating to, or in any way
connected with any Excluded Obligation; and
(iv) any non-compliance by the Seller with any "bulk sales laws"
to the extent that such laws may be applicable to the transactions
contemplated hereby.
(c) "Buyer Indemnified Persons" shall mean and include the Buyer, its
-------------------------
Affiliates and their respective officers, directors, and employees.
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(d) "Indemnified Persons" shall mean the Buyer Indemnified Persons or
-------------------
the Seller Indemnified Persons, as the case may be.
(e) "Indemnifying Person" shall mean the Buyer or the Seller, as the
-------------------
case may be.
(f) "Losses" shall mean any and all losses, claims, damages,
------
liabilities, expenses (including reasonable attorneys' and accountants'
fees), assessments, tax deficiencies and taxes (including interest or
penalties thereon) sustained, suffered or incurred by any Indemnified
Person arising from any matter which is the subject of indemnification
under Section 6.2.
(g) "Seller Indemnification Event" shall mean (i) the untruth,
----------------------------
inaccuracy or breach of any representation or warranty of the Buyer
contained in this Agreement, any Schedule or Exhibit attached hereto, the
Assignment and Assumption Agreement or any certificate delivered by the
Buyer in connection herewith (or any facts or circumstances constituting
any such untruth, inaccuracy or breach) or (ii) the breach of any agreement
or covenant of the Buyer contained in this Agreement or the Assignment and
Assumption Agreement which is not cured within thirty (30) days after the
Buyer receives written notice of such breach from the Seller, including,
without limitation, the assertion against any Seller Indemnified Person of
any liability or obligation arising from, relating to, or in any way
connected with any Assumed Obligation.
(h) "Seller Indemnified Persons" shall mean and include the Seller and
--------------------------
its equity owners, directors, officers and employees.
6.2. Indemnification Generally.
(a) The Seller shall indemnify, defend and hold harmless the Buyer
Indemnified Persons, and each of them, from
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<PAGE>
and against any and all Losses resulting from Buyer Indemnification Events.
(b) The Buyer shall indemnify, defend and hold harmless the Seller
Indemnified Persons, and each of them, from and against any and all Losses
resulting from Seller Indemnification Events.
(c) The parties hereto agree that in the event of a conflict between
the terms of this Article VI and the terms of the Management Services
Agreement, the terms and provisions of the Management Services Agreement
shall prevail.
6.3. Assertion of Claims.
No claim, demand, suit or cause of action shall be brought under Section
6.2 unless the Indemnified Persons, or any of them, give the Indemnifying Person
written notice of the existence of any such claim, demand, suit or cause of
action, stating with particularity the nature and basis of said claim, and the
amount thereof, to the extent known, and providing to the extent reasonably
available all written documentation relating thereto. Such written notice shall
be delivered to the Indemnifying Person as soon as practicable upon receipt of
actual knowledge of such claim, demand, suit or cause of action; provided,
--------
however, that the failure to provide such written notice shall not affect the
- -------
Indemnified Persons' right to indemnification hereunder if failure to provide
such written notice does not materially adversely affect the Indemnifying
Person. Upon the giving of such written notice as aforesaid, the Indemnified
Persons, or any of them, shall have the right to commence legal proceedings
subsequent to the applicable survival date, if any, for the enforcement of their
rights under Section 6.2.
-20-
<PAGE>
6.4. Notice and Defense of Third Party Claims.
(a) In the event any action, suit or proceeding is brought by a third party
against an Indemnified Person, with respect to which an Indemnifying Person may
have liability under Section 6.2, the action, suit or proceeding shall, upon the
written agreement of the Indemnifying Person that it is obligated with respect
to such action, suit or proceeding, be defended (including all proceedings on
appeal or for review which counsel for the defendant shall deem appropriate)
and, unless otherwise provided below, controlled by such Indemnifying Person.
The Indemnified Persons shall have the right to employ its or their own counsel
in any such case, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Persons, unless (i) the employment of such counsel
shall have been authorized in writing by the Indemnifying Person in connection
with the defense of such action, suit or proceeding, (ii) the Indemnifying
Person shall fail actively and diligently to defend such action, suit or
proceeding, or (iii) the Indemnified Persons shall have reasonably concluded
that there may be one or more legal or equitable defenses available to the
Indemnified Persons which are different from or additional to those available to
the Indemnifying Person, in any of which events the Indemnifying Person shall
not have the right to direct the defense of such action, suit or proceeding on
behalf of the Indemnified Persons and that portion of any fees and expenses of
counsel related to matters covered by the indemnity agreement and contained in
Section 6.2 shall be borne by the Indemnifying Person. The Indemnified Persons
shall be kept fully informed of such action, suit or proceeding at all stages
thereof whether or not they are so represented. The Indemnifying Person shall
make available to the Indemnified Persons and their attorneys and accountants
all books and records of the Indemnifying Person relating to such action, suit
or proceeding and the parties hereto agree to render to each other such
assistance as they may reasonably require of
-21-
<PAGE>
each other in order to ensure the proper and adequate defense of any such
action, suit or proceeding.
(b) The Indemnifying Person shall not make any settlement of any action,
suit or proceeding without the written consent of the Indemnified Persons, which
consent shall not be unreasonably withheld; provided, however, that in the event
the Indemnified Persons refuse to consent to a settlement acceptable to the
Indemnifying Person which is capable of settlement by the payment of money only
and the Indemnifying Persons shall demonstrate to the reasonable satisfaction of
the Indemnified Persons their ability to pay such amount, the Indemnifying
Person may pay the amount of the proposed settlement to the Indemnified Persons
and shall thereupon be released from any further liability with respect to such
action, suit or proceeding.
6.5. Survival of Representations, Warranties and Covenants.
The representations and warranties of the Seller contained in Section 3.1
and the representations and warranties of the Buyer contained in Section 3.2
shall survive the Closing and shall terminate forty-five (45) days following the
second anniversary of the Signature Date; provided, however, that the
-------- -------
representations and warranties of the Seller set forth in Sections 3.1(a),
3.1(b), 3.1(c) and 3.1(e), and the representations and warranties of the Buyer
set forth in Sections 3.2(a) and 3.2(b), shall survive the Closing and remain in
full force and effect until the expiration of the statute of limitations, if
any, applicable to the matters set forth therein (and indefinitely, if none).
ARTICLE VII
AMENDMENT, MODIFICATION AND WAIVER
This Agreement shall not be altered or otherwise amended except pursuant to
an instrument in writing signed by
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<PAGE>
each of the parties. The waiver by one party of the performance of any covenant,
condition or promise shall not invalidate this Agreement, nor shall it be
considered as a waiver by such party of any other covenant, condition or
promise. The delay in pursuing any remedy or in insisting upon full performance
for any breach or failure of any covenant, condition or promise shall not
prevent a party from later pursuing any remedies or insisting upon full
performance for the same or any similar breach or failure.
ARTICLE VIII
MISCELLANEOUS
8.1. Transfer Taxes, Etc.
The Seller shall pay all sales, use and excise taxes and all registration,
recording or transfer taxes which may be payable in connection with the
transactions contemplated by this Agreement.
8.2. Entire Agreement.
This Agreement (including the recitals hereof and the Schedules and the
Exhibits attached hereto), together with the Related Agreements referenced
herein, contains the entire agreement between the parties hereto with respect to
the transactions contemplated hereby and supersedes all prior agreements,
representations, warranties and understandings, either oral or written, between
the parties with respect thereto.
8.3. Descriptive Headings.
Descriptive headings are for convenience only and shall not control or
affect the meaning or construction of any provisions of this Agreement.
-23-
<PAGE>
8.4. Notices.
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally or sent by
telecopier, nationally-recognized overnight courier, or certified mail, postage
prepaid, return receipt requested, addressed as follows:
(a) if to the Buyer, to:
BMJ Medical Management, Inc.
4800 North Federal Highway, Suite 104D
Boca Raton, Florida 33431
Attention: President
Telecopier: (561) 391-1389;
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Jeffrey S. Held, Esq.
Telecopier: (212) 408-2420; and
(b) if to the Seller, to:
Lighthouse Orthopaedic Group ,
a Partnership
1821 N.E. 25th Street
Lighthouse Point, Florida 33064
Attention: President
Telecopier: (954) 946-7018;
with a copy to:
Strawn, Monaghan & Cohen, P.A.
54 Northeast Fourth Avenue
Delray Beach, Florida 33483
Attention: Jeffrey L. Cohen, Esq.
Telecopier: (561) 278-9462;
or to such other address as the party to whom notice is to be given may have
furnished to each other party in writing in accordance herewith. Any such
communication shall be deemed to have been given (i) when delivered if
personally delivered or sent by telecopier, (ii) on the next Business Day after
dispatch if sent by nationally-recognized, overnight courier and (iii) on the
fifth Business Day after dispatch, if sent by mail. As used
-24-
<PAGE>
herein, "Business Day" means a day that is not a Saturday, Sunday or a day on
which banking institutions in the state of Florida are not required to be open.
8.5. Counterparts.
This Agreement may be executed in any number of counterparts, and each such
counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
8.6. Bulk Sales Compliance.
The Buyer hereby waives compliance by the Seller with the provisions of the
"bulk sales laws" of any state which may be in effect and applicable to the
transactions contemplated hereby; provided, however, that the Seller shall
-------- -------
indemnify the Buyer in connection with such noncompliance to the extent provided
in Article 6 hereof.
8.7. Governing Law; Jurisdiction.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Florida without giving effect to the
laws and principles thereof, or of any other jurisdiction, which would direct
the application of the laws of another jurisdiction. The parties to this
Agreement agree that jurisdiction and venue in any action brought pursuant to
this Agreement by any party hereto may lie in any Federal or state court located
in Broward County, State of Florida. By execution and delivery of this
Agreement, the parties hereto irrevocably submit to the jurisdiction of such
courts for themselves and in respect of their property with respect to such
action. The parties hereto irrevocably agree that venue would be proper in such
court, and hereby waive any objection that such court is an improper or
inconvenient forum for the resolution of such action, The parties hereto shall
act in good faith and
-25-
<PAGE>
shall refrain from taking any actions to circumvent or frustrate the provisions
of this Agreement.
8.8. Attorneys' Fees.
In the event of any dispute or controversy arising out of or relating to
this Agreement, the prevailing party shall be entitled to recover from the other
party all costs and expenses, including attorneys' fees and accountants' fees,
incurred in connection with such dispute or controversy.
8.9. Benefits of Agreement.
The terms and provisions of this Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and permitted
assigns. Anything contained herein to the contrary notwithstanding, this
Agreement shall not be assignable by any party without the consent of the other
party hereto, and any purported assignment without such consent shall be null
and void.
8.10. Pronouns.
As used herein, all pronouns shall include the masculine, feminine, neuter,
singular and plural thereof whenever the context and facts require such
construction.
8.11. Change of Law.
In the event that legal counsel for either party reasonably determines (the
"Legal Determination") that the ability of the parties to fulfill their material
obligations hereunder are materially and adversely impacted by any change in
Federal, state or local law, rules, regulations or any published official
interpretation of any of the foregoing, as applied to this Agreement, and such
Legal Determination is confirmed in writing by independent legal counsel jointly
selected by the
-26-
<PAGE>
parties, then, the parties shall negotiate in good faith to amend this Agreement
to avoid such materially adverse impact, if possible, while maintaining the
material economic benefits intended to be conferred hereby. If this Agreement is
not so amended within ninety (90) days after confirmation by the independent
legal counsel, then this Agreement may be terminated by either party. The fees
and expenses of the independent counsel shall be borne equally by the parties if
such independent counsel confirms the Legal Determination, and shall be borne
solely by the initiating party if the Legal Determination is not so confirmed.
Each party shall pay its own legal costs and fees in connection with the
foregoing.
* * * *
-27-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Asset
Purchase Agreement to be executed on its behalf effective as of the day and year
first above written.
BMJ MEDICAL MANAGEMENT, INC.
By:____________________________
Name:
Title:
LIGHTHOUSE ORTHOPAEDIC GROUP,
a Partnership
By:____________________________
Name:
Title:
<PAGE>
SCHEDULE 1.1(d)
Supplies
All of the medical supplies, office supplies, postage, and printed
materials owned by the Seller and located on the premises of any of the Seller's
offices at 12:01 a.m. on the Closing Date hereunder.
<PAGE>
SCHEDULE 2.2
Allocation of Purchase Price
Medical Equipment, Furniture, Furnishings,
Trade Fixtures, and Office Equipment $ 150,000
TOTAL: $ 150,000
<PAGE>
SCHEDULE 3.2(b)
Buyer Consents
The authorization of the Buyer's board of directors is required in
connection with the consummation of the transactions contemplated by this
Agreement.
<PAGE>
SCHEDULE 3.2(c)
Buyer Litigation
1. A former employee of the Parent has filed a complaint in the District Court
of Harris County, Texas, which asserts claims arising out of his
termination by the Company and an alleged stock purchase agreement among
the Parent, such employee and the individuals mentioned in item numbered
two below. The Parent has removed the case to the United States District
Court for the Southern District of Texas.
2. Certain individuals have filed a complaint in the District Court of Harris
County, Texas, which claims that the Parent has breached an agreement for
the sale of the Parent's securities to such individuals. The Parent has
removed the case to the United States District Court for the Southern
District of Texas.
<PAGE>
EXHIBIT A
BILL OF SALE
LIGHTHOUSE ORTHOPAEDIC GROUP, a partnership, (the "Seller"), hereby sells,
conveys, transfers, assigns and delivers to BMJ MEDICAL MANAGEMENT, INC., a
Delaware corporation (the "Buyer"), the following assets, properties, interests
in properties and rights of the Seller (collectively, the "Purchased Assets"):
1. the medical equipment owned by the Seller and listed on Schedule
--------
1.1(a) of that certain Asset Purchase Agreement between the Seller and the
------
Buyer entered into as of the date hereof (the "Asset Purchase Agreement");
2. the furniture, furnishings, trade fixtures, and office equipment
owned by the Seller and listed on Schedule 1.1(b) of the Asset Purchase
Agreement; ---------------
3. the Seller's rights and interests under the equipment leases
identified on Schedule 1.1(c) of the Asset Purchase Agreement, subject to
---------------
the Buyer's assumption of the obligations accruing thereunder from and
after the date hereof;
4. the supplies described on Schedule 1.1(d) of the Asset Purchase
Agreement; ---------------
5. the Seller's rights and interests under the office leases
identified in Schedule 1.1(e) of the Asset Purchase Agreement, subject to
---------------
the Buyer's assumption of the obligations accruing thereunder from and
after the date hereof;
6. the deposits identified on Schedule 1.1(f) of the Asset Purchase
Agreement; and ---------------
7. any additional items identified on Schedule 1.1(g) of the Asset
Purchase Agreement. ---------------
<PAGE>
All assets, properties, interests in properties, and rights of the Seller not
expressly identified above or in the schedules referenced in the Asset Purchase
Agreement (the "Excluded Assets") are expressly excluded from the assets of the
Seller being sold, assigned, or otherwise transferred to the Buyer.
To the extent that there is a conflict between the terms and provisions of
this Bill of Sale and the Asset Purchase Agreement, the terms and provisions of
the Asset Purchase Agreement shall prevail.
IN WITNESS WHEREOF, the Seller has executed this instrument on the 28th day
of October, 1997, effective as of September 1, 1997.
LIGHTHOUSE ORTHOPAEDIC GROUP,
a Partnership
By: __________________________
Name:
Title:
<PAGE>
EXHIBIT B
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS AGREEMENT (the "Agreement") is entered into on October 28, 1997,
effective as of September 1, 1997, between LIGHTHOUSE ORTHOPAEDIC GROUP, a
Partnership ("Assignor") and BMJ MEDICAL MANAGEMENT, INC. ("Assignee").
A. Pursuant to the terms of the Asset Purchase Agreement dated as of the
date hereof (the "Asset Purchase Agreement"), between Assignor, as Seller, and
Assignee, as Buyer, Assignor has concurrently with the delivery hereof, sold,
conveyed, transferred, assigned and delivered to Assignee certain assets of
Assignor (the "Purchased Assets"), which are specifically identified in the
Asset Purchase Agreement.
B. In partial consideration of the Purchased Assets, the Asset Purchase
Agreement provides that Assignee shall assume certain liabilities of Assignor,
identified in Section 1.3 of the Asset Purchase Agreement.
NOW, THEREFORE, Assignor and Assignee hereby agree as follows:
1. Assignment; Assumption.
Assignor hereby assigns, transfers and delivers to Assignee, and Assignee
does hereby accept, all of Assignor's rights, titles, and interests, legal and
equitable, in, to and under the equipment leases and office leases identified in
Schedule 1.1(c) and Schedule 1.1(f) of the Asset Purchase Agreement (the
- --------------- ---------------
"Assigned Contracts"), and Assignee agrees to assume and to pay when due, those
liabilities accruing from and after the date hereof under the Assigned Contracts
and to observe, perform, and comply with the covenants, restrictions,
limitations, and conditions imposed upon Assignor under the
<PAGE>
Assigned Contracts; provided, however, that any and all obligations and
-------- -------
liabilities arising under any such lease as of or prior to the Closing Date and
any and all obligations and liabilities arising out of or in connection with the
Seller's breach of any such lease shall, in each case, remain the obligations
and liabilities of the Seller.
2. Limitation of Assumption.
2.1 Right to Contest Obligations.
Nothing contained in this Agreement shall require that Assignee perform,
pay or discharge any obligation expressly assumed hereby so long as Assignee
shall in good faith contest or cause to be contested the amount or validity
thereof.
2.2 Obligations Not Assumed.
Other than as specifically stated above, Assignee is not assuming any
liabilities or obligations of the Assignor (whether fixed or contingent, known
or unknown, matured or unmatured).
To the extent there is a conflict between the terms and provisions of this
Assignment and Assumption Agreement and the Asset Purchase Agreement, the terms
and provisions of the Asset Purchase Agreement shall prevail.
* * * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Assignment and
Assumption Agreement as of the date first above written.
LIGHTHOUSE ORTHOPAEDIC GROUP,
a Partnership
By:______________________________
Name:
Title:
BMJ MEDICAL MANAGEMENT, INC.
By:______________________________
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Asset
Purchase Agreement to be executed on its behalf effective as of the day and year
first above written.
BMJ MEDICAL MANAGEMENT, INC.
By: /s/ R.J. Farwell
----------------------------
Name: Randel J. Farwell
Title: VP
LIGHTHOUSE ORTHOPAEDIC GROUP,
a Partnership
By: /s/ Dominic J. Kleinhenz M.D.
----------------------------
Name:
Title: President
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Asset
Purchase Agreement to be executed on its behalf effective as of the day and year
first above written.
BMJ MEDICAL MANAGEMENT, INC.
By: /s/ R.J. Farwell
----------------------------
Name: Randel J. Farwell
Title: VP
LIGHTHOUSE ORTHOPAEDIC GROUP,
a Partnership
By: Dominic J. Kleinhenz M.D.
----------------------------
Name:
Title: President
<PAGE>
EXECUTION COPY
================================================================================
ASSET PURCHASE AGREEMENT
BETWEEN
BMJ MEDICAL MANAGEMENT, INC.
AND
LIGHTHOUSE ORTHOPAEDIC MANAGEMENT GROUP, INC.
Effective as of September 1, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I TRANSFER OF PURCHASED ASSETS, ASSUMPTION OF
LIABILITIES AND RELATED MATTERS .......................... 2
1.1. Transfer of Assets ....................................... 2
1.2. Assets Not Being Transferred ............................. 3
1.3. Liabilities Being Assumed ................................ 3
1.4. Liabilities Not Being Assumed ............................ 3
1.5. Instruments of Conveyance and Transfer, Etc .............. 4
1.6. Right of Endorsement, Etc ................................ 4
1.7. Further Assurances ....................................... 5
1.8. Assignment of Leases ..................................... 6
1.9. Condition of Purchased Assets ............................ 6
ARTICLE II PURCHASE PRICE; ALLOCATION ............................... 7
2.1. Purchase Price; Payment .................................. 7
2.2. Allocation of Purchase Price ............................. 7
2.3 Accounts Receivable Payment .............................. 7
ARTICLE III REPRESENTATIONS AND WARRANTIES ........................... 9
3.1. Representations and Warranties of the Seller .... ........ 9
3.2. Representations and Warranties of the Buyer .... ......... 13
ARTICLE IV CONDITIONS TO CLOSING .................................... 15
4.1. Conditions to Each Party's Obligations ................... 15
4.2. Conditions to Obligations of the Buyer ................... 16
4.3. Conditions to Obligations of the Seller .................. 17
4.4. Related Agreements ....................................... 18
ARTICLE V CLOSING .................................................. 19
5.1. Date ..................................................... 19
5.2. Closing Transactions ..................................... 19
ARTICLE VI INDEMNIFICATION .......................................... 20
6.1. Definitions .............................................. 20
6.2. ndemnification Generally ................................. 22
6.3. Assertion of Claims ...................................... 23
i
<PAGE>
Page
----
6.4. Notice and Defense of Third Party Claims ................. 24
6.5. Survival of Representations, Warranties and
Covenants ................................................ 25
ARTICLE VII AMENDMENT, MODIFICATION AND WAIVER ....................... 25
ARTICLE VIII MISCELLANEOUS ............................................ 26
8.1. Transfer Taxes, Etc ...................................... 26
8.2. Entire Agreement ......................................... 26
8.3. Descriptive Headings ..................................... 26
8.4. Notices .................................................. 27
8.5. Counterparts ............................................. 28
8.6. Bulk Sales Compliance .................................... 28
8.7. Governing Law; Jurisdiction .............................. 28
8.8. Attorneys' Fees .......................................... 29
8.9. Benefits of Agreement .................................... 29
8.10. Pronouns ................................................. 29
8.11. Change of Law ............................................ 29
-ii-
<PAGE>
EXHIBITS
- --------
Exhibit A - Bill of Sale
Exhibit B - Assignment and Assumption Agreement
SCHEDULES
- ---------
1.1(a) - Medical Equipment
1.1(b) - Furniture, Furnishings, Trade
Fixtures, and Office Equipment
1.1(c) - Equipment Leases
1.1(d) - Supplies
1.1(e) - Accounts Receivable
1.1(f) - Office Leases
1.1(g) - Deposits
1.1(h) - Additional Items
2.2 - Allocation of Purchase Price
3.1(b) - Seller Consents
3.1(c) - Claims
3.1(d) - Litigation
3.2(b) - Buyer Consents
3.2(c) - Buyer Litigation
<PAGE>
Definitions
The following terms which may appear in more than one Section of this Agreement
are defined at the following pages:
TERM PAGE
- ---- ----
A/R Amount ................................................................. 7
A/R Balance ................................................................ 8
A/R Collections ............................................................ 7
A/R Shortfall .............................................................. 8
Accounts Receivable ........................................................ 2
Affiliate .................................................................. 21
Articles of Incorporation .................................................. 9
Assignment and Assumption Agreement ........................................ 4
Assumed Obligations ........................................................ 3
Bill of Sale ............................................................... 4
bulk sales laws ............................................................ 22
Business Day ............................................................... 28
Buyer ...................................................................... 1
Buyer Indemnification Event ................................................ 21
Buyer Indemnified Persons .................................................. 22
Bylaws ..................................................................... 9
Claims ..................................................................... 11
Closing .................................................................... 19
Closing Date ............................................................... 19
Collections ................................................................ 34
Determination Date ......................................................... 7
Excluded Assets ............................................................ 3
Excluded Obligations ....................................................... 4
Final Statement ............................................................ 8
Indemnified Persons ........................................................ 22
Indemnifying Person ........................................................ 22
Legal Determination ........................................................ 30
Losses ..................................................................... 22
Management Services Agreement .............................................. 1
Medical Group .............................................................. 1
Permitted Liens ............................................................ 11
Practicing Physicians ...................................................... 1
Purchase Price ............................................................. 7
Purchased Assets ........................................................... 2
Related Agreements ......................................................... 16
Remainder .................................................................. 8
Seller ..................................................................... 1
Seller Indemnification Event ............................................... 22
Seller Indemnified Persons ................................................. 23
Signature Date ............................................................. 1
Statement of Allocation .................................................... 7
<PAGE>
Subject Business ........................................................... 1
Threshold Month ............................................................ 8
<PAGE>
THIS ASSET PURCHASE
AGREEMENT is entered into on October 28,
1997 (the "Signature Date"), effective
as of September 1, 1997 , between BMJ
MEDICAL MANAGEMENT, INC., a Delaware
corporation (the "Buyer"), and
LIGHTHOUSE ORTHOPAEDIC MANAGEMENT GROUP,
INC., a Florida corporation (the
"Seller").
A. The Seller is engaged in the business (the "Subject Business") of
providing general management services to certain physicians (the "Practicing
Physicians"), each of whom is an equity owner of Lighthouse Orthopaedic
Associates, P.A. (the "Medical Group").
B. The Buyer is engaged in the business of providing management,
administrative, financial, marketing, information technology, and related
services to professional medical organizations.
C. Concurrently herewith, the Medical Group and the Buyer are entering into
a Management Services Agreement (the "Management Services Agreement"), pursuant
to which the Buyer will furnish to the Medical Group management, administrative,
and related services.
D. The Seller desires to sell, transfer, convey and assign to the Buyer and
the Buyer desires to purchase from the Seller, certain of the assets,
properties, interests in properties and rights of the Seller used in the Subject
Business upon the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements hereinafter set forth, the
parties hereby agree as follows:
<PAGE>
ARTICLE I
TRANSFER OF PURCHASED ASSETS, ASSUMPTION OF
LIABILITIES AND RELATED MATTERS
1.1. Transfer of Assets.
On the terms and subject to the conditions of this Agreement, at the
Closing (as hereinafter defined), the Seller shall sell, transfer, convey and
assign to the Buyer, and the Buyer shall purchase, assume, and accept from the
Seller, the following assets, properties, interests in properties and rights of
the Seller (the "Purchased Assets"), as the same shall exist immediately prior
to the Closing, free and clear of all Claims (as defined below) (except
Permitted Liens (as defined below)):
(a) the medical equipment owned by the Seller and listed on Schedule
1.1(a);
(b) the furniture, furnishings, trade fixtures, and office equipment
owned by the Seller and listed on Schedule 1.1(b);
(c) the Seller's rights and interests under the equipment leases
identified on Schedule 1.1(c), subject to the Buyer's assumption of the
obligations accruing thereunder as provided in Section 1.3;
(d) the supplies described on Schedule 1.1(d);
(e) the accounts receivable described on Schedule 1.1(e) (the
"Accounts Receivable") (subject to applicable law and in accordance with
Section 1.6 hereof);
(f) the Seller's rights and interests under the office leases
identified in Schedule 1.1(f), subject to the Buyer's assumption of the
obligations accruing thereunder as provided in Section 1.3;
-2-
<PAGE>
(g) the deposits identified on Schedule 1.1(g); and
(h) any additional items identified on Schedule 1.1(h).
1.2. Assets Not Being Transferred.
All assets, properties, interests in properties, and rights of the Seller
not expressly identified in Section 1.1 or the Schedules referenced therein (the
"Excluded Assets") are expressly excluded from the assets of the Seller being
sold, assigned, or otherwise transferred to the Buyer.
1.3. Liabilities Being Assumed.
Except as otherwise provided herein and subject to the terms and conditions
of this Agreement, simultaneously with the sale, transfer, conveyance and
assignment to the Buyer of the Purchased Assets, the Buyer shall assume, and
hereby agrees to pay when due, those liabilities accruing after the Closing Date
(as hereinafter defined) under the equipment leases identified in Schedule
1.1(c) and the office leases identified in Schedule 1.1(f) (the "Assumed
Obligations"); provided, however, that any and all obligations and liabilities
arising under any such lease as of or prior to the Closing Date and any and all
obligations and liabilities arising out of or in connection with the Seller's
breach of any such lease as of or prior to the Closing Date shall, in each case,
remain the obligations and liabilities of the Seller.
1.4. Liabilities Not Being Assumed.
The Buyer is not assuming any liabilities or obligations of the Seller
(fixed or contingent, known or unknown, matured or unmatured) whatsoever other
than the Assumed Obligations. For convenience of reference, all liabilities and
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obligations of the Seller not being assumed by the Buyer are collectively
referred to as the "Excluded Obligations." The Seller hereby agrees to pay all
Excluded Obligations as and when such Excluded Obligations become due.
1.5. Instruments of Conveyance and Transfer, Etc.
At the Closing, the Seller shall deliver (or cause to be delivered) to the
Buyer such deeds, bills of sale, endorsements, assignments and other good and
sufficient instruments of sale, transfer, conveyance and assignment as shall be
necessary to sell, transfer, convey and assign to the Buyer, in accordance with
the terms hereof, title to the Purchased Assets, free and clear of all Claims
(except Permitted Liens), including, without limitation, the delivery of a Bill
of Sale (the "Bill of Sale") substantially in the form of Exhibit A attached
hereto and the delivery of an Assignment and Assumption Agreement (the
"Assignment and Assumption Agreement") substantially in the form of Exhibit B
attached hereto. Simultaneously therewith, the Seller shall take all steps as
may be reasonably required to put the Buyer in possession and operating control
of the Purchased Assets.
1.6. Right of Endorsement, Etc.
Effective upon the Closing, the Seller hereby constitutes and appoints the
Buyer, its successors and assigns, the true and lawful attorney-in-fact of the
Seller with full power of substitution, in the name of the Buyer, or the name of
the Seller, on behalf of and for the benefit of the Buyer, to collect all
Accounts Receivable assigned to the Buyer as provided herein, to endorse,
without recourse, checks, notes and other instruments received in payment of
such Accounts Receivable in the name of the Seller, and to institute and
prosecute, in the name of the Seller or otherwise, all proceedings which the
Buyer may deem proper in order to assert or enforce any claim, right or
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title of any kind in or to the Purchased Assets (provided that the Buyer shall
not, without the consent of the Seller, initiate any such proceeding to collect
on Accounts Receivable acquired hereunder), to defend and compromise any and all
actions, suits or proceedings in respect of any of the Purchased Assets and to
do all such acts and things in relation thereto as the Buyer may deem advisable.
The foregoing powers are coupled with an interest and shall be irrevocable by
the Seller, directly or indirectly, whether by the dissolution of the Seller or
in any manner or for any reason; provided, however that notwithstanding anything
to the contrary contained herein, collections of Medicare and Medicaid Accounts
Receivable shall first be deposited into the Medical Group Collections Account
(as defined in the Management Services Agreement) or such other bank account as
may be required by law and shall thereafter be transferred to an account
designated by the Buyer in accordance with the procedures outlined in Section
5.1 of the Management Services Agreement. Notwithstanding anything contained
herein to the contrary, the power of attorney granted to the Buyer in this
Section 1.6 shall be terminated upon the termination of the Management Services
Agreement.
1.7. Further Assurances.
The Seller shall pay or cause to be paid to the Buyer promptly any amounts
which shall be received by the Seller, any Practicing Physician or the Medical
Group after the Closing which constitute Purchased Assets, including all amounts
paid to the Seller on account of the Accounts Receivable. The Seller shall, at
any time and from time to time after the Closing, upon the reasonable request of
the Buyer, execute, acknowledge, deliver and file, or cause to be executed,
acknowledged, delivered or filed and perform or cause to be performed, all such
further acts, transfers, conveyances, assignments or assurances as may
reasonably be required for better selling, transferring, conveying, assigning
and assuring to the Buyer, or for aiding and
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assisting in the collection of or reducing to possession by the Buyer, any of
the assets, properties, interests in properties or rights being purchased by the
Buyer hereunder. Any reasonable expenses incurred in connection with the
foregoing shall be borne by the Seller.
1.8. Assignment of Leases.
Anything contained in this Agreement to the contrary notwithstanding, this
Agreement shall not constitute an agreement or attempted agreement to assign any
office lease or equipment lease if an attempted assignment thereof, without the
consent of any other party thereto, would constitute a breach thereof or in any
way affect the rights of the Buyer or the Seller thereunder. The Seller shall
use its best efforts, and the Buyer shall cooperate with the Seller, to obtain
the consent of any such third party to the assignment thereof to the Buyer. If
such consent is not obtained, the Seller shall cooperate with the Buyer in any
arrangements reasonably necessary or desirable to provide for the Buyer the
benefits (together with the obligations to perform) thereunder.
1.9. Condition of Purchased Assets.
The Buyer acknowledges that the Seller makes no representations or
warranties, express or implied, as to any matter whatsoever relating to the
Purchased Assets, except for the representations and warranties expressly set
forth in this Agreement, and except as set forth expressly herein, the condition
of the Purchased Assets shall be "as is" and "where is".
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ARTICLE II
PURCHASE PRICE; ALLOCATION
2.1. Purchase Price; Payment.
The purchase price (the "Purchase Price") to be paid for the Purchased
Assets shall equal the sum of the following amounts:
(a) $300,000; and
(b) $1,300,000 (the "A/R Amount"), subject to adjustment in accordance
with Section 2.3, which amount is a good faith estimate of the aggregate
face value of all Accounts Receivable outstanding as of the Signature Date
and set forth on Schedule 1.1(e).
2.2. Allocation of Purchase Price.
The Purchase Price shall be allocated among the Purchased Assets in a
statement (the "Statement of Allocation") reflecting the allocation set forth in
Schedule 2.2 attached hereto. The parties shall complete their respective tax
returns for the period which includes the Closing Date in a manner that is
consistent with the Statement of Allocation.
2.3. Accounts Receivable Payment.
The portion of the Purchase Price specified in Section 2.1(b) is subject to
adjustment and shall be paid or repaid as follows:
(a) In the event that the aggregate amount of collections received by
the Buyer in payment of the Accounts Receivable (the "A/R Collections"), at
any time prior to the first anniversary of the Signature Date (the
"Determination Date"), exceeds the A/R Amount (such excess amount being
referred
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to herein as an "A/R Balance"), the Buyer shall pay to the Seller on the
last day of the month occurring after the month in which the Buyer first
determines such A/R Balance exists (such month in which the Buyer
determines that an A/R Balance occurred being referred to as the "Threshold
Month") an amount equal to the A/R Balance that had accrued through the
last day of the Threshold Month and, on the last day of each month
occurring thereafter through and including the Determination Date, the
Buyer shall pay to the Seller an amount, if any, equal to the A/R Balance
as of the last day of the previous month, less, in each case, the aggregate
amount previously paid pursuant to this sentence. The Buyer shall deliver
to the Seller, within 30 days after delivery of the Final Statement (as
hereinafter defined), a check in an amount, if any, equal to the A/R
Balance as of the Determination Date less the total amount of all payments
made to the Seller prior to such date pursuant to this Section 2.3(a).
Within thirty (30) days after the Determination Date, the Buyer shall
furnish to the Seller a statement (the "Final Statement") setting forth the
A/R Collections, including detail of write-offs of any of the Accounts
Receivable, the remaining outstanding balance of the Accounts Receivable,
and any other detail relating thereto as the Seller may reasonably request.
If, as of the Determination Date, the A/R Collections are less than the A/R
Amount (such deficit being referred to herein as the "A/R Shortfall"), the
Seller shall pay the A/R Shortfall to the Buyer by check in six equal
monthly installments (the first payment due 10 days after delivery of the
Final Statement). The parties hereto acknowledge and agree that after
delivery of the Final Statement and payment in full of the A/R Balance or
A/R Shortfall, as the case may be, neither party shall have any other
obligation to the other party with respect to the Accounts Receivable,
except that all remaining uncollected Accounts Receivable (the "Remainder")
shall be turned over to the Seller for disposition in such manner as the
Seller, in its sole discretion, shall determine. If the Buyer or any of its
employees, including any Administrative Personnel (as defined in the
Management Services Agreement)
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assists the Seller, the Practicing Physicians or the Medical Group in
collecting the Remainder, the Seller shall pay the Buyer on the first of
each month a collection fee equal to six percent (6%) of that portion of
the Remainder collected during the preceding month. Notwithstanding
anything to the contrary contained herein, in the event that the Management
Services Agreement is terminated prior to the Determination Date, such date
of termination shall be deemed the Determination Date for purposes of this
Section 2.3(a).
(b) All payments by patients and third party payors shall be accounted
for on a first-in-first-out basis unless any such payment is identified as
a payment in respect of a particular invoice or otherwise is designated as
payment of a particular invoice or for a particular service.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of the Seller.
The Seller hereby represents and warrants to the Buyer, as of the Signature
Date, as follows:
(a) Organization; Good Standing; Qualification and Power. The Seller
is a corporation duly formed, validly existing and in good standing under
the laws of the State of Florida and has all requisite power and authority
to own, lease and operate its properties and to carry on its business as
now being conducted and as proposed to be conducted, to execute and deliver
this Agreement, the Bill of Sale and the Assignment and Assumption
Agreement, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The Seller has
delivered to the Buyer a true and correct copy of its articles of
incorporation (the "Articles of
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Incorporation") and its bylaws (the "Bylaws"), each as in effect on the
date hereof.
(b) Authority. The execution, delivery and performance of this
Agreement, the Bill of Sale and the Assignment and Assumption Agreement and
the consummation of the transactions contemplated hereby and thereby have
been duly and validly authorized by all necessary corporate action on the
part of the Seller. This Agreement, the Bill of Sale and the Assignment and
Assumption Agreement have been duly and validly executed and delivered by
the Seller and constitute legal, valid and binding obligations of the
Seller enforceable in accordance with their respective terms, except as
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the rights of
creditors generally. Neither the execution, delivery or performance by the
Seller of this Agreement, the Bill of Sale or the Assignment and Assumption
Agreement nor the consummation by the Seller of the transactions
contemplated hereby or thereby, nor compliance by the Seller with any
provision hereof or thereof will (i) conflict with or result in a breach of
any provision of the Articles of Incorporation or Bylaws of the Seller,
(ii) cause a default (with due notice, lapse of time or both), or give rise
to any right of termination, cancellation or acceleration, under any of the
terms, conditions or provisions of any note, bond, lease, mortgage,
indenture, license or other instrument, obligation or agreement to which
the Seller is a party or by which it or any of its respective properties or
assets may be bound or (iii) to the Seller's best knowledge, violate any
law, statute, rule or regulation or order, writ, judgment, injunction or
decree of any court, administrative agency or governmental body applicable
to the Seller or any of its respective properties or assets. Except as set
forth on Schedule 3.1(b), to the Seller's best knowledge, no permit,
authorization, consent or approval of or by, or any notification of or
filing with, any person (governmental or private) is required in connection
with the execution, delivery or
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performance by the Seller of this Agreement, the Bill of Sale or the
Assignment and Assumption Agreement or the consummation of the transactions
contemplated hereby or thereby.
(c) Title to Assets, Properties, Interests in Properties and Rights
and Related Matters.
(i) The Seller has good and valid title to all of the Purchased
Assets, free and clear of all security interests, judgments, liens,
pledges, claims, charges, escrows, encumbrances, easements, options,
rights of first refusal, rights of first offer, mortgages, indentures,
security agreements or other agreements, arrangements, contracts,
commitments, understandings or obligations, whether written or oral
and whether or not relating in any way to credit or the borrowing of
money (collectively, "Claims"), of any kind or character, except for
(A) those Claims set forth on Schedule 3.1(c) and (B) Permitted Liens.
(ii) There does not exist any condition which materially
interferes with the economic value or use (consistent with the
Seller's past practice) of any tangible personal property included in
the Purchased Assets and such property is in working condition.
(iii) The Seller has the complete and unrestricted power and the
unqualified right to sell, transfer, convey and assign, and the Seller
is hereby selling, transferring conveying and assigning to the Buyer,
the Purchased Assets, free and clear of all Claims (other than those
claims set forth on Schedule 3.1(c) and Permitted Liens).
(iv) As used in this Agreement, "Permitted Liens" shall mean (A)
any lien for current taxes not yet due and payable, (B) liens of
carriers, warehousemen, mechanics and materialmen created in the
ordinary course of the Subject Business for amounts not yet due and
payable which do not
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materially detract from the value or impair the use of any property or
assets, (C) in the case of Purchased Assets, liens incurred in the
ordinary course of the Subject Business (including, without
limitation, surety bonds and appeal bonds) in connection with workers'
compensation, unemployment insurance and other types of social
security benefits and (D) statutory landlord liens securing rents not
yet due and payable.
(d) Litigation. Except as set forth on Schedule 3.1(d), there are no
(i) actions, suits, claims, legal or administrative or arbitration
proceedings or, to the Seller's best knowledge, investigations pending or,
to the Seller's best knowledge, threatened against the Seller, the
Purchased Assets or the Subject Business, whether at law or in equity, or
before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality or (ii)
judgments, decrees, injunctions or orders of any court, governmental
department, commission, agency, instrumentality or arbitrator against the
Seller or affecting the Purchased Assets or the Subject Business. The
Seller has delivered to the Buyer all documents and correspondence relating
to matters referred to in said Schedule 3.1(d).
(e) Compliance; Governmental Authorizations. To the Seller's best
knowledge, the Seller has complied in all material respects with all
applicable Federal, state, local or foreign laws, ordinances, regulations
and orders. The Seller has all Federal, state, local and foreign
governmental licenses and permits necessary in the conduct of the Subject
Business the lack of which would have a material adverse effect on the
Seller's ability to operate the Subject Business after the Closing Date on
substantially the same basis as presently operated, such licenses and
permits are in full force and effect, no violations are or have been
recorded in respect of any thereof and no proceeding is pending or, to the
Seller's best knowledge, threatened to revoke or limit any thereof. None of
such licenses and permits shall be
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affected in any material respect by the transactions contemplated hereby.
(f) Disclosure. Neither this Agreement (including the Exhibits and
Schedules attached hereto), the Bill of Sale, the Assignment and Assumption
Agreement nor any other document, certificate or written statement
furnished to the Buyer by or on behalf of the Seller in connection with the
transactions contemplated hereby contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make
the statements contained herein and therein not misleading.
3.2. Representations and Warranties of the Buyer.
The Buyer represents and warrants to the Seller, as of the Signature Date,
as follows:
(a) Organization, Good Standing and Power. The Buyer (i) is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, (ii) has all requisite corporate power and
authority to own, lease and operate its properties, to carry on its
business as now being conducted, to execute and deliver this Agreement and
the Assignment and Assumption Agreement, to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated
hereby and thereby.
(b) Authority. The execution, delivery and performance of this
Agreement and the Assignment and Assumption Agreement, and the consummation
of the transactions contemplated hereby and thereby, have been duly and
validly authorized by all necessary corporate action on the part of the
Buyer. This Agreement and the Assignment and Assumption Agreement have been
duly and validly executed and delivered by the Buyer, and constitute legal,
valid and binding obligations of the Buyer, enforceable in accordance with
their respective terms except as enforcement may be limited by applicable
bankruptcy, insolvency,
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reorganization, moratorium or similar laws affecting the rights of
creditors generally. Neither the execution, delivery or performance by the
Buyer of this Agreement or the Assignment and Assumption Agreement nor the
consummation by the Buyer of the transactions contemplated hereby or
thereby, nor compliance by the Buyer with any provision hereof or thereof,
will (i) conflict with or result in a breach of any provisions of the
Certificate of Incorporation or By-laws of the Buyer, (ii) cause a default
(with due notice, lapse of time or both), or give rise to any right of
termination, cancellation or acceleration, under any of the terms,
conditions or provisions of any material note, bond, lease, mortgage,
indenture, license or other instrument, obligation or agreement to which
the Buyer is a party or by which it or any of its properties or assets is
or may be bound or (iii) violate any law, statute, rule or regulation or
order, writ, judgment, injunction or decree of any court, administrative
agency or governmental body applicable to the Buyer or any of its
properties or assets. Except as set forth on Schedule 3.2(b), no permit,
authorization, consent or approval of or by, or any notification of or
filing with, any person (governmental or private) is required in connection
with the execution, delivery or performance by the Buyer of this Agreement
or the Assignment and Assumption Agreement or the consummation by the Buyer
of the transactions contemplated hereby or thereby.
(c) Litigation. Except as set forth on Schedule 3.2(c), there are no
(i) actions, suits, claims, legal or administrative or arbitration
proceedings or, to the Buyer's best knowledge, investigations pending or,
to the Buyer's best knowledge, threatened against the Buyer, whether at law
or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality or (ii) judgments, decrees, injunctions or orders of any
court, governmental department, commission, agency, instrumentality or
arbitrator against the Buyer.
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(d) Compliance; Governmental Authorizations. To the Buyer's best
knowledge, the Buyer has complied in all material respects with all
applicable Federal, state, local or foreign laws, ordinances, regulations
and orders. The Buyer has all Federal, state, local and foreign
governmental licenses and permits necessary in the conduct of its business,
the lack of which would have a material adverse effect on the Buyer's
ability to operate its business after the Closing Date on substantially the
same basis as presently operated, such licenses and permits are in full
force and effect, no violations are or have been recorded in respect of any
thereof and no proceeding is pending or, to the Buyer's best knowledge,
threatened to revoke or limit any thereof. None of such licenses and
permits shall be affected in any material respect by the transactions
contemplated hereby.
(e) Disclosure. Neither this Agreement (including the Exhibits and
Schedules attached hereto), the Assignment and Assumption Agreement nor any
other document, certificate or written statement furnished to the Seller by
or on behalf of the Buyer in connection with the transactions contemplated
hereby contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein
and therein not misleading.
ARTICLE IV
CONDITIONS TO CLOSING
4.1. Conditions to Each Party's Obligations.
The obligations of the Seller to sell the Purchased Assets, and of the
Buyer to purchase the Purchased Assets, are subject to the satisfaction of the
following conditions unless waived in writing (to the extent such conditions can
be waived by the Seller or the Buyer, as applicable):
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(a) Legal Action. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the
consummation of the transactions contemplated hereby shall have been issued
by any Federal or state court and remain in effect. Each party agrees to
use its best efforts to have any such injunction or order lifted.
(b) Legislation. No Federal, state, local or foreign statute, rule or
regulation shall have been enacted which prohibits, restricts or delays the
consummation of the transactions contemplated by this Agreement or any of
the conditions to the consummation of such transactions.
(c) Related Agreements. Each of the related agreements identified in
Section 4.4 hereof (collectively, the "Related Agreements") shall have been
fully executed and delivered prior to or at the Closing by all of the
parties required to execute and deliver such agreements.
4.2. Conditions to Obligations of the Buyer.
The obligation of the Buyer to purchase the Purchased Assets is subject to
the satisfaction of the following conditions unless waived in writing (to the
extent such conditions can be waived) by the Buyer:
(a) Representations and Warranties. The representations and warranties
of the Seller set forth in Section 3.1 shall in each case be true and
correct in all material respects as of the Closing Date and as of the
Signature Date as though made at and as of the Signature Date.
(b) Performance of Obligations. The Seller shall have performed all
obligations required to be performed by it under this Agreement prior to
and at the Closing.
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(c) Authorization. All action necessary to authorize the execution,
delivery and performance of this Agreement, the Bill of Sale and the
Assignment and Assumption Agreement by the Seller and the consummation of
the transactions contemplated hereby and thereby shall have been duly and
validly taken by the Seller and the Seller shall have full power and right
to consummate the transactions contemplated hereby and thereby.
(d) Consents and Approvals. The Seller shall have delivered to the
Buyer duly executed copies of (i) consents to the assignment of the
equipment leases and office leases listed on Schedules 1.1(c) and 1.1(f),
respectively, and (ii) all other approvals, if any, required by this
Agreement or the Schedules, in each case in form and substance satisfactory
to the Buyer and counsel to the Buyer.
(e) Government Consents, Authorizations, Etc. All consents,
authorizations, orders or approvals of, and filings or registrations with,
any Federal, state, local or foreign governmental commission, board or
other regulatory body which are required for or in connection with the
execution and delivery by the Seller of this Agreement, the Bill of Sale
and the Assignment and Assumption Agreement and the consummation by the
Seller of the transactions contemplated hereby and thereby shall have been
obtained or made.
4.3. Conditions to Obligations of the Seller.
The obligation of the Seller to sell the Purchased Assets to the Buyer is
subject to the satisfaction of the following conditions unless waived in writing
(to the extent such conditions can be waived) by the Seller:
(a) Representations and Warranties. The representations and warranties
of the Buyer set forth in Section 3.2 shall in each case be true and
correct in all material
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respects as of the Closing Date and as of the Signature Date as though made
at and as of the Signature Date.
(b) Performance of Obligations. The Buyer shall have performed all
obligations required to be performed by it under this Agreement prior to
and at the Closing.
(c) Authorization. All action necessary to authorize the execution,
delivery and performance of this Agreement and the Assignment and
Assumption Agreement by the Buyer and the consummation of the transactions
contemplated hereby and thereby shall have been duly and validly taken by
the Buyer.
(d) Government Consents, Authorizations, Etc. All consents,
authorizations, orders or approvals of, and filings or registrations with,
any Federal, state, local or foreign governmental commission, board or
other regulatory body which are required for or in connection with the
execution and delivery by the Buyer of this Agreement and the Assignment
and Assumption Agreement and the consummation by the Buyer of the
transactions contemplated hereby and thereby shall have been obtained or
made.
4.4. Related Agreements.
The Related Agreements referred to in this Agreement consist of the
following:
(a) the Management Services Agreement between the Buyer and the
Medical Group;
(b) the Restricted Stock Agreement between the Buyer and the
Practicing Physicians;
(c) the Stockholder Non-Competition Agreements among the Medical
Group, the Buyer, and the Practicing Physicians;
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(d) the Assignment of Office Leases, relating to each of the medical
office premises identified on Schedule 1.1(f), entered into between the
parties hereto;
(e) the Bill of Sale executed by the Seller; and
(f) the Assignment and Assumption Agreement between the Seller and the
Buyer.
ARTICLE V
CLOSING
5.1. Date.
The closing (the "Closing") for the consummation of the transactions
contemplated by this Agreement shall be deemed to have taken place at 12:01 a.m.
on September 1, 1997 (the "Closing Date"), irrespective of the actual date(s)
and time(s) that all of the documents required hereunder are executed and
delivered.
5.2. Closing Transactions.
At the Closing, the parties shall take the actions and deliver the
documents identified in this Section 5.2. The Closing shall not be deemed to
have taken place, and the transactions contemplated by this Agreement shall not
be deemed to have been consummated, unless all of the closing transactions
identified in this Section 5.2 have been completed or waived in writing by the
parties.
(a) The Seller shall deliver to the Buyer an executed copy of the Bill of
Sale;
(b) Each of the parties shall execute and deliver to the other a copy of
the Assignment and Assumption Agreement;
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(c) The Buyer shall deliver to the Seller a promissory note in the
principal amount of the Purchase Price, in form and substance mutually agreeable
to the parties hereto;
(d) Each of the parties to the Management Services Agreement shall execute
and deliver to the other a fully executed copy thereof;
(e) The Medical Group shall deliver the Restricted Stock Agreement to the
Buyer executed by each of the Practicing Physicians, and the Buyer shall execute
and deliver to the Medical Group the Restricted Stock Agreement for the
Practicing Physicians;
(f) The Buyer shall deliver to the Practicing Physicians stock certificates
issued in their respective names as required under the terms of the Restricted
Stock Agreement;
(g) The Medical Group shall deliver to the Buyer the Stockholder
Non-Competition Agreement executed by each of the Practicing Physicians; and
(h) The Seller shall deliver to the Buyer a copy of the resolutions of the
Seller authorizing the transactions contemplated hereby, accompanied by a
certificate of the Seller stating that such resolutions have been duly adopted
in accordance with Seller's Articles of Incorporation and By-laws.
ARTICLE VI
INDEMNIFICATION
6.1. Definitions.
As used in this Agreement, the following terms shall have the following
meanings:
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(a) "Affiliate", as to any person, means any other person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with such person.
(b) "Buyer Indemnification Event" shall mean the following:
(i) (A) the untruth, inaccuracy or breach of any representation
or warranty of the Seller contained in this Agreement, any Schedule or
Exhibit attached hereto, the Bill of Sale, the Assignment and
Assumption Agreement or any certificate delivered by the Seller in
connection herewith (or any facts or circumstances constituting any
such untruth, inaccuracy or breach) or (B) the breach of any agreement
or covenant of the Seller contained in this Agreement, the Bill of
Sale, or the Assumption or Assignment Agreement which is not cured
within thirty (30) days after the Seller receives written notice of
such breach from the Buyer;
(ii) the assertion against any Buyer Indemnified Person of any
liability or obligation arising from, relating to, or in any way
connected with the operation of the Subject Business at any time prior
to the Closing;
(iii) the assertion against any Buyer Indemnified Person of any
liability or obligation arising from, relating to, or in any way
connected with any Excluded Obligation; and
(iv) any non-compliance by the Seller with any "bulk sales laws"
to the extent that such laws may be applicable to the transactions
contemplated hereby.
(c) "Buyer Indemnified Persons" shall mean and include the Buyer, its
Affiliates and their respective officers, directors, and employees.
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(d) "Indemnified Persons" shall mean the Buyer Indemnified Persons or
the Seller Indemnified Persons, as the case may be.
(e) "Indemnifying Person" shall mean the Buyer or the Seller, as the
case may be.
(f) "Losses" shall mean any and all losses, claims, damages,
liabilities, expenses (including reasonable attorneys' and accountants'
fees), assessments, tax deficiencies and taxes (including interest or
penalties thereon) sustained, suffered or incurred by any Indemnified
Person arising from any matter which is the subject of indemnification
under Section 6.2.
(g) "Seller Indemnification Event" shall mean (i) the untruth,
inaccuracy or breach of any representation or warranty of the Buyer
contained in this Agreement, any Schedule or Exhibit attached hereto, the
Assignment and Assumption Agreement or any certificate delivered by the
Buyer in connection herewith (or any facts or circumstances constituting
any such untruth, inaccuracy or breach) or (ii) the breach of any agreement
or covenant of the Buyer contained in this Agreement or the Assignment and
Assumption Agreement which is not cured within thirty (30) days after the
Buyer receives written notice of such breach from the Seller, including,
without limitation, the assertion against any Seller Indemnified Person of
any liability or obligation arising from, relating to, or in any way
connected with any Assumed Obligation.
(h) "Seller Indemnified Persons" shall mean and include the Seller and
its equity owners, directors, officers and employees.
6.2. Indemnification Generally.
(a) The Seller shall indemnify, defend and hold harmless the Buyer
Indemnified Persons, and each of them, from
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<PAGE>
and against any and all Losses resulting from Buyer Indemnification Events.
(b) The Buyer shall indemnify, defend and hold harmless the Seller
Indemnified Persons, and each of them, from and against any and all Losses
resulting from Seller Indemnification Events.
(c) The parties hereto agree that in the event of a conflict between the
terms of this Article VI and the terms of the Management Services Agreement, the
terms and provisions of the Management Services Agreement shall prevail.
6.3. Assertion of Claims.
No claim, demand, suit or cause of action shall be brought under Section
6.2 unless the Indemnified Persons, or any of them, give the Indemnifying Person
written notice of the existence of any such claim, demand, suit or cause of
action, stating with particularity the nature and basis of said claim, and the
amount thereof, to the extent known, and providing to the extent reasonably
available all written documentation relating thereto. Such written notice shall
be delivered to the Indemnifying Person as soon as practicable upon receipt of
actual knowledge of such claim, demand, suit or cause of action; provided,
however, that the failure to provide such written notice shall not affect the
Indemnified Persons' right to indemnification hereunder if failure to provide
such written notice does not materially adversely affect the Indemnifying
Person. Upon the giving of such written notice as aforesaid, the Indemnified
Persons, or any of them, shall have the right to commence legal proceedings
subsequent to the applicable survival date, if any, for the enforcement of their
rights under Section 6.2.
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<PAGE>
6.4. Notice and Defense of Third Party Claims.
(a) In the event any action, suit or proceeding is brought by a third party
against an Indemnified Person, with respect to which an Indemnifying Person may
have liability under Section 6.2, the action, suit or proceeding shall, upon the
written agreement of the Indemnifying Person that it is obligated with respect
to such action, suit or proceeding, be defended (including all proceedings on
appeal or for review which counsel for the defendant shall deem appropriate)
and, unless otherwise provided below, controlled by such Indemnifying Person.
The Indemnified Persons shall have the right to employ its or their own counsel
in any such case, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Persons, unless (i) the employment of such counsel
shall have been authorized in writing by the Indemnifying Person in connection
with the defense of such action, suit or proceeding, (ii) the Indemnifying
Person shall fail actively and diligently to defend such action, suit or
proceeding, or (iii) the Indemnified Persons shall have reasonably concluded
that there may be one or more legal or equitable defenses available to the
Indemnified Persons which are different from or additional to those available to
the Indemnifying Person, in any of which events the Indemnifying Person shall
not have the right to direct the defense of such action, suit or proceeding on
behalf of the Indemnified Persons and that portion of any fees and expenses of
counsel related to matters covered by the indemnity agreement and contained in
Section 6.2 shall be borne by the Indemnifying Person. The Indemnified Persons
shall be kept fully informed of such action, suit or proceeding at all stages
thereof whether or not they are so represented. The Indemnifying Person shall
make available to the Indemnified Persons and their attorneys and accountants
all books and records of the Indemnifying Person relating to such action, suit
or proceeding and the parties hereto agree to render to each other such
assistance as they may reasonably require of
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<PAGE>
each other in order to ensure the proper and adequate defense of any such
action, suit or proceeding.
(b) The Indemnifying Person shall not make any settlement of any action,
suit or proceeding without the written consent of the Indemnified Persons, which
consent shall not be unreasonably withheld; provided, however, that in the event
the Indemnified Persons refuse to consent to a settlement acceptable to the
Indemnifying Person which is capable of settlement by the payment of money only
and the Indemnifying Persons shall demonstrate to the reasonable satisfaction of
the Indemnified Persons their ability to pay such amount, the Indemnifying
Person may pay the amount of the proposed settlement to the Indemnified Persons
and shall thereupon be released from any further liability with respect to such
action, suit or proceeding.
6.5. Survival of Representations, Warranties and Covenants.
The representations and warranties of the Seller contained in Section 3.1
and the representations and warranties of the Buyer contained in Section 3.2
shall survive the Closing and shall terminate forty-five (45) days following the
second anniversary of the Signature Date; provided, however, that the
representations and warranties of the Seller set forth in Sections 3.1(a),
3.1(b), 3.1(c) and 3.1(e), and the representations and warranties of the Buyer
set forth in Sections 3.2(a) and 3.2(b), shall survive the Closing and remain in
full force and effect until the expiration of the statute of limitations, if
any, applicable to the matters set forth therein (and indefinitely, if none).
ARTICLE VII
AMENDMENT, MODIFICATION AND WAIVER
This Agreement shall not be altered or otherwise amended except pursuant to
an instrument in writing signed by
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<PAGE>
each of the parties. The waiver by one party of the performance of any covenant,
condition or promise shall not invalidate this Agreement, nor shall it be
considered as a waiver by such party of any other covenant, condition or
promise. The delay in pursuing any remedy or in insisting upon full performance
for any breach or failure of any covenant, condition or promise shall not
prevent a party from later pursuing any remedies or insisting upon full
performance for the same or any similar breach or failure.
ARTICLE VIII
MISCELLANEOUS
8.1. Transfer Taxes, Etc.
The Seller shall pay all sales, use and excise taxes and all registration,
recording or transfer taxes which may be payable in connection with the
transactions contemplated by this Agreement.
8.2. Entire Agreement.
This Agreement (including the recitals hereof and the Schedules and the
Exhibits attached hereto), together with the Related Agreements referenced
herein, contains the entire agreement between the parties hereto with respect to
the transactions contemplated hereby and supersedes all prior agreements,
representations, warranties and understandings, either oral or written, between
the parties with respect thereto.
8.3. Descriptive Headings.
Descriptive headings are for convenience only and shall not control or
affect the meaning or construction of any provisions of this Agreement.
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<PAGE>
8.4. Notices.
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally or sent by
telecopier, nationally-recognized overnight courier, or certified mail, postage
prepaid, return receipt requested, addressed as follows:
(a) if to the Buyer, to:
BMJ Medical Management, Inc.
4800 North Federal Highway, Suite 104D
Boca Raton, Florida 33431
Attention: President
Telecopier: (561) 391-1389;
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Jeffrey S. Held, Esq.
Telecopier: (212) 408-2420; and
(b) if to the Seller, to:
Lighthouse Orthopaedic management group , INC.
1821 N.E. 25th Street
Lighthouse Point , Florida 33064
Attention: President
Telecopier: (954) 946-7018;
with a copy to:
Strawn, Monaghan & Cohen, P.A.
54 Northeast Fourth Avenue
Delray Beach, Florida 33483
Attention: Jeffrey L. Cohen, Esq.
Telecopier: (561) 278-9462;
or to such other address as the party to whom notice is to be given may have
furnished to each other party in writing in accordance herewith. Any such
communication shall be deemed to have been given (i) when delivered if
personally delivered or sent by telecopier, (ii) on the next Business Day after
dispatch if sent by nationally-recognized, overnight courier and (iii) on the
fifth Business Day after dispatch, if sent by mail. As used
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<PAGE>
herein, "Business Day" means a day that is not a Saturday, Sunday or a day on
which banking institutions in the state of Florida are not required to be open.
8.5. Counterparts.
This Agreement may be executed in any number of counterparts, and each such
counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
8.6. Bulk Sales Compliance.
The Buyer hereby waives compliance by the Seller with the provisions of the
"bulk sales laws" of any state which may be in effect and applicable to the
transactions contemplated hereby; provided, however, that the Seller shall
indemnify the Buyer in connection with such noncompliance to the extent provided
in Article 6 hereof.
8.7. Governing Law; Jurisdiction.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Florida without giving effect to the
laws and principles thereof, or of any other jurisdiction, which would direct
the application of the laws of another jurisdiction. The parties to this
Agreement agree that jurisdiction and venue in any action brought pursuant to
this Agreement by any party hereto may lie in any Federal or state court located
in Broward County, State of Florida. By execution and delivery of this
Agreement, the parties hereto irrevocably submit to the jurisdiction of such
courts for themselves and in respect of their property with respect to such
action. The parties hereto irrevocably agree that venue would be proper in such
court, and hereby waive any objection that such court is an improper or
inconvenient forum for the resolution of such action, The parties hereto shall
act in good faith and
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<PAGE>
shall refrain from taking any actions to circumvent or frustrate the provisions
of this Agreement.
8.8. Attorneys' Fees.
In the event of any dispute or controversy arising out of or relating to
this Agreement, the prevailing party shall be entitled to recover from the other
party all costs and expenses, including attorneys' fees and accountants' fees,
incurred in connection with such dispute or controversy.
8.9. Benefits of Agreement.
The terms and provisions of this Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and permitted
assigns. Anything contained herein to the contrary notwithstanding, this
Agreement shall not be assignable by any party without the consent of the other
party hereto, and any purported assignment without such consent shall be null
and void.
8.10. Pronouns.
As used herein, all pronouns shall include the masculine, feminine, neuter,
singular and plural thereof whenever the context and facts require such
construction.
8.11. Change of Law.
In the event that legal counsel for either party reasonably determines (the
"Legal Determination") that the ability of the parties to fulfill their material
obligations hereunder are materially and adversely impacted by any change in
Federal, state or local law, rules, regulations or any published official
interpretation of any of the foregoing, as applied to this Agreement, and such
Legal Determination is confirmed in writing by independent legal counsel jointly
selected by the
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<PAGE>
parties, then, the parties shall negotiate in good faith to amend this Agreement
to avoid such materially adverse impact, if possible, while maintaining the
material economic benefits intended to be conferred hereby. If this Agreement is
not so amended within ninety (90) days after confirmation by the independent
legal counsel, then this Agreement may be terminated by either party. The fees
and expenses of the independent counsel shall be borne equally by the parties if
such independent counsel confirms the Legal Determination, and shall be borne
solely by the initiating party if the Legal Determination is not so confirmed.
Each party shall pay its own legal costs and fees in connection with the
foregoing.
* * * *
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Asset
Purchase Agreement to be executed on its behalf effective as of the day and year
first above written.
BMJ MEDICAL MANAGEMENT, INC.
By:
----------------------------------------
Name:
Title:
LIGHTHOUSE ORTHOPAEDIC MANAGEMENT GROUP, INC.
By:
----------------------------------------
Name:
Title:
<PAGE>
SCHEDULE 1.1(d)
---------------
Supplies
--------
All of the medical supplies, office supplies, postage, and printed
materials owned by the Seller and located on the premises of any of the Seller's
offices at 12:01 a.m. on the Closing Date hereunder.
<PAGE>
SCHEDULE 1.1(e)
---------------
Accounts Receivable
-------------------
All of the Accounts Receivable of the Practicing Physicians, which Accounts
Receivable were previously assigned to the Seller, the payment of which would
constitute "Collections" as defined in Section 5.3(c)(ii) of the Management
Services Agreement, determined as of 12:01 a.m. of the Closing Date hereunder.
<PAGE>
SCHEDULE 2.2
------------
Allocation of Purchase Price
----------------------------
Medical Equipment, Furniture, Furnishings, Trade Fixtures, and
Office Equipment $ 100,000
One Hundred Percent (100%) of the estimated collectible amount of
Accounts Receivable, subject to adjustment in accordance with
Section 2.3 $1,300,000
Purchase of intangible assets for access and rights to same
(going concern, work force in place, access to patient records
and logs, and booked business) $200,000
TOTAL: $1,600,000
<PAGE>
SCHEDULE 3.2(b)
---------------
Buyer Consents
--------------
The authorization of the Buyer's board of directors is required in
connection with the consummation of the transactions contemplated by this
Agreement.
<PAGE>
SCHEDULE 3.2(c)
---------------
Buyer Litigation
----------------
1. A former employee of the Parent has filed a complaint in the District
Court of Harris County, Texas, which asserts claims arising out of his
termination by the Company and an alleged stock purchase agreement
among the Parent, such employee and the individuals mentioned in item
numbered two below. The Parent has removed the case to the United
States District Court for the Southern District of Texas.
2. Certain individuals have filed a complaint in the District Court of
Harris County, Texas, which claims that the Parent has breached an
agreement for the sale of the Parent's securities to such individuals.
The Parent has removed the case to the United States District Court
for the Southern District of Texas.
<PAGE>
EXHIBIT A
---------
BILL OF SALE
------------
LIGHTHOUSE ORTHOPAEDIC MANAGEMENT GROUP, INC., a Florida corporation (the
"Seller"), hereby sells, conveys, transfers, assigns and delivers to BMJ MEDICAL
MANAGEMENT, INC., a Delaware corporation (the "Buyer"), the following assets,
properties, interests in properties and rights of the Seller (collectively, the
"Purchased Assets"):
1. the medical equipment owned by the Seller and listed on Schedule 1.1(a)
of that certain Asset Purchase Agreement between the Seller and the Buyer
entered into as of the date hereof (the "Asset Purchase Agreement");
2. the furniture, furnishings, trade fixtures, and office equipment owned
by the Seller and listed on Schedule 1.1(b) of the Asset Purchase Agreement;
3. the Seller's rights and interests under the equipment leases identified
on Schedule 1.1(c) of the Asset Purchase Agreement, subject to the Buyer's
assumption of the obligations accruing thereunder from and after the date
hereof;
4. the supplies described on Schedule 1.1(d) of the Asset Purchase
Agreement;
5. the accounts receivable described on Schedule 1.1(e) of the Asset
Purchase Agreement;
6. the Seller's rights and interests under the office leases identified in
Schedule 1.1(f) of the Asset Purchase Agreement, subject to the Buyer's
assumption of the obligations accruing thereunder from and after the date
hereof;
7. the deposits identified on Schedule 1.1(g) of the Asset Purchase
Agreement; and
<PAGE>
8. any additional items identified on Schedule 1.1(h) of the Asset Purchase
Agreement.
All assets, properties, interests in properties, and rights of the Seller not
expressly identified above or in the schedules referenced in the Asset Purchase
Agreement (the "Excluded Assets") are expressly excluded from the assets of the
Seller being sold, assigned, or otherwise transferred to the Buyer.
To the extent that there is a conflict between the terms and provisions of
this Bill of Sale and the Asset Purchase Agreement, the terms and provisions of
the Asset Purchase Agreement shall prevail.
IN WITNESS WHEREOF, the Seller has executed this instrument on the ____ day
of October, 1997, effective as of September 1, 1997.
LIGHTHOUSE ORTHOPAEDIC MANAGEMENT GROUP, INC.
By:
------------------------------------------
Name:
Title:
<PAGE>
EXHIBIT B
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS AGREEMENT (the "Agreement") is entered into on October ____, 1997,
effective as of September 1, 1997, between LIGHTHOUSE ORTHOPAEDIC MANAGEMENT
GROUP, INC. ("Assignor") and BMJ MEDICAL MANAGEMENT, INC. ("Assignee").
A. Pursuant to the terms of the Asset Purchase Agreement dated as of the
date hereof (the "Asset Purchase Agreement"), between Assignor, as Seller, and
Assignee, as Buyer, Assignor has concurrently with the delivery hereof, sold,
conveyed, transferred, assigned and delivered to Assignee certain assets of
Assignor (the "Purchased Assets"), which are specifically identified in the
Asset Purchase Agreement.
B. In partial consideration of the Purchased Assets, the Asset Purchase
Agreement provides that Assignee shall assume certain liabilities of Assignor,
identified in Section 1.3 of the Asset Purchase Agreement.
NOW, THEREFORE, Assignor and Assignee hereby agree as follows:
1. Assignment; Assumption.
Assignor hereby assigns, transfers and delivers to Assignee, and Assignee
does hereby accept, all of Assignor's rights, titles, and interests, legal and
equitable, in, to and under the equipment leases and office leases identified in
Schedule 1.1(c) and Schedule 1.1(f) of the Asset Purchase Agreement (the
"Assigned Contracts"), and Assignee agrees to assume and to pay when due, those
liabilities accruing from and after the date hereof under the Assigned Contracts
and to observe, perform, and comply with the covenants, restrictions,
limitations, and conditions imposed upon Assignor under the
<PAGE>
Assigned Contracts; provided, however, that any and all obligations and
liabilities arising under any such lease as of or prior to the Closing Date and
any and all obligations and liabilities arising out of or in connection with the
Seller's breach of any such lease shall, in each case, remain the obligations
and liabilities of the Seller.
2. Limitation of Assumption.
2.1 Right to Contest Obligations.
Nothing contained in this Agreement shall require that Assignee
perform, pay or discharge any obligation expressly assumed hereby so long
as Assignee shall in good faith contest or cause to be contested the amount
or validity thereof.
2.2 Obligations Not Assumed.
Other than as specifically stated above, Assignee is not assuming any
liabilities or obligations of the Assignor (whether fixed or contingent,
known or unknown, matured or unmatured).
To the extent there is a conflict between the terms and provisions of
this Assignment and Assumption Agreement and the Asset Purchase Agreement,
the terms and provisions of the Asset Purchase Agreement shall prevail.
* * * *
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Asset
Purchase Agreement to be executed on its behalf effective as of the day and year
first above written.
BMJ MEDICAL MANAGEMENT, INC.
By: /s/ Randal J. Farwell
------------------------------------------
Name: Randal J. Farwell
Title: VP
LIGHTHOUSE ORTHOPAEDIC MANAGEMENT GROUP, INC.
By: /s/ Dominic J. Kleinhenz, M.D.
------------------------------------------
Name: Dominic J. Kleinhenz, M.D.
Title: President
EXECUTION COPY
RESTRICTED STOCK AGREEMENT
THIS RESTRICTED STOCK AGREEMENT (the "Agreement") is entered into as of
October 28, 1997, between BMJ MEDICAL MANAGEMENT, INC., a Delaware corporation
(the "Company"), and the individuals identified on the signature page hereto
(each, a "Stockholder" and collectively, the "Stockholders"). This Agreement is
entered into in connection with and concurrently with that certain Management
Services Agreement effective as of September 1, 1997 (the "Management Services
Agreement") between the Company and lighthouse Orthopaedic Associates, P.A. (the
"Medical Group"). The issuance of capital stock hereunder is also consideration
under the Asset Purchase Agreement between the Company and each of the
Stockholders. Certain capitalized terms used herein are defined in Section 5
below.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and intending to be legally bound hereby, the Company
and each Stockholder (for himself or herself only) hereby agree as follows:
1. Purchase and Sale of Restricted Shares; Representations and Warranties
of Stockholder.
(a) Upon execution of this Agreement, the Company shall, pursuant to
Section 4 and Schedule III of the Management Services Agreement, issue to each
Stockholder that number of shares (such shares are referred to herein as the
"Restricted Shares") of common stock, $.001 par value (the "Common Stock"), of
the Company set forth opposite such Stockholder's name on Schedule A attached
hereto. The aggregate shares of Common Stock issued to the Stockholders are
referred to collectively herein as "Restricted Stock." Simultaneously with the
execution and delivery hereof, the Company is delivering to each Stockholder the
certificate(s) representing the Restricted Shares.
(b) In connection with the issuance of the Restricted Shares hereunder,
each Stockholder (as to himself or herself only) represents and warrants to the
Company that:
(i) the Restricted Shares to be issued to such Stockholder pursuant to
this Agreement shall be acquired for such Stockholder's own account, for
investment only and not with a view to, or intention of, distribution
thereof in violation of the 1933 Act, or any applicable state securities
laws, and the Restricted Shares will not be disposed of in contravention of
the 1933 Act or any applicable state securities laws;
<PAGE>
(ii) such Stockholder has generally such knowledge and experience in
business and financial matters and with respect to investments in
securities of privately held companies so as to enable such Stockholder to
understand and evaluate the risks and benefits of his or her investment in
the Restricted Shares;
(iii) such Stockholder has no need for liquidity in his or her
investment in the Restricted Shares and is able to bear the economic risk
of his or her investment in the Restricted Shares for an indefinite period
of time and understands that the Restricted Shares have not been registered
or qualified under the 1933 Act or any applicable state securities laws, by
reason of the issuance of the Restricted Shares in a transaction exempt
from the registration and qualification requirements of the 1933 Act or
such state securities laws and, therefore, cannot be sold unless
subsequently registered or qualified under the 1933 Act or such state
securities laws or an exemption from such registration or qualification is
available;
(iv) such Stockholder understands that the exemption from registration
afforded by Rule 144 (the provisions of which are known to such
Stockholder) promulgated under the 1933 Act, depends on satisfaction of
various conditions and that, if applicable, Rule 144 may only afford the
basis for sales under certain circumstances and only in limited amounts;
(v) except as set forth on Annex I attached hereto, such Stockholder
is an individual (A) whose individual net worth, or joint net worth with
his or her spouse, presently exceeds $1,000,000 or (B) who had an income in
excess of $200,000 in each of the two most recent years, or joint income
with his or her spouse in excess of $300,000 in each of those years (in
each case including foreign income, tax exempt income and the full amount
of capital gains and losses but excluding any income of other family
members and any unrealized capital appreciation) and has a reasonable
expectation of reaching the same income level in the current year; or such
Stockholder otherwise meets the requirements to be considered an accredited
investor, as defined under the 1933 Act; and
(vi such Stockholder has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of the
Restricted Shares and has had full access to or been provided with such
other information concerning the Company as he or she has requested.
(c) This Agreement constitutes the legal, valid and binding obligation of
each Stockholder, enforceable in
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<PAGE>
accordance with its terms, and the execution, delivery and performance of this
Agreement by each such Stockholder does not and will not conflict with, violate
or cause a breach of any agreement, contract or instrument to which such
Stockholder is a party or any judgment, order or decree to which such
Stockholder is subject.
(d) As an inducement to the Company to issue the Restricted Shares to each
Stockholder and as a condition thereto, each Stockholder acknowledges and agrees
that:
(i) neither the issuance of the Restricted Shares to such Stockholder
nor any provision contained herein shall affect the right of the Company to
terminate the Management Services Agreement in accordance with its terms;
and
(ii) the Company shall only be obligated to provide to such
Stockholder substantially the same information regarding the Company that
the Company regularly discloses to its other shareholders.
2. Vesting of the Restricted Shares.
(a) Except as otherwise provided in Section 2(b) below, the Restricted
Shares held by each Stockholder shall become vested in accordance with the
following schedule, if, as of each such date, (i) the Management Services
Agreement has not been terminated, (ii) there has not been a Cessation of Active
Practice by such Stockholder (as defined in Section 2(c) below), (iii) such
Stockholder has not become permanently disabled (as described in Section
3(a)(iii) below), and (iv) such Stockholder has not died:
Anniversary Date Percentage of
of this Agreement Restricted Shares Vested
----------------- ------------------------
First 25%
Second 25%
Third 25%
Fourth 25%
For purposes of this Agreement, "Anniversary Date of this Agreement" means
September 1 of each year after 1997. Restricted Shares which have become vested
are referred to herein as "Vested Shares" and all other Restricted Shares are
referred to herein as "Unvested Shares."
(b) Notwithstanding the foregoing, in the event of the death of such
Stockholder, in addition to any shares that have vested in accordance with
Section 2(a) above, the number of Unvested Shares, if any, that would have
become Vested Shares
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<PAGE>
during the 12-month period immediately following the date of death had such
death not occurred shall be deemed Vested Shares as of the date of death.
(c) For purposes of this Agreement, "Cessation of Active Practice" means a
physician Stockholder's resignation from or termination of employment with the
Medical Group (other than by reason of death or permanent disability).
3. Forfeiture and Repurchase of Restricted Shares.
(a) Forfeiture. In the event of the Cessation of Active Practice by or the
death or permanent disability of a Stockholder (the "Forfeiture Event"), the
following provisions shall apply:
(i) Such Stockholder or the estate (in the case of death) of such
Stockholder shall transfer to the Medical Group, all of the Unvested Shares
held by such Stockholder. Such Unvested Shares shall be transferred for no
consideration from the Company and the stock certificate(s) representing
those shares shall be delivered to the Company, no later than thirty (30)
days after the Forfeiture Event, duly endorsed for transfer in accordance
with this Section 3(a). The Company shall, within thirty (30) days after
its receipt of a joinder to this Agreement executed by the Medical Group,
issue and deliver to the Medical Group a certificate representing the
Unvested Shares. Such Unvested Shares shall continue to vest according to
the vesting schedule set forth in Section 2(a) above.
(ii) The Medical Group shall not Sell (as hereinafter defined) any
Unvested Shares to any Person, other than to one or more physician
employees or equity owners of the Medical Group, who prior to the receipt
of such shares from the Medical Group had not acquired any shares of the
Company's Common Stock pursuant to the Management Services Agreement
between the Company and the Medical Group. As a condition to any such Sale,
the transferee shall execute and deliver to the Company a Restricted Stock
Agreement in substantially the form of this Agreement, effective as of the
date of transfer of such shares. Any Unvested Shares distributed according
to this Section 3(a) shall be subject to the vesting schedule set forth in
Section 2(a) hereof.
(iii) For purposes of this Agreement, if such Stockholder is insured
under a disability insurance policy, the determination under such policy as
to whether such Stockholder's condition constitutes a permanent disability
shall be binding on the parties hereto. If such Stockholder is not insured
under a policy of disability insurance, such
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<PAGE>
determination shall be made by an independent qualified physician proposed
by the Medical Group, subject to the approval of the Company, which
approval shall not be unreasonably withheld.
(b) Repurchase. In the event that the Management Services Agreement is
terminated for any reason prior to the fourth anniversary of the Commencement
Date (as defined therein) (the "Repurchase Event"), the Company shall have the
right (but not the obligation) (the "Repurchase Option"), to be exercised in its
sole discretion, to repurchase all or any portion of the Restricted Shares
(whether vested or unvested and whether held by the Stockholders or one or more
of any Stockholder's Permitted Transferees) pursuant to the terms and conditions
set forth in this Section 3(b).
(i) The Company may elect to exercise the Repurchase Option and
repurchase all or any portion of the Restricted Shares by delivering
written notice (the "Repurchase Notice") to each Stockholder within ninety
(90) days after the Repurchase Event; provided, however, that, if the
Company elects to repurchase less than all of the Restricted Shares, the
Company shall first repurchase Unvested Shares and then repurchase that
number of Vested Shares, if any, as the Company may, in its sole
discretion, elect. The Repurchase Notice shall set forth the number of
Unvested Shares and Vested Shares to be repurchased, the aggregate
consideration to be paid for such shares, and the time and place for the
closing of the transaction. The purchase price payable for each Unvested
Share shall equal $.01 and the purchase price payable for each Vested Share
shall equal the Original Value of such share. If the Company decides to
repurchase Restricted Shares from any Stockholder pursuant to this Section
3(b), then the Company must purchase that number of Restricted Shares which
it has elected to repurchase from all of the Stockholders pro rata
according to the number of shares of Restricted Stock held by all of the
Stockholders at the time of delivery of such Repurchase Notice (determined
as nearly as practicable to the nearest whole share).
(ii) The closing of the repurchase of Restricted Shares pursuant to
the Repurchase Option shall take place on the date designated by the
Company in the Repurchase Notice, which date shall not be more than sixty
(60) days nor less than five (5) days after the delivery of the Repurchase
Notice. The Company shall pay for Restricted Shares to be purchased
pursuant to the Repurchase Option by delivery of (A) a cashier's check or
wire transfer of funds, (B) subordinated note or notes payable in up to
four equal annual installments beginning on the first anniversary of the
closing of such purchase and bearing interest (payable quarterly) at a rate
per annum equal to the greater of
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<PAGE>
either the prime rate announced from time to time by The Chase Manhattan
Bank (National Association) plus 1/2% or the "applicable Federal rate" (as
defined in Section 1274(d) of the Internal Revenue Code) in effect from
time to time, or (C) a combination of both (A) and (B), in the aggregate
amount of the repurchase price for such shares; provided, however, that in
the event the Medical Group is obligated to pay to the Company any sums in
connection with the repurchase of assets by the Medical Group pursuant to
Section 13.5 of the Management Services Agreement, the total amount of such
sums may be offset by the Company against any amounts owed by the Company
to the Stockholders pursuant to this Agreement (if any such Stockholder is,
at such time, an equity owner of or partner in the Medical Group), such
offset amount to be allocated pro rata among all of the Stockholders who at
such time hold equity of or are partners in the Medical Group. Any notes
issued by the Company pursuant to this paragraph 3(b)(ii) shall be subject
to the restrictive covenants, if any, to which the Company is subject at
the time of such repurchase. The Company shall be entitled to receive
representations and warranties from such Stockholder regarding (x) such
Stockholder's power, authority and legal capacity to enter into such sale
and to transfer valid right, title and interest in such Restricted Shares,
(y) such Stockholder's ownership of such Restricted Shares and the absence
of any liens, pledges, and other encumbrances on such Restricted Shares and
(z) the absence of any violation, default, or acceleration of any agreement
or instrument pursuant to which such Stockholder or such Stockholder's
assets are bound resulting from such sale.
(iii) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of Restricted Shares by the Company under this
Section 3(b) shall be subject to applicable restrictions, if any, contained
in its certificate of incorporation, any financing agreement to which the
Company is a party, Federal law or the Delaware General Corporation Law. If
any such restrictions prohibit or otherwise delay the repurchase of
Restricted Shares hereunder which the Company is otherwise entitled or
required to make, the Company may make such repurchases as soon as it is
permitted to do so.
(iv) In the event that any Restricted Shares are repurchased pursuant
to this Section 3(b), such Stockholder and his or her successors and
assigns shall, at the Company's expense, take all reasonable steps to
obtain all required third-party, governmental and regulatory consents and
approvals and take all other reasonable actions necessary to facilitate
consummation of such repurchase in a timely manner.
-6-
<PAGE>
4. Transfer Restriction; Legend.
Except as otherwise expressly provided in Section 3 and except for
Permitted Transfers, no Stockholder may sell or transfer or agree to sell or
transfer ("Sale" or "Sell") any Restricted Shares unless such Sale shall be in
accordance with the procedures set forth in this Section 4; provided, however,
that with respect to this Section 4, Restricted Shares, at any point in time,
shall be limited to Vested Shares and at no time shall any Stockholder have the
right to Sell Unvested Shares (other than pursuant to Section 3 above):
(a) In the event that a Stockholder receives a bona fide offer from a
third party (the "Prospective Stockholder") to purchase all or any part of
the Restricted Shares owned by such Stockholder, such Stockholder shall
deliver to the Company a written notice (the "Offer Notice"), which shall
be irrevocable for a period of fifteen (15) business days after delivery
thereof (the "Offer Period"), offering (the "Offer") all of the Restricted
Shares proposed to be Sold by such Stockholder to the Prospective
Stockholder at the purchase price and on the terms of the proposed Sale to
the Prospective Stockholder (such Offer Notice shall include the foregoing
information, a copy of the Prospective Stockholder's bona fide offer and
all other relevant terms of the proposed Sale, including the identification
of the Prospective Stockholder). The Company shall have the right and
option, for a period of fifteen (15) business days after delivery of the
Offer Notice, to repurchase all or any part of the Restricted Shares so
offered at the purchase price and on the terms stated in the Offer Notice.
Such acceptance shall be made by delivering a written notice to such
Stockholder within said fifteen (15) business-day period.
(b) Sales of Restricted Shares under the terms of Section 4(a) above
shall be made on a mutually satisfactory business day within fifteen (15)
business days after the expiration of the Offer Period. Delivery of
certificates or other instruments evidencing such Restricted Shares duly
endorsed for transfer shall be made on such date against payment of the
purchase price therefor.
(c) If the Company fails to purchase all of the Restricted Shares
offered for Sale pursuant to the Offer Notice, then at any time within
sixty (60) business days after the expiration of the Offer Period such
Stockholder may Sell all or any part of the remaining Restricted Shares so
offered for Sale on terms no more favorable to the Prospective Stockholder
than the terms stated in the Offer Notice; provided, however, that such
Stockholder shall not, under any circumstances, Sell any Restricted Shares
to the Prospective Stockholder if the Board of Directors of the Company, in
its sole discretion, determines in good faith that the Prospective
Stockholder is a competitor, or an Affiliate of a competitor, of the
Company or that such
-7-
<PAGE>
Prospective Stockholder's ownership of such Restricted Shares would be
contrary to the best interests of the Company. In the event that all of
such Restricted Shares are not Sold by such Stockholder to the Prospective
Stockholder during such period, the right of such Stockholder to Sell such
Restricted Shares to the Prospective Stockholder shall expire and the
obligations of such Stockholder pursuant to this Section 4 shall be
reinstated.
(d) Any Permitted Transferee (other than the Company) shall, as a
condition to such transfer, (i) agree to be bound by all of the provisions
of this Agreement applicable to a Stockholder and shall evidence such
agreement by executing and delivering to the Company a joinder to this
Agreement in form and substance satisfactory to the Company, and (ii) if
such transferee is a partner in or an equity owner or employee of the
Medical Group, execute a noncompetition agreement in form and substance
satisfactory to the Company (if such transferee is not, as of the date of
such transfer, a party to such an agreement with the Company).
(e) The certificate(s) representing the Restricted Shares will bear
the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES OR "BLUE-SKY" LAWS. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT
OR LAWS. ADDITIONALLY, THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO CERTAIN REPURCHASE OPTIONS,
TRANSFER RESTRICTIONS AND CERTAIN OTHER AGREEMENTS SET
FORTH IN A RESTRICTED STOCK AGREEMENT DATED AS OF OCTOBER
28, 1997, BETWEEN THE STOCKHOLDER AND BMJ MEDICAL
MANAGEMENT, INC. A COPY OF SUCH AGREEMENT MAY BE OBTAINED
BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF
BUSINESS WITHOUT CHARGE."
(f) The restrictions on transfers of Vested Shares set forth in this
Section 4 shall expire, and shall be of no further force or effect, upon
the consummation of the initial public offering of the Company's Common
Stock pursuant to the 1933 Act.
5. Definitions.
(a) "Affiliate" means, with respect to any Person, (a) any director,
officer, 10% stockholder or partner of such Person and (b) any other Person
that, directly or indirectly, through one or more intermediaries, controls, or
is controlled by, or is under common control with, such Person. The term
-8-
<PAGE>
"control" includes, without limitation, the possession, directly or indirectly,
of the power to direct the management and policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.
(b) "Internal Revenue Code" means the Internal Revenue Code of 1986, as the
same may be amended or supplemented from time to time, or any successor statute,
and the rules and regulations thereunder, as the same are from time to time in
effect.
(c) "Original Value" of each share of Restricted Stock purchased hereunder
will be equal to $6.50 (as proportionately adjusted for all subsequent stock
splits, stock dividends and other recapitalizations).
(d) "Person" shall be construed broadly and shall include, without
limitation, an individual, a partnership, an investment fund, a limited
liability corporation or partnership, a corporation, an association, a joint
stock company, a trust, a joint venture, an unincorporated organization and a
governmental entity or any department, agency or political subdivision thereof.
(e) "Permitted Transferee" means, as to any Stockholder, any transferee who
acquires the Restricted Shares pursuant to a Permitted Transfer or any other
transfer made in accordance with the provisions of this Agreement.
(f) "Permitted Transfer" means, as to any Stockholder, (i) any sale or
transfer of Vested Shares to (A) the spouse or lineal descendants of such
Stockholder or (B) a trust for the benefit of any of the foregoing and (ii) any
sale or transfer of Vested Shares or Unvested Shares to any other Stockholder,
or any physician who, as of the date of such transfer, is an equity owner or
employee of the Medical Group.
(g) "Public Sale" means any sale of Restricted Stock to the public pursuant
to an offering registered under the 1933 Act or to the public through a broker,
dealer or market maker pursuant to the provisions of Rule 144 adopted under the
1933 Act.
(h) "Restricted Shares" has the meaning set forth in Section 1(a). The
Restricted Shares will continue to be Restricted Shares in the hands of any
holder (other than the Company and any transferees in a Public Sale), and except
as otherwise provided herein, each such holder of the Restricted Shares will
succeed to all rights and obligations attributable to a Stockholder as the
holder of the Restricted Shares hereunder. The Restricted Shares will also
include shares of the Company's capital stock issued with respect to the
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<PAGE>
Restricted Stock by way of a stock split, stock dividend or other
recapitalization.
(i) "1933 Act" means the Securities Act of 1933, as the same may be amended
or supplemented from time to time, or any successor statute, and the rules and
regulations thereunder, as the same are from time to time in effect.
6. Indemnification.
(a) The Company shall indemnify, defend and hold harmless each Stockholder
against all liability, loss or damage sustained by such Stockholder, together
with all reasonable costs and expenses related thereto (including reasonable
legal fees and expenses), relating to or arising from the untruth, inaccuracy or
breach of any of the representations, warranties or agreements of the Company
contained in this Agreement.
(b) Each Stockholder shall indemnify and hold harmless the Company against
all liability, loss or damage, together with all reasonable costs and expenses
related thereto (including reasonable legal fees and expenses), relating to or
arising from the untruth, inaccuracy or breach of any of the representations,
warranties or agreements of such Stockholder contained in this Agreement.
7. General Provisions.
(a) Transfers in Violation of Agreement. Any sale, transfer, assignment or
other disposition (whether with or without consideration and whether voluntarily
or involuntarily or by operation of law) (each, a "Transfer") or attempted
Transfer of any Restricted Shares in violation of any provision of this
Agreement shall be void, and the Company shall not record such Transfer on its
books or treat any purported transferee of such Restricted Shares as the owner
of such stock for any purpose.
(b) Severability. It is the desire and intent of the parties hereto that
the provisions of this Agreement be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, if any particular provision of this
Agreement shall be adjudicated by a court of competent jurisdiction to be
invalid, prohibited or unenforceable for any reason, such provision, as to such
jurisdiction, shall be ineffective, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of this
Agreement or affecting the validity or enforceability of such provision in any
other jurisdiction. Notwithstanding the foregoing, if such provision could be
more narrowly drawn so as not to be invalid, prohibited or unenforceable in such
jurisdiction, it shall, as to such jurisdiction, be so narrowly
-10-
<PAGE>
drawn, without invalidating the remaining provisions of this Agreement or
affecting the validity or enforceability of such provision in any other
jurisdiction.
(c) Entire Agreement. This Agreement, those documents expressly referred to
herein and other documents of even date herewith embody the complete agreement
and understanding among the parties hereto with respect to the subject matter
hereof and supersede and preempt any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way.
(d) Relationship Among Stockholders. No Stockholder shall have any
responsibility for any breach of this Agreement by any other Stockholder or for
any representations, warranties, acts or omissions of any other Stockholder.
Each Stockholder is entering into this Agreement for and on behalf of such
Stockholder only, and no partnership, joint venture, unincorporated association
or any other legal entity is intended to be formed by or among the Stockholders
as a result of or in connection with this Agreement. The parties have chosen to
execute a single instrument for convenience only, and this Agreement shall be
construed as separate and several agreements among the Medical Group, the
Company and each of the respective Stockholders for all purposes. This Agreement
may be executed in separate counterparts.
(e) Counterparts. This Agreement may be executed in separate counterparts,
each of which is deemed to be an original and all of which taken together
constitute one and the same agreement.
(f) Successors and Assigns. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by each
Stockholder, the Company and their respective successors, permitted assigns,
heirs, representatives and estate, as the case may be (including subsequent
holders of Restricted Stock); provided, however, that the rights and obligations
of any Stockholder under this Agreement shall not be assignable except in
connection with a Permitted Transfer of Restricted Shares hereunder.
(g) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to any
choice of law or conflicting provision or rule (whether of the State of Delaware
or any other jurisdiction), that would cause the laws of any jurisdiction other
than the State of Delaware to be applied. In furtherance of the foregoing, the
internal law of the State of Delaware will control the interpretation and
construction of this agreement, even if under such jurisdiction's choice of law
-11-
<PAGE>
or conflict of law analysis, the substantive law of some other jurisdiction
would ordinarily apply.
(h) Jurisdiction. Each of the parties hereto hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of any Florida state court or Federal court of the United States of
America sitting in Palm Beach County, Florida, and any appellate court thereof,
in any action or proceeding arising out of or relating to this Agreement or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in any such Florida state
court or, to the extent permitted by law, in such Federal court. Nothing in this
Agreement shall affect the right that any party may otherwise have to bring any
action or proceeding relating to this Agreement in the courts of any other
jurisdiction.
(i) Remedies. Each of the parties to this Agreement shall be entitled to
enforce its rights under this Agreement specifically to recover damages and
costs (including reasonable attorneys' fees) for any breach of any provision of
this Agreement, which is not cured within thirty (30) days after the breaching
party receives written notice thereof from the other party, and to exercise all
other rights existing in its favor. The parties hereto agree and acknowledge
that money damages may not be an adequate remedy for any party in the event of a
breach of the provisions of this Agreement by any other party hereto and that
each party may, in its sole discretion, apply to any court of law or equity of
competent jurisdiction for specific performance and/or other injunctive relief
in order to enforce or prevent any violations of the provisions of this
Agreement.
(j) Amendment and Waiver. The provisions of this Agreement may be amended
and waived only with the prior written consent of the Company and the
Stockholders and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall be construed as a waiver of such provisions
or affect the validity, binding effect or enforceability of this Agreement or
any provision hereof; provided, however, that the Company may, without the
consent of any Stockholder, amend Schedule A hereto upon consummation of a
Permitted Transfer of Restricted Shares hereunder by any Stockholder to reflect
the then current ownership of the Restricted Stock.
(k) Notices. Any notice provided for in this Agreement must be in writing
and must be either personally delivered, transmitted via telecopier, mailed by
first class mail (postage prepaid and return receipt requested) or sent by
nationally-recognized overnight courier service (charges prepaid) to the
recipient at the address below indicated or at such other address or to the
attention of such other person as
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<PAGE>
the recipient party has specified by prior written notice to the sending party.
Notices will be deemed to have been given hereunder and received when delivered
personally, when received if transmitted via telecopier, three business days
after deposit in the U.S. mail and one business day after deposit with a
nationally-recognized overnight courier service.
(i) If to the Company, to:
BMJ Medical Management, Inc.
4800 North Federal Highway, Suite 104D
Boca Raton, Florida 33431
Attention: Naresh Nagpal, M.D., President
Telephone: (561) 391-1311
Telecopier: (561) 391-1389;
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza, 41st Floor
New York, New York 10112
Attention: Jeffrey S. Held, Esq.
Telephone: (212) 408-2417
Telecopier: (212) 408-2420; and
(ii) If to any Stockholder, to his or her address set forth
on the signature page hereto beneath his or her name.
(l) Business Days. If any time period for giving notice or taking action
hereunder expires on a day which is a Saturday, Sunday or holiday in the State
of Florida, the time period for giving notice or taking action shall be
automatically extended to the business day immediately following such Saturday,
Sunday or holiday.
(m) Attorneys' Fees. In the event of any dispute or controversy arising out
of or relating to this Agreement, the prevailing party shall be entitled to
recover from the other party all costs and expenses, including attorneys' fees
and accountants' fees, incurred in connection with such dispute or controversy.
(n) Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
(o) Construction. Where specific language is used to clarify by example a
general statement contained herein, such specific language shall not be deemed
to modify, limit or restrict in any manner the construction of the general
statement to which it relates. The language used in this Agreement shall be
deemed to be the language chosen by the parties to express
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<PAGE>
their mutual intent, and no rule of strict construction shall be applied against
any party.
(p) Nouns and Pronouns. Whenever the context may require, any pronouns used
herein shall include the corresponding masculine, feminine or neuter forms, and
the singular form of nouns and pronouns shall include the plural and vice-versa.
(q) Change of Law. In the event that legal counsel for the Company or any
Stockholder reasonably determines (the "Legal Determination") that the payments
hereunder, or the ability of the parties to fulfill their material obligations
hereunder, are materially and adversely impacted by any change in Federal, state
or local law, rules, regulations or any published official interpretation of any
of the foregoing, as applied to this Agreement, and such Legal Determination is
confirmed in writing by independent legal counsel mutually agreeable to the
parties hereto, the parties shall negotiate in good faith to amend this
Agreement to avoid such materially adverse impact, if possible, while
maintaining the material economic benefits intended to be conferred thereby. If
this Agreement is not so amended within ninety (90) days after confirmation by
the independent legal counsel, or such amendment is not possible, then this
Agreement may be terminated by any party hereto. The fees and expenses of the
independent counsel shall be borne equally by the parties if such independent
counsel confirms the Legal Determination, and shall be borne solely by the
initiating party if the Legal Determination is not so confirmed. Each party
shall pay its own legal costs and fees in connection with the foregoing.
* * * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Restricted Stock
Agreement effective as of the date first written above.
COMPANY
BMJ MEDICAL MANAGEMENT, INC.
By:__________________________
Name:
Title:
STOCKHOLDERS:
______________________________
Bruce Young, M.D.
Address for notices:
______________________________
______________________________
______________________________
Dominic Kleinhenz, M.D.
Address for notices:
______________________________
______________________________
______________________________
William McKay, M.D.
Address for notices:
______________________________
______________________________
<PAGE>
______________________________
George Kolettis, M.D.
Address for notices:
______________________________
______________________________
______________________________
Thomas Goberville, M.D.
Address for notices:
______________________________
______________________________
MEDICAL GROUP
ACCEPTED AND AGREED AS TO PARAGRAPH 3
LIGHTHOUSE ORTHOPAEDIC ASSOCIATES, P.A.
By:____________________________________
Name:
Title:
<PAGE>
SCHEDULE A
Stockholders
Aggregate Number of
Name Restricted Shares
---- -----------------
Bruce Young, M.D. 52,009
Dominic Kleinhenz, M.D. 51,106
William McKay, M.D. 73,663
George Kolettis, M.D. 48,837
Thomas Goberville, M.D. 46,293
<PAGE>
ANNEX I
Non-accredited Investors
George Kolettis, M.D., is not an accredited investor, as
defined under the 1933 Act.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Restricted Stock
Agreement effective as of the date first written above.
COMPANY
BMJ MEDICAL MANAGEMENT, INC.
By:/s/ RJ Farwell
--------------------------
Name:
Title:
STOCKHOLDERS:
/s/ Bruce Young
----------------------------
Bruce Young, M.D.
Address for notices:
----------------------------
----------------------------
/s/ Dominic Kleinhenz MD
----------------------------
Dominic Kleinhenz, M.D.
Address for notices:
----------------------------
----------------------------
/s/ William McKay
----------------------------
William McKay, M.D.
Address for notices:
----------------------------
----------------------------
<PAGE>
/s/ George Kolettis
----------------------------
George Kolettis, M.D.
Address for notices:
----------------------------
----------------------------
/s/ Thomas Goberville MD
----------------------------
Thomas Goberville, M.D.
Address for notices:
----------------------------
----------------------------
MEDICAL GROUP
ACCEPTED AND AGREED AS TO PARAGRAPH 3
LIGHTHOUSE ORTHOPAEDIC ASSOCIATES, P.A.
By: /s/ Dominic Kleinhenz MD
---------------------------------
Name:
Title: President
<PAGE>
[Form of Amended and Restated
Practice Management Services Agreement]
AMENDED AND RESTATED
PRACTICE MANAGEMENT SERVICES
AGREEMENT dated as of October
6, 1997, among
____________________________
("Physician"), ORTHOPAEDIC
MANAGEMENT NETWORK, INC., an
Arizona corporation ("OMNI")
and BMJ MEDICAL MANAGEMENT,
INC., a Delaware corporation
("Parent").
RECITALS:
A. Pursuant to an Agreement and Plan of Reorganization (the "Merger
Agreement") dated as of October 6, 1997, among OMNI, Parent and OMNI Acquisition
Corporation, a wholly owned subsidiary of Parent ("Acquisition Sub"),
Acquisition Sub will merge with and into OMNI (the "Merger"). As a result
thereof, OMNI will be a wholly owned subsidiary of Parent. In connection with
the Merger, the shareholders of OMNI, including the Physician, will be entitled
to receive, in exchange for their respective shares of capital stock of OMNI, an
amount in cash and shares of Parent's capital stock. The execution and delivery
of this Amended and Restated Practice Management Services Agreement is a
condition to the closing under the Merger Agreement.
B. OMNI is a health care management services organization engaged in the
business of (i) arranging for the delivery of health care services by, and (ii)
providing certain management services to, a network (the "Network") of health
care providers ("Participating Providers"). These services include arranging for
providers to participate in group purchasing programs, group health insurance
plans and group malpractice insurance plans.
C. OMNI also enters into, or arranges for health care providers to enter
into, written agreements with licensed health care services organizations (also
known as health maintenance organizations), insurance companies, union trust
funds, employers and other third-party payors ("Payors") which would obligate
Participating Providers to provide, or obligate OMNI to arrange for the
provision of, certain health care services to a specified patient population.
<PAGE>
D. Parent is a physician practice management company that provides an
extensive range of non-medical administrative and managerial services to medical
groups across the United States that specialize in musculoskeletal care.
E. Physician has determined that the combined resources of OMNI and Parent
will enhance the ability of the Physician to serve the needs of his patients
and, accordingly, improve the quality of health care services rendered in the
Physician's medical practice.
F. In light of the foregoing, the Physician, OMNI and Parent desire to
enter into this Amended and Restated Practice Management Services Agreement in
order to obtain the mutual benefits available from this relationship.
AGREEMENT:
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Managed Care Services. OMNI shall use its best efforts to provide the
following services to the Physician:
a. Contracting Services. OMNI shall identify, solicit and negotiate
capitated, case rate and other contracts with Payors on behalf of the
Network which would obligate Participating Providers to provide, or
obligate OMNI to arrange for the provision of, certain health care services
to, specified patient populations ("Managed Care Contracts"). OMNI may
arrange for the Physician to directly enter into the Managed Care
Contracts, or OMNI may itself directly enter into the Managed Care
Contracts, in either case the Physician shall provide health care services
to specified patient populations in accordance with the Managed Care
Contracts. For any contract offers from any payors that do not involve the
sufficient sharing of risk or the economic integration by the Physicians
who are members of the OMNI network so as to avoid antitrust liability,
OMNI shall serve as a messenger between the Physician and the potential
Payor in accordance with the following: (i) OMNI shall obtain from each
Physician a fee schedule or conversion factor that represents the minimum
payment that such Physician will accept from a Payor; (ii) OMNI shall be
authorized to enter into contracts on each Physician's behalf with Payors
offering prices at or above the minimum level; (iii) OMNI shall aggregate
such information into a schedule to be presented to a Payor showing the
percentages of all of the participating physicians who have authorized
entry into a contract with the Payor at different price levels; and (iv)
OMNI is not authorized to, and shall not, negotiate the price level with
any Payor. The foregoing procedure shall be identified as the "Messenger
Procedure." At such time as all of the physicians in the OMNI network have
achieved sufficient
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<PAGE>
clinical or financial integration so as to avoid any substantial likelihood
of liability under state or federal antitrust laws, OMNI shall cease to
utilize the Messenger Model Procedure, unless otherwise required by law.
b. Administrative Services. OMNI shall provide the Physician with
those administrative services made available by OMNI for which the
Physician subscribes.
2. Service Fees. As compensation for OMNI's managed care contracting
services hereunder, the Physician shall pay OMNI the amounts set forth on
Exhibit A attached hereto and incorporated herein by reference as and when due.
Any compensation payable to OMNI for administrative services shall be mutually
agreed upon by the parties at such time as the Physician subscribes for such
services.
3. Billing and Payment. Fees for Managed Care Contracting Services shall be
paid as provided in Exhibit A hereto. Any fees for administrative services shall
be paid as provided in the agreement between the parties therefor.
4. Term. The initial term of this Agreement (the "Initial Term") shall be
for a period of two years commencing on the date hereof, unless sooner
terminated in accordance with the provisions of Section 12 hereof. Upon the
expiration of the Initial Term, this Agreement shall automatically extend for
successive one-year periods unless sooner terminated in accordance with the
provisions of Section 12 hereof (the Initial Term as so extended is referred to
herein as the "Term").
5. Compliance With Managed Care Contract Requirements. The Physician shall
comply with and be bound by, and shall ensure that his/her employed health care
professionals comply with and are bound by, the requirements imposed by Payors
in the Managed Care Contracts, including requirements for adequate
credentialing, quality and professional liability insurance. The Physician shall
also comply with the provisions of Exhibit B attached hereto and incorporated
herein by reference. The Physician hereby grants OMNI or its duly authorized
agent the authority to act on behalf of the Physician as his/her
attorney-in-fact for the purpose of entering into binding Managed Care
Contracts.
6. Practice and Personnel. The Physician shall operate his/her Medical
Practice in the ordinary course of business and OMNI shall not control, direct,
or supervise the Physician or his/her assistants or employees in the performance
of medical services. The Physician agrees to defend at his/her own cost and
indemnify and hold harmless OMNI, and its officers, directors, stockholders,
employees and agents, from and against any and all lawsuits, claims, costs,
expenses (including attorneys' fees and disbursements), damages, losses and
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liabilities, however caused, resulting directly or indirectly from the act or
omission of any employee or agent of the Physician. OMNI agrees to defend at its
own cost and indemnify and hold harmless Physician, his employees and agents,
from and against any and all lawsuits, claims, costs, expenses (including
attorney's fees and disbursements), damages, losses and liabilities, however
caused, resulting directly or indirectly from the act or omission of any
employee or agent of OMNI, provided such employee or agent of OMNI is not the
Physician, his employee or agent. The Physician and OMNI agree that
notwithstanding the termination of this Agreement pursuant to Section 4 hereof,
this Section shall survive any such termination and remain in full force and
effect.
7. Non-Exclusivity. Nothing in this Agreement shall be construed to
restrict the Physician from providing, or entering into other contracts or
agreements to provide health care services to persons who are not members of
health care plans offered by Payors with whom OMNI has arranged Managed Care
Contracts. In rendering such services, the Physician shall neither represent nor
imply in any way to the recipient that such services are being rendered by or on
behalf of OMNI or such Payors. Any professional services rendered by the
Physician outside the scope of this Agreement shall not be billed by, to or
through OMNI or any such Payor. Notwithstanding anything to the contrary
contained in this Section 7, the Physician is not prohibited from carrying on
the activities set forth on Exhibit C attached hereto.
8. Professional Information. All Participating Providers shall maintain an
unrestricted current license or certification or other acceptable accreditation
to practice his/her specialty in the State of Arizona, unless otherwise approved
by the board of directors of OMNI in its sole discretion. Each Participating
Provider shall complete and submit a credentialing questionnaire to OMNI, and
the Physician hereby warrants and represents that such information is correct
and that the Physician shall promptly notify OMNI of any change. To facilitate
access by OMNI to information regarding the Physician, the Physician agrees to
execute such information authorizations or releases as OMNI may request. The
Physician shall notify OMNI promptly concerning any denial, modification,
reduction, restriction, suspension, or termination (either voluntary or
involuntary) of his/her privileges by any hospital or professional organization.
The Physician hereby authorizes any hospital or professional organization to
notify OMNI promptly if any disciplinary or other action of any kind is
initiated against the Physician which could result in any denial, modification,
reduction, restriction, suspension, or termination (either voluntary or
involuntary) of the Physician's privileges, except temporary disciplinary action
of a few days duration taken or threatened to be taken due to the Physician's
failure to complete medical records on a timely basis. The Physician shall
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notify OMNI promptly of (i) any modification, restriction, suspension or
revocation of the license, certification or accreditation of the Physician or
any of its physicians or surgeons; (ii) any modification, restriction,
suspension, or revocation of the authorization of the Participating Providers to
prescribe or to administer controlled substances; (iii) the imposition of any
sanctions against the Participating Providers under the AHCCCS or Medicare
programs or any other governmental program; or (iv) any other professional
disciplinary action or criminal action of any kind against the Participating
Providers which is either initiated, in progress, or completed as of the date of
this Agreement and at all times during the Term.
9. Confidentiality, Non-Solicitation and Noncompete.
a. Confidential Information. The Physician acknowledges that in the
course of receiving services under this Agreement he/she will become
acquainted with confidential information concerning the respective
businesses of OMNI and Parent, including, without limitation, their
respective existing or potential markets, health care knowledge, data, and
procedures, supplier and vendor data, processes, prices, procedures,
financial information and marketing strategies (collectively, the
"Confidential Information") which belong to and are the proprietary trade
secrets and property of OMNI and Parent, respectively. The Physician
covenants and agrees that he/she will not, at any time during the Term or
thereafter, without in each instance obtaining the prior written consent of
OMNI and Parent (which consent may be granted or withheld in their sole and
absolute discretion), disclose or make use of any Confidential Information
except as may be required in the course of the performance of the
Physician's duties hereunder. All notes, data, tapes, reference items,
memoranda, records and other materials in any way relating to any
Confidential Information or to the respective businesses of OMNI or Parent
shall belong exclusively to OMNI and Parent, respectively, and, upon the
expiration or termination of this Agreement, the Physician shall
immediately deliver the original and all copies of such items in the
Physician's possession or control to the appropriate party. The Physician
agrees to execute any instruments and to do all other things reasonably
requested by OMNI or Parent (during and after the Term) in order to vest
more fully in OMNI or Parent all ownership and rights in those items hereby
transferred by the Physician to OMNI and Parent.
b. Soliciting Employees. The Physician covenants and agrees that
during the Term and for a period of two years thereafter ("Non-Compete
Period"), he/she will not, directly or indirectly, hire or engage, attempt
to hire or engage, or solicit or aid in the solicitation of the employment
of, any of OMNI's or Parent's employees, whether for or on behalf of
himself/herself or for any entity in which the Physician acts as an agent
or may have a direct or indirect interest.
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c. Noncompete. The Physician further covenants and agrees that during
the Non-Compete Period he/she will not, directly or indirectly, engage in
the provision of managed care contracting services of the type then being
provided by OMNI pursuant to Section 1 of this Agreement to health care
providers located in any metropolitan area in which clients of OMNI are
located; provided, however, that Physician may provide such services to
participating providers on behalf of OMNI and, further provided, that
Physician may seek an exemption from this provision by obtaining written
approval from OMNI. Notwithstanding anything to the contrary contained in
this Section 9, the Physician is not prohibited from carrying on the
activities set forth on Exhibit C attached hereto.
d. Miscellaneous. The Physician acknowledges the right and ability of
OMNI to assign his/her rights under this Section to third parties, whether
in connection with a merger, reorganization, liquidation or otherwise. The
Physician covenants and agrees that the duration of the Non-Compete Period
is reasonable, necessary and appropriate to protect OMNI's legitimate
business interests. The Physician represents and warrants that each of the
terms and provisions contained in this Section have been carefully reviewed
on his/her behalf, and he/she unconditionally and irrevocably agrees to be
bound by same.
e. Reformation. In the event that any of the provisions of this
Section should ever be deemed to exceed the time or geographic limitations
permitted by the applicable laws, then the Physician and OMNI covenant and
agree that such provisions shall be reformed to the maximum time or
geographic limitations permitted by applicable law.
f. Remedies. If the Physician violates any of the provisions of this
Section, then each of OMNI and Parent shall, notwithstanding any other term
or provision of this Agreement (including Section 25 hereof), have the
unconditional right to: (1) Withhold any payments, compensation,
distributions or consideration otherwise owed or to be paid to the
Physician under this Agreement or any other agreement between the parties;
(2) Seek, apply for and receive a temporary restraining order without
notice to the Physician enjoining the Physician from continued violation of
such provision(s) (for such purpose only, the Physician hereby waives
notice of any petition or application for a temporary restraining order);
(3) Avail itself of each of the foregoing remedies and all other available
legal and equitable remedies, which remedies shall be cumulative and not
mutually exclusive; and/or (4) Seek and recover monetary damages for the
Physician's violation of the provisions of this Section 9. In addition, the
Physician covenants and agrees that, if he/she shall violate any of the
covenants or agreements under this Section, each of Parent and OMNI shall
be entitled to an accounting and repayment of all profits, compensation,
royalties,
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commissions, remuneration or benefits which the Physician directly or
indirectly shall have realized or may realize relating to, arising out of
or in connection with any such violation; such remedy shall be in addition
to and not in limitation of any injunctive relief or other rights or
remedies to which OMNI or Parent is or may be entitled at law, in equity or
otherwise under this Agreement. The Physician and OMNI hereby agree to
defend, indemnify and hold harmless the other party to this Agreement
against and in respect of: (i) any and all losses and damages resulting
from, relating or incident to, or arising out of any misrepresentation or
breach by the other party to this Agreement of any warranty, covenant or
agreement made or contained in this Agreement; and (ii) any and all
actions, suits, proceedings, claims, demands, judgments, costs and expenses
(including reasonable attorneys' fees) incident to the foregoing.
10. Group Purchasing Contracts. Parent agrees to permit the Physician to
participate in any group purchasing contracts or programs established by Parent,
subject to the delivery to Parent of Physician's written election to so
participate. For so long as the Physician participates in any such programs or
contracts, Parent will share with the Physician any savings derived from any
such program or contract by calculating 35% of the savings directly attributable
to the purchases made by or on behalf of the Physician during each fiscal year
of Parent, as determined by Parent, and delivering to Physician, within 60 days
after the end of such fiscal year, a check payable for such aggregate amount.
11. Right of First Refusal. In the event that, at any time during the
period beginning on the date hereof and ending on the first anniversary of the
expiration or termination of the Term, the Physician (a) decides to affiliate
with a practice management organization, including, without limitation, a
physician practice management company, hospital or healthcare organization, and
(b) receives a written bona fide offer (the "Offer") to join such an entity (the
"Offering Entity"), the Physician will notify Parent in writing of the terms and
provisions of such Offer, including the name of the Offering Entity, the
consideration proposed to be exchanged between the parties and all other
relevant terms of the proposed affiliation. Parent shall have 30 days from
receipt of such notice to present to the Physician a substantially identical
offer for a physician practice management arrangement between Parent and
Physician. In the event Parent delivers such an offer, Parent and the Physician
shall execute and deliver definitive agreements setting forth the terms for such
physician practice management arrangement.
12. Termination.
a. Events of Termination. This Agreement may be terminated as follows:
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i. The Physician may terminate this Agreement, with or without
cause, upon at least ninety (90) days prior written notice to OMNI.
ii. OMNI may terminate this Agreement, with or without cause,
upon at least ninety (90) days prior written notice to the Physician.
iii. In the event of a material breach of this Agreement by
either OMNI or the Physician or a material breach by the Physician of
any OMNI policy or protocol (including, without limitation,
utilization review guidelines), the other party shall have the right
to cancel this Agreement by giving written notice of cancellation to
the breaching party. In the event such breach is not cured to the
reasonable satisfaction of the non-breaching party within ten (10)
days after the giving of the notice, this Agreement shall
automatically terminate at the election of the non-breaching party
upon the giving of a second written notice of termination to the
breaching party, provided that such second notice shall be given by
the non-breaching party to the breaching party no later than ninety
(90) days after the giving of the first notice; otherwise, the
non-breaching party may pursue such termination for breach only by
giving the breaching party another first notice pursuant to this
paragraph or by pursuing other available remedies under this Section
or at law.
iv. OMNI shall have the right to terminate this Agreement
immediately upon written notice to the Physician upon the occurrence
of any of the following events:
(A) The Physician's license or certification to practice in
the State of Arizona, or accreditation or authorization to
administer controlled substances, if applicable, is denied,
modified, reduced, restricted, suspended, or terminated (either
voluntarily or involuntarily).
(B) The Physician's medical staff privileges, if applicable,
at any licensed general acute care hospital are denied, modified,
reduced, restricted, suspended, or terminated (either voluntarily
or involuntarily) other than temporary suspensions of a few days
duration due solely to the Physician's failure to complete
medical records on a timely basis.
(C) The Physician's professional liability or comprehensive
general liability coverage as required under this Agreement is
reduced or is no longer in effect.
(D) The death or incapacity of the Physician. The board of
directors of OMNI, in its sole
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discretion, shall determine whether the Physician is
incapacitated for the purposes of this clause.
(E) The Physician fails to provide OMNI any notice required
to be provided of the Physician hereunder.
(F) OMNI makes a reasonable and good faith determination
that such termination is necessary in order to protect the health
and welfare of members of health care programs sponsored by
Payors with whom OMNI has arranged Managed Care Contracts.
(G) The Physician or any physician or surgeon in the
Physician designated on Exhibit B hereto is convicted of a
felony, whether or not involving moral turpitude, or a
misdemeanor involving moral turpitude.
(H) Insolvency or bankruptcy of the Physician.
b. Effect of Termination. Upon termination, all rights and
obligations of the parties under this Agreement and all Managed Care
Contracts entered into by OMNI on behalf of the Physician shall
immediately cease with respect to the Physician, except as provided
elsewhere in this Agreement. Termination of this Agreement shall not
relieve any party of any obligation to any other party with respect to
services furnished prior to such termination. The Physician shall have
no hearing or other appeal rights with respect to any termination of
this Agreement except to the extent that such rights may be expressly
required by law.
13. Records and Accounts. Each party hereto shall maintain a record of all
charges, billings and collections relating to the provision of services by OMNI
and Parent during the Term. Each party shall have complete access to such
records during all normal business hours.
14. Insurance. The Physician shall secure and maintain, at his/her expense,
throughout the Term, professional and comprehensive general liability insurance
in a minimum amount of $1,000,000 per occurrence and $3,000,000 aggregate,
unless otherwise approved by the board of directors of OMNI. Any deductible or
coinsurance is also subject to approval by the board of directors of OMNI. On or
before the date hereof, the Physician shall provide OMNI with copies of the
policies or other evidence of compliance with the foregoing insurance
requirements acceptable to OMNI. The Physician further agrees that the Physician
shall use his/her best efforts to obligate the insurance carrier to provide at
least thirty (30) days prior written notice to OMNI of cancellation or amendment
and to include OMNI as an additional named insured on such policy if the
additional cost therefor is no more than nominal. If any policy or professional
liability insurance of the Physician is
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terminated, restricted, reduced or otherwise modified, the Physician shall
immediately notify OMNI and, if such insurance provided "claims made" coverage,
shall immediately purchase "tail" coverage necessary to continue coverage which
meets all of the requirements of this Section covering any services rendered
during the Term. The obligations of this Section shall survive the termination
of this Agreement.
15. Notices. Any notice, payment, report or other communication required or
permitted to be given hereunder shall be duly given if in writing, signed by or
on behalf of the person giving the notice, and shall be deemed to have been
given on the date of actual delivery and receipt thereof by the addressee or, if
mailed, on the third business day after being deposited in an official
depository of the United States Post Office, postage prepaid, addressed to the
person or persons to whom such notice is to be given as follows:
a. If to the Physician, to the address indicated below the signature
block of the Physician on the signature page hereof.
b. If to OMNI, to 706 E. Bell Boulevard, Suite 200, Phoenix, Arizona
85022, Facsimile: (602) 788-1973.
c. If to Parent, to 4800 N. Federal Highway, Suite 104-D, Boca Raton,
Florida 33431, Facsimile: (561) 391- 1389.
Any party hereto may specify a different address by sending to the other parties
a notice, in accordance with this Section 15, of such different address.
16. Binding Effect. Except as herein otherwise provided to the contrary,
this Agreement shall be binding upon and inure to the benefit of the parties
hereto, their legal representatives, successors and assigns.
17. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Arizona.
18. Counterparts. This Agreement may be executed in several counterparts,
all of which so executed shall constitute one agreement, binding on all of the
parties hereto, notwithstanding that all of the parties are not signatory to the
original or the same counterpart.
19. Severability. In the event that any portion of this Agreement is
declared by a court of competent jurisdiction to be void, such portion shall be
deemed severed from the remainder of this Agreement and the balance of this
Agreement shall remain in effect.
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20. Headings. Titles or captions contained in this Agreement are inserted
only as a matter of convenience and for reference. Such titles and captions
shall not be construed to define, limit, extend or describe the scope of this
Agreement nor the intent of any provision thereof.
21. Gender and Number. Whenever required by the context hereof, the
singular shall include the plural and vice versa, and the masculine gender shall
include the feminine and neuter genders and vice versa.
22. Further Instruments. Each party hereby agrees to, from time to time and
at such time as may be required, take such further actions and execute such
further documents as may be reasonably required and necessary to effectuate the
provisions hereof.
23. Attorneys' Fees. Subject to Section 31 hereof, in case of any action or
proceeding to compel compliance with, or for a breach of, any of the terms and
conditions of this Agreement, the prevailing party shall be entitled to recover
from the non-prevailing party all costs of such action or proceeding, including,
without limitation, reasonable attorneys' fees, costs and disbursements.
24. Computation of Time. In computing any period of time pursuant to this
Agreement, the day or date of the act, notice, event, or default from which the
designated period of time begins to run will not be included. The last day of
the period so computed will be included, unless it is a Saturday, Sunday or a
legal holiday in the State, in which event the period runs until the end of the
next day which is not a Saturday, Sunday or such legal holiday.
25. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof. This Agreement
supersedes any prior agreement or understanding among the parties and may not be
modified or amended in any manner other than as set forth herein.
26. Survival. It is the express intention and agreement of the parties that
all covenants, agreements, statements, representations, warranties and
indemnities made in this Agreement shall survive the execution and delivery of
this Agreement and that all indemnities contained herein shall survive the
termination hereof for a period of one year after such termination.
27. Waivers. Neither the waiver by a party of a breach of or a default
under any of the provisions of this Agreement, nor the failure of a party, on
one or more occasions, to enforce any of the provisions of this Agreement or to
exercise any right, remedy or privilege hereunder shall thereafter be
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construed as a waiver of any subsequent breach or default of a similar nature,
or as a waiver of any such provisions, rights, remedies or privileges hereunder.
28. Exercise of Rights. No failure or delay on the part of a party in
exercising any right, power or privilege hereunder and no course of dealing
between the parties shall operate as a waiver or abandonment thereof, nor shall
any single or partial exercise of any right, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein expressly provided are
cumulative and not exclusive of any other rights or remedies which a party would
otherwise have at law or in equity or otherwise.
29. Limitation on Benefits on this Agreement. It is the explicit intention
of the parties that (a) no person or entity other than the parties is or shall
be entitled to bring any action or enforce any provision of this Agreement
against any party, and (b) the covenants, undertakings and agreements set forth
in this Agreement shall be solely for the benefit of, and shall be enforceable
only by, the parties (or their respective successors and assigns as permitted
hereunder).
30. Independent Contractors. The parties hereto are independent contractors
and shall in no event be deemed to be principal and agent, employer or employee,
partners or joint venturers. The Physician shall be solely responsible for all
local, state and federal withholding and employment taxes and similar
obligations with respect to the Physician and his/her employees.
31. Amendments. This Agreement may not be modified or amended in any manner
other than by an instrument or instruments in writing signed by the parties.
32. Mediation/Arbitration. Any dispute, controversy or claim (including,
without limitation, tort claims, requests for provisional remedies or other
interim relief, and issues as to arbitrability of any matter) arising out of or
relating to this Agreement, or the breach thereof, that cannot be settled
through negotiation shall be settled (a) first, by the parties trying in good
faith to settle the dispute by mediation under the Commercial Mediation Rules of
the American Arbitration Association ("AAA") (such mediation session to be held
in Phoenix, Arizona and to commence within 15 days of the appointment of the
mediator by the AAA), and (b) if the dispute, controversy or claim cannot be
settled by mediation, then by arbitration administered by the AAA under its
Commercial Arbitration Rules (such arbitration to be held in Phoenix, Arizona
before a single arbitrator and to commence within 15 days
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of the appointment of the arbitrator by the AAA), and judgment on the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof.
* * * *
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IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Practice Management Services Agreement as of the day and year first
above provided.
ORTHOPAEDIC MANAGEMENT NETWORK, INC.
By:________________________________
Name:
Title:
BMJ MEDICAL MANAGEMENT, INC.
By:________________________________
Name:
Title:
PHYSICIAN:
___________________________________
Name:
Address:
___________________________________
___________________________________
___________________________________
Facsimile:
___________________________________
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EXHIBIT A
to
PRACTICE MANAGEMENT SERVICES AGREEMENT
Managed Care Contracting: Service Fee
To defray expenses incurred by Orthopaedic Management Network, Inc.
("OMNI") in connection with rendering services as to Managed Care Contracts,
OMNI shall be paid by the Physician a fee (the "Managed Care Contracting Fee")
in an amount equal to the sum of (i) the costs incurred by OMNI in connection
with such Managed Care Contracts and (ii) five percent (5%) of the Payor's or
OMNI's payments to the Physician for Covered Services furnished to Plan Members
under each such Managed Care Contract; provided, however, that such sum shall
not exceed thirteen percent (13%) of the Payor's or OMNI's payments to the
Physician for Covered Services furnished to Plan Members under each such Managed
Care Contract, unless OMNI shall obtain the prior written consent of its
Operations Committee (as described in Article III, Section 8 of OMNI's Bylaws)
to such excess amount. If a Payor, inadvertently or otherwise, pays the
Physician under a Managed Care Contract directly or otherwise in a manner other
than through OMNI, the Physician agrees to remit the Managed Care Contracting
Fee to OMNI within 30 days of the Physician's receipt of payment from the Payor;
otherwise, OMNI shall be entitled to deduct for its own account the Managed Care
Contracting Fee from payments that OMNI receives from the Payor on behalf of the
Physician prior to remitting to the Physician the net amount due the Physician.
The undersigned hereby acknowledge that this Exhibit A constitutes part of
the Amended and Restated Practice Management Services Agreement among the
Physician, Parent and OMNI.
ORTHOPAEDIC MANAGEMENT NETWORK,
INC.
By:________________________________
Name:
Title:
PHYSICIAN
___________________________________
Name:
Address:
___________________________________
___________________________________
___________________________________
Facsimile:_________________________
<PAGE>
EXHIBIT B
to
PRACTICE MANAGEMENT SERVICES AGREEMENT
Supplemental Provisions Regarding Managed Care Contracts
Pursuant to the Practice Management Services Agreement between the
Physician and Orthopaedic Management Network, Inc. ("OMNI"), the Physician is
hereby designated as the person who will provide healthcare services under the
Managed Care Contracts.
Pursuant to Section 5 of the Practice Management Services Agreement between
the Physician and OMNI, the parties hereby agree as follows:
1. Definitions. When used in this Agreement, the following words and terms
shall mean:
a. "Covered Services" means healthcare services that are authorized
for payment under the Plan Member's Plan healthcare program when rendered
by a provider who is under contract with a Payor.
b. "Plan Member" means an individual eligible to receive Covered
Services under a Payor healthcare program to whom the Physician is required
to provide Covered Services hereunder.
2. Healthcare by the Physician. The Physician shall provide Covered
Services on an as needed basis, within the scope of the Physician's licensing,
training, experience and qualifications and consistent with accepted standards
of healthcare practice and the applicable Managed Care Contract. The Physician
shall accept all new Plan Members assigned to the Physician by OMNI or the
Payor; provided, however, that the Physician may refuse to accept new Plan
Members upon giving at least ninety (90) days prior written notice to OMNI. The
Physician's refusal to accept new Plan Members will apply to Plan Members of all
Managed Care contracts, whether reimbursement is on a capitated or
fee-for-service basis. The Physician may begin to accept new Plan Members upon
written notice to OMNI of Physician's interest to accept new Plan Members. The
Physician shall be paid pursuant to a fee schedule or on a capitated basis as
designated in this Agreement. If the Physician is paid on a capitated basis, the
Physician shall provide Plan Members with those services which are within the
scope of the Physician's licensure or certification, are customarily provided by
a Practice of such licensure, or certification and are Covered Services and
shall accept the capitation payments as payments in full for Covered Services,
except for any applicable copayments, coinsurance or deductibles (collectively
referred to herein as "Copayments,") for providing such services; provided,
however, that the Physician may restrict the scope of the services which
<PAGE>
are customarily provided by a Practice of such licensure or certification by
setting forth the restrictions on the services to be provided in the Physician's
application to participate and such restrictions are approved and accepted by
OMNI. If the Physician is paid pursuant to a fee schedule, the Physician shall
accept the payments under the fee schedule as payment in full, less any
applicable Copayments, for providing Covered Services. The Physician shall
devote this time, attention and energy necessary for the competent and effective
performance of his or her duties hereunder to Plan Members assigned or
designated by OMNI and the Payor.
3. Payment to the Physician. The Physician shall be compensated for Covered
Services provided by the Physician to Plan Members as described in the fee
schedule established by OMNI as in effect from time to time. OMNI shall promptly
notify the Physician of each Managed Care Agreement to which the Physician is
bound and the compensation to be paid to the Physician under such Managed Care
Agreement. Payments to the Physician for Covered Services rendered shall be made
as follows:
a. Fee-for-Service Contracts. For any Covered Services for which the
Physician is to be paid on a fee-for-service basis, the Physician shall,
within thirty (30) days following the provision of such Covered Services,
submit to OMNI a statement or statements of the Covered Services rendered
by the Physician to Plan Members, the Physician's usual and customary
charge for such Covered Services and, if applicable to the compensation
provisions of the Managed Care Contract, the amount of compensation due.
OMNI shall use its reasonable best efforts to pay (provided it has received
the applicable payment from the Payor) or require the Payor to pay the
compensation due Provider under this Section, less the Managed Care
Contracting Fee described in Exhibit A to this Practice Management Services
Agreement, within sixty (60) days after the receipt of OMNI or the Payor,
as applicable, of a complete and accurate invoice. In the event the Payor
fails or refuses to pay, OMNI shall use its reasonable best efforts to
assist the Physician in collecting any amounts due from the Payor;
provided, however, that OMNI shall not be responsible for payment of any
attorney's fees, accounting fees or other fees or costs incurred by the
Physician in attempting to collect from the Payor. Notwithstanding the
above, the Physician may, in its sole discretion, attempt to collect any
amounts due the Physician directly from the Payor. The Physician agrees to
accept the compensation provided under this Section, less the Managed Care
Contracting Fee, as payment in full for all Covered Services, less any
applicable copayments. Any claims received by OMNI sixty (60) days or more
after the date of service may be refused for payment by OMNI, in OMNI's
sole discretion; provided, however, that OMNI shall not refuse payment if
the Physician is attempting to coordinate benefits with another payor in
accordance with OMNI's and/or the Payor's policies and procedures and has
notified OMNI within at least
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sixty (60) days after the date of service that the Physician is attempting
to coordinate benefits.
b. Capitated Contracts. For any Covered Services for which the
Physician is to be paid on a capitated basis, OMNI shall pay the Physician
according to the compensation formula then existing, which formula shall be
determined by the Operations Committee and shall take into account the
enrollment and eligibility information provided to OMNI by Payors. The
Physician shall be subject to any retroactive adjustments as required by
the applicable Managed Care Contract. The Physician agrees to provide all
services included within and required by the relevant Managed Care
Contract. The Physician agrees to accept such capitation payments as
payments in full, less the Managed Care Contracting Fee, and except for any
applicable Copayments, for all services provided by the Physician. The
Physician shall, within thirty (30) days following the end of each calendar
month during the Term, submit to OMNI and, if requested by OMNI or required
by the applicable Managed Care Contract, to the Payor, encounter data (in a
form designated by OMNI) with respect to the Covered Services rendered by
the Physician to Plan Members during the immediately preceding calendar
month. Failure to submit encounter reports may result in withholding of the
Physician's compensation by OMNI and/or the Payor.
4. Billing by the Physician. The Physician shall bill the Payor through
OMNI in a form approved by OMNI and the Payor pursuant to the applicable Managed
Care Contract. All such bills shall be submitted to OMNI for processing as
required in this Agreement. The Physician may bill a Plan Member for any
non-Covered Services which the Physician may provide to a Plan Member provided
that, if practicable, the Physician shall obtain a written acknowledgement and
acceptance of patient financial responsibility from the Plan Member prior to the
time such non-Covered Services are provided (a sample form for Acknowledgement
of Disclosure and Acceptance of Patient Financial Responsibility is attached
hereto as Exhibit B-i), or, at a minimum, shall obtain verbal acknowledgement
and acceptance of financial responsibility from the Plan Member after making
such disclosure. The Physician may not under any circumstances surcharge or
otherwise bill a Plan Member for any Covered Services except to collect any
applicable Copayments provided for under a Payor's healthcare program. All
Copayments should, whenever possible, be collected by the Physician at the time
Covered Services are rendered, and the Physician shall report to OMNI, upon
request, all Copayments received by the Physician hereunder. The Physician shall
not maintain any action at law or equity against Plan Members to collect sums
owed to the Physician by OMNI or the Payor for Covered Services under this
Agreement. Notwithstanding the above, the Physician shall not pursue available
legal or other remedies against OMNI unless and to the extent that a Payor has
paid OMNI for such Covered Services for a Plan Member and
B-3
<PAGE>
OMNI has failed to pay the Physician as required by this Agreement for Covered
Services provided to that Plan Member.
5. Directory. The Physician hereby authorizes OMNI and the Payor to list,
at a minimum, the name, specialty, address, and telephone number of the
Physician in any Payor or OMNI marketing materials to help promote OMNI, the
Payor or a Payor healthcare program to potential Plan Members.
6. Coordination of Benefits. The Physician agrees to cooperate in providing
for effective implementation of the provisions of a Payor's healthcare program,
Managed Care Contract or OMNI's policies relating to coordination of benefits.
7. Non-Discrimination. The Physician shall not discriminate in the
treatment of Plan Members based on race, color, national origin, ancestry,
religion, sex, marital status, sexual orientation, or age. The Physician shall
make the Physician's services available to Plan Members in the same manner, in
accordance with the same standards, and within the same availability as to
non-Plan Members.
8. Notice of Claims. The Physician shall notify OMNI promptly whenever a
Plan Member files a claim or notice of intent to commence legal action alleging
professional negligence against the Physician, or if a final judgment is
rendered against the Physician in such a legal action.
9. OMNI and Payor Policies and Procedures; OMNI Committees. The Physician
agrees to participate in, cooperate with and comply with all applicable
requirements of OMNI and the Payor relating to utilization review, quality
assessment, credentialing, Plan Member grievance procedures, and any other
policies and procedures adopted by OMNI or the Payor. If the Physician fails to
comply with such utilization review requirements, the Physician agrees that
compensation otherwise due the Physician hereunder for the services in question
may be subject to forfeiture, in whole or in part, directly or by way of offset,
according to the policies of OMNI or the Payor. The Physician shall also serve
on the Utilization Review and Quality Assessment Committee established by OMNI,
without compensation, if requested to do so by OMNI.
10. Records.
a. Coordination with Other Providers. OMNI shall use its
reasonable best efforts to obligate other Practices with whom OMNI has
service agreements to comply with all reasonable requests of the
Physician for access to patient records reasonably necessary for the
performance of the Physician's duties under this Agreement.
B-4
<PAGE>
b. Coordination with Payors. OMNI shall use its best efforts to
ensure that its policies and procedures and the Managed Care Contacts
establish protocols upon which the Physician may rely with respect to
verification of enrollment and eligibility of Plan Members, assignment
of Plan Members to primary care physicians (if applicable) and
referrals to other healthcare providers.
c. Plan Member Records. The Physician shall maintain the usual
and customary records, in accordance with all applicable federal and
state statutory and regulatory requirements, for each Plan Member in
the same manner as for other patients of the Physician.
d. Confidentiality. Except as otherwise required by applicable
law or this Agreement, OMNI and the Physician agree to keep
confidential, and to take the usual precautions to prevent the
unauthorized disclosure of, any and all records required to be
prepared or maintained by the Physician hereunder.
11. Referrals and Coverage. The Physician shall refer Plan Members only to
healthcare providers who are under contract with the Plan unless (i) otherwise
directed by the Plan Member (in which event the Physician shall obtain from the
Plan Member the written acknowledgement required for non-Covered Services; (ii)
the medical needs of a Plan Member otherwise require, such as in the event of an
emergency, or (iii) otherwise approved or directed in advance by OMNI or the
Payor. The Physician shall comply with the referral authorization procedures, as
established by the OMNI board of directors, or otherwise under the applicable
Managed Care Contract and Plan healthcare program. If the Physician is paid on a
capitated basis, the Physician shall not refer Plan Members to itself for the
provision of non-primary care services or non-specialty care services, as
applicable, unless prior approval is received from OMNI's medical director or
his or her designee. Unless other arrangements are made by OMNI, the Physician
shall be responsible for responding to emergency needs of Plan Members with
respect to Covered Services twenty-four (24) hours per day, seven (7) days per
week, including holidays. In the event that the Physician is unable to provide
the required Covered Services, the Physician shall arrange with another
equivalently licensed or certified OMNI provider to provide the required Covered
Services on a locum tenens, on-call or other backup basis. In the event that no
other such OMNI provider is available or able to provide the required services,
the Physician may arrange with another equally qualified provider to provide
coverage during any periods in which the Physician is unavailable if permitted
by OMNI or the Payor; provided, however, that such other provider agrees, in
writing, to look solely to the Physician for compensation and to be bound by the
terms and conditions of this Exhibit, with respect to any Covered Services
rendered to Plan Members, including, but not limited to, (i)
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<PAGE>
cooperating fully with OMNI's peer review procedures, (ii) not billing Plan
Members for Covered Services other than or any applicable copayments, and (iii)
complying with the requirements of all OMNI and Payor policies and procedures
including, but not limited to, utilization review and quality assessment
procedures.
12. Effect of Termination on Patients. Termination shall relieve the
Physician of his or her obligation to accept new Plan Members. Termination shall
not relieve the Physician of his or her obligation to cooperate with OMNI in
arranging for the transfer of care of members of healthcare programs sponsored
by Payors with whom OMNI has arranged Managed Care Contracts then receiving
treatment from the Physician. The Physician shall continue to furnish, and OMNI
or the Physician shall continue to pay for, in accordance with the terms of this
Agreement, Covered Services rendered to Plan Members under the care of the
Physician at the time of termination for a period of ninety (90) days or until
the services being rendered and all necessary follow-up care are complete,
whichever occurs first, unless the Payor or OMNI makes provision for the
assumption of such services by another provider. OMNI shall use its reasonable
best efforts to transfer the Plan Member to another practice upon termination of
this Agreement. Furthermore, in the event that OMNI or the Physician has
executed a Managed Care Contract which requires the continuing provision of
services to Plan Members after termination of this Agreement, the Physician
agrees to continue to provide services to Plan Members in accordance with such
Managed Care Contract.
13. Access to Books, Records and Papers. OMNI shall have access at
reasonable times upon reasonable demand to the books, records and papers of the
Physician relating to healthcare services provided to Plan Members. Such access
shall include, but is not limited to, allowing review by OMNI's medical director
or his or her designee of a random selection of the Physician's office charts
relating to Plan Members for purposes of OMNI's peer review, utilization review
and quality assessment programs. Such records shall also be accessible to state
and federal agencies upon request as required by law and as otherwise set forth
in this Agreement. Notwithstanding any termination of this Agreement OMNI and
the Payor shall continue to have access to the Physician's records for four
years from the date on which the Physician provided the Covered Services
referred to in such records.
B-6
<PAGE>
The undersigned hereby acknowledge that this Exhibit B constitutes part of
the Amended and Restated Practice Management Services Agreement among the
Physician, Parent and OMNI.
ORTHOPAEDIC MANAGEMENT NETWORK,
INC.
By:________________________________
Name:
Title:
PHYSICIAN
_________________________________
Name:
Address:
___________________________________
___________________________________
___________________________________
Facsimile:_________________________
B-7
<PAGE>
EXHIBIT C
to
PRACTICE MANAGEMENT SERVICES AGREEMENT
Permitted Activities
1. The Physician may, during the Term and after the termination of this
Agreement, provide health care services to patients under third party payor
contracts arranged through networks other than OMNI, such as ONZA; provided,
however, that the Physician shall not represent nor imply to any such patient
that such services are being rendered by or on behalf of OMNI.
2. The Physician or the medical group through which the Physician practices
medicine (for himself or itself only) may, during the Term and after termination
of this Agreement, solicit contracts or contract with any third party payor with
which OMNI has not as of such time entered into a Managed Care Contract.
3. The Physician may, during the Term and after termination of this
Agreement, solicit and hire physicians to join the Physician in his medical
practice.
B-8
[DRAFT 10/2/97]
EXHIBIT F
RESTRICTED STOCK AGREEMENT
THIS RESTRICTED STOCK AGREEMENT (the "Agreement") is entered into as of
October 6, 1997, between BMJ MEDICAL MANAGEMENT, INC., a Delaware corporation
(the "Company"), and the individual identified on the signature page hereto (the
"Stockholder"), with reference to the following facts. Certain capitalized terms
used herein are defined in Section 5 below.
A. The Company, OMNI Acquisition Corporation, a wholly owned subsidiary of
the Company ("Acquisition Sub"), and Orthopaedic Management Network, Inc.
("Target") entered into an Agreement and Plan of Reorganization dated as of
October 6, 1997 (the "Merger Agreement"), pursuant to which Acquisition Sub
merged with and into Target (the "Merger"), with Target being the surviving
corporation (the "Surviving Corporation").
B. As a result of the Merger, each issued and outstanding share of common
stock of Target not owned by Target was converted into (i) the right to receive
a specified amount in cash and a specified number of shares of common stock,
$.001, par value (the "Common Stock"), of the Company and (ii) the right to
receive, upon the fulfillment of certain conditions, additional shares (the
"Additional Shares") of the Company's Common Stock on the third and fourth
anniversaries of the effective date of the Merger, subject to, among other
things, the execution and delivery by the holder thereof of this Restricted
Stock Agreement.
NOW, THEREFORE, in consideration of the Merger and in consideration of the
mutual covenants contained herein, including, without limitation, the release
set forth in Section 3 and the noncompetition agreement in Section 6(b), and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound hereby, the parties
hereto agree as follows:
1. Surrender of Merger Shares; Issuance of Restricted Shares.
Upon (a) execution of this Agreement, (b) surrender by the Stockholder to
the Surviving Corporation of certificate(s) representing the number of Merger
Shares set forth opposite the Stockholder's name on Schedule A attached hereto
(duly endorsed in blank) and (c) delivery to the Escrow Agent of two executed
stock powers relating to the Additional Shares, the Company shall, pursuant to
Section 2.2 of the Merger Agreement, issue to the Stockholder that number of
shares (such shares are referred to herein as the "Restricted Shares") of Common
Stock set forth opposite the Stockholder's name on Schedule A attached hereto.
Simultaneously with the execution and delivery hereof, the
<PAGE>
Company is delivering to the Stockholder the certificate(s) representing the
Restricted Shares.
2. Representations and Warranties of Stockholder.
(a) In connection with the surrender of certificate(s) representing the
Merger Shares and the issuance of Restricted Shares hereunder, the Stockholder
hereby represents and warrants to the Company as follows:
(i) The Stockholder is the lawful owner, of record and beneficially,
of those Merger Shares set forth opposite his or its name on Schedule I
hereto and has good and marketable title to such shares, free and clear of
any Encumbrances whatsoever and with no restriction on the voting rights
and other incidents of record and beneficial ownership pertaining thereto.
Except for the Merger Agreement, there are no agreements or understandings
between the Stockholder and any other Person with respect to the
acquisition, disposition or voting of or any other matters pertaining to
any of the capital stock of Target. The Stockholder acquired his or its
shares of Target Common Stock in one or more transactions exempt from
registration under the Securities Act of 1933, as amended, and in
compliance with applicable state securities laws. The Stockholder does not
have any right whatsoever to receive or acquire any additional capital
stock of the Target.
(ii) The Stockholder has full and absolute legal right, capacity,
power and authority to enter into this Agreement and to consummate all
transactions contemplated hereby, and this Agreement is the valid and
binding obligation of the Stockholder, enforceable against the Stockholder
in accordance with its terms, except as enforceability thereof may be
limited by any applicable bankruptcy, reorganization, insolvency or other
Laws affecting creditors rights generally or by general principles of
equity. If the Stockholder is a trust, it is a validly created and existing
trust under applicable state law.
(iii) Neither the execution, delivery and performance of this
Agreement by such Stockholder nor the consummation of the transactions
contemplated hereby nor compliance by the Stockholder with any of the
provisions hereof or thereof will (A) conflict with, or result in any
violations of, or cause a default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, amendment,
cancellation or acceleration of any obligations contained in or the loss of
any material benefit under, any term, condition or provision of any
Contract to which the Stockholder is a party, or by which such Stockholder
or any of the Stockholder's properties may be
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<PAGE>
bound or (B) violate any Law applicable to the Stockholder or any of the
Stockholder's properties, which conflict or violation would prevent the
consummation of the transactions contemplated by this Agreement or result
in an Encumbrance on or against any assets, rights or properties of the
Target or on or against any capital stock of the Target or give rise to any
claim against the Stockholder, the Target, Acquisition Sub, or any
Affiliate of Acquisition Sub or have a Material Adverse Effect.
(iv) Except as contemplated by the Merger Agreement, no Permit,
authorization, consent or approval of or by, or any notification of or
filing with, any Person or Governmental Entity is required in connection
with the execution, delivery and performance by the Stockholder of this
Agreement or the consummation by the Stockholder of the transactions
contemplated hereby.
(b) The Stockholder further represents and warrants to the Company that:
(i) the Restricted Shares to be issued to the Stockholder pursuant to
this Agreement shall be acquired for the Stockholder's own account, for
investment only and not with a view to, or intention of, distribution
thereof in violation of the 1933 Act, or any applicable state securities
laws, and the Restricted Shares will not be disposed of in contravention of
the 1933 Act or any applicable state securities laws;
(ii) the Stockholder has generally such knowledge and experience in
business and financial matters and with respect to investments in
securities of privately held companies so as to enable the Stockholder to
understand and evaluate the risks and benefits of his, her or its
investment in the Restricted Shares;
(iii) the Stockholder has no need for liquidity in his, her or its
investment in the Restricted Shares and is able to bear the economic risk
of his, her or its investment in the Restricted Shares for an indefinite
period of time and understands that the Restricted Shares have not been
registered or qualified under the 1933 Act or any applicable state
securities laws, by reason of the issuance of the Restricted Shares in a
transaction exempt from the registration and qualification requirements of
the 1933 Act or such state securities laws and, therefore, cannot be sold
unless subsequently registered or qualified under the 1933 Act or such
state securities laws or an exemption from such registration or
qualification is available;
(iv) the Stockholder understands that the exemption from registration
afforded by Rule 144 (the
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<PAGE>
provisions of which are known to the Stockholder) promulgated under the
1933 Act, depends on satisfaction of various conditions and that, if
applicable, Rule 144 may only afford the basis for sales under certain
circumstances and only in limited amounts;
(v) if the Stockholder is an individual, he or she is an individual
(A) whose individual net worth, or joint net worth with his or her spouse,
presently exceeds $1,000,000 or (B) who had an income in excess of $200,000
in each of the two most recent years, or joint income with his or her
spouse in excess of $300,000 in each of those years (in each case including
foreign income, tax exempt income and the full amount of capital gains and
losses but excluding any income of other family members and any unrealized
capital appreciation) and has a reasonable expectation of reaching the same
income level in the current year; or the Stockholder otherwise meets the
requirements to be considered an accredited investor, as defined under the
1933 Act; and
(vi) the Stockholder has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of the
Restricted Shares and has had full access to or been provided with such
other information concerning the Company as he, she or it has requested.
3. Transfer Restriction; Legend.
Except for Permitted Transfers, the Stockholder may not sell or transfer or
agree to sell or transfer ("Sale" or "Sell") any Restricted Shares unless such
Sale shall be in accordance with the procedures set forth in this Section 3:
(a) In the event that the Stockholder receives a bona fide offer from
a third party (the "Prospective Stockholder") to purchase all or any part
of the Restricted Shares owned by the Stockholder, the Stockholder shall
deliver to the Company a written notice (the "Offer Notice"), which shall
be irrevocable for a period of fifteen (15) business days after delivery
thereof (the "Offer Period"), offering (the "Offer") all of the Restricted
Shares proposed to be Sold by the Stockholder to the Prospective
Stockholder at the purchase price and on the terms of the proposed Sale to
the Prospective Stockholder (such Offer Notice shall include the foregoing
information, a copy of the Prospective Stockholder's bona fide offer and
all other relevant terms of the proposed Sale, including the identification
of the Prospective Stockholder). The Company shall have the right and
option, for a period of fifteen (15) business days after delivery of the
Offer Notice, to repurchase all or any part of the Restricted Shares so
offered at the purchase price and on the terms stated in the
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<PAGE>
Offer Notice. Such acceptance shall be made by delivering a written notice
to the Stockholder within said fifteen (15) business-day period.
(b) Sales of Restricted Shares under the terms of Section 3(a) above
shall be made on a mutually satisfactory business day within fifteen (15)
business days after the expiration of the Offer Period. Delivery of
certificates or other instruments evidencing such Restricted Shares duly
endorsed for transfer shall be made on such date against payment of the
purchase price therefor.
(c) If the Company fails to purchase all of the Restricted Shares
offered for Sale pursuant to the Offer Notice, then at any time within
sixty (60) business days after the expiration of the Offer Period the
Stockholder may Sell all or any part of the remaining Restricted Shares so
offered for Sale on terms no more favorable to the Prospective Stockholder
than the terms stated in the Offer Notice; provided, however, that the
Stockholder shall not, under any circumstances, Sell any Restricted Shares
to the Prospective Stockholder if the Board of Directors of the Company, in
its sole discretion, determines in good faith that the Prospective
Stockholder is a competitor, or an Affiliate of a competitor, of the
Company or that such Prospective Stockholder's ownership of such Restricted
Shares would be contrary to the best interests of the Company. In the event
that all of such Restricted Shares are not Sold by the Stockholder to the
Prospective Stockholder during such period, the right of the Stockholder to
Sell such Restricted Shares to the Prospective Stockholder shall expire and
the obligations of the Stockholder pursuant to this Section 3 shall be
reinstated.
(d) Any Permitted Transferee (other than the Company) shall, as a
condition to such transfer, agree to be bound by all of the provisions of
this Agreement applicable to the Stockholder and shall evidence such
agreement by executing and delivering to the Company a joinder to this
Agreement in form and substance satisfactory to the Company.
(e) The certificate(s) representing the Restricted Shares will bear
the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES OR "BLUE-SKY" LAWS. THESE SECURITIES MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR
LAWS. ADDITIONALLY, THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO CERTAIN REPURCHASE OPTIONS,
TRANSFER RESTRICTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH
IN A RESTRICTED STOCK
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<PAGE>
AGREEMENT DATED AS OF OCTOBER 6, 1997, BETWEEN THE
STOCKHOLDER AND BMJ MEDICAL MANAGEMENT, INC. A COPY OF SUCH
AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE
COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
(f) The restrictions on transfers of Restricted Shares set forth in
this Section 3 shall expire, and shall be of no further force or effect,
upon the consummation of the initial public offering of the Company's
Common Stock pursuant to the 1933 Act.
4. Release.
(a) The Stockholder hereby agrees that each of the Company, Parent,
Acquisition Sub, the Surviving Corporation (each as defined in the Merger
Agreement) and their respective parents, subsidiaries, Affiliates,
divisions and predecessors and their past and present directors, officers,
employees and agents, and each of their respective successors, heirs,
assigns, executors and administrators (collectively, the "Released
Persons") is hereby irrevocably released and forever discharged of and from
all manner of action and actions, cause and causes of action, suits,
rights, debts, dues, sums of money, accounts, bonds, bills, covenants,
Contracts, controversies, omissions, promises, variances, trespasses,
damages, Liabilities (as defined in the Merger Agreement), judgments,
executions, claims and demands whatsoever, in law or in equity which
against the Released Persons the Stockholder ever had, now has or which he
hereafter can, shall or may have, whether known or unknown, suspected or
unsuspected, matured or unmatured, fixed or contingent, for, upon or by
reason of any matter or cause arising at any time on or prior to the
Effective Time (as defined in the Merger Agreement).
(b) The Stockholder specifically represents and warrants to the
Released Persons that he has not assigned any such claim set forth in
paragraph (a) above, and agrees to indemnify and hold harmless the Released
Persons from and against any and all losses or damages arising from or in
any way related to (i) any such assignment, and (ii) any action by any
third party arising from or in any way related to the relationship among
such Stockholder and the Released Persons, which is the subject of this
Section 4.
5. Definitions.
(a) "Affiliate" means, with respect to any Person, (a) any director,
officer or partner of such Person and (b) any other Person that, directly
or indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person. The term
"control" includes, without limitation, the possession, directly or
indirectly, of
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<PAGE>
the power to direct the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.
(b) "Confidential Information" means Intellectual Property Rights (as
defined in the Merger Agreement) of the Target and the Surviving
Corporation and all information of a proprietary or confidential nature
relating to the Target, the Surviving Corporation or the Subject Business
(other than information that is in the public domain at the time of receipt
thereof by the Stockholder at the time of its use or disclosure by the
Stockholder other than as a result of the breach by the Stockholder of his
or its agreement hereunder).
(c) "Contract" means any loan or credit agreement, note, bond,
mortgage, indenture, lease, sublease, purchase order or other agreement,
instrument, permit, concession, franchise or license.
(d) "Encumbrances" means and includes security interests, mortgages,
liens, pledges, charges, easements, reservations, restrictions, clouds,
equities, rights of way, options, rights of first refusal and all other
encumbrances, whether or not relating to the extension of credit or the
borrowing of money.
(e) "Escrow Agent" means [Colonial Trust].
(f) "Governmental Entity" means any court, administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, Federal, state or local.
(g) "Law" means any law, statute, treaty, rule, directive or
regulation or order of any Governmental Entity.
(h) "Material Adverse Effect" on any Person means a material adverse
effect on the business, operations, assets (including levels of working
capital and components thereof), condition (financial or otherwise),
operating results, Liabilities (as defined in the Merger Agreement),
employee relations or business prospects of such Person.
(i) "Merger Shares" means the shares of Target Common Stock that were
issued and outstanding immediately prior to the effective time of the
Merger that were not owned directly or indirectly by the Target (whether as
treasury stock or otherwise).
(j) "Permits" means all permits, licenses, authorizations,
registrations, franchises, approvals,
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<PAGE>
certificates, variances and similar rights obtained, or required to be
obtained, from Governmental Entities.
(k) "Person" shall be construed broadly and shall include, without
limitation, an individual, a partnership, an investment fund, a limited
liability corporation or partnership, a corporation, an association, a
joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or
political subdivision thereof.
(l) "Permitted Transferee" means, as to the Stockholder, any
transferee who acquires the Restricted Shares pursuant to a Permitted
Transfer or any other transfer made in accordance with the provisions of
this Agreement.
(m) "Permitted Transfer" means, as to the Stockholder, any sale or
transfer of Restricted Shares to (A) the spouse or lineal descendants of
such Stockholder or (B) a trust for the benefit of any of the foregoing.
(n) "Public Sale" means any sale of Restricted Stock to the public
pursuant to an offering registered under the 1933 Act or to the public
through a broker, dealer or market maker pursuant to the provisions of Rule
144 adopted under the 1933 Act.
(o) "Restricted Shares" has the meaning set forth in Section 1(a). The
Restricted Shares will continue to be Restricted Shares in the hands of any
holder other than the Stockholder (except for the Company and except for
transferees in a Public Sale), and except as otherwise provided herein,
each such other holder of the Restricted Shares will succeed to all rights
and obligations attributable to the Stockholder as the holder of the
Restricted Shares hereunder. The Restricted Shares will also include shares
of the Company's capital stock issued with respect to the Restricted Stock
by way of a stock split, stock dividend or other recapitalization.
(p) "Subject Business" means the business of (i) arranging for the
delivery of health care services by and (ii) providing management services
to, a network of health care providers (the "Network"), including arranging
for such Network to participate in group purchasing programs, group health
insurance plans and group malpractice insurance plans.
(q) "Target Common Stock" means the common stock, no par value, of the
Target.
(r) "1933 Act" means the Securities Act of 1933, as the same may be
amended or supplemented from time to time, or
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<PAGE>
any successor statute, and the rules and regulations thereunder, as the
same are from time to time in effect.
6. Additional Stockholder Agreements.
(a) From and after the date hereof, the Stockholder shall not use or
disclose to any Person, except as required by law or judicial process, any
Confidential Information for any reason or purpose whatsoever, nor shall he
or it make use of any of the Confidential Information for his or its own
purposes or for the benefit of any Person except the Surviving Corporation
or any Affiliate thereof.
(b) The Stockholder recognizes and acknowledges that a breach by the
Stockholder of this Section 6 will cause irreparable and material loss and
damage to the Surviving Corporation and the Company as to which they will
not have an adequate remedy at law or in damages. Accordingly, each party
acknowledges and agrees that the issuance of an injunction or other
equitable remedy is an appropriate remedy for any such breach.
7. Indemnification.
(a) The Company shall indemnify, defend and hold harmless the
Stockholder against all liability, loss or damage, together with all
reasonable costs and expenses related thereto (including reasonable legal
fees and expenses), relating to or arising from the untruth, inaccuracy or
breach of any of the representations, warranties or agreements of the
Company contained in this Agreement.
(b) The Stockholder shall indemnify and hold harmless the Company
against all liability, loss or damage, together with all reasonable costs
and expenses related thereto (including reasonable legal fees and
expenses), relating to or arising from the untruth, inaccuracy or breach of
any of the representations, warranties or agreements of the Stockholder
contained in this Agreement.
8. General Provisions.
(a) Transfers in Violation of Agreement. Any sale, transfer,
assignment or other disposition (whether with or without consideration and
whether voluntarily or involuntarily or by operation of law) (each, a
"Transfer") or attempted Transfer of any Restricted Shares in violation of
any provision of this Agreement shall be void, and the Company shall not
record such Transfer on its books or treat any purported transferee of such
Restricted Shares as the owner of such stock for any purpose.
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<PAGE>
(b) Severability. It is the desire and intent of the parties hereto
that the provisions of this Agreement be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction
in which enforcement is sought. Accordingly, if any particular provision of
this Agreement shall be adjudicated by a court of competent jurisdiction to
be invalid, prohibited or unenforceable for any reason, such provision, as
to such jurisdiction, shall be ineffective, without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction. Notwithstanding
the foregoing, if such provision could be more narrowly drawn so as not to
be invalid, prohibited or unenforceable in such jurisdiction, it shall, as
to such jurisdiction, be so narrowly drawn, without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
(c) Entire Agreement. This Agreement and those documents expressly
referred to herein embody the complete agreement and understanding among
the parties hereto with respect to the subject matter hereof and supersede
and preempt any prior understandings, agreements or representations by or
among the parties, written or oral, which may have related to the subject
matter hereof in any way.
(d) Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which
taken together constitute one and the same agreement.
(e) Successors and Assigns. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by the
Stockholder, the Company and their respective successors, permitted
assigns, heirs, representatives and estate, as the case may be (including
subsequent holders of Restricted Stock); provided, however, that the rights
and obligations of the Stockholder under this Agreement shall not be
assignable except in connection with a Permitted Transfer of Restricted
Shares hereunder.
(f) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware without giving effect
to any choice of law or conflicting provision or rule (whether of the State
of Delaware or any other jurisdiction), that would cause the laws of any
jurisdiction other than the State of Delaware to be applied. In furtherance
of the foregoing, the internal law of the State of Delaware will control
the interpretation and construction of this agreement, even if under such
jurisdiction's choice of law
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<PAGE>
or conflict of law analysis, the substantive law of some other jurisdiction
would ordinarily apply.
(g) Remedies. Each of the parties to this Agreement shall be entitled
to enforce its rights under this Agreement specifically to recover damages
and costs (including reasonable attorneys' fees) for any breach of any
provision of this Agreement and to exercise all other rights existing in
its favor. The parties hereto agree and acknowledge that money damages may
not be an adequate remedy for the Company in the event of a breach of the
provisions of this Agreement by the Stockholder and that the Company may,
in its sole discretion, apply to any court of law or equity of competent
jurisdiction for specific performance and/or other injunctive relief
(without posting any bond or deposit) in order to enforce or prevent any
violations of the provisions of this Agreement.
(h) Amendment and Waiver. The provisions of this Agreement may be
amended and waived only with the prior written consent of the Company and
the Stockholder and no course of conduct or failure or delay in enforcing
the provisions of this Agreement shall be construed as a waiver of such
provisions or affect the validity, binding effect or enforceability of this
Agreement or any provision hereof; provided, however, that the Company may,
without the Stockholder's consent, amend Schedule A hereto (i) upon the
issuance by the Company of any Additional Shares to the Stockholder
pursuant to Section 3.3 of the Merger Agreement and the Escrow Agreement
and (ii) upon consummation of a Permitted Transfer of Restricted Shares
hereunder, in either case to reflect the then current ownership of such
shares.
(i) Notices. Any notice provided for in this Agreement must be in
writing and must be either personally delivered, transmitted via
telecopier, mailed by first class mail (postage prepaid and return receipt
requested) or sent by nationally-recognized overnight courier service
(charges prepaid) to the recipient at the address below indicated or at
such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
Notices will be deemed to have been given hereunder and received when
delivered personally, when received if transmitted via telecopier, five
days after deposit in the U.S. mail and one business day after deposit with
a nationally-recognized overnight courier service.
(i) If to the Company, to:
BMJ Medical Management, Inc.
4800 North Federal Highway, Suite 104D
Boca Raton, Florida 33431
Attention: Naresh Nagpal, M.D., President
Telephone: (561) 391-1311
Telecopier: (561) 391-1389;
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<PAGE>
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza, 41st Floor
New York, New York 10112
Attention: Jeffrey S. Held, Esq.
Telephone: (212) 408-2417
Telecopier: (212) 408-2420; and
(ii) If to the Stockholder, to his or her address set forth
on the signature page hereto beneath his or her name.
(j) Business Days. If any time period for giving notice or taking
action hereunder expires on a day which is a Saturday, Sunday or holiday in
the State of Florida, the time period for giving notice or taking action
shall be automatically extended to the business day immediately following
such Saturday, Sunday or holiday.
(k) Attorneys' Fees. In the event of any dispute or controversy
arising out of or relating to this Agreement, the prevailing party shall be
entitled to recover from the other party all costs and expenses, including
attorneys' fees and accountants' fees, incurred in connection with such
dispute or controversy.
(l) Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
(m) Construction. Where specific language is used to clarify by
example a general statement contained herein, such specific language shall
not be deemed to modify, limit or restrict in any manner the construction
of the general statement to which it relates. The language used in this
Agreement shall be deemed to be the language chosen by the parties to
express their mutual intent, and no rule of strict construction shall be
applied against any party.
(n) Nouns and Pronouns. Whenever the context may require, any pronouns
used herein shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns and pronouns shall include the plural
and vice-versa.
* * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Restricted Stock
Agreement effective as of the date first written above.
COMPANY
BMJ MEDICAL MANAGEMENT, INC.
By:__________________________
Naresh Nagpal, M.D.
President
STOCKHOLDER
_____________________________
Signature
_____________________________
Printed Name
Address for notices:
_____________________________
_____________________________
______________________________
<PAGE>
SCHEDULE A
Stockholder
Number of
Surrendered Merger Number of
Shares Restricted Shares
------ -----------------
Name
Gustavo Armendariz, M.D. 1 679
Philip Bowman, M.D. 1 679
Roberto Carreon, M.D. 1 679
Thomas Carter, M.D. 1 679
Richard Collins, M.D. 1 679
Dennis Crandall, M.D. 1 679
Jody Daggett, M.D. 1 679
Richard Daley, M.D. 1 679
Jack Davis, M.D. 1 679
Sherwood Duhon, M.D. 1 679
Thomas Erickson, M.D. 1 679
Norman Fee, M.D. 1 679
Jonathan Fox, M.D. 1 679
Charles Gauntt, M.D. 1 679
Lawrence Green, M.D. 1 679
Mark Greenfield, M.D. 1 679
Dan Heller, M.D. 1 679
Peter Herwick, M.D. 1 679
Robert Johnson, M.D. 1 679
Robert Kasa, M.D. 1 679
Douglas Kelly, M.D. 1 679
Stuart Kozinn, M.D. 1 679
Richard Lane, M.D. 1 679
John Mahon, M.D. 1 679
Bruce Mallin, M.D. 1 679
Bert McKinnon, M.D. 1 679
Stephen Milliner, M.D. 1 679
Gerald Moczynski, M.D. 1 679
Neil Motzkin, M.D. 1 679
Paul Palmer, M.D. 1 679
<PAGE>
William Quinlan, M.D. 1 679
Vincent Russo, M.D. 1 679
Ronald Sandler, M.D. 1 679
Saul Schreiber, M.D. 1 679
Irwin Shapiro, M.D. 1 679
Victor Tseng, M.D. 1 679
Larry Verhulst, M.D. 1 679
John Whisler, M.D. 1 679
Robert White, M.D. 1 679
Ralph Wilson, M.D. 1 679
Mark Zachary, M.D. 1 679
Jon Zoltan, M.D. 1 679
<PAGE>
================================================================================
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
BMJ MEDICAL MANAGEMENT, INC.,
OMNI ACQUISITION CORPORATION,
ORTHOPAEDIC MANAGEMENT NETWORK, INC.,
AND
THE SHAREHOLDERS' REPRESENTATIVE
OCTOBER 6, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
SECTION 1. GENERAL.......................................................... 1
1.1. The Merger....................................................... 1
1.2. Effective Time of the Merger..................................... 2
1.3. Effect of the Merger............................................. 2
1.4. Charter, By-Laws, Officers and Directors of
Surviving Corporation........................................ 2
1.5. Taking of Necessary Action; Further
Assurances................................................... 2
1.6. Authorization of the Merger, this Agreement
and the Articles of Merger................................... 2
1.7. The Closing...................................................... 3
SECTION 2. PAYMENT OF PURCHASE PRICE; EFFECT OF MERGER
ON CAPITAL STOCK OF CONSTITUENT
CORPORATIONS................................................. 3
2.1. Effect on Capital Stock.......................................... 3
2.2. Delivery of Funds; Surrender of Certificates..................... 6
2.3. Escrow Agreement; Delivery of Certificates....................... 6
2.4. No Further Ownership Rights in Company Common
Stock........................................................ 6
SECTION 3. ADJUSTMENT OF AGGREGATE MERGER CONSIDERATION..................... 7
3.1. Delivery of Revenues Statement................................... 7
3.2. Purchase Price Adjustments....................................... 8
(a) First Equity Adjustment.......................................... 8
(b) Second Equity Adjustment......................................... 9
3.3. Payments......................................................... 9
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY...................................................... 9
4.1. Organization; Good Standing; Qualification
and Power........................................................ 9
4.2. Equity Investments.............................................. 10
4.3. Capital Stock................................................... 10
4.4. Authority; Noncontravention; Consents........................... 10
4.5. Financial Statements............................................ 11
4.6. Absence of Undisclosed Liabilities.............................. 12
4.7. Absence of Changes.............................................. 12
4.8. Tax Matters..................................................... 13
4.9. Title to Assets, Properties and Rights and
Related Matters............................................. 14
4.10. Real Property-Owned or Leased................................... 14
4.11. Intellectual Property........................................... 14
4.12. Agreements, No Defaults, Etc.................................... 14
4.13. Litigation, Etc................................................. 15
4.14. Compliance; Governmental Authorizations......................... 16
4.15. Insurance....................................................... 16
4.16. Employees; ERISA Compliance..................................... 16
4.17. Environmental Matters........................................... 16
4.18. Brokers......................................................... 17
4.19. Accounts and Notes Receivable................................... 17
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4.20. Accounts and Notes Payable...................................... 17
4.21. Bank Accounts; Powers of Attorney............................... 17
4.22. Related Transactions............................................ 17
4.23. Burdensome Restrictions......................................... 18
4.24. Disclosure...................................................... 18
SECTION 5. REPRESENTATIONS AND WARRANTIES OF PARENT AND
ACQUISITION SUB............................................. 18
5.1. Organization; Good Standing; Qualification
and Power....................................................... 18
5.2. Authority....................................................... 18
5.3. Noncontravention; Consents...................................... 19
5.4. Capital Stock................................................... 19
5.5. Financial Statements............................................ 20
5.6. Absence of Undisclosed Liabilities.............................. 20
5.7. Absence of Changes.............................................. 21
5.8. Tax Matters..................................................... 21
5.9. Title to Assets, Properties and Rights and
Related Matters............................................. 22
5.10. Intellectual Property........................................... 22
5.11. Litigation, Etc................................................. 23
5.12. Compliance; Governmental Authorizations......................... 23
5.13. Brokers......................................................... 23
5.14. Disclosure...................................................... 23
SECTION 6. CONDUCT AND TRANSACTIONS PRIOR TO THE
CLOSING; ADDITIONAL PRE-CLOSING
AGREEMENTS.................................................. 24
6.1. Affirmative Covenants of the Company............................ 24
6.2. Negative Covenants of the Company............................... 24
6.3. Consents........................................................ 26
6.4. Efforts to Consummate........................................... 26
6.5. Notice of Prospective Breach.................................... 26
6.6. Public Announcements............................................ 26
6.7. Negotiation with Others; Disposition and
Voting of Securities........................................ 26
6.8. Shareholders' Representative.................................... 27
SECTION 7. CONDITIONS...................................................... 28
7.1. Conditions to Each Party's Obligations to
Effect the Merger.......................................... 28
(a) Approvals....................................................... 28
(b) No Injunctions or Restraints.................................... 28
(c) Statutes........................................................ 28
7.2. Conditions to Obligations of Parent and
Acquisition Sub............................................. 28
(a) Accuracy of Representations and Warranties...................... 28
(b) Performance of Obligations of the Company....................... 29
(c) Authorization................................................... 29
(d) Opinion of the Company's Counsel................................ 29
(e) Consents and Approvals.......................................... 29
(f) Government Consents, Authorizations, Etc........................ 29
(g) Corporate Resolutions........................................... 29
(h) Absence of Material Adverse Change.............................. 30
(i) Officer's Certificate........................................... 30
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(j) Restated Management Agreement................................... 30
(k) Restricted Stock Agreement...................................... 30
(l) Escrow Agreement................................................ 30
(m) Company's Expenses.............................................. 30
(n) Due Diligence................................................... 31
7.3 Conditions to Obligations of the Company........................ 31
(a) Accuracy of Representations and Warranties...................... 31
(b) Performance of Obligations of Parent and
Acquisition Sub............................................. 31
(c) Authorization................................................... 31
(d) Government Consents, Authorizations, Etc........................ 31
(e) Corporate Resolutions........................................... 32
(f) Officer's Certificate........................................... 32
(g) Restated Management Agreement................................... 32
(h) Restricted Stock Agreements..................................... 32
(i) Escrow Agreement................................................ 32
SECTION 8. POST-CLOSING COVENANTS.......................................... 32
8.1. Parent Contributions............................................ 32
8.2. Ancillary Services.............................................. 33
SECTION 9. INDEMNIFICATION................................................. 34
9.1. Indemnification Generally; Etc.................................. 34
(a) In Favor of the Buyer Group..................................... 34
(b) In Favor of the Company......................................... 34
9.2. Limitations on Indemnification.................................. 34
(a) Indemnity Limitations against the Escrow
Amount...................................................... 34
(b) Indemnity Limitations for the Buyer Group....................... 35
9.3. Assertion of Claims............................................. 35
9.4. Notice and Defense of Third Party Claims........................ 35
9.5. Survival of Representations and Warranties...................... 37
9.6. No Third Party Reliance......................................... 37
SECTION 10. TERMINATION; EFFECT OF TERMINATION.............................. 38
10.1. Termination..................................................... 38
10.2. Effect of Termination........................................... 39
SECTION 11. MISCELLANEOUS PROVISIONS........................................ 39
11.1. Expenses........................................................ 39
11.2. Amendment....................................................... 39
11.3. Extension; Waiver............................................... 39
11.4. Entire Agreement................................................ 40
11.5. Severability.................................................... 40
11.6. No Third-Party Beneficiaries; Successors and
Assigns..................................................... 40
11.7. Headings........................................................ 40
11.8. Notices......................................................... 40
11.9. Counterparts.................................................... 42
11.10. Governing Law................................................... 42
11.11. Incorporation of Exhibits and Schedules......................... 42
11.12. Construction.................................................... 42
11.13. Remedies........................................................ 42
11.14. Waiver of Jury Trial............................................ 42
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<PAGE>
SCHEDULES AND EXHIBITS
Annex I - Definitions
Schedule I - Capitalization
Exhibit A - Form of Articles of Merger
Exhibit B - Form of Amended and Restated Articles of
Incorporation of the Company
Exhibit C - Form of Opinion of Company's Counsel
Exhibit D - Form of Restated Practice Management
Agreement
Exhibit E - Form of Restricted Stock Agreement
<PAGE>
AGREEMENT AND PLAN OF
REORGANIZATION dated as of October
6, 1997, among BMJ MEDICAL
MANAGEMENT, INC., a Delaware
corporation ("Parent"), OMNI
ACQUISITION CORPORATION, an Arizona
corporation and wholly owned
subsidiary of Parent ("Acquisition
Sub"), ORTHOPAEDIC MANAGEMENT
NETWORK, INC., an Arizona
corporation (the "Company"), and
the SHAREHOLDERS' REPRESENTATIVE
(as defined herein).
The Company is engaged in the business (the "Subject Business") of (a)
arranging for the delivery of health care services by health care providers and
(b) providing management services to health care providers, including arranging
for providers to participate in group purchasing programs, group health
insurance plans and group malpractice insurance plans. The respective Boards of
Directors of each of Parent, Acquisition Sub and the Company have duly approved
and adopted this Agreement and Plan of Reorganization (this "Agreement"), the
Articles of Merger in substantially the form of Exhibit A attached hereto (the
"Articles of Merger") and the proposed merger (the "Merger") of Acquisition Sub
with and into the Company in accordance with, and subject to, the terms and
conditions of this Agreement, the Articles of Merger and the Arizona Business
Corporation Act (the "Arizona Statute") whereby, among other things, each issued
and outstanding share of common stock, no par value (the "Company Common
Stock"), of the Company not owned of record by the Company, will be converted
into the right to receive cash and capital stock of Parent in the manner set
forth in Sections 2 and 3 of this Agreement and the Articles of Merger. The
parties hereto intend that the transactions contemplated hereby be consummated
in a manner deemed to be a tax-free merger under Section 368 of the Internal
Revenue Code of 1986, as amended. Capitalized terms used but not defined herein
have the meanings set forth in Annex I hereto.
NOW, THEREFORE, in consideration of the premises and the mutual benefits to
be derived from this Agreement and the Articles of Merger and the
representations, warranties, covenants, agreements and conditions contained
herein and in the Articles of Merger, the parties hereto hereby agree as
follows:
SECTION 1. GENERAL
1.1. The Merger. In accordance with, and subject to, the provisions of this
Agreement, the Articles of Merger and the Arizona Statute, Acquisition Sub shall
be merged with and into the Company, which, at and after the Effective Time,
shall be and is hereinafter sometimes referred to as the "Surviving
<PAGE>
Corporation." Acquisition Sub and the Company are hereinafter sometimes
collectively referred to as the "Constituent Corporations."
1.2. Effective Time of the Merger. The Merger shall become effective upon
the filing by the Constituent Corporations of the Articles of Merger with the
Arizona Corporation Commission. The Articles of Merger shall be executed and
delivered in the manner provided under the Arizona Statute. The date and time
when the Merger shall become effective is referred to herein as the "Effective
Time."
1.3. Effect of the Merger. Except as specifically set forth herein or in
the Articles of Merger, at the Effective Time, the identity, existence,
corporate organization, purposes, powers, objects, franchises, privileges,
rights, immunities, restrictions, debts, liabilities and duties (collectively,
the "Corporate Rights") of the Company shall continue in effect and be
unimpaired by the Merger, and the Corporate Rights of Acquisition Sub shall be
merged with and into the Company, which shall, as the Surviving Corporation, be
fully vested therewith. At the Effective Time, the separate existence and
corporate organization of Acquisition Sub shall cease, and Acquisition Sub shall
be merged with and into the Surviving Corporation.
1.4. Charter, By-Laws, Officers and Directors of Surviving Corporation.
From and after the Effective Time, (a) the articles of incorporation of the
Company shall be amended and restated in their entirety to read as set forth in
Exhibit B hereto and, as so amended, such articles of incorporation shall be the
articles of incorporation of the Surviving Corporation until altered, amended or
repealed as provided in the Arizona Statute, (b) the by-laws of Acquisition Sub
shall become the by-laws of the Surviving Corporation, unless and until altered,
amended or repealed as provided in the Arizona Statute, the Surviving
Corporation's articles of incorporation or such by-laws; and (c) the officers
and directors of Acquisition Sub shall become the officers and directors of the
Surviving Corporation, respectively, unless and until removed, their respective
successors are appointed or until their respective terms of office shall have
expired in accordance with the Arizona Statute or the Surviving Corporation's
articles of incorporation or by-laws, as applicable.
1.5. Taking of Necessary Action; Further Assurances. Prior to the Effective
Time, and subject to the terms and conditions contained in this Agreement, the
parties hereto shall take or cause to be taken all such actions as may be
necessary or appropriate in order to effectuate, as expeditiously as reasonably
practicable, the Merger.
1.6. Authorization of the Merger, this Agreement and the Articles of
Merger. (a) On or before the Closing Date, the
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Company shall call and hold (in compliance with the Arizona Statute) a meeting
of the holders (the "Shareholders") of the issued and outstanding shares of
Company Common Stock, at which meeting the Shareholders shall take a vote
regarding the approval and adoption of the Merger, this Agreement, the Articles
of Merger and consummation of the transactions contemplated hereby, as required
by the Arizona Statute. Parent, as the sole shareholder of Acquisition Sub,
shall execute a written consent in lieu of a meeting, which written consent
shall include resolutions approving and adopting the Merger, this Agreement, the
Articles of Merger and consummation of the transactions contemplated hereby, as
required by the Arizona Statute.
(b) The Company shall take, as promptly as practicable, all such other
actions as may be necessary or advisable under the Arizona Statute and any other
applicable law or regulation in connection with this Agreement, the Merger or
the Articles of Merger. The Company shall prepare and distribute any written
notice or other materials relating to the shareholder action contemplated by
Section 1.6(a) required to be delivered pursuant to the Company's Charter or
By-laws, the Arizona Statute or any other Federal or state law applicable to
this Agreement, the Merger, the Articles of Merger or such shareholder action
(collectively, the "Shareholder Materials"); provided, however, that Parent,
Acquisition Sub and their counsel shall have a reasonable opportunity to review
all Shareholder Materials and all Shareholder Materials shall be reasonably
satisfactory in form and substance to Parent, Acquisition Sub and their counsel.
1.7. The Closing. Unless this Agreement shall have been terminated and the
transactions contemplated by this Agreement shall have been abandoned pursuant
to the provisions of Section 10.1, and subject to the provisions of Section 7,
the closing of the transactions contemplated hereby (the "Closing") will take
place at 10:00 a.m. (New York time) on Friday, October 3, 1997 or such other
date (the "Closing Date") to be mutually agreed upon by the parties, which date
shall be no later than the fifth Business Day after all of the conditions set
forth in Section 7 (other than those conditions which are intended to only be
satisfied at Closing) shall have been satisfied (or waived in accordance with
Section 11.3). The Closing shall take place at the offices of O'Sullivan Graev &
Karabell, LLP, 30 Rockefeller Plaza, New York, New York 10112, unless another
place is agreed to in writing by the parties.
SECTION 2. PAYMENT OF PURCHASE PRICE; EFFECT OF MERGER ON CAPITAL STOCK OF
CONSTITUENT CORPORATIONS
2.1. Effect on Capital Stock. (a) The following terms used in this
Agreement shall have the following respective meanings:
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"Additional Equity Amount" means the sum of the First Equity
Contingency Amount and the Second Equity Contingency Amount.
"Cash Merger Consideration" means $63,000.
"Escrow Amount" means 28,518 shares of Parent Common Stock.
"First Equity Contingency Amount" means 14,259 shares of Parent Common
Stock, subject to adjustment pursuant to Sections 3 and 9 hereof.
"First Per Merger Share Contingency Amount" means an amount equal to
the quotient obtained by dividing (A) the First Equity Contingency Amount
by (B) the Share Number, rounded to the nearest whole share.
"Initial Equity Amount" means 28,518 shares of Parent Common Stock.
"Merger Consideration" means, with respect to any issued and
outstanding share of Company Common Stock, the Per Merger Share Cash
Amount, the Per Merger Share Stock Equivalent and the Per Merger Share
Additional Equity Amount, if any.
"Merger Shares" means the shares of Company Common Stock that are
issued and outstanding immediately prior to the Effective Time that are not
owned directly or indirectly by the Company (whether as treasury stock or
otherwise).
"Per Merger Share Additional Equity Amount" means the sum of the First
Per Merger Share Contingency Amount and the Second Per Merger Share
Contingency Amount.
"Per Merger Share Cash Amount" means an amount equal to the quotient
obtained by dividing (A) the Cash Merger Consideration by (B) the Share
Number, rounded to the nearest $.0001.
"Per Merger Share Stock Equivalent" means an amount equal to the
quotient obtained by dividing (A) the Initial Equity Amount by (B) the
Share Number, rounded to the nearest whole share.
"Second Equity Contingency Amount" means 14,259 shares of Parent
Common Stock, subject to adjustment pursuant to Sections 3 and 9 hereof.
"Second Per Merger Share Contingency Amount" means an amount equal to
the quotient obtained by dividing (A) the
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Second Equity Contingency Amount by (B) the Share Number, rounded to the
nearest whole share.
"Share Number" means the number of Merger Shares.
"Stock Merger Consideration" means the sum of (i) the Initial Equity
Amount and (ii) the Additional Equity Amount, if any.
(b) Anything contained in this Agreement or the Articles of Merger to the
contrary notwithstanding, the entire consideration payable in the Merger with
respect to all Merger Shares shall not exceed the aggregate of the Cash Merger
Consideration and the Stock Merger Consideration. The manner and basis of
converting, exchanging or canceling the shares of capital stock of each of the
Constituent Corporations into or for cash and securities of Parent or securities
of the Surviving Corporation shall be as follows:
(i) each share of common stock, $.01 par value, of Acquisition Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into one share of common stock, $.01 par value, of the Surviving
Corporation;
(ii) each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time and owned directly or indirectly by
the Company (whether as treasury stock or otherwise) shall, by virtue of
the Merger and without any action on the part of the holder thereof, be
canceled and no consideration shall be delivered in exchange therefor;
(iii) each Merger Share shall, by virtue of the Merger and without any
action on the part of the holder thereof, cease to be outstanding and be
converted into (A) the right to receive, at the Effective Time, (1) an
amount in cash equal to the Per Merger Share Cash Amount and (2) subject to
the terms and conditions of this Agreement and the Restricted Stock
Agreement, such number of shares of Parent Common Stock equal to the Per
Merger Share Stock Equivalent, (B) the right to receive after the third
anniversary of the Effective Time, subject to the terms and conditions set
forth in Sections 3.2(a) and 9 of this Agreement and the Escrow Agreement,
such additional number of shares of Parent Common Stock equal to the First
Per Merger Share Contingency Amount and (C) the right to receive after the
fourth anniversary of the Effective Time, subject to the terms and
conditions set forth in Sections 3.2(b) and 9 of this Agreement and the
Escrow Agreement, such additional number of shares of Parent
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Common Stock equal to the Second Per Merger Share Contingency Amount;
(iv) each authorized but unissued share of Company Common Stock
immediately prior to the Effective Time shall be canceled.
2.2. Delivery of Funds; Surrender of Certificates. At the Effective Time,
upon (a) surrender by each Shareholder to the Surviving Corporation of the
certificate(s) which, immediately prior to the Effective Time, represented
Merger Shares and (b) execution of a Restricted Stock Agreement, such
Shareholder shall, from and after the Effective Time in accordance with the
provisions hereof, be entitled to receive in exchange therefor (x) an amount in
cash equal to the product obtained by multiplying the Per Merger Share Cash
Amount by the number of Merger Shares surrendered by such Shareholder, such
amount to be paid promptly by the Surviving Corporation or its designee by check
or wire transfer to an account designated by such Shareholder to Acquisition Sub
not later than three Business Days prior to the Closing and (y) a stock
certificate, registered in the name of such Shareholder, representing that
number of shares of Parent Common Stock equal to the product obtained by
multiplying the Per Merger Share Stock Equivalent by the number of Merger Shares
surrendered by such Shareholder. No interest will be paid or will accrue on the
Per Merger Share Amount payable upon the surrender of any certificates
representing Merger Shares. Until surrendered as contemplated by this Section
2.2 and the Articles of Merger, each certificate representing Merger Shares
shall be deemed, at and after the Effective Time, to represent only the right to
receive upon such surrender cash and securities as contemplated by this Section
2, Section 3.2, the Articles of Merger and the Arizona Statute.
2.3. Escrow Agreement; Delivery of Certificates. (a) On or prior to the
Closing Date, Acquisition Sub shall appoint a trust company reasonably
acceptable to the Company to act as escrow agent (the "Escrow Agent") in
connection with the Merger pursuant to the Escrow Agreement.
(b) At the Effective Time, upon the terms and conditions contained in this
Agreement and the Escrow Agreement, Parent shall deliver to the Escrow Agent
stock certificates registered in the name of the Shareholders representing in
the aggregate a number of shares of Parent Common Stock equal to the Additional
Equity Amount.
2.4. No Further Ownership Rights in Company Common Stock. The Merger
Consideration paid in respect of the surrender of certificates representing
shares of Company Common Stock in accordance with the provisions of this Section
2 and the Articles of Merger shall be deemed to have been paid in full
satisfaction of all rights pertaining to such shares of Company Common Stock.
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At and after the Effective Time, the stock transfer books of the Surviving
Corporation shall be closed with respect to the capital stock of the Company,
and there shall be no further registration of transfers of the capital stock of
the Company thereafter on the records of the Surviving Corporation. If, after
the Effective Time, certificates representing shares of Company Common Stock are
presented to the Surviving Corporation for any reason, they shall be canceled
and exchanged as provided in this Section 2 and the Articles of Merger.
SECTION 3. ADJUSTMENT OF AGGREGATE MERGER CONSIDERATION
3.1. Delivery of Revenues Statement. (a) As promptly as practicable but in
no event later than 60 days after October 6, 2000 and October 6, 2001 (each such
date, a "Determination Date"), Parent shall cause the Surviving Corporation to
prepare and deliver to the Shareholders' Representative an unaudited statement
of revenues of the Company for the 12-month period concluding with the
applicable Determination Date (each, a "Revenues Statement"). The Revenues
Statement shall be prepared on a consistent basis with the methodologies used by
Parent in preparing its then current financial statements.
(b) During the 30 days immediately following receipt of the Revenues
Statement by the Shareholders' Representative, the Shareholders' Representative
and its accountants shall be entitled to review the Revenues Statement, and any
working papers, trial balances and similar materials relating to the Revenues
Statement prepared by the Surviving Corporation or its accountants, and the
Surviving Corporation shall provide the Shareholders' Representative and its
accountants with timely access at the Surviving Corporation's principal office,
during the Surviving Corporation's normal business hours, to the Surviving
Corporation's personnel, properties, books and records. The Revenues Statement
prepared by the Surviving Corporation shall become final and binding upon the
parties on the thirty-first day following receipt thereof unless the
Shareholders' Representative gives written notice to Parent and the Surviving
Corporation of its objection with the Revenues Statement (a "Notice of
Objection") prior to such date. Any Notice of Objection shall specify in
reasonable detail the nature of any objection so asserted. If a timely Notice of
Objection is received by Parent and the Surviving Corporation with respect to
the Revenues Statement, then the Revenues Statement (as revised in accordance
with clause (x) or (y) below) shall become final and binding upon the parties on
the earlier of (x) the date the parties hereto resolve in writing any
differences they have with respect to any matter specified in a Notice of
Objection or (y) the date any matters in dispute are finally resolved in writing
by the Accounting Firm (as defined below) (the date on which the Revenues
Statement so becomes final and binding being hereinafter referred to as the
"Final Determination Date"). During the 30
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days immediately following the delivery of any Notice of Objection, Parent, the
Surviving Corporation and the Shareholders' Representative shall seek in good
faith to resolve in writing any differences which they may have with respect to
any matter specified in such Notice of Objection. During such period, Parent,
the Surviving Corporation and the Shareholders' Representative shall each have
access to the other party's working papers, trial balances and similar materials
prepared in connection with the other party's preparation of the Revenues
Statement and the Notice of Objection, as the case may be. At the end of such
30-day period, Parent, the Surviving Corporation and the Shareholders'
Representative shall submit to an independent "Big 6" public accounting firm
(the "Accounting Firm") for review and resolution any and all matters which
remain in dispute and which were included in any Notice of Objection, and the
Accounting Firm shall reach a final, binding resolution of all matters which
remain in dispute, which final resolution shall be (A) in writing, (B) furnished
to Parent, the Surviving Corporation and the Shareholders' Representative as
soon as practicable after the items in dispute have been referred to the
Accounting Firm, (C) made in accordance with this Agreement and (D) conclusive
and binding and not subject to collateral attack for any reason. The Revenues
Statement with any adjustments necessary to reflect the Accounting Firm's
resolution of the matters in dispute, shall become final and binding on the date
the Accounting Firm delivers its final resolution to the parties. The Accounting
Firm shall be such independent Big 6 public accounting firm other than Ernst &
Young, LLP (the "Parent's Accountants") as shall be agreed upon by the parties
hereto in writing or, if Parent and the Shareholders' Representative cannot so
agree within the 30-calendar day period referred to above, by lot from among the
remaining independent Big 6 public accounting firms willing to act. Each party
shall pay its own costs and expenses incurred in connection with such
arbitration, provided that the fees and expenses of the Accounting Firm shall be
paid 50% by Parent and 50% out of the Escrow Amount; provided, however, that the
amount payable out of the Escrow Amount shall be paid in shares of Parent Common
Stock (the number of which shall be determined using the then current Fair
Market Value for such shares), and Parent and the Shareholders' Representative
shall instruct the Escrow Agent to deliver such shares to Parent, and Parent
shall retain such shares and pay the corresponding amount in cash to the
Accounting Firm.
3.2. Purchase Price Adjustments. Upon the final determination of the
Revenues Statement for each Determination Date in accordance with Section 3.1
hereof, the Stock Merger Consideration will be adjusted (each, a "Purchase Price
Adjustment") according to the following:
(a) First Equity Adjustment. If the Surviving Corporation's total
revenues for the 12-month period ended October 6, 2000 equal or exceed
$3,000,000, then the First Equity
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Contingency Amount, less the sum of (i) the number of shares of Parent
Common Stock to be delivered by the Escrow Agent to Parent in payment of
any claims made prior to such date against the Escrow Amount under Section
9.1(a) hereof, (ii) the number of shares of Parent Common Stock to be
delivered to Parent pursuant to Section 3.1(b) above, if any, and (iii) the
number of shares of Parent Common Stock reserved by the Escrow Agent to pay
any pending claim under Section 9.1(a) hereof, each pursuant to the Escrow
Agreement, shall be released from the escrow account and distributed among
the Shareholders in the manner set forth in the Escrow Agreement; provided
that if the resulting amount (the "Indebted Contingency Share Number") is a
negative number, no shares of Parent Common Stock shall be distributed to
the Shareholders.
(b) Second Equity Adjustment. If the Surviving Corporation's total
revenues for the 12-month period ended October 6, 2001 equal or exceed
$3,000,000, then the Second Equity Contingency Amount, less the sum of (i)
the Indebted Contingency Share Number, (ii) the number of shares of Parent
Common Stock to be delivered by the Escrow Agent to Parent in payment of
any claims made after October 6, 2000 against the Escrow Amount under
Section 9.1(a) hereof, (iii) the number of shares of Parent Common Stock
delivered to Parent pursuant to Section 3.1(b) above, if any, and (iv) the
number of shares of Parent Common Stock reserved by the Escrow Agent to pay
any pending claims under Section 9.1 hereof, each pursuant to the Escrow
Agreement, shall be released from the escrow account and distributed among
the Shareholders, in the manner set forth in the Escrow Agreement, provided
that if the resulting amount is a negative number, no shares of Parent
Common Stock shall be distributed to the Shareholders.
3.3. Payments. Upon final determination of each Purchase Price Adjustment
and the First Equity Contingency Amount or the Second Equity Contingency Amount,
as the case may be, payable in accordance with Section 3.2 hereof, if any,
Parent and the Shareholders' Representative shall, within 5 days thereafter,
execute and deliver to the Escrow Agent written instructions to release and
deliver to the Shareholders' Representative certificates representing such
number of shares of Parent Common Stock due to the Shareholders pursuant to this
Section 3 and the Escrow Agreement.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Parent and Acquisition Sub as follows:
4.1. Organization; Good Standing; Qualification and Power. The Company is a
corporation duly organized, validly existing and in good standing under the Laws
of the State of Arizona, has all requisite corporate power and authority to own,
lease and operate its assets and properties and to carry on its
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business as now being conducted, to enter into this Agreement and the Related
Documents, to perform its obligations hereunder and thereunder and to consummate
the transactions contemplated hereby and thereby, and, except as set forth in
the disclosure letter dated the date of this Agreement (the "Company Disclosure
Letter"), certified by an authorized officer of the Company and delivered
thereby to Parent and Acquisition Sub, is duly qualified and in good standing to
do business in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary, each
of which jurisdictions is set forth in the Company Disclosure Letter. The
Company has delivered to Acquisition Sub true and complete copies of the
Company's Charter and the Company's By-laws, in each case as amended to the date
hereof.
4.2. Equity Investments. The Company has never had, nor does it currently
have, any subsidiaries, nor has it ever owned, nor does it currently own, any
capital stock or other proprietary or equity interest, directly or indirectly,
in any Person.
4.3. Capital Stock. The authorized capital stock of the Company consists of
1,000,000 shares of Company Common Stock, no par value, of which 42 shares are
issued and outstanding; such 42 shares of Company Common Stock being owned of
record and beneficially by the Shareholders in the amounts set forth on Schedule
I. All of such shares were validly issued, fully paid and non-assessable, with
no personal Liability attached to the ownership thereof. Except as set forth in
the Company Disclosure Letter, there are no securities presently outstanding,
and on the Closing Date there will not be any outstanding securities, which are
convertible into, exchangeable for, or carrying the right to acquire, equity
securities of the Company, or subscriptions, warrants, options, calls, puts,
convertible securities, registration or other rights, arrangements or
commitments obligating the Company to issue, sell, register, purchase or redeem
any of its equity securities or any ownership interest or rights therein. Except
as set forth in the Company Disclosure Letter, there are no Contracts,
commitments, arrangements, understandings or restrictions to which the Company,
any Shareholder or any other Person is bound relating to any shares of capital
stock or other securities of the Company, including, without limitation, the
voting or transfer of such capital stock.
4.4. Authority; Noncontravention; Consents. (a) The Company has all the
requisite corporate power and authority to execute and deliver and perform its
obligations under this Agreement and each Related Document to which it is a
party and any and all instruments necessary or appropriate in order to
effectuate fully the terms and conditions of this Agreement and each Related
Document to which it is a party and all related transactions contemplated hereby
and thereby and to perform its obligations hereunder and thereunder; the
execution, delivery and
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performance of this Agreement and each Related Document to which it is a party
and the consummation of the transactions contemplated hereby and thereby have
been duly and validly authorized by all necessary corporate action on the part
of the Company and the Shareholders; and this Agreement and each Related
Document to which it is a party has been duly and validly executed and delivered
by the Company and this Agreement and each Related Document to which it is a
party is the valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, except as enforceability thereof may
be limited by any applicable bankruptcy, reorganization, insolvency or other
Laws affecting creditors rights generally or by general principles of equity.
(b) Neither the execution, delivery and performance of this Agreement and
each Related Document to which it is a party nor the consummation by the Company
of the transactions contemplated hereby or thereby nor compliance by the Company
with any provision hereof or thereof will (i) conflict with, or result in any
breach or violation of, or cause a default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, amendment,
cancellation or acceleration of any obligation contained in or the loss of any
material benefit under, or result in the creation of any Encumbrance upon any of
the properties or assets of the Company under any term, condition or provision
of (x) the Company's Charter or the Company's By-laws or (y) except as set forth
in the Company Disclosure Letter, any Contract to which the Company is a party
or by which any of its properties or assets are bound, or (ii) violate any Laws
applicable to the Company or any of its properties.
(c) Except as set forth in the Company Disclosure Letter, no consent,
approval, Order or authorization of, registration, declaration or filing with,
or notification to any Governmental Entity or any third Person is required in
connection with the execution, delivery and performance by the Company of this
Agreement or the Related Documents to which the Company is a party or the
consummation of the transactions contemplated hereby or thereby.
4.5. Financial Statements. The Company has previously delivered to Parent
and Acquisition Sub the unaudited balance sheet of the Company as of June 30,
1997 (the "Latest Company Balance Sheet"; and such date being the "Latest
Company Balance Sheet Date"), and the related statements of income,
stockholders' equity and cash flows for the six-month period then ended (such
financial statements being referred to herein collectively as, the "Company
Financial Statements"). Except as set forth in the Company Disclosure Letter,
the Company Financial Statements (A) are in accordance with the books and
records of the Company which have been maintained in a manner consistent with
historical practices and (B) fairly present the financial condition of the
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Company as at the respective dates indicated and the results of operations,
stockholders' equity and cash flows of the Company for the respective periods
indicated.
4.6. Absence of Undisclosed Liabilities. Except as set forth in the Company
Disclosure Letter, the Company has no Liabilities, except for (i) Liabilities
reflected in the Liabilities section of the Latest Company Balance Sheet, (ii)
Liabilities under Contracts that are set forth in the Company Disclosure Letter
which have arisen in the ordinary course of business (none of which relates to a
breach of contract), and (iii) Liabilities that have arisen since the date of
the Latest Company Balance Sheet in the ordinary course of business (none of
which relates to breach of contract, breach of warranty, tort, infringement,
violation of Law, or any action, suit or Proceeding (including any Liability
under any Environmental, Health and Safety Laws)). There were no loss
contingencies (as such term is used in Statement of Financial Accounting
Standards No. 5 issued by the Financial Accounting Standards Board in March
1975) that were not adequately provided for on the Latest Company Balance Sheet.
The Company has not, either expressly or by operation of law, assumed or
undertaken any Liability of any other Person, including, without limitation, any
obligation for corrective or remedial action relating to Environmental, Health
and Safety Laws.
4.7. Absence of Changes. Since the Latest Company Balance Sheet Date, there
has not been any Material Adverse Change. Since that date, except as set forth
in the Company Disclosure Letter, the Company has been operated only in the
ordinary course, consistent with past practice, and:
(a) no fee, interest, dividend, royalty or any other payment of any
kind has been made by the Company to any Shareholder or any Affiliate of
the Company or any Shareholder;
(b) no party (including the Company) has accelerated, terminated,
modified or canceled any Contract (or series of related Contracts)
involving more than $5,000 to which the Company is a party or by which the
Company is bound and, to the Best Knowledge of the Company, no party
intends to take any such action;
(c) the Company has not experienced any material damage, destruction,
or loss (whether or not covered by insurance) to its property;
(d) there has not been any material action or failure to act by the
Company, or to the Best Knowledge of the Company, any other material
occurrence, event, incident or transaction outside the ordinary course of
business involving the Company;
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(e) the Company has not taken any action that would violate any of the
negative covenants set forth in Section 6.2 of this Agreement; and
(f) there has been no agreement, understanding or authorization,
whether in writing or otherwise, for the Company to take any of the actions
specified in items (a) through (e) above.
4.8. Tax Matters. Except as set forth in the Company Disclosure Letter, the
Company, (a) has timely paid all Taxes required to be paid by it through the
date hereof and (b) has filed or caused to be filed in a timely manner (within
any applicable extension periods) all Tax Returns with appropriate Governmental
Entities in all jurisdictions in which the Tax Returns are required to be filed,
and all such Tax Returns are true and complete. The Company is not, nor has it
ever been, included in any consolidated or combined Tax return for Federal,
state or local Tax purposes or is it a member of an affiliated group within the
meaning of Section 1504 of the Code. All Taxes, including those shown to be due
on each of the Tax Returns, have been timely paid in full. Except as set forth
in the Company Disclosure Letter, no Tax liens exist or have been filed and the
Company has not been notified by the Internal Revenue Service or any other
taxing authority that any issues have been raised (and are currently pending) by
the Internal Revenue Service or any other taxing authority in connection with
any Tax Return, and no waivers of statutes of limitation have been given or
requested with respect to the Company. There are no pending or proposed Tax
audits of any Tax Returns and no unresolved questions or claims concerning the
Company's Tax Liability exists. No unresolved deficiencies or additions to Taxes
have been proposed, asserted or assessed against the Company or any member of
any affiliated or combined group of which the Company was or is a member. The
Company has not incurred any Tax Liability since the Latest Company Balance
Sheet Date, except for Taxes incurred in the ordinary course of business. No
claim has ever been made by any Taxing authority in a jurisdiction in which the
Company does not file Tax Returns that the Company is or may be subject to
taxation by that jurisdiction. The Company has not made an election to be
treated as a "consenting corporation" under Section 341(f) of the Code and the
Company is not, nor has it ever been, a "personal holding company" within the
meaning of Section 542 of the Code. The Company and each of its predecessors
have complied in all material respects with all applicable Laws relating to the
payment and withholding of Taxes and has withheld and paid over all amounts
required by Law to be withheld and paid from the wages or salaries of employees,
and the Company is not liable for any Taxes for failure to comply with such
Laws. The Company neither is nor has it ever been a party to any Tax sharing
agreement. The Company has not agreed to nor is it required to make any
adjustments pursuant to Section 481 of the Code, and the Internal Revenue
Service has not
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proposed any such adjustments or changes in the Company's accounting method.
There is no Contract covering any Person that individually or collectively
could, as a result of the transactions contemplated hereby, or otherwise, give
rise to the payment of any amount being non-deductible by the Company by reason
of Section 280(G) of the Code.
4.9. Title to Assets, Properties and Rights and Related Matters. The
Company has good and marketable title to all assets, properties and interests in
properties, real, personal or mixed, reflected on the Latest Company Balance
Sheet or acquired after the Latest Company Balance Sheet Date (except inventory
or other property sold or otherwise disposed of since the Latest Company Balance
Sheet Date in the ordinary course of business and accounts receivable and notes
receivable paid in full subsequent to the Latest Company Balance Sheet Date),
free and clear of all Encumbrances, of any kind or character, except for those
Encumbrances set forth in the Company Disclosure Letter and Permitted
Encumbrances. There does not exist any condition which materially interferes
with the economic value or use of any such assets. All material tangible
personal property is located on the premises of the Company.
4.10. Real Property-Owned or Leased. The Company does not own or lease any
real property.
4.11. Intellectual Property. (a) The Company has never owned or used in the
conduct of the Subject Business, nor does it currently own or use in the conduct
of the Subject Business, Intellectual Property Rights; and
(b) the Company has not received from any third party in the past five
years any notice, charge, claim or other assertion that the Company is
infringing any Intellectual Property Right of any third party or committed any
acts of unfair competition, and no such claim is impliedly threatened by an
offer to license from a third party under a claim of use.
4.12. Agreements, No Defaults, Etc. The Company Disclosure Letter contains
a true and complete list and brief description of all material written or oral
contracts, agreements and other instruments to which the Company is a party.
Except as set forth in the Company Disclosure Letter, the Company is not a party
to any:
(a) Contract for the employment of any officer, individual employee or
other Person on a full-time, part-time, consulting or other basis or
agreement with any Affiliates;
(b) Contract relating to the borrowing of money or to the mortgaging,
pledging or otherwise placing an Encumbrance on any asset or group of
assets of the Company;
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(c) Contract relating to any guarantee of any obligation for borrowed
money or otherwise;
(d) Contract with respect to the lending or investing of funds;
(e) Contract or indemnification with respect to any form of intangible
property, including any Intellectual Property Rights or confidential
information;
(f) Contract or group of related Contracts with the same party for the
purchase or sale of products or services under which the undelivered
balance of such products and services has a selling price in excess of
$15,000;
(g) Contract that prohibits it from freely engaging in business
anywhere in the world;
(h) other Contract (x) that is not terminable by either party without
penalty upon advance notice of 30 days or less and involves aggregate
consideration in excess of $5,000 or (y) that involves aggregate
consideration in excess of $25,000; or
(i) other Contract material to the Subject Business.
Except as set forth in the Company Disclosure Letter, there are no vehicles,
boats, aircraft, apartments or other residential or recreational properties or
facilities owned or operated by the Company for executive, administrative or
sales purposes or any social club memberships owned or paid for by it. All
Contracts listed in the Company Disclosure Letter are in full force and effect,
constitute legal, valid and binding obligations of the respective parties
thereto, and are enforceable in accordance with their respective terms. Except
as set forth in the Company Disclosure Letter, the Company has in all material
respects performed all the obligations required to be performed by it to date
and is not in default or alleged to be in default under any Contract, and there
exists no event, condition or occurrence which, after notice or lapse of time,
or both, would constitute such a default by the Company of any of the foregoing.
The Company has furnished to Parent and Acquisition Sub true and complete copies
of all documents listed in the Company Disclosure Letter or complete
descriptions of all material terms of any oral Contracts listed in the Company
Disclosure Letter.
4.13. Litigation, Etc. Except as set forth in the Company Disclosure
Letter, there are no (i) Proceedings pending or, to the Best Knowledge of the
Company, threatened against the Company, whether at law or in equity, or before
or by any Governmental Entity or arbitrator, nor does there exist any basis
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therefore or (ii) Orders of any Governmental Entity or arbitrator against the
Company. The Company has delivered to Acquisition Sub all material documents and
correspondence relating to such matters referred to in the Company Disclosure
Letter.
4.14. Compliance; Governmental Authorizations. Except as set forth in the
Company Disclosure Letter, the Subject Business has not and is not being
conducted in violation in any material respect of any Law, Order or Permit,
including, without limitation, Environmental, Health and Safety Laws. Except as
set forth in the Company Disclosure Letter, no investigation or review by any
Governmental Entity with respect to the Company is pending or, to the Best
Knowledge of the Company, threatened, nor has any Governmental Entity notified
the Company of its intention to conduct the same. The Company has all Permits
necessary for the conduct of its business, including those required under any
Environmental, Health and Safety Laws, such Permits are in full force and
effect, no violations are or have been recorded in respect of any thereof and no
Proceeding is pending or, to the Best Knowledge of the Company, threatened to
revoke or limit any thereof. The Company Disclosure Letter contains a true and
complete list of all material Permits under which the Company is operating or
bound, and the Company has furnished to Acquisition Sub true and complete copies
thereof.
4.15. Insurance. The Company Disclosure Letter lists and briefly describes
each insurance policy maintained by the Company with respect to the properties,
assets and business of the Company, and any pending claims thereunder. The
Company is insured against all risks usually insured against by Persons
conducting similar businesses and operating similar properties in the localities
where the Subject Business is conducted. All of such insurance policies are in
full force and effect, and the Company is not in default in any material respect
with respect to its obligations under any of such insurance policies and has not
received any notification of cancellation of any of such insurance policies and
has no claim outstanding which could be expected to cause a material increase in
the insurance rates. No facts or circumstances exist that would relieve the
insurer under any such policy of its obligation to satisfy in full any claim of
the Company thereunder. The Company has not received any notice that (i) any of
such policies has been or will be canceled or terminated or will not be renewed
on substantially the same terms as are now in effect or (ii) the premium on any
of such policies will be materially increased on the renewal thereof.
4.16. Employees; ERISA Compliance. The Company has never had, nor does it
currently have, any employees. The Company has never had or participated in, nor
does it currently have or participate in, any Employee Plan.
4.17. Environmental Matters. Neither the Company, the Subject Business nor
any of their past owned or leased properties
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or operations is subject to or the subject of, any Proceeding, Order, Settlement
or other Contract or investigation arising under any Environmental Health and
Safety Laws. The Company has never handled, transported or disposed of, or
allowed or arranged for any third party to handle, transport or dispose of any
Hazardous Materials.
4.18. Brokers. None of the Company or any of its officers, directors,
stockholders or employees (or any Affiliate of the foregoing) have employed any
broker or finder or incurred any Liability for any brokerage fees, commissions
or finders' fees in connection with the transactions contemplated hereby.
4.19. Accounts and Notes Receivable. Except as set forth in the Company
Disclosure Letter, all the accounts receivable and notes receivable owing to the
Company as of the date hereof constitute, and as of the Closing will constitute,
valid and enforceable claims arising from bona fide transactions in the ordinary
course of business, and there are no known or asserted claims, refusals to pay
or other rights of set-off against any thereof. Except as set forth in the
Company Disclosure Letter, as of the date hereof, there is (i) no account debtor
or note debtor delinquent in its payment by more than 90 days, (ii) no account
debtor or note debtor that has refused or, to the Best Knowledge of the Company,
threatened to refuse to pay its obligations for any reason, (iii) to the Best
Knowledge of the Company, no account debtor or note debtor that is insolvent or
bankrupt and (iv) no account receivable or note receivable pledged to any third
party by the Company.
4.20. Accounts and Notes Payable. Except as set forth in the Company
Disclosure Letter, all accounts payable and notes payable by the Company to
third parties as of the date hereof arose, and as of the Closing will have
arisen, in the ordinary course of business, and, except as set forth in the
Company Disclosure Letter, there is no such account payable or note payable
delinquent in its payment, except those contested in good faith and already
disclosed in the Company Disclosure Letter.
4.21. Bank Accounts; Powers of Attorney. The Company Disclosure Letter sets
forth a true and complete list of (i) all bank accounts and safe deposit boxes
of the Company and all persons who are signatories thereunder or who have access
thereto and (ii) the names of all persons, firms, associations, corporations or
business organizations holding general or special powers of attorney from the
Company and a summary of the terms thereof.
4.22. Related Transactions. Except as set forth in the Company Disclosure
Letter and except for the Practice Management Agreements, no current or former
Affiliate of the Company is now, or has been during the last five years, (i) a
party to any transaction or Contract with the Company or (ii) the
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direct or indirect owner of an interest in any Person which is a present or
potential competitor or customer of the Company, nor does any such person
receive income from any source other than the Company which relates to the
business of, or should properly accrue to, the Company.
4.23. Burdensome Restrictions. The Company is not obligated under any
Contract or agreement or subject to any restriction set forth in the Company's
Charter or the Company's By-laws or subject to any other corporate restriction
which presently has a Material Adverse Effect, or in the future, may have a
Material Adverse Effect on the Subject Business.
4.24. Disclosure. To the Best Knowledge of the Company, neither this
Agreement, any of the schedules, attachments or exhibits hereto, nor any other
written material delivered to Parent or Acquisition Sub or any of their
respective directors, officers, employees, representatives or agents contains
any untrue statement of a material fact or omits a material fact necessary to
make the statements contained herein or therein, taken as a whole, in light of
the circumstances in which they were made, not misleading. There is no fact that
has not been disclosed to the parties referred to above of which the Company or
any of the officers or directors of the Company is aware and which constitutes
or could reasonably be anticipated to result in a Material Adverse Change.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION SUB.
Parent and Acquisition Sub represent and warrant to the Company as follows:
5.1. Organization; Good Standing; Qualification and Power. Each of Parent
and Acquisition Sub is a corporation duly organized, validly existing and in
good standing under the Laws of the state of its incorporation, has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted, to enter into this
Agreement and the Related Documents to which it is a party, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby, and, except as set forth in the disclosure
letter dated the date of this Agreement (the "Parent Disclosure Letter")
certified by an authorized officer of Parent and Acquisition Sub and delivered
thereby to the Company, is duly qualified and in good standing to do business in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification necessary, each of which
jurisdictions is set forth in the Parent Disclosure Letter. Parent has delivered
to the Company true and complete copies of Parent's Charter and Parent's
By-laws, in each case as amended to the date hereof.
5.2. Authority. Each of Parent and Acquisition Sub has all requisite power
and authority to enter into this
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Agreement and the Related Documents to which it is a party, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby; the execution, delivery and performance by
Parent and Acquisition Sub of this Agreement and the Related Documents to which
they are a party and the consummation of the transactions contemplated hereby
and thereby have been duly authorized by all necessary action on the part of
Parent or Acquisition Sub, as the case may be; and this Agreement and the
Related Documents to which Parent and Acquisition Sub are a party have been duly
executed and delivered by Parent or Acquisition Sub, as the case may be, and
constitute the valid and legally binding obligations of such party, enforceable
in accordance with their respective terms and conditions, except as
enforceability thereof may be limited by any applicable bankruptcy,
reorganization, insolvency or other Laws affecting creditors' rights generally
or by general principles of equity.
5.3. Noncontravention; Consents. (a) Neither the execution and delivery of
this Agreement and the Related Documents to which Parent or Acquisition Sub is a
party nor the consummation of the transactions contemplated hereby or thereby by
Parent or Acquisition Sub shall (i) violate any Law, the result of which would
prevent the consummation by Parent or Acquisition Sub of the transactions
contemplated hereby or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
material Contract to which either Parent or Acquisition Sub is a party or by
which Parent or Acquisition Sub is bound or to which any of their respective
properties is subject, the result of which would prevent the consummation by
Parent or Acquisition Sub of the transactions contemplated hereby.
(b) Except as contemplated by this Agreement or any Related Document, and
except as set forth in the Parent Disclosure Letter, no material permit,
authorization, consent or approval of or by, or any material notification of or
filing with, any Person (governmental or private) is required in connection with
the execution, delivery and performance by Parent and Acquisition Sub of this
Agreement and the Related Documents to which they are a party or the
consummation by such parties of the transactions contemplated hereby or thereby.
5.4. Capital Stock. The authorized capital stock of Parent consists of
25,000,000 shares of common stock, of which 10,048,482 shares are issued and
outstanding, and 9,233,049 shares of preferred stock, of which (i) 999,999
shares of Series A Convertible Preferred Stock, (ii) 2,000,001 shares of Series
B Convertible Preferred Stock, (iii) 254,999 shares of Series C Convertible
Preferred Stock, (iv) 188,072 shares of Series D Convertible Preferred Stock,
and (v) 741,669 shares of Series E Convertible Preferred Stock are issued and
outstanding. Each of
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the outstanding shares of capital stock has been duly and validly authorized and
issued, is fully paid for and non-assessable, and was issued in compliance with
all applicable Federal and state securities laws.
5.5. Financial Statements. Parent has previously delivered to the Company
the following financial statements (collectively, the "Parent Financial
Statements"):
(a) the unaudited balance sheet of Parent as of December 31, 1996 and
the related statements of income, stockholders' equity, cash flows and
supplemental data for the fiscal period then ended; and
(b) the unaudited balance sheet of Parent as of June 30, 1997 (the
"Latest Parent Balance Sheet" and such date being the "Latest Parent
Balance Sheet Date"), and the related statement of income for the
three-month period then ended.
Except as set forth in the Parent Disclosure Letter, the Parent Financial
Statements (i) are in accordance with the books and records of Parent which have
been maintained in a manner consistent with historical practices, (ii) fairly
present the financial condition of Parent as at the respective dates indicated
and the results of operations, stockholders' equity and cash flows of Parent for
the respective periods indicated, and (iii) have been prepared in accordance
with generally accepted accounting principles consistently applied throughout
the periods covered thereby except for normal year-end adjustments (none of
which will be material) and for the absence of footnotes.
5.6. Absence of Undisclosed Liabilities. Except as set forth in the Parent
Disclosure Letter, Parent has no material Liabilities, except for (i)
Liabilities reflected in the Liabilities section of the Latest Parent Balance
Sheet, (ii) Liabilities under Contracts that are set forth in the Parent
Disclosure Letter which have arisen in the ordinary course of business (none of
which relates to a breach of contract), and (iii) Liabilities that have arisen
since the date of the Latest Parent Balance Sheet in the ordinary course of
business (none of which relates to breach of contract, breach of warranty, tort,
infringement, violation of Law, or any action, suit or Proceeding (including any
Liability under any Environmental, Health and Safety Laws)). There were no loss
contingencies (as such term is used in Statement of Financial Accounting
Standards No. 5 issued by the Financial Accounting Standards Board in March
1975) that were not adequately provided for on the Latest Parent Balance Sheet.
Except as set forth in the Parent Disclosure Letter, Parent has not, either
expressly or by operation of law, assumed or undertaken any Liability of any
other Person, including, without limitation, any obligation for corrective or
remedial action relating to Environmental, Health and Safety Laws.
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5.7. Absence of Changes. Since the Latest Parent Balance Sheet Date, there
has not been any Material Adverse Change. Since that date, except as set forth
in the Parent Disclosure Letter, Parent has operated its business in the
ordinary course, consistent with past practice, and:
(a) no party (including Parent) has accelerated, terminated, modified
or canceled any Contract (or series of related Contracts) involving more
than $5,000 to which Parent is a party or by which Parent is bound and, to
the Best Knowledge of Parent, no party intends to take any such action;
(b) Parent has not experienced any material damage, destruction, or
loss (whether or not covered by insurance) to its property;
(c) there has not been any material action or failure to act by
Parent, or to the Best Knowledge of Parent, any other material occurrence,
event, incident or transaction outside the ordinary course of business
involving Parent;
(d) there has been no agreement, understanding or authorization,
whether in writing or otherwise, for Parent to take any of the actions
specified in items (a) through (c) above.
5.8. Tax Matters. Except as set forth in the Parent Disclosure Letter,
Parent, (a) has timely paid all Taxes required to be paid by it through the date
hereof and (b) has filed or caused to be filed in a timely manner (within any
applicable extension periods) all Tax Returns with appropriate Governmental
Entities in all jurisdictions in which the Tax Returns are required to be filed,
and all such Tax Returns are true and complete. Parent is not, nor has it ever
been, included in any consolidated or combined Tax return for Federal, state or
local Tax purposes or is it a member of an affiliated group within the meaning
of Section 1504 of the Code. All Taxes, including those shown to be due on each
of the Tax Returns, have been timely paid in full. Except as set forth in the
Parent Disclosure Letter, no Tax liens exist or have been filed and Parent has
not been notified by the Internal Revenue Service or any other taxing authority
that any issues have been raised (and are currently pending) by the Internal
Revenue Service or any other taxing authority in connection with any Tax Return,
and no waivers of statutes of limitation have been given or requested with
respect to Parent. There are no pending Tax audits of any Tax Returns. No
unresolved deficiencies or additions to Taxes have been proposed, asserted or
assessed against Parent or any member of any affiliated or combined group of
which Parent was or is a member. Parent has made full and adequate provision (i)
on the Latest Parent Balance Sheet for all Taxes payable by it for all
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periods prior to the date thereof, and (ii) on its books for all Taxes payable
by it for all periods beginning on or after such date. Parent has not incurred
any Tax Liability since the Latest Parent Balance Sheet Date, except for Taxes
incurred in the ordinary course of business. No claim has ever been made by any
Taxing authority in a jurisdiction in which Parent does not file Tax Returns
that the Company is or may be subject to taxation in that jurisdiction. Parent
has not made an election to be treated as a "consenting corporation" under
Section 341(f) of the Code and Parent is not, nor has it ever been, a "personal
holding company" within the meaning of Section 542 of the Code. Parent and each
of its predecessors have complied in all material respects with all applicable
Laws relating to the payment and withholding of Taxes and has withheld and paid
over all amounts required by Law to be withheld and paid from the wages or
salaries of employees, and Parent is not liable for any Taxes for failure to
comply with such Laws. Parent neither is nor has it ever been a party to any Tax
sharing agreement. Parent has not agreed to nor is it required to make any
adjustments pursuant to Section 481 of the Code, and the Internal Revenue
Service has not proposed any such adjustments or changes in Parent's accounting
method. There is no Contract covering any Person that individually or
collectively could, as a result of the transactions contemplated hereby, or
otherwise, give rise to the payment of any amount being non-deductible by Parent
by reason of Section 280(G) of the Code.
5.9. Title to Assets, Properties and Rights and Related Matters. Parent has
good title to all assets, properties and interests in properties, real, personal
or mixed, reflected on the Latest Parent Balance Sheet or acquired after the
Latest Parent Balance Sheet Date (except inventory or other property sold or
otherwise disposed of since the Latest Parent Balance Sheet Date in the ordinary
course of business and accounts receivable and notes receivable paid in full
subsequent to the Latest Parent Balance Sheet Date), free and clear of all
Encumbrances, of any kind or character, except for those Encumbrances set forth
in the Parent Disclosure Letter and Permitted Encumbrances. There does not exist
any condition which materially interferes with the economic value or use of any
such assets.
5.10. Intellectual Property. (a) Except as set forth on the Parent
Disclosure Letter, Parent has never owned or used in the conduct of its
business, nor does it currently own or use in the conduct of its business, any
Intellectual Property Rights; and
(b) Parent has not received from any third party in the past five years any
notice, charge, claim or other assertion that Parent is infringing any
Intellectual Property Right of any third party or committed any acts of unfair
competition, and no
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such claim is impliedly threatened by an offer to license from a third party
under a claim of use.
5.11. Litigation, Etc. Except as set forth in the Parent Disclosure Letter,
there are no (i) Proceedings pending or, to the Best Knowledge of Parent,
threatened against Parent, whether at law or in equity, or before or by any
Governmental Entity or arbitrator or (ii) Orders of any Governmental Entity or
arbitrator against Parent. Parent has delivered to the Company all material
documents and correspondence relating to such matters referred to in the Parent
Disclosure Letter.
5.12. Compliance; Governmental Authorizations. Except as set forth in the
Parent Disclosure Letter, Parent's business has not and is not being conducted
in violation in any material respect of any Law, Order or Permit, including,
without limitation, Environmental, Health and Safety Laws. No investigation or
review by any Governmental Entity with respect to Parent is pending or, to the
Best Knowledge of Parent, threatened, nor has any Governmental Entity notified
Parent of its intention to conduct the same. Parent has all Permits necessary
for the conduct of its business, including those required under any
Environmental, Health and Safety Laws, such Permits are in full force and
effect, no violations are or have been recorded in respect of any thereof and no
Proceeding is pending or, to the Best Knowledge of Parent, threatened to revoke
or limit any thereof.
5.13. Brokers. None of Parent, Acquisition Sub nor any of their respective
officers, directors, stockholders or employees (or any Affiliate of any of the
foregoing) has employed any broker or finder or incurred any Liability for any
brokerage fees, commissions or finders' fees in connection with the transactions
contemplated hereby.
5.14. Disclosure. To the Best Knowledge of Parent, neither this Agreement,
any of the schedules, attachments or exhibits hereto, nor any other written
material delivered to the Company or any of its directors, officers, employees,
representatives or agents contains any untrue statement of a material fact or
omits a material fact necessary to make the statements contained herein or
therein, taken as a whole, in light of the circumstances in which they were
made, not misleading. There is no fact that has not been disclosed to the
parties referred to above of which Parent, Acquisition Sub or any of the
officers or directors of Parent or Acquisition Sub is aware and which
constitutes or could reasonably be anticipated to result in a Material Adverse
Change.
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SECTION 6. CONDUCT AND TRANSACTIONS PRIOR TO THE CLOSING; ADDITIONAL
PRE-CLOSING AGREEMENTS.
6.1. Affirmative Covenants of the Company. From and after the date of this
Agreement until the Closing or the earlier termination of this Agreement
pursuant to Section 10.1 (the "Transition Period"), except as otherwise
consented to in writing by Parent and Acquisition Sub, the Company shall:
(a) conduct the operations of the Company (including the Subject
Business) according to the ordinary and usual course of business consistent
with past custom and practice (including the collection of receivables and
the payment of payables) and use best efforts to preserve intact its
business organization, keep available the services of officers and
employees, and maintain satisfactory relationships with customers and
others having business relationships with them;
(b) maintain the assets of the Company in customary repair, order and
condition, maintain insurance reasonably comparable to that in effect on
the Latest Company Balance Sheet Date, replace in accordance with past
practice inoperable, worn out or obsolete assets with modern assets of
comparable quality and, in the event of a casualty, loss or damage to any
of such assets or properties prior to the Closing Date for which the
Company is insured or the condemnation of any assets or properties, either
repair or replace such assets or property or, if Parent and Acquisition Sub
agree, cause the Company to retain such insurance or condemnation proceeds;
(c) promptly inform Parent and Acquisition Sub in writing of any
material variances from the representations and warranties contained in
Section 4; and
(d) permit representatives of Parent and Acquisition Sub to have full
access to the Company's books, records, property, facilities, customers,
suppliers, sales representatives, consultants, key employees and
independent accountants in connection with Parent's and Acquisition Sub's
due diligence review of the Company (it being understood that such
investigation shall in no way affect or otherwise obviate or diminish any
representations or warranties of the Company, or conditions to the
obligations of Parent or Acquisition Sub, in each case as set forth
herein).
6.2. Negative Covenants of the Company. During the Transition Period,
without the prior written consent of Parent and Acquisition Sub, except as
expressly contemplated by this Agreement or the Related Documents, the Company
shall not:
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(a) sell, lease, transfer, assign or distribute any of the assets of
the Company, tangible or intangible;
(b) enter into any Contract (or series of related Contracts) other
than in the ordinary course of business;
(c) delay or postpone the payment of accounts payable and other
obligations and Liabilities or accelerate the collection of accounts
receivable, other than in the ordinary course of business consistent with
past custom and practice;
(d) enter into any employment or consulting Contract or collective
bargaining agreement, written or oral, or modify the terms of any existing
such Contract or agreement;
(e) grant any increase in the base compensation of any of the officers
or employees of the Company other than in the ordinary course of business
consistent with past custom and practice;
(f) adopt, amend, modify or terminate any bonus, profit-sharing,
incentive, severance or other plan, Contract or commitment for the benefit
of any of the officers, consultants or employees of the Company;
(g) other than as contemplated by this Agreement or any Related
Document, enter into any transaction with any of the officers, employees or
Affiliates of the Company (or any directors, officers or employees of such
Affiliate), other than ordinary course employment arrangements entered into
in accordance with past custom or practice;
(h) in any manner take or cause to be taken any action which is
designed, intended or might reasonably be anticipated to have the effect of
discouraging customers, employees, lessors and other associates of the
Company from maintaining the same business relationships with the Company
after the date of this Agreement as were maintained with the Company prior
to the date of this Agreement;
(i) issue or sell any shares of any capital stock or issue or sell any
securities convertible into, exercisable or exchangeable for or options or
warrants to purchase or rights to subscribe for, any shares of any of its
capital stock, or enter into any agreement, contract or other commitment to
do any of the foregoing;
(j) change in any material respect the accounting methods or practices
currently used;
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(k) amend or modify in any way its Charter, Bylaws or similar
corporate and organizational documents; or
(l) intentionally take any action which would require disclosure under
Section 6.1(c).
6.3. Consents. Each party shall use its reasonable best efforts, and the
other parties shall cooperate with such efforts, to obtain any consents and
approvals of, or effect the notification of or filing with, each Person or
Governmental Entity whose consent or approval is required in order to permit the
consummation of the transactions contemplated hereby.
6.4. Efforts to Consummate. Subject to the terms and conditions herein
provided, the parties shall do or cause to be done all such reasonable acts and
things as may be necessary, proper or advisable, consistent with all applicable
Laws and regulations, to consummate and make effective the transactions
contemplated hereby as soon as reasonably practicable.
6.5. Notice of Prospective Breach. Each party shall immediately notify the
other parties in writing upon the occurrence, or failure to occur, of any event,
which occurrence or failure to occur would be reasonably likely to cause (i) any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date of this Agreement
to the Closing as if such representation and warranty were made at such time or
(ii) any material failure of any party hereto or any officer, director, employee
or agent thereof, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it under this Agreement.
6.6. Public Announcements. Each party agrees that, except (i) as otherwise
required by Law or public disclosure obligations of any party and (ii) for
disclosure to its respective directors, officers, employees, financial advisors,
potential financing sources, legal counsel, independent certified public
accountants or other agents, advisors or representatives on a need-to-know basis
and with whom such party has a confidential relationship, it will not issue any
reports, statements or releases, in each case pertaining to this Agreement or
the transactions contemplated hereby, without the prior written consent of the
Company or Parent and Acquisition Sub, as the case may be, which consent shall
not be unreasonably withheld or delayed.
6.7. Negotiation with Others; Disposition and Voting of Securities. (a)
During the Transition Period, the Company shall deal exclusively with Parent and
Acquisition Sub regarding the acquisition of or investment in the Company,
whether by way of merger, purchase of capital stock, purchase of assets or
otherwise (a "Potential Transaction") and, without the prior
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written consent of Parent or Acquisition Sub, the Company shall not directly or
indirectly, (i) take any action, solicit, initiate or undertake discussions with
or engage in negotiations with any Person (whether such negotiations are
initiated by the Company or otherwise), other than Parent or Acquisition Sub or
a party designated by Parent or Acquisition Sub, relating to a Potential
Transaction, (ii) provide information or documentation with respect to the
Company or the Subject Business to any Person, other than Parent and Acquisition
Sub or a party designated by Parent or Acquisition Sub, relating to a Potential
Transaction or (iii) enter into an agreement with any Person, other than Parent
or Acquisition Sub, providing for any Potential Transaction. If the Company
receives an unsolicited inquiry, offer or proposal relating to any of the above,
the Company shall immediately notify Parent and Acquisition Sub thereof. The
Company represents to Parent and Acquisition Sub that it is not bound to
negotiate a Potential Transaction with any other Person and that its execution
of this Agreement does not violate any agreement to which it is bound or to
which any of its assets are subject.
(b) The parties recognize and acknowledge that a breach by the Company of
this Section 6.7 will cause irreparable and material loss and damage to Parent
and Acquisition Sub as to which it will not have an adequate remedy at law or in
damages. Accordingly, each party acknowledges and agrees that the issuance of an
injunction or other equitable remedy is an appropriate remedy for any such
breach.
6.8. Shareholders' Representative. The Company hereby constitutes and
appoints Jon Zoltan, M.D., as agent (the "Shareholders' Representative") for the
Shareholders, with full power and authority, except as otherwise expressly
provided in this Agreement, in the name of and for and on behalf of the
Shareholders, to take all action required or permitted under this Agreement
(including, without limitation, the giving and receiving of all accountings,
reports, notices, waivers and consents). In the event of the death, physical or
mental incapacity or resignation of Jon Zoltan, M.D. or any successor
Shareholders' Representative, the Shareholders shall promptly appoint a
substitute and shall advise Parent and Acquisition Sub thereof. The authority
conferred under this Section 6.8 is an agency coupled with an interest and all
authority conferred hereby is irrevocable and not subject to termination by the
Shareholders or by operation of law, whether by the death or incapacity of any
Shareholder, the termination of any trust or estate or the occurrence of any
other event. If any Shareholder should die or become incapacitated, if any trust
or estate should terminate or if any other such event should occur, any action
taken by the Shareholders' Representative pursuant to this Section 6.8 shall be
as valid as if such death or incapacity, termination or other event had not
occurred, regardless of whether or not the Shareholders' Representative, Parent
or
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Acquisition Sub shall have received notice of such death, incapacity,
termination or other event.
SECTION 7. CONDITIONS.
7.1. Conditions to Each Party's Obligations to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction prior to the Closing Date of the following conditions unless waived
(to the extent such conditions can be waived) by Parent and Acquisition Sub or
the Company, as applicable:
(a) Approvals. All authorizations, consents, Orders or approvals of,
or declarations or filings with, or expiration of waiting periods imposed
by, any Governmental Entity necessary for the consummation of the
transactions contemplated hereby shall have been obtained or made.
(b) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other Order issued by any court or
Governmental Entity of competent jurisdiction nor other legal restraint or
prohibition preventing the consummation of the transactions contemplated
hereby shall be in effect.
(c) Statutes. No action shall have been taken or threatened, and no
statute, rule, regulation or Order shall have been enacted, promulgated or
issued or deemed applicable to the transactions contemplated hereby by any
Governmental Entity that would (i) make the consummation of the
transactions contemplated hereby illegal or substantially delay the
consummation of any material aspect of the transactions contemplated
hereby, (ii) compel the Company, the Surviving Corporation or Parent to
dispose or hold separate all or a material portion of the business or
assets of the Company, the Surviving Corporation or Parent as a result of
the consummation of the transactions contemplated hereby or (iii) render
any party unable to consummate the transactions contemplated hereby.
7.2. Conditions to Obligations of Parent and Acquisition Sub. The
obligations of Parent and Acquisition Sub to consummate the Merger and the
related transactions contemplated hereby are subject to the satisfaction of the
following conditions unless waived (to the extent such conditions can be waived)
by Parent and Acquisition Sub:
(a) Accuracy of Representations and Warranties. All representations
and warranties made by the Company in this Agreement and the Related
Documents shall be true and correct in all material respects (except for
such representations and warranties which are qualified by their terms by a
reference to materiality, which representations
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and warranties as so qualified shall be true in all respects) at and as of
the Effective Time with the same effect as if such representations and
warranties had been made at and as of the Effective Time, and Parent and
Acquisition Sub shall have received a certificate signed by the Chief
Executive Officer of the Company to that effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations and covenants required
to be performed by the Company under this Agreement and the Related
Documents as of the Effective Time, and Parent and Acquisition Sub shall
have received a certificate signed by the Chief Executive Officer of the
Company to that effect.
(c) Authorization. All action necessary to authorize the execution,
delivery and performance of this Agreement and the Related Documents by the
Company and the consummation of the transactions contemplated hereby and
thereby, including, without limitation, the requisite shareholder
approvals, shall have been duly and validly taken by the Company, and the
Company shall have full power and right to consummate the transactions
contemplated hereby and thereby on the terms provided herein.
(d) Opinion of the Company's Counsel. Parent and Acquisition Sub shall
have received an opinion of Gallagher & Kennedy, P.A., counsel for the
Company, dated the Closing Date, in substantially the form of Exhibit C
attached hereto.
(e) Consents and Approvals. Parent and Acquisition Sub shall have
received duly executed copies of all consents and approvals in form and
substance satisfactory to Parent and Acquisition Sub and their counsel,
that are (i) required for consummation of the transactions contemplated by
this Agreement and the Related Documents or (ii) that are required in order
to prevent a breach of or a default under or a termination of any Contract
to which the Company is a party or to which any portion of property of the
Company is subject.
(f) Government Consents, Authorizations, Etc. All consents,
authorizations, Orders or approvals of, and filings or registrations with,
any Governmental Entity which are required for or in connection with the
execution and delivery by the Company of this Agreement and the Related
Documents and the consummation by the Company of the transactions
contemplated hereby and thereby shall have been obtained or made.
(g) Corporate Resolutions. Parent and Acquisition Sub shall have
received certified copies of the
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resolutions of the Company's board of directors and the requisite
Shareholders (the "Affirmative Shareholders"), approving this Agreement,
the Merger, all other agreements and documents contemplated hereby and the
consummation of the transactions contemplated hereby.
(h) Absence of Material Adverse Change. Since the Latest Company
Balance Sheet Date, there shall have been no Material Adverse Change.
(i) Officer's Certificate. The Company shall have delivered an
Officer's Certificate dated as of the Closing Date to Parent and
Acquisition Sub certifying (i) that attached thereto is a true and complete
copy of the Company's Charter and all amendments thereto; (ii) that
attached thereto is a true and complete copy of the Company's By-laws as in
effect on the date of such certification; and (iii) as to the incumbency
and genuineness of the signature of each officer of the Company executing
this Agreement or any of the other documents contemplated hereby.
(j) Restated Management Agreement. Each of the Affirmative
Shareholders shall have executed and delivered to Parent and the Surviving
Corporation an amended and restated Practice Management Agreement, in
substantially the form attached hereto as Exhibit D (the "Restated
Management Agreement"), which agreement shall, among other things, (i)
change the management fee payable to the Surviving Corporation thereunder
from eight percent (8%) to cost plus five percent (5%), (ii) grant Parent a
right of first refusal in the event such Shareholder decides to join a
practice management organization and (iii) permit such Shareholder party
thereto to participate in any group purchasing contract or program
sponsored by Parent and derive savings therefrom.
(k) Restricted Stock Agreement. Each of the Affirmative Shareholders
shall have executed and delivered to Parent a Restricted Stock Agreement.
(l) Escrow Agreement. Parent, the Shareholders' Representative and the
Escrow Agent shall have entered into the Escrow Agreement in form and
substance reasonably satisfactory to Parent, Acquisition Sub and their
counsel, pursuant to which certificates evidencing shares of Parent Common
Stock shall be delivered into an escrow account to secure certain of the
obligations under Sections 3 and 9.1(a) hereof.
(m) Company's Expenses. The Company shall have delivered to
Acquisition Sub a correct and complete schedule of all Company's Expenses
incurred by or on behalf of the Company through the Effective Time, and
Acquisition Sub
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shall have received a certificate signed by the Chief Executive Officer of
the Company certifying as to the accuracy thereof.
(n) Due Diligence. Parent and Acquisition Sub shall be satisfied in
all respects with the results of their business, legal, environmental and
accounting due diligence investigation and review of the Company which
shall be performed by counsel for Parent and Acquisition Sub, accountants
and other representatives.
7.3. Conditions to Obligations of the Company. The obligations of the
Company to consummate the Merger and the related transactions contemplated
hereby are subject to the satisfaction of the following conditions unless waived
(to the extent such conditions can be waived) by the Company:
(a) Accuracy of Representations and Warranties. All representations
and warranties made by Parent and Acquisition Sub in this Agreement and the
Related Documents shall be true and correct in all material respects
(except for such representations and warranties which are qualified by
their terms by a reference to materiality, which representations and
warranties as so qualified shall be true in all respects) at and as of the
Effective Time with the same effect as if such representations and
warranties had been made at and as of the Effective Time, and the Company
shall have received a certificate signed by an authorized officer of each
of Parent and Acquisition Sub to that effect.
(b) Performance of Obligations of Parent and Acquisition Sub. Parent
and Acquisition Sub shall have performed in all material respects their
respective obligations and covenants required to be performed by them under
this Agreement and the Related Documents prior to or as of the Effective
Time, and the Company shall have received a certificate signed by an
authorized officer of each of Parent and Acquisition Sub to that effect.
(c) Authorization. All action necessary to authorize the execution,
delivery and performance of this Agreement and the Related Documents by
Parent and Acquisition Sub and the consummation of the transactions
contemplated hereby and thereby shall have been duly and validly taken by
Parent and Acquisition Sub.
(d) Government Consents, Authorizations, Etc. All consents,
authorizations, Orders or approvals of, and filings or registrations with,
any Governmental Entity which are required for or in connection with the
execution and delivery of this Agreement and the Related Documents by
Parent and Acquisition Sub and the consummation by Parent
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and Acquisition Sub of the transactions contemplated hereby and thereby
shall have been obtained or made.
(e) Corporate Resolutions. The Company shall have received certified
copies of the resolutions of the respective boards of directors of Parent
and Acquisition Sub and the sole shareholder of Acquisition Sub, approving
this Agreement, the Merger, all other agreements and documents contemplated
hereby to which Parent and Acquisition Sub are a party and the consummation
of the transactions contemplated hereby.
(f) Officer's Certificate. Parent and Acquisition Sub shall have
delivered an Officer's Certificate dated as of the Closing Date to the
Company certifying (i) that attached thereto is a true and complete copy of
the respective certificate or articles of incorporation of Parent and
Acquisition Sub and all amendments thereto, if any; (ii) that attached
thereto is a true and complete copy of the by-laws of each of Parent and
Acquisition Sub as in effect on the date of such certification; and (iii)
as to the incumbency and genuineness of the signature of each officer of
Parent and Acquisition Sub executing this Agreement or any of the other
documents contemplated hereby.
(g) Restated Management Agreement. The Surviving Corporation and
Parent shall have executed and delivered to each Affirmative Shareholder
the Restated Management Agreement.
(h) Restricted Stock Agreements. Parent shall have executed and
delivered to each Affirmative Shareholder a Restricted Stock Agreement.
(i) Escrow Agreement. The Escrow Agreement shall have been duly and
validly executed by the parties thereto and shall be in full force and
effect.
SECTION 8. POST-CLOSING COVENANTS.
8.1. Parent Contributions. (a) During the period beginning on the Closing
Date and ending on the second anniversary of the Closing Date, Parent will
contribute an aggregate of $100,000 to the Surviving Corporation as
paid-in-capital, which capital contribution will be used by the Surviving
Company to pay general operating and administrative costs and expenses,
including conversion of the accounting systems used by the Company prior to the
Closing Date.
(b) At such time as the Surviving Corporation generates an aggregate of
$3,000,000 in annual revenues, Parent will cause the Surviving Corporation to
acquire a claims
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processing system and to cease using an outside vendor to satisfy its claims
processing obligations under the Practice Management Agreements.
8.2. Ancillary Services. (a) The Surviving Corporation shall, and Parent
shall cause the Surviving Corporation to, enter into a written agreement with
those interested Shareholders and other interested physicians located in the
State of Arizona (collectively, the "Surgery Center Physicians") providing for
the development or acquisition of a surgery center. The development and/or
acquisition of a surgery center shall be accomplished utilizing a structure and
entity (the "Surgery Center Entity") mutually agreed upon by Parent and the
Shareholders' Representative. The Surviving Corporation will provide up to 70%
of the funds required for the project while the physician group will be required
to supply the remaining funds. The net operating income generated by the
operation of the Surgery Center Entity (which shall be determined by taking
gross revenues and deducting all expenses, including the Advisory Group Fee (as
hereinafter defined)) will be shared between the Surviving Corporation, on the
one hand, and the Surgery Center Physicians, on the other, in the same
proportion as the investment made by each such party. The Surviving Corporation
shall be responsible for the legal fees and expenses incurred in connection with
the financing and establishment of the Surgery Center Entity, which fees and
expenses the Surviving Corporation shall be entitled to be reimbursed for from
the revenues generated by the Surgery Center Entity (and before distribution of
net operating income) as soon as such proceeds are available for distribution.
(b) In connection with the surgery center, the Surgery Center Entity shall,
and the Surviving Corporation shall cause the Surgery Center Entity to, enter
into a clinical advisory agreement with an entity (the "Advisory Group"),
pursuant to which the Advisory Group will provide to the Surgery Center Entity
the following services, and such other services as may be necessary and prudent
to operate the clinical aspects of the Surgery Center Entity: (i) quality
assurance reviews; (ii) investigatory due diligence regarding the credentials of
any participating physician; and (iii) clinical management direction and advice.
As compensation for such services, the Advisory Group shall receive a fee (the
"Advisory Group Fee"), the amount of which will be commensurate with the scope
of the Advisory Group's duties and negotiated by the Surgery Center Entity and
the Advisory Group at such time.
(c) The Surviving Corporation may enter into similar arrangements with
interested Shareholders and other interested physicians with respect to other
ancillary services, such as physical therapy and magnetic resonance imaging,
under terms that are legally permissible at such time.
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(d) The obligations of the Surviving Corporation and Parent set forth in
this Section 8.2 shall be performed to the fullest extent permitted by
applicable Federal and state law, provided that if any of such obligations are
prohibited thereunder, the Surviving Corporation and Parent shall attempt in
good faith to modify the arrangements described in this Section 8.2 such that
the general objectives of the transactions contemplated hereunder may be
consummated.
SECTION 9. INDEMNIFICATION.
9.1. Indemnification Generally; Etc. From and after the Closing Date:
(a) In Favor of the Buyer Group. Subject to the conditions set forth
in this Section 9, the Buyer Group (or any member thereof) shall be
indemnified out of the Escrow Amount and held harmless from and against any
and all Losses it may suffer, sustain or incur as a result of:
(i) the untruth, inaccuracy or breach of any representation or
warranty of the Company contained in Section 4 or in the Company
Disclosure Letter, or any certificate delivered in connection herewith
at or before the Effective Time; or
(ii) the breach of any agreement or covenant of the Company
contained in this Agreement or in the Company Disclosure Letter.
(b) In Favor of the Company. Subject to the conditions set forth in
this Section 9, the Company shall be indemnified and held harmless by
Parent and Acquisition Sub for any and all Losses they may suffer, sustain
or incur as a result of:
(i) the untruth, inaccuracy or breach of any representation or
warranty of Parent and Acquisition Sub contained in Section 5 or in
the Parent Disclosure Letter, or any certificate delivered in
connection herewith or therewith at or before the Effective Time; or
(ii) the breach of any agreement or covenant of Parent or
Acquisition Sub contained in this Agreement.
9.2. Limitations on Indemnification. Anything contained herein to the
contrary notwithstanding:
(a) Indemnity Limitations against the Escrow Amount. The sum of all
Losses pursuant to which indemnification is payable to the Buyer Group out
of the
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Escrow Amount pursuant to Section 9.1(a)(i) shall not exceed the aggregate
Fair Market Value of the shares of Parent Common Stock held in escrow, and
with respect to any such Losses, the Buyer Group will only be entitled to
seek payment from the Escrow Amount (in the form of the return of the
Parent Common Stock so held in escrow at the Fair Market Value of such
Common Stock on the date of determination of any Loss) and will not be
permitted to seek payment directly from any one or more Shareholders.
(b) Indemnity Limitations for the Buyer Group. The sum of all Losses
pursuant to which indemnification is payable to the Company by Parent and
Acquisition Sub pursuant to Section 9.1(b)(i) shall not exceed $240,006 in
the aggregate.
9.3. Assertion of Claims. No claim shall be brought under Section 9.1
hereof unless the Indemnified Persons, or any of them, at any time prior to the
applicable Survival Date, give the Indemnifying Persons (a) written notice of
the existence of any such claim, specifying the nature and basis of such claim
and the amount thereof, to the extent known or (b) written notice pursuant to
Section 9.4 of any third party claim, the existence of which might give rise to
such a claim. Upon the giving of such written notice as aforesaid, the
Indemnified Persons, or any of them, shall have the right to commence legal
proceedings subsequent to the Survival Date for the enforcement of their rights
under Section 9.1 hereof.
9.4. Notice and Defense of Third Party Claims. The obligations and
Liabilities of an Indemnifying Person with respect to Losses resulting from the
assertion of liability by third parties (each, a "Third Party Claim") shall be
subject to the following terms and conditions:
(a) The Indemnified Persons shall promptly give written notice to the
Indemnifying Persons of any Third Party Claim which might give rise to any
Loss by the Indemnified Persons, stating the nature and basis of such Third
Party Claim, and the amount thereof to the extent known; provided, however,
that no delay on the part of the Indemnified Party in notifying any
Indemnifying Party shall relieve the Indemnifying Party from any Liability
or obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced by the delay. Such notice shall be
accompanied by copies of all relevant documentation with respect to such
Third Party Claim, including, without limitation, any summons, complaint or
other pleading which may have been served, any written demand or any other
document or instrument.
(b) If the Indemnifying Persons shall acknowledge in a writing
delivered to the Indemnified Persons that the
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Indemnifying Persons shall be obligated under the terms of their
indemnification obligations hereunder in connection with such Third Party
Claim, then the Indemnifying Persons shall have the right to assume the
defense of any Third Party Claim at their own expense and by their own
counsel, which counsel shall be reasonably satisfactory to the Indemnified
Persons; provided, however, that the Indemnifying Persons shall not have
the right to assume the defense of any Third Party Claim, notwithstanding
the giving of such written acknowledgment, if (i) the Indemnified Persons
shall have been advised by counsel that there are one or more legal or
equitable defenses available to them which are different from or in
addition to those available to the Indemnifying Persons, and, in the
reasonable opinion of the Indemnified Persons, counsel for the Indemnifying
Persons could not adequately represent the interests of the Indemnified
Persons because such interests could be in conflict with those of the
Indemnifying Persons, (ii) such action or Proceeding involves, or could
have a material effect on, any material matter beyond the scope of the
indemnification obligation of the Indemnifying Persons or (iii) the
Indemnifying Persons shall not have assumed the defense of the Third Party
Claim in a timely fashion.
(c) If the Indemnifying Persons shall assume the defense of a Third
Party Claim (under circumstances in which the proviso to the first sentence
of Section 9.4(b) is not applicable), the Indemnifying Persons shall not be
responsible for any legal or other defense costs subsequently incurred by
the Indemnified Persons in connection with the defense thereof. If the
Indemnifying Persons do not exercise their right to assume the defense of a
Third Party Claim by giving the written acknowledgement referred to in
Section 9.4(b), or are otherwise restricted from so assuming by the proviso
to the first sentence of Section 9.4(b), the Indemnifying Persons shall
nevertheless be entitled to participate in such defense with their own
counsel and at their own expense; and in any such case, the Indemnified
Persons may assume the defense of the Third Party Claim (at the cost and
expense of the Indemnifying Persons), with counsel which shall be
reasonably satisfactory to the Indemnifying Persons, and shall act
reasonably and in accordance with their good faith business judgment and
shall not effect any settlement without the consent of the Indemnifying
Persons, which consent shall not unreasonably be withheld or delayed.
(d) If the Indemnifying Persons exercise their right to assume the
defense of a Third Party Claim, they shall not make any settlement of any
claims without the written consent of the Indemnified Persons, which
consent shall not be unreasonably withheld.
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9.5. Survival of Representations and Warranties; Deductions from the Escrow
Amount. (a) Subject to the further provisions of this Section 9.5, the
representations and warranties of the Company contained in Section 4 and the
representations and warranties of Parent and Acquisition Sub contained in
Section 5 shall survive the Effective Time until the second anniversary of the
Effective Time; provided, however, that the representations and warranties of
the Company contained in Sections 4.3, 4.4, 4.8 and 4.18 shall survive the
Effective Time until the fourth anniversary of the Effective Time. The covenants
and other agreements of the parties contained in this Agreement shall survive
the Effective Time until they are otherwise terminated, whether by their terms
or as a matter of applicable law. For convenience of reference, the date upon
which any representation, warranty, covenant or other agreement contained herein
shall terminate, if any, is referred to herein as the "Survival Date".
(b) In the event that the Buyer Group is entitled to indemnification
pursuant to Section 9.1(a) hereof, it shall instruct the Escrow Agent to deduct
from the Escrow Amount the amount of such Losses and may instruct the Escrow
Agent to hold in reserve out of the Escrow Amount the Buyer Group's good faith
estimate with respect to any claim for which notice has been timely given but
which is not yet resolved at the time a distribution is scheduled to be made
from the Escrow Amount under Section 3.2 hereof (an "Unresolved Claim"). At such
time as an Unresolved Claim is finally determined, that portion of the Escrow
Amount held in reserve which is equal to the Losses resulting from such
Unresolved Claim to which the Buyer Group is entitled to indemnification shall
be released from escrow and delivered to the Buyer Group in accordance with the
terms of the Escrow Agreement.
9.6. No Third Party Reliance. Anything contained herein to the contrary
notwithstanding, the representations and warranties of the Company contained in
this Agreement (including, without limitation, the Company Disclosure Letter)
(i) are being given by the Company as an inducement to Parent and Acquisition
Sub to enter into this Agreement and the Articles of Merger and to approve the
Merger (and the Company acknowledges that Parent and Acquisition Sub have
expressly relied thereon) and (ii) are solely for the benefit of Parent and
Acquisition Sub. Accordingly, no third party (including, without limitation, the
Shareholders or any other holder of capital stock of the Company) or anyone
acting on behalf of any thereof shall be a third party or other beneficiary of
such representations and warranties and no such third party shall have any
rights of contribution against the Company or the Surviving Corporation with
respect to such representations or warranties or any matter subject to or
resulting in indemnification under this Section 9, or otherwise.
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SECTION 10. TERMINATION; EFFECT OF TERMINATION.
10.1. Termination. This Agreement may be terminated at any time prior to
the Closing by:
(a) the mutual consent of Acquisition Sub and the Company; or
(b) Acquisition Sub, if there has been a breach by the Company of any
representation, warranty, covenant or agreement set forth in this Agreement
on the part of the Company which is material and which the Company fails to
cure within 10 Business Days after notice thereof is given by Acquisition
Sub (except no cure period shall be provided for a breach by the Company
which by its nature cannot be cured); or
(c) the Company, if there has been a breach by Parent or Acquisition
Sub of any representation, warranty, covenant or agreement set forth in
this Agreement on the part of Parent or Acquisition Sub which is material
and which Parent or Acquisition Sub fails to cure within 10 Business Days
after notice thereof is given by the Company (except no cure period shall
be provided for a breach by Parent or Acquisition Sub which by its nature
cannot be cured); or
(d) Acquisition Sub or the Company, if the conditions set forth in
Section 7.1 shall not have been satisfied or waived (to the extent they may
be waived) by October 10, 1997; or
(e) Acquisition Sub, if the conditions set forth in Section 7.2 shall
not have been satisfied or waived (to the extent they may be waived) by
October 10, 1997; or
(f) the Company, if the conditions set forth in Section 7.3 shall not
have been satisfied or waived (to the extent they may be waived) by October
10, 1997; or
(g) Acquisition Sub or the Company, if any permanent injunction or
other Order of a court or other competent authority preventing the Closing
shall have become final and nonappealable;
provided, however, that none of the Company, Parent nor Acquisition Sub shall be
entitled to terminate this Agreement pursuant to Section 10.1(d), (e) or (f) if
such party's intentional breach of this Agreement has prevented the satisfaction
of a condition. Any termination pursuant to Section 10.1(a) shall be effected by
a written instrument signed by Acquisition Sub and the Company, and any
termination pursuant to this Section 10.1 (other than a termination pursuant to
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Section 10.1(a)) shall be effected by written notice from the party or parties
so terminating to the other parties hereto, which notice shall specify the
Section hereof pursuant to which this Agreement is being terminated.
10.2. Effect of Termination. In the event of the termination of this
Agreement as provided in Section 10.1, this Agreement shall be of no further
force or effect, except for Sections 6.6, this Section 10.2 and Section 11, each
of which shall survive the termination of this Agreement; provided, however,
that the Liability of any party for any breach by such party of the
representations, warranties, covenants or agreements of such party set forth in
this Agreement occurring prior to the termination of this Agreement shall
survive the termination of this Agreement and, in addition, in the event of any
action for breach of contract in the event of a termination of this Agreement,
the prevailing party shall be reimbursed by the other party to the action for
reasonable attorneys' fees and expenses relating to such action.
SECTION 11. MISCELLANEOUS PROVISIONS.
11.1. Expenses. Each of the Company, on the one hand, and Parent and
Acquisition Sub, on the other hand, shall bear their own fees and expenses
incurred in connection with the preparation, execution and delivery of this
Agreement and the Related Documents and the consummation of the transactions
contemplated hereby and thereby; provided, however, that Parent will pay up to
an aggregate amount of $15,000 towards the Company's expenses (the "Company
Expenses") upon receipt of a certificate (the "Expense Certificate") executed by
the Company setting forth such expenses and certifying to the accuracy thereof;
provided further, however, that if the Closing of the transactions contemplated
under this Agreement occurs, Parent will pay all of the Company Expenses.
11.2. Amendment. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of Acquisition Sub, the Company and the
Shareholders' Representative.
11.3. Extension; Waiver. At any time prior to the Closing, the parties may
(a) extend the time for the performance of any of the obligations or other acts
of the other parties, (b) waive any inaccuracies in the representations and
warranties contained in this Agreement or in any document delivered pursuant to
this Agreement and (c) waive compliance with any of the agreements or conditions
contained in this Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party, and any such waiver shall not operate or be
construed as a waiver of any subsequent breach by the other party.
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11.4. Entire Agreement. This Agreement and the other agreements and
documents referenced herein (including, but not limited to, the Disclosure
Letters and the Exhibits (in their executed form) attached hereto) contain all
of the agreements among the parties hereto with respect to the transactions
contemplated hereby and supersede all prior agreements or understandings among
the parties with respect thereto (including, but not limited to, the term sheet
dated as of May 12, 1997, between Parent and the Company.
11.5. Severability. It is the desire and intent of the parties that the
provisions of this Agreement be enforced to the fullest extent permissible under
the Law and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, in the event that any provision of this Agreement would be
held in any jurisdiction to be invalid, prohibited or unenforceable for any
reason, such provision, as to such jurisdiction, shall be ineffective, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly drawn so
as not to be invalid, prohibited or unenforceable in such jurisdiction, it
shall, as to such jurisdiction, be so narrowly drawn, without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
11.6. No Third-Party Beneficiaries; Successors and Assigns. Except as
expressly provided herein, this Agreement shall not confer any rights or
remedies upon any Person other than the parties hereto and their respective
successors and permitted assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns, representatives, heirs and estates, as the case may be. This
Agreement shall not be assignable by any party hereto without the consent of the
other parties hereto; provided, however, that anything contained herein to the
contrary notwithstanding, the Surviving Corporation, Parent and/or Acquisition
Sub may, without the prior written consent of any other party, assign any or all
of its rights and interests hereunder to any lender providing financing for the
transactions contemplated hereby.
11.7. Headings. Descriptive headings are for convenience only and shall not
control or affect in any way the meaning or construction of any provision of
this Agreement.
11.8. Notices. All notices or other communications pursuant to this
Agreement shall be in writing and shall be deemed to be sufficient if delivered
personally, telecopied, sent by nationally-recognized, overnight courier or
mailed by registered or certified mail (return receipt requested), postage
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prepaid, to the parties at the following addresses (or at such other address for
a party as shall be specified by like notice):
(a) if to the Company, to:
Orthopaedic Management Network, Inc.
706 E. Bell Boulevard
Suite 200
Phoenix, Arizona 85022
Attention: Jon Zoltan, M.D.
Telecopier: (602) 404-8873;
with a copy to:
Gallagher & Kennedy, P.A.
2600 N. Central Avenue
Phoenix, Arizona 85004-3020
Attention: Thomas Morgan, Esq.
Telecopier: (602) 257-9459;
(b) if to the Shareholders' Representative, to:
Jon Zoltan, M.D.
2339 E. Cinnabar
Phoenix, Arizona 85028
Telecopier: (602) 404-8873;
(c) if to Parent, Acquisition Sub or the
Surviving Corporation, to:
BMJ Medical Management, Inc.
4800 N. Federal Highway
Suite 104-D
Boca Raton, Florida 33431
Attention: Naresh Nagpal, M.D.
Telecopier: (561) 391-1389;
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Jeffrey S. Held, Esq.
Telecopier: (212) 408-2420.
All such notices and other communications shall be deemed to have been given and
received (i) in the case of personal delivery, on the date of such delivery,
(ii) in the case of delivery by telecopy, on the date of such delivery, (iii) in
the case of delivery by nationally-recognized, overnight courier, on the
Business Day following dispatch, and (iv) in the case of mailing, on the third
Business Day following such mailing.
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11.9. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute one agreement.
11.10. Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic Laws of the State of Arizona without giving effect
to any choice or conflict of law provision or rule (whether of the State of New
York or any other jurisdiction) that would cause the application of the Laws of
any jurisdiction other than the State of Arizona.
11.11. Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
11.12. Construction. Where specific language is used to clarify by example
a general statement contained herein, such specific language shall not be deemed
to modify, limit or restrict in any manner the construction of the general
statement to which it relates. The language used in this Agreement shall be
deemed to be the language chosen by the parties to express their mutual intent,
and no rule of strict construction shall be applied against any party.
11.13. Remedies. Subject to the provisions of Section 9.2, the parties
shall each have and retain all other rights and remedies existing in their favor
at law or equity, including, without limitation, any actions for specific
performance and/or injunctive or other equitable relief (including, without
limitation, the remedy of rescission) to enforce or prevent any violations of
the provisions of this Agreement.
11.14. Waiver of Jury Trial. Each of the parties hereto hereby irrevocably
waives all right to trial by jury in any action, Proceeding or counterclaim
arising out of or relating to this Agreement.
* * *
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IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement and Plan of Reorganization as of the date first written above.
Parent:
BMJ MEDICAL MANAGEMENT, INC.
By:___________________________
Naresh Nagpal, M.D.
President
Acquisition Sub:
OMNI ACQUISITION CORPORATION
By:___________________________
Naresh Nagpal, M.D.
President
Company:
ORTHOPAEDIC MANAGEMENT NETWORK, INC.
By:___________________________
Jon Zoltan, M.D.
President
By:___________________________
Dan Heller, M.D.
Secretary
Shareholders' Representative:
______________________________
Jon Zoltan, M.D.
<PAGE>
Annex I
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DEFINITIONS
The following terms used in the Agreement and Plan of Reorganization shall
have the following respective meanings:
"Acquisition Sub" has the meaning set forth in the caption.
"Additional Equity Amount" has the meaning set forth in Section 2.
"Advisory Group" has the meaning set forth in Section 8.2(b).
"Advisory Group Fee" has the meaning set forth in Section 8.2(b).
"Affiliate" means, with respect to any Person, (i) a director, officer or
25% stockholder of such Person, (ii) a spouse, parent, sibling or descendant of
such Person (or spouse, parent, sibling or descendant of any director or
executive officer of such Person), and (iii) any other Person that, directly or
indirectly through one or more intermediaries, Controls, or is Controlled by, or
is under common Control with, such Person.
"Arizona Statute" has the meaning set forth in the preamble.
"Articles of Merger" has the meaning set forth in the preamble.
"Best Knowledge" of any Person shall mean and include (i) actual knowledge
and (ii) that knowledge which a prudent business person could have obtained in
the management of his business affairs after making due inquiry and exercising
due diligence which a prudent business person should have made or exercised, as
applicable, with respect thereto. In connection therewith, the knowledge (both
actual and constructive) of any Shareholder or any managerial employee of the
Company shall be imputed to be the knowledge of the Company.
"Business Day" means any day that is not a Saturday, Sunday or a day on
which banking institutions in New York, New York are not required to be open.
"Buyer Group" means Acquisition Sub, Parent, the Surviving Corporation and
each of their respective successors and assigns, officers, directors, employees,
representatives and Affiliates, other than any Shareholder.
<PAGE>
"Cash Merger Consideration" has the meaning set forth in Section 2.1.
"Closing" has the meaning set forth in Section 1.7.
"Closing Date" has the meaning set forth in Section 1.7.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the caption.
"Company Common Stock" has the meaning set forth in the preamble.
"Company Disclosure Letter" has the meaning set forth in Section 4.1.
"Company's By-laws" means the by-laws of the Company.
"Company's Charter" means the certificate or articles of incorporation of
the Company.
"Company Financial Statements" has the meaning set forth in Section 4.5.
"Constituent Corporations" has the meaning set forth in Section 1.1.
"Contract" means any loan or credit agreement, note, bond, mortgage,
indenture, lease, sublease, purchase order or other agreement, instrument,
permit, concession, franchise or license.
"Control" means, with respect to any Person, the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"Corporate Rights" has the meaning set forth in Section 1.3.
"Effective Time" has the meaning set forth in Section 1.2.
"Employee Plan" means any "employee benefit plan" (as defined in Section
3(3) of ERISA) as well as any other plan, program or arrangement involving
direct and indirect compensation, under which the Company or any ERISA Affiliate
of the Company has any present or future obligations or Liability on behalf of
its employees or former employees, contractual employees or their dependents or
beneficiaries.
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"Encumbrances" means and includes security interests, mortgages, liens,
pledges, charges, easements, reservations, restrictions, clouds, equities,
rights of way, options, rights of first refusal and all other encumbrances,
whether or not relating to the extension of credit or the borrowing of money.
"Environmental, Health and Safety Laws" means all Laws, Permits and
Contracts with Governmental Entities relating to or addressing pollution or
protection of the environment, public health and safety, or employee health and
safety, including, but not limited to, the Solid Waste Disposal Act, as amended,
42 U.S.C. ss.ss.6901, et seq., the Clean Air Act, as amended, 42 U.S.C.
ss.ss.7401 et seq., the Federal Water Pollution Control Act, as amended, 33
U.S.C. ss.ss.1251 et seq., the Emergency Planning and Community Right-to-Know
Act, 42 U.S.C. ss.ss.11001 et seq., the Comprehensive Environmental Response,
Compensation, and Liability Act, as amended, 42 U.S.C. ss.ss.9601 et seq., the
Hazardous Materials Transportation Uniform Safety Act, as amended, 49 U.S.C.
ss.1804 et seq., the Occupational Safety and Health Act of 1970, the regulations
promulgated thereunder, and any similar Laws and other requirements having the
force or effect of Law, and all Orders issued or promulgated thereunder, and all
related common law theories.
"ERISA" means the Employment Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means, with respect to any Person, any entity that is a
member of a "controlled group of corporations" with, or is under "common
control" with, or is a member of the same "affiliated service group" with such
Person as defined in Section 414(b), 414(c) or 414(m) of the Code.
"Escrow Agent" has the meaning set forth in Section 2.3(a).
"Escrow Agreement" means the Escrow Agreement among Parent, the
Stockholders' Representative and the Escrow Agent.
"Escrow Amount" has the meaning set forth in Section 2.1.
"Fair Market Value" of each share of Parent Common Stock means the average
of the closing prices of the sales of Parent Common Stock on all securities
exchanges on which the Parent Common Stock may at the time be listed, or, if
there have been no sales on any such exchange on any given day, the average of
the last bid and asked prices on all such exchanges at the end of such day, or,
if on any given day the Parent Common Stock is not so listed, the average of the
representative bid and asked prices quoted in the Nasdaq Stock Market National
Market System ("Nasdaq") as of 4:00 P.M., New York time, or, if on any given day
the Parent Common Stock is not quoted in Nasdaq, the average of the bid and
asked prices on such day in the domestic over-the-counter market as reported by
the National Quotation Bureau
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<PAGE>
Incorporated, or any similar successor organization, in each such case averaged
over a period of 21 days consisting of the day as of which the Fair Market Value
is being determined and the 20 consecutive trading days prior to such day. If at
any time the Parent Common Stock is not listed on any securities exchange or
quoted in Nasdaq or the over-the-counter market, the Fair Market Value shall be
that value jointly determined by the Stockholders' Representative and Parent,
provided that if they cannot so agree, such value shall be determined by a
mutually acceptable investment banking or other qualified firm of national or
regional reputation, retained jointly by Parent and the Stockholders'
Representative, and all fees, expenses and other charges of such firm incurred
in connection with such determination of Fair Market Value shall be paid 50% by
Parent and 50% out of the Escrow Amount; provided, however, that the amount
payable out of the Escrow Amount shall be paid in shares of Parent Common Stock
(the number of which shall be determined using the then current Fair Market
Value for such shares), and Parent and the Shareholders' Representative shall
instruct the Escrow Agent to deliver such shares to Parent, and Parent shall
retain such shares and pay the corresponding amount in cash to such firm. shall
be borne and shared equally by Parent and the Stockholders' Representative. In
the event that the parties are unable to agree upon such an investment banking
or other qualified firm within ten (10) days after the date on which either
party may initially propose such a firm, a qualified firm shall be selected in
the following manner:
First, the Stockholders' Representative shall send a list of four such
firms, arranged in order of the Stockholders' Representative's preference,
by written notice to Parent within seven (7) days after the expiration of
the above referenced 10-day period. If the Stockholders' Representative
does not furnish such list to Parent within the required time period,
Parent may, within seven (7) days following expiration of the initial
seven-day period, submit a list of four such firms to the Stockholders'
Representative.
Second, Parent (or the Stockholders' Representative, as applicable)
shall select, within seven (7) days after receipt of the above-referenced
list, one of the firms identified on such list and shall give written
notice thereof to the other party. If the recipient of such list does not
make any such selection, the firm identified as the first choice on such
list shall be deemed acceptable and agreeable to each of the parties.
"First Equity Contingency Amount" has the meaning set forth in Section 2.1.
"First Per Merger Share Contingency Amount" has the meaning set forth in
Section 2.1.
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<PAGE>
"Governmental Entity" means any court, administrative agency or commission
or other governmental authority or instrumentality, domestic or foreign,
Federal, state or local.
"Hazardous Materials" means any hazardous or toxic chemicals, materials or
substances, pollutants, contaminants, or crude oil or any fraction thereof (as
such terms are defined under any Environmental, Health and Safety Law).
"Indemnified Persons" means the Buyer Group, or the Company, as the case
may be.
"Indemnifying Persons" means the Company or Parent and Acquisition Sub, as
the case may be.
"Initial Equity Amount" has the meaning set forth in Section 2.1.
"Intellectual Property Rights" means all industrial and intellectual
property rights, including, without limitation, patents, patent applications,
patent rights, trademarks, trademark applications, trade names, service marks,
service mark applications, copyrights, copyright applications, know-how, trade
secrets, proprietary processes and formulae, confidential information,
franchises, licenses, inventions, instructions, marketing materials, trade
dress, logos and designs and all documentation and media constituting,
describing or relating to the foregoing, including, without limitation, manuals,
memoranda and records.
"Latest Company Balance Sheet" has the meaning set forth in Section 4.5(b).
"Latest Company Balance Sheet Date" has the meaning set forth in Section
4.5(b).
"Latest Parent Balance Sheet" has the meaning set forth in Section 5.5(b).
"Latest Parent Balance Sheet Date" has the meaning set forth in Section
5.5(b).
"Law" means any law, statute, treaty, rule, directive or regulation or
Order of any Governmental Entity.
"Leased Real Property" means real property leased by the Company.
"Liability" means any liability or obligation, whether known or unknown,
asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated
or unliquidated and whether due or to become due, regardless of when asserted.
"Losses" means any and all losses, claims, shortages, damages, liabilities,
expenses (including reasonable attorneys'
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<PAGE>
and accountants' and other professionals' fees), assessments, Tax deficiencies
and Taxes incurred in connection with the receipt of indemnification payments
(including interest or penalties thereon) arising from or in connection with any
such matter that is the subject of indemnification under Section 9.1.
"Material Adverse Change" means, with respect to any Person, any material
adverse change in the business, operations, assets (including levels of working
capital and components thereof), condition (financial or otherwise), operating
results, Liabilities, employee relations or business prospects of such Person or
any material casualty loss or damage to the assets of such Person, whether or
not covered by insurance.
"Material Adverse Effect" on any Person means a material adverse effect on
the business, operations, assets (including levels of working capital and
components thereof), condition (financial or otherwise), operating results,
Liabilities, employee relations or business prospects of such Person.
"Merger" has the meaning set forth in the preamble.
"Merger Consideration" has the meaning set forth in Section 2.1.
"Merger Shares" has the meaning set forth in Section 2.1.
"Orders" means judgments, writs, decrees, compliance agreements,
injunctions or orders of any Governmental Entity or arbitrator.
"Owned Real Property" means real property owned by the Company.
"Parent" has the meaning set forth in the caption.
"Parent Common Stock" means the common stock, $.001 par value, of Parent,
as restricted pursuant to the terms and provisions of the Restricted Stock
Agreement.
"Parent Disclosure Letter" has the meaning set forth in Section 5.1.
"Parent Financial Statements" has the meaning set forth in Section 5.5.
"Parent's By-Laws" means the by-laws of Parent.
"Parent's Charter" means the certificate of incorporation of Parent.
"Per Merger Share Additional Equity Amount" has the meaning set forth in
Section 2.1.
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"Per Merger Share Cash Amount" has the meaning set forth in Section 2.1.
"Per Merger Share Stock Equivalent" has the meaning set forth in Section
2.1.
"Permits" means all permits, licenses, authorizations, registrations,
franchises, approvals, certificates, variances and similar rights obtained, or
required to be obtained, from Governmental Entities.
"Permitted Encumbrances" means (i) Encumbrances for Taxes not yet due and
payable or being contested in good faith by appropriate proceedings and for
which there are adequate reserves on the books, (ii) workers or unemployment
compensation liens arising in the ordinary course of business; and (iii)
mechanic's, materialman's, supplier's, vendor's or similar liens arising in the
ordinary course of business securing amounts that are not delinquent.
"Person" shall be construed broadly and shall include an individual, a
partnership, a corporation, a limited liability company, an association, a joint
stock company, a trust, a joint venture, an unincorporated organization or a
governmental entity (or any department, agency or political subdivision
thereof).
"Potential Transaction" has the meaning set forth in Section 6.7(a).
"Practice Management Agreement" means the Practice Management Services
Agreement entered into between the Company and each Shareholder and other
physician providers in the Company's network.
"Proceedings" means actions, suits, claims, investigations or legal or
administrative or arbitration proceedings.
"Real Property" means the Owned Property and the Leased Property.
"Related Documents" means, collectively, the Articles of Merger, the
Consulting Agreement, the Restated Management Agreement, the Escrow Agreement,
and the Restricted Stock Agreements.
"Restated Management Agreement" has the meaning set forth in Section
7.2(j).
"Restricted Stock Agreement" means the Restricted Stock Agreement to be
entered into between Parent and each holder of Merger Shares upon the
effectiveness of the Merger, in substantially the form of Exhibit E attached
hereto.
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"Second Equity Contingency Amount" has the meaning set forth in Section
2.1.
"Second Per Merger Share Contingency Amount" has the meaning set forth in
Section 2.1.
"Share Number" has the meaning set forth in Section 2.1.
"Shareholder(s)" has the meaning set forth in the caption.
"Shareholder Group" means each of the Shareholders and their respective
representatives, heirs and estate.
"Shareholder Materials" has the meaning set forth in Section 1.6(b).
"Shareholders' Representative" has the meaning set forth in Section 6.8.
"Stock Merger Consideration" has the meaning set forth in Section 2.1.
"Subject Business" has the meaning set forth in the preamble.
"Surgery Center Entity" has the meaning set forth in Section 8.2(a).
"Surgery Center Physicians" has the meaning set forth in Section 8.2(a).
"Survival Date" has the meaning set forth in Section 9.5(a).
"Surviving Corporation" has the meaning set forth in Section 1.1.
"Tax" means any of the Taxes.
"Tax Returns" means Federal, state, local and foreign tax returns, reports,
statements, declarations of estimated tax and forms.
"Taxes" means, with respect to any entity, (i) all income taxes (including
any tax on or based upon net income, gross income, income as specially defined,
earnings, profits or selected items of income, earnings or profits) and all
gross receipts, sales, use, ad valorem, transfer, franchise, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property or windfall profits taxes, alternative or add-on minimum taxes, customs
duties and other taxes, fees, assessments or charges of any kind whatsoever,
together with all interest and penalties, additions to tax and
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<PAGE>
other additional amounts imposed by any taxing authority (domestic or foreign)
on such entity (if any) and (ii) any liability for the payment of any amount of
the type described in the immediately preceding clause (ii) as a result of (A)
being a "transferee" (within the meaning of Section 6901 of the Code or any
other applicable law) of another entity, (B) being a member of an affiliated or
combined group or (C) any contractual obligation.
"Third-Party Claim" has the meaning set forth in Section 9.4.
"Transition Period" has the meaning set forth in Section 6.1.
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<PAGE>
================================================================================
MANAGEMENT SERVICES AGREEMENT
BETWEEN
VALLEY SPORTS SURGEONS, INC.
AND
VALLEY SPORTS & ARTHRITIS SURGEONS, P.C.
Effective as of September 1, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1 RETENTION OF THE MANAGEMENT COMPANY ........................... 2
1.1. Retention .................................................... 2
1.2. Exclusivity .................................................. 2
1.3. Relationship of Parties ...................................... 2
1.4. No Referral Obligation ....................................... 3
SECTION 2 TERM .......................................................... 3
SECTION 3 MANAGEMENT SERVICES ........................................... 3
3.1. Management Services Generally ................................ 3
3.2. Premises ..................................................... 5
3.3. Equipment .................................................... 7
3.4. New Ancillary Services ....................................... 9
3.5. Administration, Finance and Accounting ....................... 11
3.6. Billing and Collection ....................................... 14
3.7. Administrative Personnel ..................................... 18
3.8. Technical Personnel; Leased Employees ........................ 20
3.9 Medical Personnel Recruiting ................................. 21
3.10 Inventory and Supplies ....................................... 22
3.11. Taxes ........................................................ 23
3.12. Information Systems Management ............................... 23
3.13. Use of New Technologies in the Practice of Medicine .......... 24
3.14. Public Relations; Marketing and Advertising .................. 24
3.15. Insurance .................................................... 25
3.16. Files and Records ............................................ 25
3.17. Managed Care Contracts ....................................... 26
3.18. Budgets ...................................................... 26
3.19. Force Majeure ................................................ 27
SECTION 4 COSTS, COMPENSATION, AND OTHER PAYMENTS ....................... 27
4.1. Ownership of Accounts; Security .............................. 27
4.2. Bank Accounts ................................................ 28
4.3. Medical Group Compensation ................................... 28
4.4. Management Fee ............................................... 33
4.5. Management Company Costs ..................................... 34
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Page
----
4.6. New Medical Office Start-Up Costs ............................ 37
4.7. Medical Group Costs .......................................... 39
4.8. New Ancillary Services Costs ................................. 40
4.9. Review and Audit of Books and Records ........................ 43
4.10. Start-Up Period .............................................. 44
4.11. New Physician Compensation Costs ............................. 44
SECTION 5 REPRESENTATIONS AND WARRANTIES OF THE MEDICAL GROUP ........... 46
5.1. Organization; Good Standing; Qualification and Power ......... 46
5.2. Equity Investments ........................................... 46
5.3. Authority .................................................... 47
5.4. Financial Information ........................................ 48
5.5. Absence of Undisclosed Liabilities ........................... 49
5.6. Absence of Changes ........................................... 49
5.7. Tax Matters .................................................. 51
5.8. Litigation, Etc. ............................................. 53
5.9. Compliance; Governmental Authorizations ...................... 54
5.10. Accounts Receivable; Accounts Payable ........................ 54
5.11. Labor Relations; Employees ................................... 55
5.12. Employee Benefit Plans ....................................... 56
5.13. Insurance .................................................... 57
5.14. Real Property ................................................ 58
5.15. Burdensome Restrictions ...................................... 58
5.16. Transfer of Medical Practice ................................. 59
5.17. Disclosure ................................................... 59
SECTION 6 REPRESENTATIONS AND WARRANTIES OF THE MANAGEMENT COMPANY ...... 60
6.1. Organization, Good Standing and Power ........................ 60
6.2. Authority .................................................... 60
SECTION 7 OPERATIONS COMMITTEE .......................................... 61
7.1. Formation and Operation of the Operations Committee .......... 61
7.2. Authoritative Functions of the Operations Committee .......... 62
7.3. Advisory Functions of the Operations Committee ............... 64
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<PAGE>
Page
----
7.4. Committee Policies and Procedures ............................ 66
SECTION 8 OBLIGATIONS OF THE MEDICAL GROUP .............................. 67
8.1. Compliance with Laws ......................................... 67
8.2. Use of Facility .............................................. 68
8.3. Choice of Braces, Splints, Appliances,
Medical Supplies, and Allografts ............................. 69
8.4. Choice of Radiologists, Anesthesiologists,
Hospitals, Physical Therapy, MRI, and Other
Medical Professionals and Facilities ......................... 68
8.5. Insurability ................................................. 69
8.6. Medicare ..................................................... 69
8.7. Accounts Receivable; Billing ................................. 70
8.8. Medical Personnel Hiring ..................................... 70
8.9. Continuing Education ......................................... 70
8.10. Clinical Research ............................................ 70
SECTION 9 CERTAIN COVENANTS ............................................. 71
9.1. Change of Control ............................................ 71
9.2. Legend on Securities ......................................... 71
SECTION 10 RECORDS ....................................................... 72
10.1. Medical Records .............................................. 72
10.2. Management Business Records .................................. 72
10.3. Access to Records Following Termination ...................... 72
SECTION 11 INSURANCE AND INDEMNITY ....................................... 73
11.1. Professional Liability Insurance ............................. 73
11.2. Life Insurance ............................................... 74
11.3. Indemnification by Medical Group ............................. 74
11.4. Indemnification by Management Company ........................ 75
SECTION 12 TERMINATION ................................................... 75
12.1. Termination by Medical Group ................................. 75
12.2. Termination by Management Company ............................ 76
12.3. Termination by Medical Group or Management Company ........... 77
12.4. Effect of Termination ........................................ 76
12.5. Repurchase of Assets ......................................... 76
SECTION 13 RESCISSION .................................................... 79
13.1. Medical Group's Rescission Option ........................... 79
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Page
----
SECTION 14 NON-DISCLOSURE OF CONFIDENTIAL INFORMATION .................... 81
14.1. Non-Disclosure ............................................... 81
SECTION 15 NON-COMPETITION ............................................... 82
SECTION 16 OBLIGATIONS OF THE MANAGEMENT COMPANY ......................... 82
16.1. No Practice of Medicine ...................................... 82
16.2. No Interference with Professional Judgment ................... 83
16.3. Surgery Center .............................................. 83
SECTION 17 ASSIGNMENT .................................................... 83
SECTION 18 NOTICES ....................................................... 84
SECTION 19 BENEFITS OF AGREEMENT ......................................... 85
SECTION 20 SEVERABILITY .................................................. 85
SECTION 21 GOVERNING LAW ................................................. 86
SECTION 22 HEADINGS ...................................................... 86
SECTION 23 ENTIRE AGREEMENT; AMENDMENTS .................................. 86
SECTION 24 ATTORNEYS' FEES ............................................... 86
SECTION 25 COUNTERPARTS .................................................. 86
SECTION 26 WAIVERS ....................................................... 87
SECTION 27 SURVIVAL OF TERMINATI0N ....................................... 87
SECTION 28 CONTRACT MODIFICATION FOR PROSPECTIVE LEGAL EVENTS ............ 87
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<PAGE>
INDEX OF DEFINED TERMS
Page No.
--------
Accounts................................................................... 27
Additional Term............................................................ 3
Administrative Personnel................................................... 19
Agreement.................................................................. 1
Ancillary Division......................................................... 41
Ancillary Service Start-Up Costs........................................... 42
Ancillary Service Start-Up Period.......................................... 42
Annual Draw Amount......................................................... 30
Annual Medical Group Compensation Amount................................... 29
Annual Overpayment......................................................... 30
Annual Shortfall........................................................... 30
Applicable Percentage...................................................... 34
Authorized Management Company Operating Costs.............................. 36
Authorized Signatories..................................................... 15
Balance Sheet.............................................................. 48
Balance Sheet Date......................................................... 48
Bankruptcy Event........................................................... 75
Base Term.................................................................. 3
Billable Items............................................................. 40
Billable Medical Personnel................................................. 39
Billings................................................................... 31
Budgets.................................................................... 26
Code....................................................................... 52
Collateral................................................................. 27
Collections................................................................ 31
Commencement Date.......................................................... 3
Confidential or Proprietary Information.................................... 81
Corporate Overhead......................................................... 36
Documents.................................................................. 15
Draw Percentage............................................................ 28
Employee Plans............................................................. 56
Employees.................................................................. 55
Equipment.................................................................. 8
ERISA...................................................................... 56
Excluded Costs............................................................. 35
Facility................................................................... 68
FF&E....................................................................... 7
Financing Statement........................................................ 27
Former PC.................................................................. 1
Governance Documents....................................................... 11
Guaranteed Minimum Fee..................................................... 33
Internal Financial Statements.............................................. 48
Lender..................................................................... 27
Management Business........................................................ 1
Management Company......................................................... 1
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<PAGE>
INDEX OF DEFINED TERMS
Page No.
--------
Management Company Bank.................................................... 28
Management Company Costs................................................... 34
Management Company Operating Costs......................................... 35
Management Company Transaction Documents................................... 60
Management Fee............................................................. 33
Management Services........................................................ 2
Medical Business........................................................... 1
Medical Equipment.......................................................... 7
Medical Equipment Master Lease Agreement................................... 7
Medical Group.............................................................. 1
Medical Group Bank......................................................... 15
Medical Group Collections Account.......................................... 15
Medical Group Costs........................................................ 39
Medical Group Services..................................................... 31
Medical Group Transaction Documents........................................ 46
Medical Personnel.......................................................... 21
Monthly Draw............................................................... 28
New Ancillary Service Medical Equipment.................................... 41
New Ancillary Services..................................................... 9
New Medical Office......................................................... 38
New Medical Office Start-Up Costs.......................................... 38
New Medical Office Start-Up Period......................................... 38
New Office Division........................................................ 37
New Physician.............................................................. 45
New Physician Compensation................................................. 46
New Physician Net Collections.............................................. 44
Office Lease............................................................... 5
Office Sublease............................................................ 5
Operating Account.......................................................... 28
Operations Committee....................................................... 61
Physician Breakeven Date................................................... 45
Physician Start Date....................................................... 46
Professional Management Cost Savings....................................... 34
Professional Medical Cost Savings.......................................... 34
Professional Practice Cost Savings......................................... 34
Provider Account Agreement................................................. 28
PT Collections............................................................. 34
PT Net Income.............................................................. 34
Real Property.............................................................. 58
Rescission Effective Date.................................................. 79
Rescission Fee............................................................. 80
Rescission Notice.......................................................... 79
Rescission Option.......................................................... 79
Rescission Period.......................................................... 79
Returns.................................................................... 51
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<PAGE>
INDEX OF DEFINED TERMS
Page No.
--------
Review Financial Statements................................................ 48
Signature Date............................................................. 1
Surgery Center............................................................. 83
Tax........................................................................ 52
Taxes...................................................................... 52
Technical Personnel........................................................ 20
Tenant Improvements........................................................ 63
Term....................................................................... 3
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<PAGE>
THIS MANAGEMENT SERVICES
AGREEMENT (the "Agreement") is
entered into on October 3, 1997
(the "Signature Date"), effective
as of September 1, 1997, by and
between VALLEY SPORTS & ARTHRITIS
SURGEONS, P.C., a Pennsylvania
professional corporation (the
"Medical Group"), and VALLEY SPORTS
SURGEONS, INC., a Pennsylvania
corporation (the "Management
Company"), with reference to the
facts set forth below.
A. The Medical Group is engaged in the business (the "Medical Business") of
providing orthopedic medical and surgical services and related medical and
ancillary services to the general public. Prior to the Signature Date, the
Medical Business was conducted by the Management Company, as a professional
corporation (the "Former PC"). As referred to herein, the Medical Business shall
include such business as it was conducted by the Former PC prior to the
Signature Date.
B. The Management Company is a corporation engaged in the business (the
"Management Business") of providing management, administrative, financial,
marketing, information technology, and related services to professional medical
organizations.
C. The Management Company and the Medical Group desire to enter into this
Agreement, pursuant to which, among other things, the Management Company will
render certain management and administrative services to the Medical Group.
NOW, THEREFORE, the Medical Group and the Management Company hereby agree
as follows:
<PAGE>
SECTION 1. Retention of the Management Company.
1.1. Retention.
The Medical Group hereby retains the Management Company to provide all of
the management and related services identified or referenced in Section 3 hereof
and as otherwise required by this Agreement (collectively, the "Management
Services"), and the Management Company hereby accepts such retention and agrees
to provide such services, upon the terms and subject to the conditions set forth
herein.
1.2. Exclusivity.
During the term of this Agreement, the Management Company shall be the
exclusive provider of all management and administrative services utilized by the
Medical Group; provided, however, that the Medical Group may contract directly
with or otherwise engage individuals or companies for the provision of
accounting, legal, consulting, or other professional or advisory services
(provided that such services shall be in addition to, and not in replacement of,
the services to be provided by the Management Company hereunder), all in the
sole discretion of the Medical Group and at the sole cost of the Medical Group.
1.3. Relationship of Parties.
Notwithstanding anything contained herein to the contrary, (a) the
Management Company and the Medical Group intend to act and perform as
independent contractors, and the provisions hereof are not intended to create
any partnership, joint venture, or employment relationship between the parties,
and (b) the Management Company is hereby engaged solely to provide management
and administrative services to the Medical Group and shall not interfere with,
control, direct, or supervise the Medical Group or any medical professional
employed by the Medical Group in connection with the provision of professional
medical services.
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<PAGE>
1.4. No Referral Obligation.
The parties agree that the benefits to the Medical Group hereunder do not
require, are not payment for, and are not in any way contingent upon the
admission, referral, purchase, or any other arrangement for the provision of any
item or service to or for any of the Medical Group's patients in or from any
medical facility or laboratory or from any other entity owned, operated,
controlled, or managed by the Management Company.
SECTION 2. Term.
Subject to such start-up procedures as the parties may agree upon for
purposes of facilitating the transition of responsibilities required by this
Agreement, the performance of services under this Agreement shall commence as of
September 1, 1997 (the "Commencement Date") and shall expire on the fortieth
anniversary of the Commencement Date unless terminated earlier pursuant to the
terms hereof (the "Base Term"). The Base Term of this Agreement shall be
automatically extended for successive terms (each, an "Additional Term," and
together with the Base Term, the "Term") of five years each, unless either party
delivers to the other party, not less than six (6) months nor more than nine (9)
months prior to the expiration of the then-current Term, written notice of such
party's intention not to so extend the Term of this Agreement.
SECTION 3. Management Services.
3.1. Management Services Generally.
(a) The Management Company shall be the sole and exclusive manager and
administrator of all day-to-day business functions for the Medical Group,
subject to the provisions of Section 1.2 hereof. The Management Company
shall provide all of the management and administrative services reasonably
required by the Medical Group in connection with the provision of any and
all of the Medical Group Services (as hereinafter defined) and as
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<PAGE>
otherwise provided in this Agreement, including without limitation the
services described in Sections 3.2 through 3.18 hereof.
(b) Without limiting the generality of the provisions of Section
3.1(a), and subject to the further provisions of this Agreement, the
Management Services shall include such management and administrative
services as may be reasonably required in connection with (i) all of the
offices (including New Medical Offices, as hereinafter defined) of the
Medical Group, and (ii) all professional services and all ancillary
services furnished by the Medical Group.
(c) Additionally, the full range of Management Services as described
in this Agreement shall be applicable with respect to the items identified
as Medical Group Costs in Section 4.7 hereof, except that such Medical
Group Costs shall be paid by the Medical Group rather than by the
Management Company. Accordingly, the Management Company shall provide
accounting, bookkeeping, and related services with respect to all such
costs.
(d) The Management Company may enter into such contracts and
agreements with outside services and suppliers as the Management Company
shall reasonably deem necessary in connection with the provision of the
Management Services, and, to the extent permitted by applicable law, such
contracts and agreements shall, except as otherwise expressly provided in
this Agreement, be in the name of the Management Company. The Management
Company shall have no authority, directly or indirectly, to perform, and
shall not perform or enter into any agreement to perform, Medical Group
Services or any other medical function required by law to be performed by a
licensed physician or by any other licensed health care professional.
(e) The Management Company shall comply in all material respects with
all applicable material Federal, state and
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<PAGE>
local laws, regulation, and ordinances in connection with the provision of
the Management Services hereunder.
3.2. Premises.
(a) The Medical Group, as of the Commencement Date, leases premises
and provides Medical Group Services (as hereinafter defined) at the
following locations:
1230 South Cedar Crest Boulevard
Suites 101, 103, 303 and 304
Allentown, Pennsylvania 18103
333 Normal Avenue
Kutztown, Pennsylvania 19530
West End Center
Crackersport Road
Allentown, Pennsylvania
During the Term, the Management Company shall provide, or arrange for the
provision of, offices for the Medical Group. The Management Company shall
sublease each of such premises to the Medical Group pursuant to a sublease
(each, an "Office Sublease"), substantially in the form attached hereto as
Exhibit A, in consideration of the payments to be made by the Medical Group
under such Office Sublease. Upon the expiration of any of the leases
assigned in accordance with this Section 3.2(a), the Management Company
shall use its best efforts to enter into a new lease, in the name of the
Management Company, with the landlord of such premises, and the parties
shall amend the applicable Office Sublease or enter into a new sublease
relating to such new lease; provided, however, that the approval of the
Medical Group, which shall not be unreasonably withheld, shall be required
in the event of any substantial changes in the terms of such lease, and if
the Medical Group does not give such approval, the failure to enter into
such new lease shall not constitute a default of the Management Company.
Each assigned lease and each new lease entered into between the Management
Company and the landlord is referred to herein as an "Office Lease."
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(b) A New Medical Office (as hereinafter defined) may be opened only
upon the agreement of the Medical Group and the Management Company. The
capital costs and start-up costs reasonably required in connection with the
opening of any New Medical Office shall be borne as set forth in Section 4
hereof. The premises of any New Medical Office shall be leased by the
Management Company, in the Management Company's name, and the Management
Company shall sublease such premises to the Medical Group pursuant to an
Office Sublease, in consideration of the payments to be made by the Medical
Group under such sublease. Notwithstanding anything to the contrary
contained in this Agreement, the Management Company may, in its sole
discretion, determine to permanently close any New Medical Office if such
office is not, after 12 months of operation, profitable (as determined in
the sole discretion of the Management Company).
(c) Except as set forth in Sections 3.2(a) or (b) above, the closing
or relocation of any offices of the Medical Group shall be subject to
agreement by the Medical Group and the Management Company.
(d) The services to be provided by the Management Company with respect
to the premises leased in accordance with this Section 3.2 shall include,
without limitation, the negotiation and renegotiation of leases, provision
of ongoing liaison with the landlords of the respective premises,
identification of potential new locations for Medical Group offices,
financial analysis relating to the opening, closing, and relocation of any
offices, arrangement of necessary repairs, maintenance and improvements,
procurement of property insurance, arrangement of telephone and other
utility services, and hazardous waste disposal, and all other reasonably
necessary or appropriate services related to all of the offices of the
Medical Group.
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(e) The Management Company also shall provide all necessary or
appropriate leasehold improvements to each of the premises, subject to
prior approval as provided in Section 7.2 hereof.
(f) The Medical Group acknowledges that the Management Company makes
no warranties or representations, expressed or implied, regarding the
condition of any of the leased premises.
3.3. Equipment.
(a) During the Term, the Management Company shall provide to the
Medical Group, or arrange for the provision of, the diagnostic and
therapeutic medical equipment reasonably required by the Medical Group in
connection with the provision of Medical Group Services (collectively, the
"Medical Equipment"). The Management Company shall acquire (or lease), at
its cost, all Medical Equipment, and the Management Company shall retain
ownership of (or the leasehold interest with respect to) all Medical
Equipment. The Management Company shall lease the Medical Equipment to the
Medical Group pursuant to an equipment lease (a "Medical Equipment Master
Lease Agreement"), substantially in the form attached hereto as Exhibit C,
and in consideration thereof, the Medical Group shall make the rental
payments set forth in the Medical Equipment Master Lease Agreement. As used
herein, the term Medical Equipment shall not include medical equipment used
in connection with a New Ancillary Service (as hereinafter defined).
(b) The Management Company also shall provide or arrange for the
provision of all furniture, furnishings, trade fixtures, and office
equipment reasonably required in connection with the provision of Medical
Group Services pursuant to this Agreement (collectively, "FF&E"). The
Management Company shall acquire, at its cost, all FF&E, and the Management
Company shall retain ownership of all FF&E; provided, however, that fifty
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percent (50%) of the costs of such FF&E shall be charged back to the
Medical Group on a depreciated basis. As used herein, the term FF&E does
not include furniture, furnishings, trade fixtures, and office equipment
used in connection with a New Ancillary Service.
(c) The Medical Equipment and the FF&E are sometimes referred to
collectively as the "Equipment." The acquisition, replacement, relocation,
or other disposition of any Equipment shall require prior approval as
provided in Section 7.2 hereof.
(d) The Medical Group's right to use the Equipment shall be
subordinate to the rights of any unaffiliated third party to which the
Management Company elects, in its sole discretion, to grant any security
interest, mortgage, lien or other encumbrance in or on the Equipment. The
Medical Group shall use the Equipment only in connection with its provision
of the Medical Group Services, and the Medical Group shall not alter,
repair, augment, or remove the Equipment from the premises of the Medical
Group without the prior written consent of the Management Company and any
lessor thereof, which approval may be granted or withheld in the Management
Company's or such lessor's sole discretion. To the extent the Equipment is
utilized by the Medical Group in the provision of Medical Group Services,
the Medical Group shall have the right to exercise reasonable control over
the use of such Equipment.
(e) From time to time, and as reasonably requested by the Medical
Group, the Management Company shall use reasonable efforts to cause the
Equipment manufacturer or its authorized agent to provide service and
maintenance for the Equipment as needed to maintain the Equipment in an
operable condition, so that all such Equipment shall function continuously
(subject to interruptions not reasonably avoidable) in accordance with the
manufacturer's specifications and so that all conditions imposed
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by the manufacturer to maintaining the continued effectiveness of any
warranty on such Equipment shall be satisfied. The Management Company shall
take all reasonable steps to provide that all necessary service and
maintenance is obtained in a prompt and timely manner, so as to minimize
the amount of time that any of the Equipment is not available for usage by
or for patients of the Medical Group.
(f) THE MEDICAL GROUP ACKNOWLEDGES THAT THE MANAGEMENT COMPANY MAKES
NO WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, AS TO ANY MATTER
WHATSOEVER RELATING TO THE EQUIPMENT PROVIDED TO THE MEDICAL GROUP PURSUANT
TO THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, THE DESIGN CONDITION OF
THE EQUIPMENT, THE CONFORMANCE THEREOF TO THE PROVISIONS AND SPECIFICATIONS
OF ANY PURCHASE ORDER RELATING THERETO, OR THE FITNESS OF THE EQUIPMENT FOR
ANY PARTICULAR PURPOSE. Nothing in this Agreement shall be construed to
affect or limit in any way the professional discretion of the Medical Group
to select and use any Equipment acquired by the Management Company in
accordance with the terms of this Agreement insofar as such selection or
use constitutes or might constitute the practice of medicine.
3.4. New Ancillary Services.
(a) For purposes of this Agreement, "New Ancillary Services" means the
technical component (but not the professional component) of the following,
except as set forth in Schedule I:
(i) Physical therapy;
(ii) Magnetic resonance imaging and/or other imaging services
(except diagnostic radiology);
(iii) Outpatient surgery;
(iv) Densitometry; and
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(v) Other revenue-producing services generally recognized as
ancillary services, but excluding the following:
(A) Any services provided on a regular basis by the Medical
Group immediately prior to the Commencement Date,
including without limitation (1) plain film and other
diagnostic radiology (if any) and (2) ultrasound for
pediatric patients; and
(B) Any service performed in connection with new Medical
Equipment acquired to replace existing Medical
Equipment so long as the new Medical Equipment performs
substantially the same functions as the replaced
Medical Equipment.
New Ancillary Services do not include the sale or provision of (or
services rendered in connection with) prosthetics, prosthetic devices,
orthotics, braces, splints, appliances, crutches, casts, or any other
supplies or similar items which are billable to patients or payors,
all of which are to be included in the scope of Medical Group
Services.
(b) New Ancillary Services may be established only upon agreement
of the Medical Group and the Management Company. Such agreement shall
be memorialized in a written agreement executed by the parties (or in
a written amendment to this Agreement) under which the Management
Company agrees to provide all of the Management Services described in
this Section 3 in connection with such New Ancillary Service, and for
which the Management Company shall be compensated as described in
Section
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4.8 of this Agreement, except as may otherwise be agreed upon by the
parties.
3.5. Administration, Finance and Accounting.
The Management Company shall provide or arrange for the provision of all
administrative, financial, and accounting functions necessary for the operation
of the Medical Group, including, without limitation, the following (if
applicable):
(A) Creation and maintenance of bank accounts.
(B) Deposits of receipts.
(C) Preparing accounts receivable summary reports,
including various analyses of delinquent accounts.
(D) Receiving appropriate approvals as required by the
Medical Group's articles of incorporation and its
bylaws (collectively, the "Governance Documents") prior
to distribution of payments to outside parties;
provided, however, that the Management Company shall
not be responsible for or liable with respect to
interpretations of the Governance Documents.
(E) Disbursement of payables, including payables of the
Medical Group; provided, however, that payables of the
Medical Group shall be paid from an account of the
Medical Group and not from any of the Management
Company's bank accounts, and all
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checks drawn on any Medical Group account shall be
signed by an authorized representative of the Medical
Group.
(F) Negotiation of vendor contracts.
(G) Performing monthly accounting functions, including bank
reconciliations, maintenance of books and records, and
preparation of financial statements.
(H) Analyzing financial data as reasonably requested by
physicians.
(I) Analyzing potential New Medical Office locations, and
coordinating all functions associated with opening New
Medical Office locations.
(J) Preparing monthly financial and medical practice
statistics reports by satellite office and by
physician.
(K) Providing from the Medical Group's bank account(s)
compensation payments to physicians and professional
corporations pursuant to service agreements, monthly
profit and loss distributions, and quarterly bonus
calculations; provided, however, that the Management
Company shall not be responsible for or liable with
respect to interpretations of the Governance Documents;
provided, further, that all checks drawn on any Medical
Group bank
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account shall be signed by an authorized representative
of the Medical Group.
(L) Calculating physicians' annual earnings based on the
Medical Group's physician compensation formulas.
(M) Ongoing day-to-day communication with the managing
partner, member or stockholder (or other manager of the
Medical Group) and assisting such person in fulfilling
his responsibilities.
(N) Preparing agendas and information packages for Medical
Group meetings.
(O) Developing budgets and long-term strategies for the
Medical Group.
(P) Coordinating payroll processing and payroll tax
payments.
(Q) Providing ongoing personnel FTE analysis.
(R) Sponsoring employee benefit plans and providing
administrative services relating thereto for the
Medical Personnel (as hereinafter defined), provided
that if the Medical Group elects not to participate in
the employee benefit plans established by the
Management Company, the Management Company shall not be
required to
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perform the services set forth in this clause (r).
(S) Coordinating recruitment, interviewing, and hiring of
new physicians.
(T) Implementing fee schedule increases and/or decreases
established by the Medical Group.
(U) Coordinating depositions and court appearances.
(V) Assisting in the coordination of call schedules.
(W) Assisting in the coordination of coverage of athletic
team events.
(X) Acting as liaison to hospital administration, physical
therapy, surgery center, MRI, and other ancillary
services entities.
(Y) Cooperating with outside accountants in preparing
various schedules and providing other information.
(Z) Interacting with legal counsel as necessary.
3.6. Billing and Collection.
(a) The Medical Group acknowledges that ownership of all Accounts (as
hereinafter defined) is transferred by the Medical Group to the Management
Company as provided in greater
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detail in Section 4.1 of this Agreement. In order to facilitate the
collection of the Accounts, the Management Company shall (i) bill patients
and third party payors in the Medical Group's name; (ii) collect accounts
receivable resulting from such billing; (iii) receive payments and
prepayments from the Medical Group's patients, Blue Cross and Blue Shield
organizations, insurance companies, health care plans, Medicare, Medicaid,
HMOs, and any and all other third party payors; (iv) take possession of and
deposit into such bank (the "Medical Group Bank") as the Medical Group
designates, in an account established by the Medical Group in the name of
the Medical Group (the "Medical Group Collections Account"), any and all
checks, insurance payments, cash, cash equivalents and other instruments
received for Medical Group Services; and (v) initiate with the consent of
the Medical Group, which consent may be withheld by the Medical Group in
its sole and absolute discretion, legal proceedings in the name of the
Medical Group to collect any Accounts and monies owed to the Medical Group,
to enforce the rights of the Medical Group as a creditor under any contract
or in connection with the rendering of any service, and to contest
adjustments and denials by governmental agencies (or their fiscal
intermediaries) as third-party payors. The Medical Group shall promptly
turn over to the Management Company for deposit into the Medical Group
Collections Account in accordance with this Agreement all checks and other
payments received by the Medical Group or by any of its partners, equity
owners or employees from any patient or third party payor for Medical Group
Services rendered during the Term.
(b) From time to time at the Management Company's request, the Medical
Group shall make available to the Management Company one or more authorized
signatories (the "Authorized Signatories") of the Medical Group to sign any
letters, checks, instruments or other documents (the "Documents") on behalf
of the Medical Group that are necessary for the Management Company to take
the actions specified in this Section 3.6 and to perform its duties under
this Agreement. If the Management Company notifies
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the Medical Group that an Authorized Signatory is not signing the Documents
in a timely manner, the Management Company shall not be liable for any
failure to perform its duties hereunder or for any failure to perform the
Management Services to the extent caused by the failure of an Authorized
Signatory to sign the Documents in a timely manner.
(c) The Management Company shall submit all bills and manage the
billing process on a timely basis in accordance with the terms of this
Agreement and applicable law.
(d) Without limiting the generality of the foregoing, the Management
Company shall bill patients, bill and submit claims to third party payors,
perform appropriate coding for each bill, and collect all fees for
professional and other services rendered and for items supplied to patients
by the Medical Group, all in a timely manner and in accordance with
parameters and criteria established by the Operations Committee (as
hereinafter defined). Additionally, the Management Company shall provide
the following services which are currently being provided by or on behalf
of the Medical Group:
(i) Receive and collect from patients at the time of visit all
appropriate payments and pre-payments, including co-pays, deductibles,
payments for non-covered medical services, and deposits for surgeries
(if applicable), and obtain all appropriate insurance and other
information required.
(ii) Submit claims utilizing electronic billing submission,
whenever appropriate.
(iii) Perform delinquent account collection calls and other
appropriate follow-up mechanics for delinquent accounts of all
insurance classifications, all in a timely fashion as determined by
the Operations Committee.
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(iv) Turn over to outside collection agencies all delinquent
accounts satisfying the criteria established by the Operations
Committee. The Management Company shall also follow-up on the
performance of the outside collection agencies and make changes, if
necessary, and shall reconcile each account turned over to the summary
data provided by the collection agency.
(v) Write-off account balances according to criteria approved by
the Operations Committee.
(vi) Prepare claim reviews in accordance with criteria approved
by the Operations Committee.
(vii) Bill workers' compensation medical services at rates equal
to the most recently approved state workers' compensation fee
schedule.
(viii) Apply "insurance only" and other courtesy write-offs in
compliance with Operations Committee policy.
(ix) With respect to discounted fee-for-service contracts with
Preferred Provider Organizations (PPOs) and Health Maintenance
Organizations (HMOs), determine that payments from such PPOs and HMOs
are in compliance with their respective contracts with the Medical
Group.
(x) With respect to capitation fee contracts with HMOs:
(A) Follow-up to ensure that payments to the Medical Group
are made on a timely basis; and
(B) Review and audit enrollment data provided by the HMO to
ensure that the
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capitation payments are based on the proper number of
lives enrolled.
(xi) With respect to lien accounts, the Management Company shall:
(A) Ensure that appropriate documents are signed and agreed
to initially as between the Medical Group, attorney and
patient;
(B) Follow-up on a regular basis as to the status of the
account; and
(C) Apply the policies of the Operations Committee in
resolving open account balances.
(xii) With respect to student athlete accounts, the Management
Company shall coordinate insurance and other information in compliance
with the policy of the Operations Committee.
(xiii) With respect to amounts withheld by payors in compliance
with contracts between the payor and the Medical Group, follow-up on a
timely basis to ensure that withheld amounts are paid, if warranted,
and to ensure that amounts not paid are verified and audited for
appropriateness.
(xiv) Coordinate the timely payment of refunds to patients and
third party payors when appropriate.
3.7. Administrative Personnel.
(a) The Management Company shall retain and provide or arrange for the
retention and provision of the
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following non-medical personnel necessary for the conduct of the Medical
Group's business operations (collectively, "Administrative Personnel"):
(i) Administration;
(ii) Accounting;
(iii) Billing and Collection;
(iv) Secretarial;
(v) Transcription;
(vi) Appointments;
(vii) Switchboard;
(viii) Medical Records;
(ix) Chart Preparation;
(x) Historians;
(xi) Clinic Support; and
(xii) Marketing.
(b) The Management Company shall determine and pay or arrange for the
payment of the salaries and fringe benefits of the Administrative
Personnel, and shall provide or arrange for other personnel services
related to the Administrative Personnel, including, but not limited to,
scheduling, determining personnel policies, administering continuing
education benefits, and payroll administration.
(c) With respect to each applicable new employee in Administrative
Personnel, the Management Company shall, as reasonably necessary, verify or
arrange for the verification of educational and employment experience,
licensure, and insurability.
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(d) All of the personnel services shall be performed by the Management
Company in compliance with all applicable labor laws.
3.8. Technical Personnel; Leased Employees.
(a) Subject to the conditions set forth in this Section 3.8, the
Management Company shall employ or contract with, or shall arrange for, and
shall provide to the Medical Group as leased employees, such Technical
Personnel (as defined below) as may reasonably be necessary for the conduct
of the Medical Business.
(b) For purposes of this Agreement, "Technical Personnel" means
nurses, medical assistants, x-ray technicians, other technicians, and other
personnel who perform diagnostic tests or other services that are covered
by Medicare or by other third party payors when performed by an employee of
a physician under the physician's supervision.
(c) The Medical Group shall have the right to exercise, and shall
exercise, such supervision and control over the activities of the Technical
Personnel as may be necessary for the Technical Personnel to be considered
leased employees under the Medicare program and under applicable law.
Without limiting the generality of the foregoing, the Medical Group shall:
(i) have the right to have any Technical Personnel terminated
from employment;
(ii) furnish the Technical Personnel with the equipment and
supplies needed by the Technical Personnel for their work;
(iii) provide the Technical Personnel with any necessary
training;
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(iv) instruct the Technical Personnel regarding their activities
performed for the Medical Group;
(v) establish the hours of work for the Technical Personnel;
(vi) approve vacation time and other time off from work; and
(vii) provide that degree of supervision as is required by
Medicare and by other third party payors to satisfy applicable
conditions for coverage thereunder.
(d) With respect to each of the Technical Personnel, the Management
Company shall verify or arrange for the verification of educational and
employment experience, licensure and insurability, and shall review and
provide the Medical Group with copies of any complaints contained in public
files with applicable state and Federal commissions.
3.9. Medical Personnel Recruiting.
(a) The Management Company shall, upon request by the Medical Group,
assist the Medical Group in recruiting Medical Personnel. "Medical
Personnel" means:
(i) Physicians (including fellows and residents, if any)
providing professional medical services who are employees or
independent contractors of the Medical Group; and
(ii) Physician assistants, nurse practitioners, and other health
care professionals who provide services that are billable to patients
or third party payors under the name of such health care professional
(as distinguished from services that are billable under the name of
the supervising physician).
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(b) With respect to each of the Medical Personnel, the Management
Company shall verify or arrange for the verification of educational and
employment experience, licensure and insurability, and shall review and
provide the Medical Group with copies of any complaints contained in public
files with applicable state and Federal commissions.
3.10. Inventory and Supplies.
The Management Company shall order and purchase, or arrange for the order
and purchase of, inventory and supplies on behalf of the Medical Group, and such
other ordinary or appropriate materials as the Medical Group reasonably deems to
be necessary for the Medical Group to carry out its Medical Group Services.
Inventory and supplies shall include, but not be limited, to:
(A) Medical supplies;
(B) Office supplies;
(C) Postage;
(D) Computer forms and supplies;
(E) Printing and stationery supplies;
(F) Printer supplies; and
(G) Linen and laundry supplies.
3.11. Taxes.
The Management Company shall provide the Medical Group with access to all
information necessary for the Medical Group to prepare its tax returns. The
Management Company shall have no responsibility for:
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(A) The payment of the Medical Group's taxes; or
(B) The preparation of any income tax returns for the
Medical Group.
3.12. Information Systems Management.
(a) The Management Company shall provide or arrange for the provision
of management information systems services to be utilized by the Medical
Group. These services shall include, but not be limited to, ongoing
maintenance and enhancement of the existing information systems used by the
Medical Group in connection with the provision of the following services:
(i) Accounts receivable - Billing/Insurance/ Collections;
(ii) On-line appointment scheduling;
(iii) Internal e-mail;
(iv) On-line transcription;
(v) Faxing subsystem;
(vi) Electronic claims submission;
(vii) Patient flow monitoring system;
(viii) Authorization module;
(ix) Prescription module;
(x) X-ray tracking system;
(xi) Voice mail;
(xii) Paperless medical records; and
(xiii) Bar code chart tracking system.
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(b) The services provided by the Management Company shall protect the
confidentiality of patient medical records to the extent required by
applicable law or the Medical Group's payor agreements; provided, however,
that in no event shall a breach of such confidentiality be deemed a default
under this Agreement if the Management Company acted reasonably and in good
faith to protect such confidentiality.
3.13. Use of New Technologies in the Practice of Medicine.
The Management Company shall utilize reasonable efforts to promote the
integration of new technologies into the professional practice of the Medical
Group, including, without limitation, the use of satellite and other
telecommunications services that permit the provision of remote consultations,
virtual operations, and other professional services; provided, however, that the
foregoing shall be subject to the terms of Section 7.2(e) hereof.
3.14. Public Relations; Marketing and Advertising.
The Management Company shall develop and implement community outreach
programs and public relations programs designed to educate the patient
population regarding the Medical Group, the availability of its medical
services, and the availability in terms of any managed care programs in which
the Medical Group participates. The Management Company also shall develop and
implement marketing and advertising programs as reasonably required to promote
and expand the Medical Business, subject to any approved budgets. These programs
shall be developed in such manner as the Management Company deems practical, and
shall be conducted in compliance with applicable laws and regulations governing
advertising by the medical profession.
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3.15. Insurance.
The Management Company shall, to the extent permitted by applicable law,
provide the insurance coverage described in Section 11.1, and may obtain the
insurance described in Section 11.2 of this Agreement.
3.16. Files and Records.
(a) To the extent permitted by applicable law, the Management Company
shall supervise and maintain custody of all files and records relating to
the operation of the business of the Medical Group, including, without
limitation, accounting, billing, collection, and patient medical records.
The management of all files and records shall be in compliance with
applicable state and Federal statutes. Patient medical records shall at all
times be and remain the property of the Medical Group and shall be located
at a location that is readily accessible for patient care. The Management
Company shall preserve the confidentiality of patient medical records and
use information contained in such records only for the limited purposes
necessary to perform the Management Services set forth herein; provided,
however, that in no event shall a breach of such confidentiality be deemed
a default under this Agreement if the Management Company acted reasonably
and in good faith to protect such confidentiality.
(b) The Management Company shall provide all off-site storage of files
and records as required and in conjunction with policies established by the
Operations Committee. The Management Company shall provide the Medical
Group with all requested off-site files and records on a timely basis,
consistent with the policies of the Medical Group in effect immediately
prior to the Commencement Date. Any change in such policies shall be
subject to the approval of the Operations Committee.
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(c) In the event of termination of this Agreement, the Management
Company shall deliver to the Medical Group at no charge a copy of the books
and records of the Medical Group in the Management Company's possession.
3.17. Managed Care Contracts.
The Management Company shall solicit, negotiate and administer all managed
care contracts on behalf of the Medical Group based on parameters and criteria
established by the Operations Committee. Such services shall be performed by the
Management Company as agent of the Medical Group, and all managed care contracts
shall be subject to the Medical Group's prior approval of any such contract. The
Management Company shall prepare cost forecasts and other analyses as reasonably
requested by the Medical Group in order to allow the Medical Group to make an
informed decision with respect to each proposed contract.
3.18. Budgets.
The Management Company shall prepare, for the review and approval of the
Operations Committee, annual operating budgets (the "Budgets") reflecting in
reasonable detail projected Billings, Collections, Medical Group Costs, and
Management Company Operating Costs (all as hereinafter defined); provided,
however, that the Medical Group and the Management Company hereby agree that the
budget(s) attached hereto as Schedule II is (are) the Budget(s) for the Medical
Group with respect to the time period(s) set forth thereon. All other budgets
shall be on a calendar year basis. The Management Company shall prepare and
submit to the Operations Committee all subsequent Budgets on or before December
15 of the year immediately preceding the calendar year for which such Budget is
applicable.
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3.19. Force Majeure.
The Management Company shall not be liable to the Medical Group for failure
to perform any of the services required herein in the event of strikes,
lock-outs, calamities, acts of God, unavailability of supplies, changes in
applicable law or regulations or other events over which the Management Company
has no control for so long as such events continue and for a reasonable time
thereafter.
SECTION 4. Costs, Compensation, and Other Payments.
4.1. Ownership of Accounts; Security.
The Medical Group hereby transfers to the Management Company ownership of
all accounts receivable (other than those accrued as of the Signature Date) and
other rights to payment arising from the provision by the Medical Group of
Medical Group Services and related services to the general public during the
Term (the "Accounts"); provided, however, that the right to payment of Medicaid
and Medicare receivables shall remain with the Medical Group in accordance with
applicable Federal and state law. The Management Company shall have the right to
grant to any lender (the "Lender") a lien and security interest in and with
respect to the Accounts, together with all books, records, computer information
and other general intangibles relating thereto (collectively, the "Collateral"),
as security for the obligations of the Management Company to the Lender, and the
Medical Group shall execute a financing statement (the "Financing Statement")
for the benefit of the Management Company evidencing the foregoing transfer of
the Accounts and perfecting the Management Company's ownership interests
therein. The Medical Group hereby acknowledges that the Lender is a third party
beneficiary of the benefits granted to the Management Company under this Section
4.1. The Medical Group shall cooperate with the Lender as reasonably requested
by the Lender in the event that the Lender seeks to enforce its rights and
remedies under
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its agreement with the Management Company, including granting the Lender access,
to the extent permitted by law, to all books and records associated with the
Collateral. Neither the Management Company nor the Lender shall be required to
give the Medical Group any notice in connection with any loan or related
financing arrangements affecting the Accounts or other Collateral.
4.2. Bank Accounts.
The Medical Group shall instruct the Medical Group Bank to transfer, on a
daily basis, all funds in the Medical Group Collections Account (less the amount
necessary to avoid the payment of bank charges or fees relating to the failure
to maintain a minimum balance in the Medical Group Collections Account) to a
bank (the "Management Company Bank") designated by the Management Company, for
credit to an account in the Management Company's name (the "Operating Account").
Concurrently herewith, the Medical Group is entering into a provider account
agreement with the Medical Group Bank, the Management Company, and the
Management Company's lender (the "Provider Account Agreement"), in order to
satisfy the foregoing obligation.
4.3. Medical Group Compensation.
(a) Monthly Draw.
(i) On each Draw Date (as hereinafter defined) during the Term
hereof, the Management Company shall distribute to the Medical Group
an amount equal to a percentage (the "Draw Percentage") of the Medical
Group's total Billings (as hereinafter defined) for Medical Group
Services provided during the previous month (the "Monthly Draw"). The
Draw Date and the initial Draw Percentage are as set forth on Schedule
III, and the Draw Percentage shall be adjusted as provided in Section
4.3(a)(ii).
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(ii) Commencing May 15, 1998, and effective May 15 of each year
thereafter, the Draw Percentage shall be adjusted to equal a fraction,
the numerator of which is the Annual Medical Group Compensation Amount
(as hereinafter defined) for the previous year, and the denominator of
which is the total amount of Billings for the previous year.
Additionally, the Management Company may adjust the Draw Percentage
from time to time based on the actual Collections year-to-date in
order to minimize the amount of any annual settlement payment
reasonably anticipated to be required under Section 4.3(b).
(b) Annual Settlement.
(i) On or before April 30, 1998, and on or before each April 30
of each year occurring thereafter, the Management Company shall
calculate the compensation (the "Annual Medical Group Compensation
Amount") earned by the Medical Group with respect to the prior
calendar year in accordance with the following:
(A) The total Collections for all Medical Group Services
rendered during such year, minus
(B) the sum of the following:
(1) the Management Fee earned by the Management Company for
the previous calendar year; and
(2) the Authorized Management Company Operating Costs (as
hereinafter defined) incurred by the Management Company
during such year.
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(ii) If the Annual Medical Group Compensation Amount thus
determined exceeds (the "Annual Shortfall") the total of the twelve
(12) Monthly Draws paid by the Management Company to the Medical Group
during the previous calendar year (the "Annual Draw Amount"), the
Management Company shall pay to the Medical Group on or before May 15,
an amount equal to the Annual Shortfall. If the Annual Medical Group
Compensation is less (the "Annual Overpayment") than the Annual Draw
Amount, the Management Company shall withhold from the Monthly Draw
otherwise payable to the Medical Group, during each of the following
six (6) months, an amount equal to one-sixth (1/6) of such Annual
Overpayment.
(iii) With respect to this Section 4.3(b), for purposes of
determining the total Collections for all Medical Group Services
provided during any calendar year (or portion thereof) during the
Term, all Collections during January, February, and March of such year
(or portion thereof) shall be deemed to be for Medical Group Services
rendered during the previous calendar year, and all Collections during
April through December shall be deemed to be for Medical Group
Services rendered during the calendar year (or portion thereof) during
the Term in which such Collections were received. The foregoing shall
also apply with respect to determining the Management Fee earned by
the Management Company for the previous calendar year, for purposes of
this Section 4.3(b).
(iv) Notwithstanding anything to the contrary set forth herein,
the first period for which the annual settlement described in this
Section 4.3(b) shall be applicable is the period commencing on the
Commencement Date and ending on December 31, 1997.
(c) For purposes of this Agreement:
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(i) "Billings" means, for any applicable period, the gross
charges of the Medical Group for all Medical Group Services furnished
during such period.
(ii) "Collections" means, for any applicable period, all cash or
cash equivalents received during such period for Medical Group
Services, including any capitation payments, less any refunds paid
during such period.
(iii) "Medical Group Services" means the following services
rendered by, through, or on behalf of the Medical Group: all
professional services rendered by or under the supervision of any of
the Medical Personnel (including professional services rendered in
connection with New Ancillary Services); all plain film and other
diagnostic radiology services rendered by or under the supervision of
any of the Medical Personnel; all other ancillary services (other than
New Ancillary Services); all ultrasound for pediatric patients; all
prosthetics, prosthetic devices, orthotics, braces, splints,
appliances, and other items and supplies that are billable to patients
or to third party payors; depositions, record review services, court
appearances, and independent medical exams; and all other services
provided on a regular basis by the Medical Group immediately prior to
the Commencement Date (except as set forth below).
(iv) It is the intent of the parties that Billings, Collections,
and Medical Group Services not include any of the following:
(A) New Ancillary Services (excluding professional services
rendered by Medical Personnel in connection therewith,
which professional services
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are included under Section 4.3(c)(iii) above);
(B) interest income;
(C) royalties payable to any Medical Group physician for
medical inventions;
(D) fees payable under consulting agreements entered into
by Medical Group physicians;
(E) revenues from presentations, publications, medical
directorships, service as the head of a hospital
department, and endorsements;
(F) proceeds from the sale of any capital assets of the
Medical Group; and
(G) any income from investments.
Notwithstanding anything to the contrary contained therein, any
revenues received by any Billable Medical Personnel (as hereinafter
defined) from any source set forth in clauses (D) and (E) above, shall
be included in Billings, Collections and Medical Group Services if the
revenues from Medical Group Services generated by such Billable
Medical Personnel during any year are materially reduced by the
Billable Medical Personnel's participation in such activities.
(v) For illustrative purposes only, an example of the computation
of the Annual Settlement is set forth on Schedule VI attached hereto.
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4.4. Management Fee.
(a) The compensation payable to the Management Company for the
provision of Management Services under this Agreement (the "Management
Fee"), which the Management Company may retain from funds received by the
Management Company from time to time at its discretion, shall be equal to
the sum of (i) an amount equal to the Applicable Percentage (as hereinafter
defined) of Collections (excluding PT Collections (as hereinafter
defined)), (ii) an amount equal to fifty percent (50%) of PT Net Income (as
hereinafter defined), (iii) an amount equal to sixty six and two-thirds
percent (66-2/3%) of the Professional Management Cost Savings (as
hereinafter defined) and (iv) any amounts owed to the Management Company
pursuant to Section 4.11 hereof; provided, however, that in the event the
sum of the Applicable Percentage of Collections and 50% of the PT Net
Income shall equal an amount that is less than $466,650 for any calendar
year ending on or before December 31, 2002, the Management Fee for such
period shall, notwithstanding anything to the contrary contained herein,
equal $416,500 (the "Guaranteed Minimum Fee") plus the amounts described in
clauses (iii) and (iv) above; provided further, however, that if the
general rates of reimbursement under Medicare or Medicaid for Medical Group
Services are reduced during the period in which the Guaranteed Minimum Fee
is applicable, the Guaranteed Minimum Fee shall be reduced in accordance
with the following formula: (MB X R) X GF, where:
MB = percentage of Collections from the preceding 12-month period
generated from billings to Medicare or Medicaid, as applicable;
R = percentage reduction implemented by Medicare or Medicaid, as
applicable; and
GF = the Guaranteed Minimum Fee, or $416,500.
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The Management Fee shall not include any Professional Medical Cost Savings
(as hereinafter defined), but all of such savings will accrue for the
benefit of the Medical Group. For illustrative purposes only, an example of
the computation of the Management Fee is set forth on Schedule VI attached
hereto.
(b) For purposes of this Section 4.4, the following terms have the
meanings set forth below:
(i) "Applicable Percentage" has the meaning set forth on Schedule
IV;
(ii) "Professional Management Cost Savings" means the
Professional Practice Cost Savings described in Section A.1 of
Schedule V;
(iii) "Professional Medical Cost Savings" means the Professional
Practice Cost Savings described in Section A.2 of Schedule V;
(iv) "Professional Practice Cost Savings" means the cost savings
determined in the manner described on Schedule V;
(v) "PT Collections" means those Collections generated by or on
behalf of the Medical Group from the provision of physical therapy
services; and
(vi) "PT Net Income" means an amount equal to the remainder of PT
Collections less the Management Company Operating Costs associated
with such PT Collections.
4.5. Management Company Costs.
(a) The Management Company shall pay all Management Company Operating
Costs and all Excluded Costs (collectively, the "Management Company
Costs"). All Management
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Company Costs shall be incurred in the name of the Management Company, and
not in the name of the Medical Group, except as specifically approved by
the Medical Group. Management Company Costs shall not include any costs or
expenses incurred prior to the Commencement Date.
(b) The Management Company shall provide to the Medical Group, upon
reasonable request by the Medical Group from time to time, supporting
documentation and other backup detail relating to any or all of the
Management Company Costs.
(c) For purposes of this Agreement, "Management Company Operating
Costs" means all costs and expenses incurred in connection with the
provision of the Management Services, including, without limitation, those
costs and expenses set forth in the Budget, except that any costs and
expenses defined as Medical Group Costs in Section 4.7 hereof, and any
Excluded Costs (as hereinafter defined) shall not be deemed Management
Company Operating Costs. To the extent that the Medical Group and the
Management Company mutually determine that an expenditure not included in
the Budget needs to be incurred in connection with the provision of
Management Services hereunder, such expenditure shall be included in
Management Company Operating Costs for purposes of this Agreement.
"Excluded Costs" means all of the following costs and expenses incurred in
connection with the provision of the Management Services hereunder:
(i) New Medical Office Start-Up Costs;
(ii) the rent and any other payments due under any of the Office
Leases;
(iii) fifty percent (50%) of the cost of any Medical Equipment
owned or acquired by the Management Company for the use by the Medical
Group;
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(iv) the cost of any FF&E provided by the Management Company to
the Medical Group;
(v) depreciation, amortization, and interest; and
(vi) corporate overhead of the Management Company ("Corporate
Overhead") except to the extent that all of the following conditions
are satisfied:
(A) The Corporate Overhead is incurred in lieu of a pre-existing
Management Company Operating Cost;
(B) The amount of such Corporate Overhead does not exceed the
amount of the Management Company Operating Costs being
eliminated; and
(C) The Corporate Overhead is allocated to the Medical Group and
to all other medical groups utilizing such Corporate
Overhead on a pro rata basis.
Any Corporate Overhead with respect to which all of the above
conditions are satisfied shall be considered Management Company
Operating Costs.
(d) For purposes of this Agreement, "Authorized Management Company
Operating Costs" means all Management Company Operating Costs incurred in
any year reduced by any or all of the following, as applicable:
(i) any costs that exceed the applicable Management Company
Operating Costs Budget which are not approved by the Operations
Committee;
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(ii) any costs with respect to which the Medical Group has
reasonably requested supporting documentation or other backup detail
which has not been furnished by the Management Company or which does
not reasonably establish the appropriateness of such costs; and
(iii) any costs that have been determined pursuant to an audit
under Section 4.9 not to have been reasonably incurred in connection
with the Management Services required to be provided under this
Agreement.
4.6. New Medical Office Start-Up Costs.
(a) The Management Company shall pay, to the extent provided herein,
all New Medical Office Start-Up Costs incurred in connection with the
establishment of any New Medical Office. The Management Company shall
create a separate division (the "New Office Division") for purposes of
accounting for the income, costs, profits, and losses of any New Medical
Office. The Management Company shall utilize generally accepted accounting
principles in determining and accounting for the profits and losses related
to the operations of each New Medical Office. Notwithstanding anything to
the contrary contained herein, Corporate Overhead shall not be included in
determining the costs and expenses associated with any New Medical Office.
At the end of the New Medical Office Start-Up Period (as hereinafter
defined), (i) the Management Company shall be reimbursed for all of the
Management Company Operating Costs incurred by the Management Company for
each New Medical Office, (ii) the Management Company shall be entitled to
receive the aggregate Management Fee as described in Section 4.4 and (iii)
the Medical Group shall be entitled to receive the Annual Medical Group
Compensation Amount for such new Medical Office, in each case, as if such
New Medical Office had been any other office of the Medical Group during
the New Medical Office Start-Up Period; provided, however, that
notwithstanding the foregoing, if the
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aggregate Collections for such New Medical Office during the New Medical
Office Start-Up Period is equal to or less than the New Medical Office
Start-Up Costs associated with such New Medical Office during the New
Medical Office Start-up Period, then (A) the Management Company and the
Medical Group shall not be entitled to receive the Management Fee, the
Annual Medical Group Compensation Amount, as applicable, or any
reimbursement for Management Company Operating Costs, and (B) the
Management Company shall be responsible for the deficit, if any, associated
with such New Medical Office.
(b) Except to the extent provided in Section 4.6(a) above, the
billings, collections, costs and expenses relating to any New Medical
Office shall not, during the New Medical Office Start-Up Period, be
included in the computations of Medical Group Compensation, the Management
Fee, Management Company Costs, Ancillary Services, or Medical Group Costs
as described in Sections 4.3, 4.4, 4.5, 4.8, or 4.7, respectively.
(c) All Medical Equipment utilized at any New Medical Office shall be
acquired by the Management Company and leased to the Medical Group in
accordance with the terms of Section 3.3 hereof.
(d) For purposes of this Agreement, "New Medical Office" means any
office of the Medical Group other than those offices identified in Section
3.2(a) hereof.
(e) For purposes of this Agreement, "New Medical Office Start-Up
Costs" means the following costs incurred in connection with the
establishment of a New Medical Office during the New Medical Office
Start-Up Period: all Management Company Operating Costs and all costs
associated with the development of such New Medical Office other than
Medical Group Costs.
(f) For purposes of this Agreement, "New Medical Office Start-Up
Period" means the period commencing on the date
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that any costs are incurred in connection with the establishment of a New
Medical Office and ending on the last day of the calendar month in which a
period of twelve (12) months has elapsed from and after the date on which
the New Medical Office first opened for the treatment of patients. In the
event that the New Medical Office is profitable (as determined by the
Management Company) as of the end of the New Medical Office Start-Up
Period, at all times thereafter such New Medical Office shall, for all
purposes of this Agreement, be treated as any other office of the Medical
Group.
4.7. Medical Group Costs.
Except as otherwise provided in this Agreement, the Medical Group shall pay
all of the costs specified in this Section 4.7 (the "Medical Group Costs"). All
Medical Group Costs shall be incurred in the name of the Medical Group, and not
in the name of the Management Company, and shall be paid from an account of the
Medical Group and not from any bank account of the Management Company. The
Medical Group Costs are as follows:
(A) compensation of all Medical Personnel that (i) are
authorized to directly bill patients, Medicare,
Medicaid and third party payors and (ii) are employed
directly by the Medical Group (such persons being
referred to herein as the "Billable Medical
Personnel");
(B) any applicable fringe benefits for all Medical
Personnel, including, but not limited to, payroll
taxes, workers' compensation, health insurance
(including drug coverage), dental insurance, disability
insurance, life insurance, 401(k) retirement plan,
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business buy-out disability insurance and continuing
education;
(C) the cost of prosthetics, prosthetic devices, orthotics,
braces, splints, appliances, allografts, x-ray films,
and other items and supplies that are billable to
patients or to third party payors (the "Billable
Items");
(D) all amounts payable for all Medical Equipment under the
Medical Equipment Master Lease Agreement;
(E) any lease payments for New Ancillary Service Medical
Equipment;
(F) all rent amounts payable under the Office Subleases;
and
(G) the cost of any items which are not required to be
provided by the Management Company under this Agreement
and/or which were ordered, purchased, or incurred by
the Medical Group directly, including but not limited
to the cost of accounting, legal, consulting, or other
professional or advisory services, business meetings,
and business taxes.
4.8. New Ancillary Services Costs.
(a) Any agreement by the parties to establish a New Ancillary Service
as described in Section 3.4 of this Agreement shall (unless otherwise
agreed by the parties) incorporate the following:
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(i) The Management Company shall create a separate division
("Ancillary Division") for purposes of accounting for the income,
costs, profits, and losses of any New Ancillary Service. The
Management Company shall utilize generally accepted accounting
principles in determining and accounting for the profits and losses
related to the operations of each New Ancillary Service.
Notwithstanding anything to the contrary contained herein, Corporate
Overhead shall not be included in determining the costs and expenses
associated with any New Ancillary Service.
(ii) Profits and/or losses of any Ancillary Division shall be
divided equally between the Medical Group and the Management Company,
and all distributions to the Medical Group and to the Management
Company shall be made in equal amounts to each from available cash
(after payment of all currently due obligations incurred in connection
with such New Ancillary Division, including, without limitation, any
principal and interest amounts then due and payable under Section
4.8(a)(iv) below, and after retention of reasonable reserves) derived
from the operation of such Ancillary Division.
(iii) All diagnostic and therapeutic equipment utilized in
connection with any New Ancillary Service ("New Ancillary Service
Medical Equipment") shall be acquired by the Management Company and
leased to the Medical Group pursuant to a Medical Equipment Master
Lease Agreement.
(iv) The Management Company shall pay all of the Ancillary
Service Start-Up Costs (as hereinafter defined). Beginning with the
month immediately following the expiration of the Ancillary Service
Start-Up Period (as hereinafter defined), the Management Company shall
be entitled to recoup all of the Ancillary Service Start-Up Costs
previously paid by the Management Company in sixty
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(60) equal monthly installments of principal, plus interest on the
unrecouped portion of such costs at the prevailing prime rate as set
forth in the Wall Street Journal or at the actual rate paid by the
Management Company with respect to any part of such costs that have
been financed by the Management Company, if applicable.
(v) The Management Company shall provide, in connection with any
New Ancillary Service, the full range of management services described
in this Agreement.
(vi) The billings, collections, costs and expenses relating to
any New Ancillary Service shall not be included in the computations of
Medical Group Compensation, the Management Fee, Management Company
Costs, New Medical Office Start-Up Costs, or Medical Group Costs as
described in Sections 4.3, 4.4, 4.5, 4.6, or 4.7, respectively.
(b) For purposes of this Section 4.8, "Ancillary Service Start-Up
Period" means the period commencing on the date that any costs are incurred
in connection with the establishment of the New Ancillary Service and
ending on the earlier to occur of (i) the last day of the first period of
two (2) consecutive calendar months for which the New Ancillary Service
shows a profit (as determined by the Management Company) or (ii) the last
day of the twelfth month after the establishment of such New Ancillary
Service.
(c) For purposes of this Section 4.8, "Ancillary Service Start-Up
Costs" means the total of all of the following costs incurred in connection
with the establishment of a New Ancillary Service during the Ancillary
Service Start-Up Period (whether such costs would otherwise be considered
Management Company Costs or Medical Group Costs):
(i) Any lease payments for New Ancillary Service Medical
Equipment;
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(ii) All costs of acquiring furniture, fixtures, and office
equipment;
(iii) All initial occupancy costs, if any, including but not
limited to prepaid rent, and tenant improvements;
(iv) All costs related to the acquisition of materials and
supplies related to the provision of such New Ancillary Service; and
(v) All ongoing costs of the New Ancillary Service, including but
not limited to personnel (other than the Billable Medical Personnel)
and related benefits, the cost of operating any equipment utilized in
providing the service, supplies, insurance, rent, repairs and
maintenance, outside services, telephone, taxes, utilities, storage
and other ordinary ongoing expenses of providing the New Ancillary
Service.
4.9. Review and Audit of Books and Records.
Each of the parties shall have the right, during ordinary business hours
and upon reasonable notice, to review and make copies of, or to audit through a
qualified certified public accountant approved by the other party (which
approval shall not be unreasonably withheld), the books and records of the other
party relating to the billing, collection, and disbursement of fees, and the
determination of costs, under this Agreement. Any such review or audit shall be
performed at the cost of the requesting party; provided, however, that in the
event that such review or audit requested by the Medical Group discloses a
discrepancy indicating that the Medical Group has actually been underpaid by an
amount in excess of five percent (5%) of the total amount of Medical Group
Compensation otherwise payable to the Medical Group for the period covered by
the audit, the cost
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of the audit shall be borne by the Management Company. All documents and other
information obtained in the course of such review or audit shall be held in
strict confidence.
4.10. Start-Up Period.
Consistent with the provisions of Section 2 of this Agreement, the parties
acknowledge and agree that, in order to facilitate the transition of
responsibilities hereunder, certain requirements and procedures agreed to under
this Agreement may be implemented, in whole or in part and at any time during
the period commencing on the Commencement Date and ending 90 days thereafter
(subject to extension by agreement of the Medical Group and the Management
Company), rather than being fully implemented immediately on the Commencement
Date. Accordingly, the parties further agree that the Management Fee and Monthly
Draw payable in respect of the Management Services and the Medical Group
Services applicable to such period of time shall be computed, and any
appropriate adjustments shall be made, such that no material financial advantage
or disadvantage shall accrue to either party as a result of implementing such
requirements and procedures over the course of such start-up period rather than
immediately on the Commencement Date.
4.11. New Physician Compensation Costs.
(a) Notwithstanding anything contained herein to the contrary, during
the period beginning on the New Physician Start Date (as hereinafter
defined) and ending on the Physician Breakeven Date (as hereinafter
defined), the Management Company shall be responsible for the payment of
all New Physician Compensation (as hereinafter defined) and notwithstanding
anything to the contrary contained in this Agreement, shall receive, in
consideration therefor, sixty six and two-thirds percent (66-2/3%) (such
amount being referred to herein as the "New Physician Net Collections") of
all Collections generated by
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such New Physician for those Medical Group Services performed by such New
Physician, and such amounts shall not be included in determining
Collections for purposes of this Agreement. The remaining thirty three and
one-third percent (33 1/3%) of such Collections shall belong to the Medical
Group, and such amounts shall not be included in determining Collections
for purposes of this Agreement. As of the Physician Breakeven Date, the New
Physician Compensation shall be payable by, and become the responsibility
of, the Medical Group in accordance with Section 4.7 hereof, and all of the
Billings and Collections generated by such New Physician thereafter shall
be considered Billings and Collections for purposes of this Agreement.
(b) "New Physician" means, any physician who, at any time after the
Commencement Date, becomes affiliated with or employed by the Medical
Group; provided that if such physician becomes affiliated with or employed
by the Medical Group pursuant to a transaction between the Management
Company, or any affiliate of the Management Company, and such physician or
a medical group with which such physician is affiliated in which the
Management Company, or such affiliate, acquires any assets or accounts
receivable from such physician or such medical group or pays any other
consideration to such physician or such medical group in connection with
such physician's affiliation or employment with the Medical Group and/or
the Management Company or an affiliate of the Management Company, then such
physician shall not be deemed to be a New Physician for purposes of this
Agreement.
(c) "Physician Breakeven Date" means, with respect to any New
Physician, the date on which the New Physician Net Collections for the
period beginning on the New Physician Start Date and ending on the date of
determination first equal or exceed (i) the aggregate amount of New
Physician Compensation paid to such New Physician for the foregoing period
plus (ii) that portion of the Medical Group Costs and Management Company
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Costs associated with such New Physician and/or the Medical Group Services
provided by such New Physician.
(d) "New Physician Compensation" means, with respect to any New
Physician and for any period in question, the amount of compensation (wages
and otherwise) payable to such New Physician by the Medical Group.
(e) "Physician Start Date" means, with respect to any New Physician,
the date such New Physician becomes affiliated with or employed by the
Medical Group.
SECTION 5. Representations and Warranties of the Medical Group
The Medical Group hereby represents and warrants to the Management Company,
as of the Signature Date, as follows:
5.1. Organization; Good Standing; Qualification and Power.
The Medical Group is a professional corporation duly organized, validly
existing, and in good standing under the laws of the Commonwealth of
Pennsylvania and has all requisite power and authority to own, lease, and
operate its properties, to carry on its business as now being conducted and as
proposed to be conducted, to enter into this Agreement, [the Assignments of
Lease, the Medical Equipment Master Lease, the Office Subleases,] the Provider
Account Agreement and the Financing Statement (as hereinafter defined)
(collectively, the "Medical Group Transaction Documents"), to perform its
obligations hereunder and thereunder, and to consummate the transactions
contemplated hereby and thereby. The Medical Group has delivered to the
Management Company a true and correct copy of its Governance Documents, in
effect on the date hereof.
5.2. Equity Investments.
Except as set forth on Schedule 5.2, the Medical Group currently has no
subsidiaries, nor does the Medical Group
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currently own any capital stock or other proprietary interest, directly or
indirectly, in any corporation, association, trust, partnership, joint venture,
or other entity.
5.3. Authority.
The execution, delivery and performance of this Agreement and the other
Medical Group Transaction Documents and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary action on the part of the Medical Group. This Agreement and the other
Medical Group Transaction Documents have been duly and validly executed and
delivered by the Medical Group and constitute the legal, valid and binding
obligations of the Medical Group enforceable in accordance with their respective
terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the rights of
creditors generally. Neither the execution, delivery or performance of this
Agreement or any other Medical Group Transaction Document by the Medical Group
nor the consummation by the Medical Group of the transactions contemplated
hereby or thereby, nor compliance by the Medical Group with any provision hereof
or thereof will conflict with or result in a breach of any provision of the
formation documents of the Medical Group, cause a default (with due notice,
lapse of time or both), or give rise to any right of termination, cancellation
or acceleration, under any of the terms, conditions or provisions of any note,
bond, lease, mortgage, indenture, license or other instrument, obligation or
agreement to which the Medical Group is a party or by which the Medical Group or
any of its properties or assets may be bound (with respect to which defaults or
other rights all requisite waivers or consents shall have been obtained at or
prior to the date hereof) or violate any law, statute, rule or regulation or
order, writ, judgment, injunction or decree of any court, administrative agency
or governmental body applicable to the Medical Group or any of its
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properties or assets or the Medical Business. Except as provided on Schedule
5.3, to the best of the Medical Group's knowledge, no permit, authorization,
consent or approval of or by, or any notification of or filing with, any person
(governmental or private) is required in connection with the execution, delivery
or performance by the Medical Group of this Agreement or any other Medical Group
Transaction Document or the consummation of the transactions contemplated hereby
and thereby.
5.4. Financial Information.
Schedule 5.4 contains the Former PC's internal statement of assets,
liabilities and stockholders' equity of the Medical Business at August 31, 1997
(the "Balance Sheet"; and the date thereof being referred to as the "Balance
Sheet Date"), and the related internal statements of revenue and expenses for
the eight-month period then ended (including the notes thereto and other
financial information included therein) (collectively, the "Internal Financial
Statements"), and (b) the compiled financial statements of the Former PC for the
periods ended December 31, 1996, December 31, 1995, and December 31, 1994 (the
"Review Financial Statements"). The Internal Financial Statements and the Review
Financial Statements (i) are in accordance with the books and records of the
Medical Business, (ii) fairly present the financial position of the Medical
Business as of the dates thereof and (iii) have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods covered thereby.
5.5. Absence of Undisclosed Liabilities.
Except as set forth on Schedule 5.5, as of the Balance Sheet Date, the
Medical Business did not have any material liability of any nature (matured or
unmatured, fixed or contingent, known or unknown) which was not provided for or
disclosed on the Balance Sheet, all liability reserves
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established by the Medical Business on the Balance Sheet were adequate and there
were no loss contingencies (as such term is used in Statement of Financial
Accounting Standards No. 5 issued by the Financial Accounting Standards Board in
March 1975) which were not adequately provided for or disclosed on the Balance
Sheet.
5.6. Absence of Changes.
Except as set forth on Schedule 5.6, since the Balance Sheet Date, the
Medical Business has been operated in the ordinary course and consistent with
past practice and there has not been:
(a) any material adverse change in the condition (financial or
otherwise), assets (including, without limitation, levels of working
capital and the components thereof), liabilities, operations, results of
operations, earnings, business or prospects of the Medical Business;
(b) any damage, destruction or loss (whether or not covered by
insurance) in an aggregate amount exceeding $25,000 affecting any asset or
property of the Medical Business;
(c) any obligation or liability (whether absolute, accrued, contingent
or otherwise and whether due or to become due) created or incurred, or any
transaction, contract or commitment entered into, by the Medical Business
other than such items created or incurred in the ordinary course of the
Medical Business and consistent with past practice;
(d) any payment, discharge or satisfaction of any claim, lien,
encumbrance, liability or obligation by the Medical Business outside the
ordinary course of the Medical Business (whether absolute, accrued,
contingent or otherwise and whether due or to become due);
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(e) any license, sale, transfer, pledge, mortgage or other disposition
of any tangible or intangible asset of the Medical Business except in the
ordinary course of the Medical Business and consistent with past practice;
(f) any write-off as uncollectible of any accounts receivable in
connection with the Medical Business or any portion thereof in excess of
$5,000 in the aggregate exclusive of all normal contractual adjustments
from third party payors;
(g) except for all normal contractual adjustments from third party
payors, any account receivable in connection with the Medical Business in
an amount greater than $10,000 which (i) has become delinquent in its
payment by more than 90 days, (ii) has had asserted against it any claim,
refusal to pay or right of set-off, (iii) an account debtor has refused to
pay for any reason or with respect to which such account debtor has become
insolvent or bankrupt or (iv) has been pledged to any third party;
(h) any cancellation of any debts or claims of, or any amendment,
termination or waiver of any rights of material value to, the Medical
Business;
(i) any general uniform increase in the compensation of employees of
the Medical Group or the Medical Business (including, without limitation,
any increase pursuant to any bonus, pension, profit-sharing, deferred
compensation arrangement or other plan or commitment) or any increase in
compensation payable to any officer, employee, consultant or agent thereof,
or the entering into of any employment contract with any officer or
employee, or the making of any loan to, or the engagement in any
transaction with, any officer of the Medical Group or the Medical Business;
(j) any change in the accounting methods or practices followed in
connection with the Medical Business or any
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change in depreciation or amortization policies or rates theretofore
adopted;
(k) any agreement or commitment relating to the sale of any material
fixed assets of the Medical Business;
(l) any other transaction relating to the Medical Business other than
in the ordinary course of the Medical Business and consistent with past
practice; or
(m) any agreement or understanding, whether in writing or otherwise,
for the Medical Business to take any of the actions specified in items (a)
through (l) above.
5.7. Tax Matters.
(a) Except as set forth on Schedule 5.7, (i) all Taxes (as hereinafter
defined) relating to the Medical Business required to be paid by the
Medical Group through the date hereof have been paid and all returns,
declarations of estimated Tax, Tax reports, information returns and
statements required to be filed by the Medical Group in connection with the
Medical Business prior to the date hereof (other than those for which
extensions shall have been granted prior to the date hereof) relating to
any Taxes with respect to any income, properties or operations of the
Former PC or the Medical Group prior to the date hereof (collectively,
"Returns") have been duly filed; (ii) as of the time of filing, the Returns
correctly reflected in all material respects (and, as to any Returns not
filed as of the date hereof, will correctly reflect in all material
respects) the facts regarding the income, business, assets, operations,
activities and status of the Medical Business and any other information
required to be shown therein; (iii) all Taxes relating to the operations of
the Medical Business that have been shown as due and payable by the Medical
Group on the Returns have been timely paid and filed or adequate provisions
made to the books and records of the Medical Business; (iv) in connection
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with the Medical Business (x) the Medical Group has made provision on the
Balance Sheet for all Taxes payable by the Medical Group for any periods
that end on or before the Balance Sheet Date for which no Returns have yet
been filed and for any periods that begin on or before the Balance Sheet
Date and end after the Balance Sheet Date to the extent such Taxes are
attributable to the portion of any such period ending on the Balance Sheet
Date and (y) provision has been made for all Taxes payable by the Medical
Group for any periods that end on or before the date hereof for which no
Returns have then been filed and for any periods that begin on or before
the date hereof and end after such date to the extent such Taxes are
attributable to the portion of any such period ending on such date; (v) no
tax liens have been filed with respect to any of the assets of the Medical
Business, and there are no pending tax audits of any Returns relating to
the Medical Business; and (vi) no deficiency or addition to Taxes, interest
or penalties applicable to the Medical Group for any Taxes relating to the
operation of the Medical Business has been proposed, asserted or assessed
in writing (or any member of any affiliated or combined group of which the
Medical Group or any previous operator of the Medical Business was a member
for which the Medical Group could be liable).
(b) The Medical Group is not, and the Former PC was not, a foreign
person within the meaning of ss.1.1445-2(b) of the Regulations under
Section 1445 of the Internal Revenue Code of 1986, as amended (the "Code").
(c) The Medical Group has provided the Management Company with true
and complete copies of all Federal, state and foreign Returns of the Former
PC for the calendar years ending December 31, 1996 and 1995.
(d) For purposes of this Agreement, "Tax" means any of the Taxes and
"Taxes" means, with respect to any person or
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entity, (i) all Federal, state, local and foreign income taxes (including
any tax on or based upon net income, or gross income, or income as
specially defined, or earnings, or profits, or selected items of income,
earnings or profits) and all Federal, state, local and foreign gross
receipts, sales, use, ad valorem, transfer, franchise, license,
withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property or windfall profits taxes, alternative or add-on minimum
taxes, customs duties or other Federal, state, local and foreign taxes,
fees, assessments or charges of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional amounts imposed
by any taxing authority (domestic or foreign) on such person or entity and
(ii) any liability for the payment of any amount of the type described in
the immediately preceding clause (i) as a result of being a `transferee'
(within the meaning of Section 6901 of the Code or any other applicable
law) of another person or entity or a member of an affiliated or combined
group.
5.8. Litigation, Etc.
Except as set forth on Schedule 5.8, there are no (a) actions, suits,
claims, investigations or legal or administrative or arbitration proceedings
pending or, to the best knowledge of the Medical Group, threatened against the
Medical Group or the Former PC, or any equity owner of the Medical Group or the
Former PC, or in connection with the Medical Business, whether at law or in
equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality or (b)
judgments, decrees, injunctions or orders of any court, governmental department,
commission, agency, instrumentality or arbitrator against the Medical Group, the
Former PC, their respective assets or affecting the Medical Business. The
Medical Group has delivered to the Management Company all documents and
correspondence relating to matters referred to in said Schedule 5.8.
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5.9. Compliance; Governmental Authorizations.
The Medical Group, the Former PC and the Medical Business have complied in
all material respects with all applicable material Federal, state, local or
foreign laws, ordinances, regulations and orders. The Medical Group has all
Federal, state, local and foreign governmental licenses and permits necessary in
the conduct of the Medical Business, the lack of which would have a material
adverse effect on the Medical Group's ability to operate the Medical Business
after the date hereof on substantially the same basis as presently operated,
such licenses and permits are in full force and effect, the Medical Group has
not received any notice indicating that any violations are or have been recorded
in respect of any thereof, and no proceeding is pending or, to the best
knowledge of the Medical Group, threatened to revoke or limit any thereof. To
the best knowledge of the Medical Group, none of such licenses and permits shall
be affected in any material respect by the transactions contemplated hereby.
Neither the Medical Group, the Former PC nor any of the Medical Personnel
employed by the Medical Group is now or in the last four years has been the
subject of or involved in any investigation by any Federal, state or local
regulatory agency related to its or his Medicare, Medicaid or other third party
payor billing practices.
5.10. Accounts Receivable; Accounts Payable.
(a) Except as set forth on Schedule 5.10, all of the accounts
receivable owing to the Medical Group or the Former PC in connection with
the Medical Business as of the date hereof constitute valid and enforceable
claims arising from bona fide transactions in the ordinary course of the
Medical Business, the amounts of which are actually due and owing, and as
of the date hereof, to the best knowledge of the Medical Group, there are
no claims, refusals to pay or other rights of set-off against any thereof.
Except as set forth on Schedule 5.10, as of the date
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hereof, there is (i) no account debtor or note debtor of the Medical Group
who or which has refused to pay his, her or its obligations for any reason
or is the subject of a bankruptcy proceeding and (ii) no account receivable
or note receivable of the Medical Business pledged to any third party. The
Medical Group has provided the Management Company with an accounts
receivable aging report dated as of July 31, 1997 that is true and complete
as of the date thereof.
(b) All accounts payable and notes payable by the Medical Business to
third parties arose in the ordinary course of business and, except as set
forth in Schedule 5.10, there is no account payable or note payable past
due or delinquent in its payment.
5.11. Labor Relations; Employees.
Schedule 5.11 contains a true and complete list of the persons employed by
the Medical Group as of the date hereof (the "Employees"). Except as set forth
on Schedule 5.11, (a) the Medical Group and the Medical Business are not
delinquent in payments to any of the Employees for any wages, salaries,
commissions, bonuses or other compensation for any services performed by them to
the date hereof or amounts required to be reimbursed to the Employees; (b) upon
termination of the employment of any of the Employees, neither the Medical
Group, the Medical Business nor the Management Company will by reason of
anything done prior to the date hereof, or by reason of the consummation of the
transactions contemplated hereby, be liable for any excise taxes pursuant to
Section 4980B of the Code or to any of the Employees for severance pay or any
other payments; (c) there is no unfair labor practice complaint against the
Medical Group or in connection with the Medical Business pending before the
National Labor Relations Board or any comparable state, local or foreign agency;
(d) there is no labor strike, dispute, slowdown or stoppage actually pending or,
to the best knowledge
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of the Medical Group, threatened against or involving the Medical Group or
Medical Business; (e) there is no collective bargaining agreement covering any
of the Employees; and (f) to the best knowledge of the Medical Group, no
Employee or consultant is in violation of any (i) employment agreement,
arrangement or policy between such person and any previous employer (private or
governmental) or (ii) agreement restricting or prohibiting the use of any
information or materials used or being used by such person in connection with
such person's employment by or association with the Medical Group or the Medical
Business.
5.12. Employee Benefit Plans.
(a) Schedule 5.12 identifies each 'employee benefit plan', as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and all other written or oral plans, programs, policies
or agreements involving direct or indirect compensation (including any
employment agreements entered into between the Medical Group or the Medical
Business and any Employee or former employee of the Medical Group or in
connection with the Medical Business, but excluding workers' compensation,
unemployment compensation and other government-mandated programs) currently
or previously maintained or entered into by the Medical Group or in
connection with the Medical Business for the benefit of any Employee or
former employee of the Medical Group or in connection with the Medical
Business under which the Medical Group, any affiliate thereof or the
Medical Business has any present or future obligation or liability (the
"Employee Plans"). The Medical Group has provided the Management Company
with true and complete salary, service and related data for Employees of
the Medical Group and in connection with the Medical Business.
(b) Schedule 5.12 lists each employment, severance or other similar
contract, arrangement or policy and each plan or arrangement (written or
oral) providing for insurance coverage
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(including any self-insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits, deferred compensation, profit-sharing, bonuses, stock
options, stock appreciation or other forms of incentive compensation or
post-retirement insurance, compensation or benefits currently maintained by
the Medical Group or in connection with the Medical Business.
(c) Except as set forth on Schedule 5.12, (i) each Employee Plan has
been operated and administered in compliance with ERISA, the Code and in
accordance with the provisions of all other applicable Federal and state
laws; (ii) all reporting and disclosure obligations imposed under ERISA and
the Code have been satisfied with respect to each Employee Plan; (iii) no
breaches of fiduciary duty or prohibited transactions have occurred with
respect to any Employee Plan; and (iv) all reporting, disclosure and
bonding obligations have been satisfied with respect to each Employee Plan.
(d) The Medical Group has made available to the Management Company a
true and complete copy of each Employee Plan and a true and complete copy
of each of the following documents, prepared in connection with such
Employee Plan; (i) each trust or other funding arrangement, (ii) the two
most recently filed Annual Reports (Form 5500), including attachments, for
each Employee Plan, and (iii) the most recently received IRS determination
letter.
5.13. Insurance.
Schedule 5.13 contains a list of all policies of professional liability
(medical malpractice), general liability, theft, fidelity, fire, product
liability, errors and omissions, health and other property and casualty forms of
insurance held by the Medical Group or the Former PC covering the assets,
properties or operations of the Medical Group, the Former PC and the Medical
Business (specifying the insurer, amount of coverage,
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type of insurance, policy number and any pending claims thereunder). All such
policies of insurance are valid and enforceable policies and are outstanding and
duly in force and all premiums with respect thereto are currently paid. Neither
the Medical Group, the Former PC nor its predecessor in interest has, during the
last five fiscal years, been denied or had revoked or rescinded any policy of
insurance relating to the assets, properties or operations of the Medical Group,
the Former PC or the Medical Business.
5.14. Real Property.
Schedule 5.14 sets forth an accurate and complete legal description of the
entire right, title and interest of the Medical Group in and to all real
property, together with all buildings, facilities, fixtures and improvements
located on such real property, owned or leased by the Medical Group (the "Real
Property"), together with an accurate description of the title insurance policy
or other evidence of title issued with respect thereto, the most current survey
of such real property and a description of the use thereof. Other than the Real
Property, the Medical Group has no other interest (leasehold or otherwise) in
real property used, held for use or intended to be used in the Medical Business.
The Medical Group has a valid leasehold interest in all Real Property leased by
the Medical Group. True and complete copies of all leases to which the Medical
Group is a party or by which the Medical Group leases space have been delivered
to the Management Company.
5.15. Burdensome Restrictions.
Except as set forth on Schedule 5.15, neither the Medical Group nor the
Medical Business is bound by any oral or written agreement or contract which by
its terms prohibits or restricts it from conducting the Medical Group or the
Medical Business (or any material part thereof).
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5.16. Transfer of Medical Practice.
The Medical Business includes the complete medical practices of George
Arangio, M.D., Thomas DiBenedetto, M.D., Neal Stansbury, M.D., David Sussman,
M.D., and Prodromos Ververeli, M.D., and such Medical Business, together with
all records associated therewith, has been transferred from the Former PC to the
Medical Group as of the Signature Date. Other than those Medical Group Services
performed by Dr. Sussman for the Veteran's Administration, the Collection's for
which are payable directly to Dr. Sussman, none of the foregoing physicians
maintains any medical practice or performs Medical Group Services independently
of the Medical Group.
5.17. Disclosure.
Neither the Medical Group Transaction Documents (including the Exhibits and
Schedules attached thereto) nor any other document, certificate or written
statement furnished to the Management Company by or on behalf of the Medical
Group in connection with the transactions contemplated hereby contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein and therein not misleading.
Except as set forth on Schedule 5.17, there have been no events or transactions,
or information which has come to the attention of the Medical Group, which, as
they relate directly to the Medical Group or the Medical Business, could
reasonably be expected to have a material adverse effect on the business,
operations, affairs, prospects or condition of the Medical Group and the Medical
Business.
SECTION 6. Representations and Warranties of the Management Company.
The Management Company represents and warrants to the Medical Group, as of
the Signature Date, as follows:
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6.1. Organization, Good Standing and Power.
The Management Company (a) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and (b)
has all requisite corporate power and authority to own, lease and operate its
properties, to carry on its business as now being conducted, to execute and
deliver this Agreement and each of [the Assignments of Lease, the Office
Subleases, and the Medical Equipment Master Lease Agreement] (collectively, the
"Management Company Transaction Documents"), to perform its obligations
hereunder and thereunder, and to consummate the transactions contemplated hereby
and thereby.
6.2. Authority.
The execution, delivery and performance of this Agreement and the other
Management Company Transaction Documents, and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of the Management
Company. This Agreement and each Management Company Transaction Document has
been duly and validly executed and delivered by the Management Company, and this
Agreement and each such Management Company Transaction Document is the valid and
binding obligation of the Management Company, enforceable in accordance with its
respective terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the rights of
creditors generally. Neither the execution, delivery or performance of this
Agreement or any other Management Company Transaction Document, nor the
consummation by the Management Company of the transactions contemplated hereby
or thereby, nor compliance by the Management Company with any provision hereof
or thereof, will (a) conflict with or result in a breach of any provisions of
the Certificate of Incorporation or the Bylaws of the Management Company, (b)
cause a default (with
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due notice, lapse of time or both), or give rise to any right of termination,
cancellation or acceleration, under any of the terms, conditions or provisions
of any material note, bond, lease, mortgage, indenture, license or other
instrument, obligation or agreement to which the Management Company is a party
or by which it or any of its properties or assets is or may be bound (with
respect to which defaults or other rights all requisite waivers or consents
shall have been obtained at or prior to the date hereof) or (c) violate any law,
statute, rule or regulation or order, writ, judgment, injunction or decree of
any court, administrative agency or governmental body applicable to the
Management Company or any of its properties or assets. Except as set forth on
Schedule 6.2, to the best of the Management Company's knowledge, no permit,
authorization, consent or approval of or by, or any notification of or filing
with, any person (governmental or private) is required in connection with the
execution, delivery or performance by the Management Company of this Agreement
or any other Management Transaction Document or the consummation by the
Management Company of the transactions contemplated hereby or thereby.
SECTION 7. Operations Committee.
7.1. Formation and Operation of the Operations Committee.
The Management Company and the Medical Group shall establish a committee
(the "Operations Committee") responsible for directing the Management Company in
connection with the development of certain specific management and
administrative policies for the overall operation of the Medical Group. The
Operations Committee shall consist of up to six (6) members. The Medical Group
shall designate up to three (3) members of the Operations Committee, each of
whom shall be a physician in the Medical Group, and the Management Company shall
designate an equal number of members of the Operations Committee, not to exceed
three (3). The business of the Operations Committee shall
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be conducted in accordance with the policies and procedures described in Section
7.4 hereof.
7.2. Authoritative Functions of the Operations Committee.
The Operations Committee shall perform the following functions, and the
decisions of the Operations Committee with respect to such functions shall be
binding on the Management Company and the Medical Group:
(A) Approve the annual budgets for:
(i) Billings and Collections;
(ii) Medical Group Costs;
(iii) Capital expenditures to be made by the Management Company
in fulfillment of its obligations hereunder;
(iv) Management Company Operating Costs (which, in the absence of
approval by the Operations Committee, shall be increased by
five percent (5.0%) over the total amount approved for the
preceding period)
(A) Approve costs and expenses that exceed the Management
Company Operating Costs Budget.
(B) Establish parameters and criteria with respect to the
establishment and maintenance of relationships with
institutional providers and payors and managed care
contracts (except with respect to the establishment of
professional fees).
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(C) Establish parameters and criteria with respect to:
(v) Billings
(vi) Claims submission
(vii) Collections of fees
(viii) Delinquent account collection policies
(ix) Turnover of delinquent accounts to outside collection
agencies
(x) Write-offs of account balances
(xi) Claim review requests
(xii) "Insurance only" and other courtesy write-off policies
(xiii) Lien account collection policies
(xiv) Student Athlete account policies
(A) Approve the acquisition, replacement, relocation, or
other disposition of Medical Equipment and FF&E,
approve the integration of new technologies into the
professional practice of the Medical Group as
contemplated by Section 3.13 hereof, and approve the
renovation and expansion of any offices of the Medical
Group ("Tenant Improvements"); provided, however, that
the approval of the Management Company also shall be
required prior to (i) the acquisition of any Equipment
(including any Medical Equipment, FF&E or other items
relating to or necessary in connection with the
integration of new
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technologies into the professional practice of the
Medical Group) if and to the extent that the aggregate
cost of such items in any calendar year exceeds five
percent (5%) of the Management Fee for the prior year
(or, with respect to the first year of the Term, the
projected Management Fee for such year), (ii) the
undertaking of any Tenant Improvements relating to
patient care facilities that cost more than $10,000 in
the aggregate at any one of the Medical Group's office
locations in any calendar year, or (iii) the
undertaking of any other Tenant Improvements.
(B) Establish parameters and criteria for off-site storage
of files and records of the Medical Group.
7.3. Advisory Functions of the Operations Committee.
The Operations Committee shall review, evaluate and make recommendations to
the Medical Group and the Management Company with respect to the following
matters:
(A) Identification of physician subspecialties required for
the efficient operation of the Medical Group; advice
regarding all Medical Personnel employment and
recruitment contracts to be utilized by the Medical
Group.
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(B) Development of long-term strategic planning objectives
for the Medical Group.
(C) Public relations, advertising, and other marketing of
Medical Group Services, including design of exterior
signs.
(D) The establishment of fees for professional services and
ancillary services rendered by the Medical Group.
(E) Access and quality issues pertaining to ancillary
services.
(F) Insurance limits and insurance coverage of the Medical
Group and the Management Company, as such coverage may
relate to Medical Group operations and activities.
(G) Any matters arising in connection with the operations
of the Medical Group that are not specifically
addressed in this Agreement and as to which the
Management Company or the Medical Group requests
consideration by the Operations Committee.
The recommendations of the Operations Committee with respect to the matters
described in this Section 7.3 are intended for the advice and guidance of the
Management Company and the Medical Group, and except as provided herein, the
Operations Committee does not have the power to bind the Management Company or
the Medical Group. Where discretion with respect to any matters is
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vested in the Management Company or the Medical Group under the terms of this
Agreement, the Management Company or the Medical Group, as the case may be,
shall have ultimate responsibility for the exercise of such discretion,
notwithstanding any recommendation of the Operations Committee. The Management
Company and the Medical Group shall, however, take such recommendations of the
Operations Committee into account in good faith in the exercise of such
discretion.
7.4. Committee Policies and Procedures.
(a) The Medical Group shall designate one of its members to act as
Chairman of the Committee, and the Management Company shall designate one
of its members to act as Vice Chairman. Each party may substitute or change
its designated Operations Committee members at any time upon notice to the
other party, and any Operations Committee member may designate his or her
own substitute at any meeting without notice. Each member shall have one
vote and shall have the right to grant his or her proxy to another member
of the Operations Committee. The Chairman, if present, shall preside at all
meetings of the Operations Committee. In the absence of the designated
Chairman, the Vice Chairman shall preside. The only powers of the Chairman
and the Vice Chairman that differ from those of the other members of the
Operations Committee shall be to call and preside over meetings in
accordance with this Section 7.4.
(b) The Operations Committee may hold meetings without call or formal
notice at such times and places as a quorum of its members may from time to
time determine. A meeting of the Operations Committee also may be called by
at least two (2) members of the Operations Committee or by the Chairman or
Vice Chairman thereof upon at least three (3) days' written notice to the
other members of the Operations Committee. Such notice requirement shall be
deemed waived with respect to any member of the Operations Committee who
attends such meeting. Meetings may be held in person or by telephone. The
Operations
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Committee also may act by written consent as provided in Section 7.4(c).
Minutes shall be kept of all formal actions taken by the Operations
Committee.
(c) No action of the Operations Committee shall be effective unless
authorized by the vote of a majority of the members of the Operations
Committee present or represented by proxy at the applicable meeting. A
quorum of the Operations Committee shall be a majority of the members of
the Operations Committee, in person, by telephone, or by proxy, and a
quorum must remain for the duration of the meeting. The Operations
Committee may establish such procedures to act by written consent, without
a meeting, as the Operations Committee determines are advisable, provided
that all of the members (in person or by proxy) must sign any written
consent.
SECTION 8. Obligations of the Medical Group.
The Medical Group shall perform the following obligations during the Term:
8.1. Compliance with Laws.
The Medical Group shall provide professional services to patients in
compliance at all times with those ethical standards, laws and regulations to
which they are subject, including, without limitation, Medicaid and Medicare
regulations. The Medical Group shall verify, with the assistance of the
Management Company, that each physician and other Medical Personnel associated
with the Medical Group for the purpose of providing medical care to patients of
the Medical Group is appropriately licensed. The Medical Group shall monitor the
quality of medical care practiced by physicians and other health care personnel
associated with the Medical Group. In the event that any medical malpractice
actions are filed or any disciplinary actions are initiated against any such
physician by any payor, patient, state or Federal regulatory agency or any
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other person or entity, the Medical Group shall immediately inform the
Management Company of such action and its underlying facts and circumstances.
8.2. Use of Facility.
The Medical Group shall use and occupy any Facility (as defined below)
exclusively for the practice of medicine, and shall comply with all applicable
Federal, state and local rules, ordinances and standards of medical care. The
medical practice or practices conducted at any Facility described in clause (i)
of the definition of the term "Facility" shall be conducted solely by Medical
Personnel associated with the Medical Group, and no other physician or medical
practitioner shall be permitted to use or occupy any Facility described in
clause (i) below without the prior written consent of the Management Company,
which consent shall not be unreasonably withheld or delayed. The term "Facility"
shall mean (i) any medical office or laboratory controlled, managed or operated
by the Management Company or (ii) any hospital at which any Medical Personnel
practices medicine or maintains admitting privileges.
8.3. Choice of Braces, Splints, Appliances, Medical Supplies, and Allografts.
The Medical Group shall have the exclusive control over the choice of
vendors and products utilized with respect to all prosthetics, prosthetic
devices, orthotics, braces, splints, appliances, medical supplies and
allografts.
8.4. Choice of Radiologists, Anesthesiologists, Hospitals, Physical Therapy,
MRI, and Other Medical Professionals and Facilities.
The Medical Group shall have exclusive control over the choice of specific
physicians and facilities to be utilized by the Medical Group with respect to
radiology, anesthesiology,
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hospitals, physical therapy, MRI, and other medical professionals and
facilities; provided, however, that the foregoing shall not be considered New
Ancillary Services or New Medical Offices, as the case may be, unless the
parties have agreed thereto in accordance with Section 3.4(b) or 3.2(b), as the
case may be.
8.5. Insurability.
The Medical Group shall cooperate with the Management Company in (i)
ensuring that its Medical Personnel are insurable under commercially available
malpractice insurance policies or (ii) instituting proceedings to terminate
within two business days any Medical Personnel who is not insurable or who loses
his or her malpractice insurance eligibility. The Medical Group shall notify the
Management Company in writing of any change in the insurance status of any
Medical Personnel within two days after the Medical Group receives notice of any
such change. The Medical Group shall require all Medical Personnel to
participate in an on-going risk management program.
8.6. Medicare.
The Medical Group shall cause all physicians to be participating providers
and accept assignment under Medicare.
8.7. Accounts Receivable; Billing.
From the Commencement Date, the Medical Group acknowledges and agrees that
all Accounts of the Medical Group or its Medical Personnel shall be the property
of the Management Company hereunder and the Medical Group and the Medical
Personnel hereby transfer and assign all of their right, title and interest to
such Accounts to the Management Company; provided, however, that the right to
payment of Medicaid and Medicare receivables shall remain with the Medical Group
in accordance with applicable Federal law. The Medical Group's Medical Personnel
shall be responsible for providing the appropriate current CPT4 coding
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with respect to the fee tickets prepared by such Medical Personnel.
8.8. Medical Personnel Hiring.
The Medical Group shall have the ultimate control over and responsibility
for the hiring, compensation, supervision, evaluation and termination of its
Medical Personnel; provided, however, that at the request of the Medical Group,
the Management Company shall consult with the Medical Group regarding such
matters.
8.9. Continuing Education.
The Medical Group and its Medical Personnel shall be solely responsible for
ongoing membership in professional associations and continuing professional
education. The Medical Group shall ensure that its Medical Personnel participate
in such continuing professional education as is necessary for such physician or
professional to remain current in his or her field of medical practice.
8.10. Clinical Research.
The Medical Group shall have the ultimate control over and responsibility
for any clinical research program pertaining to patients of the Medical Group.
This shall include but not be limited to research personnel interviewing,
hiring, termination, compensation, day-to-day supervision, and assignment of
responsibilities and projects. However, the Medical Group will cooperate with
and take direction from the Management Company in its nationwide efforts to
provide an effective disease management information system and outcome studies
programs.
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SECTION 9. Certain Covenants.
9.1. Change of Control.
During the Term of this Agreement, the Medical Group shall not enter into
any single transaction (or group of related transactions undertaken pursuant to
a common plan) involving the admission of new partners or stockholders, the
transfer of ownership interests, or the reorganization or restructuring of the
Medical Group, if in any such case the effect would be to transfer a majority of
the ownership interest in the Medical Group, without the prior written consent
of the Management Company, which consent shall not be unreasonably withheld.
9.2. Legend on Securities.
During the Term of this Agreement, any certificate or similar evidence
representing an equity interest in the Medical Group issued by the Medical Group
shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE RESTRICTIONS ON TRANSFER CONTAINED IN THE MANAGEMENT
SERVICES AGREEMENT EFFECTIVE AS OF SEPTEMBER 1, 1997 BETWEEN
VALLEY SPORTS & ARTHRITIS SURGEONS, P.C., A PENNSYLVANIA
PROFESSIONAL CORPORATION, AND VALLEY SPORTS SURGEONS, INC., A
PENNSYLVANIA CORPORATION."
Nothing herein shall be construed as requiring the Medical Group to issue any
certificate or other evidence representing an equity interest in the Medical
Group, if such has not been issued prior to the date hereof.
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SECTION 10. Records.
10.1. Medical Records.
Upon termination of this Agreement, the Medical Group shall retain all
patient medical records maintained by the Medical Group or the Management
Company in the name of the Medical Group.
10.2. Management Business Records.
All books and records relating in any way to the operation of the
Management Business which are not patient medical records shall at all times be
the property of the Management Company. The Management Company shall maintain
custody of such records, and the Medical Group shall, upon its written request,
be entitled to copies of any such records relating to the Management Services
performed by the Management Company.
10.3. Access to Records Following Termination.
Following the termination of this Agreement, the Medical Group shall grant
(to the extent permitted by law) to the Management Company, for the purpose of
preparing for any actual or anticipated legal proceeding or for any other
reasonable purpose, reasonable access (which shall include making photocopies)
to the patient medical records described in Section 10.1 hereof and any other
pertinent information regarding the Medical Group during the Term. Prior to
accessing such patient medical records, the Management Company shall obtain any
required patient authorization.
Following the termination of this Agreement, the Management Company shall
provide to the Medical Group, promptly upon the Medical Group's written request,
photocopies of the Management Business records described in Section 10.2 hereof,
and
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shall grant to the Medical Group, for the purpose of preparing for any actual or
anticipated legal proceeding or for any other reasonable purpose, any other
pertinent information regarding the Management Company during the Term.
SECTION 11. Insurance and Indemnity.
11.1. Professional Liability Insurance.
During the Term, the Management Company shall, to the extent permitted by
applicable law, procure and maintain for the benefit of itself and the Medical
Group comprehensive professional liability insurance providing for (a) general
liability coverage and (b) medical malpractice coverage with limits of not less
than $250,000 per claim and with aggregate policy limits of not less than
$750,000 (or such higher amounts as may be necessary to comply with any
regulatory requirement and/or contractual requirement to which such Medical
Personnel or the Medical Group may be subject) covering the Medical Group and
each of the Medical Personnel of the Medical Group, including coverage for
claims made after the Commencement Date relating to events or occurrences at any
time prior thereto. The parties hereto acknowledge that the Management Company
is procuring the malpractice insurance referenced herein to ensure that the
Management Company has protection in the event it is sued as a result of an act
or omission of an employee of the Medical Group. The Management Company shall
pay the premiums for such general and medical malpractice liability coverage,
which payments shall be considered Management Company Operating Costs under this
Agreement, subject to recoupment by the Management Company under Section 5
hereof. The Management Company shall be designated as an additional insured
under all such insurance policies.
11.2. Life Insurance.
The Management Company may, at its option, obtain a $500,000 life insurance
policy for each duly licensed physician
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partner in or equity owner of the Medical Group. The Medical Group shall, and
shall cause each such partner in or equity owner of the Medical Group to,
cooperate with the Management Company in the procurement of such policies. The
Management Company shall be designated as the beneficiary under any such
policies. The premiums for such policies shall be paid by the Management Company
and shall not be included as Management Company Operating Costs or otherwise
charged to the Medical Group.
11.3. Indemnification by Medical Group.
The Medical Group shall indemnify, hold harmless and defend the Management
Company, its officers, directors, shareholders, employees, agents and
independent contractors from and against any and all liabilities, losses,
damages, claims, causes of action and expenses (including reasonable attorneys'
fees and expenses), whether or not covered by insurance, caused or asserted to
have been caused, directly or indirectly, by or as a result of (i) the
performance of Medical Group Services, including without limitation the
performance of such services prior to the Commencement Date, (ii) any other acts
or omissions of the Medical Group and its Medical Personnel, including without
limitation any such acts or omissions that occurred prior to the Commencement
Date, or (iii) any breach of or failure to perform any obligation under this
Agreement or any Medical Group Transaction Document by the Medical Group and/or
the Medical Personnel and/or their respective agents and/or subcontractors
(other than the Management Company) during the Term.
11.4. Indemnification by Management Company.
The Management Company shall indemnify, hold harmless and defend the
Medical Group, its partners, members, officers, directors, stockholders,
employees, agents and independent contractors from and against any and all
liabilities, losses, damages, claims, causes of action and expenses (including
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reasonable attorneys' fees and expenses), whether or not covered by insurance,
caused or asserted to have been caused, directly or indirectly, by or as a
result of (i) the performance of Management Services, (ii) any other acts or
omissions of the Management Company and its employees or (iii) any breach of or
failure to perform any obligation under this Agreement or the Management Company
Transaction Documents by the Management Company and/or its agents, employees
and/or subcontractors (other than the Medical Group) during the Term.
SECTION 12. Termination.
12.1. Termination by Medical Group.
The Medical Group may terminate this Agreement effective immediately by
giving written notice of termination to the Management Company (a) in the event
of the filing of a petition in voluntary bankruptcy or an assignment for the
benefit of creditors by the Management Company or upon other action taken or
suffered, voluntarily or involuntarily, under any Federal or state law for the
benefit of debtors by the Management Company, except for the filing of a
petition in involuntary bankruptcy against the Management Company which is
dismissed within ninety (90) days thereafter (a "Bankruptcy Event"), (b) in the
event the Management Company shall default in any material respect in the
performance of any duty or obligation imposed upon it by this Agreement and the
Management Company shall not have taken reasonable action commencing curing of
such default within thirty (30) days after written notice thereof has been given
to the Management Company by the Medical Group or the Management Company does
not thereafter diligently prosecute such action to completion; or (c) in the
event that any of the representations and warranties made by the Management
Company in Section 6 is untrue or misleading in any material respect, provided
that the Medical Group shall have previously given written notice to the
Management Company describing in reasonable detail the nature of
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the item in question and the Management Company shall not have cured such matter
within thirty (30) days of such notice.
12.2. Termination by Management Company.
The Management Company may terminate this Agreement effective immediately
by giving written notice of termination to the Medical Group (a) in the event of
a Bankruptcy Event relating to the Medical Group, (b) in the event the Medical
Group shall default in any material respect in the performance of any duty or
obligation imposed upon it by this Agreement and the Medical Group shall not
have taken reasonable action commencing curing of such default within thirty
(30) days after written notice thereof has been given to the Medical Group by
the Management Company or the Medical Group does not thereafter diligently
prosecute such action to completion, (c) in the event that any of the
representations and warranties made by the Medical Group in Section 5 is untrue
or misleading in any material respect, provided that the Management Company
shall have previously given written notice to the Medical Group describing in
reasonable detail the nature of the item in question and the Medical Group shall
not have cured such matter within thirty (30) days of such notice, or (d) in the
event the Medical Group is excluded from the Medicaid or Medicare program for
any reason.
12.3. Termination by Medical Group or Management Company.
The Medical Group and the Management Company shall each have the right to
terminate this Agreement effective immediately by giving written notice of
termination to the other party pursuant to Section 28 of this Agreement.
12.4. Effect of Termination.
(a) Upon the termination of this Agreement in accordance with the
terms hereof, neither party hereto shall have any further obligation or
liability to the other party hereunder,
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except as provided in Sections 3.16(c), 4.3(b) (as modified by Section
12.4(b) below), 12.5, 26 and this Section 12.4, and except to pay in full
and satisfy any and all outstanding obligations of the parties accruing
through the effective date of termination.
(b) Upon the termination of this Agreement, the Annual Medical Group
Compensation Amount described in Section 4.3(b) shall be calculated on or
before the end of the fourth month following the termination date, rather
than on or before April 30 as specified in Section 4.3(b), and the
computation made under such Section shall be made with respect to the
portion of the year ending on the termination date (if the termination date
is other than December 31). In making such computation, all Collections
during January, February, and March of such year shall be excluded, and all
Collections during the three-month period following termination shall be
included. All Collections during the three-month period following
termination shall continue to be owned by the Management Company (and the
Medical Group shall immediately forward any amounts received in connection
therewith to the Management Company) and all Collections thereafter shall
be owned by the Medical Group. Any payment required under the terms of
Section 4.3(b)(ii) shall be made within fifteen (15) days after the date by
which the foregoing calculation is to be made, rather than on May 15.
(c) Upon termination of this Agreement, the Management Company agrees
to deliver to the Medical Group upon request by the Medical Group, a
Financing Statement amending the terms of any Financing Statement filed
with the Secretary of State of the state in which the principal place of
business of the Medical Group is located, excluding from the collateral
thereunder any accounts receivable generated after the date of termination
of this Agreement.
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12.5. Repurchase of Assets.
Promptly following termination of this Agreement for any reason, the
Management Company shall sell, transfer, convey, and assign to the Medical
Group, and the Medical Group shall purchase, assume, and accept from the
Management Company, at such price and upon such terms as may be agreed upon by
the parties (or, if the parties are unable to agree, at fair market value,
determined in the manner set forth below) all of the following items which are
used in connection with the professional practice and related activities of the
Medical Group and which, in the case of items (a), (b), (c) and (d), are
physically located in any of the offices of the Medical Group, subject to any
required consent from any third party having an interest therein and any lease
agreement and lien granted thereunder:
(A) the Medical Equipment owned by the Management Company;
(B) the furniture, furnishings, trade fixtures, and office
equipment owned by the Management Company;
(C) the Management Company's rights and interests in any
equipment leased by the Management Company, subject to
the Medical Group's assumption of the obligations
accruing thereunder after the date of termination of
this Agreement;
(D) the supplies owned by the Management Company;
(E) the Management Company's rights and interests under all
of the Office Leases, subject to the Medical Group's
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assumption of the obligations accruing thereunder after
the date of termination of this Agreement; and
(F) the deposits of the Management Company relating to the
Medical Group.
Fair market value of the above described assets shall be determined by an
independent appraiser mutually agreed upon by the Medical Group and the
Management Company; provided, however, that if the Medical Group and the
Management Company are unable to agree upon such an appraiser, each of the
parties shall select an appraiser and the two appraisers thus selected shall
select a third appraiser. All of the appraisers shall appraise the assets, and
for purposes of determining the purchase price, the highest and lowest
appraisals shall be disregarded, and the remaining appraisal shall be used.
SECTION 13. Rescission
13.1. Medical Group's Rescission Option.
The Medical Group may, in its sole discretion at any time during the period
beginning September 1, 2004 and ending November 30, 2004 (the "Rescission
Period"), rescind (the "Rescission Option") this Agreement and disengage from
its obligations hereunder in accordance with the provisions set forth in this
Section 13. In order to exercise the Rescission Option the Medical Group must
deliver to the Management Company at any time during the Rescission Period
written notice (the "Rescission Notice") of its intent to so exercise. The
effective date of such rescission (the "Rescission Effective Date") shall be the
date that is 30 days following delivery of the Rescission Notice, provided that
such date shall not be prior to the seventh anniversary of the Commencement
Date. The Medical Group must comply with the applicable provisions set forth in
this Section 13 in order to effectively exercise its Rescission Option.
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(a) Effect of Rescission. In the event that the Medical Group
exercises its Rescission Option pursuant to this Section 13, the procedures
set forth in Section 12.4 above shall apply.
(b) Repurchase of Assets. Within 30 days following the Rescission
Effective Date the Management Company shall, subject to the prior receipt
of any required landlord and third party consents, transfer, convey and
assign to the Medical Group, and the Medical Group shall purchase, assume
and accept from the Management Company, the property described in Section
12.5 above according to the provisions set forth in such Section.
(c) Rescission Fee. In the event that the Medical Group exercises the
Rescission Option, the Medical Group shall be required to pay the
Management Company a fee (the "Rescission Fee") in an amount equal to
$1,239,828.00. The Rescission Fee shall be payable to the Management
Company on or before the Rescission Effective Date in cash, by cashier's or
certified check or by wire transfer of funds delivered to a depository
institution designated by the Management Company.
(d) Waiver of Rescission Option. Notwithstanding anything contained
herein to the contrary, the parties hereto expressly agree and acknowledge
that if the Medical Group shall fail to deliver the Rescission Notice prior
to the end of the Rescission Period, then the Medical Group shall be deemed
to have expressly and irrevocably waived its right to rescind this
Agreement and to disengage itself from its obligations hereunder.
(e) Discontinuation of Management Fees. The parties hereto acknowledge
that in the event this Agreement is rescinded pursuant to this Section 13,
the Management Company shall not be entitled to any Management Fees
otherwise payable hereunder for Medical Group Services provided by the
Medical Group after the Rescission Effective Date.
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SECTION 14. Non-Disclosure of Confidential Information.
14.1. Non-Disclosure.
(a) Neither the Management Company nor the Medical Group, nor their
respective employees, stockholders, consultants or agents shall, at any
time after the execution and delivery hereof, directly or indirectly
disclose any Confidential or Proprietary Information relating to the other
party hereto to any person, firm, corporation, association or other entity,
nor shall either party, or their respective employees, stockholders,
consultants or agents make use of any of such Confidential or Proprietary
Information for its or their own purposes or for the benefit of any person,
firm, corporation or other entity except the parties hereto or any
subsidiary or affiliate thereof. The foregoing obligation shall not apply
to any information which a party hereto can establish to have (a) become
publicly known without breach of this Agreement by it or them, (b) to have
been given to such party by a third party who is not obligated to maintain
the confidentiality of such information, or (c) is disclosed to a third
party with the prior written consent of the other party hereto.
(b) For purposes of this Section 14, the term "Confidential or
Proprietary Information" means all information known to a party hereto, or
to any of its employees, stockholders, officers, directors or consultants,
which relates to the Transaction Documents, patient medical and billing
records, trade secrets, books and records, supplies, pricing and cost
information, marketing plans, strategies and forecasts. Nothing contained
herein shall prevent a party hereto from furnishing Confidential or
Proprietary Information pursuant to a direct order of a court of competent
jurisdiction.
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SECTION 15. Non-Competition.
In consideration of the premises contained herein and the consideration to
be received hereunder, and in consideration of and as an inducement to the
Management Company to consummate the transactions contemplated hereby, the
Medical Group hereby (a) agrees to the Non-Competition covenants attached hereto
as Schedule VII and (b) agrees to require each of the physicians affiliated with
the Medical Group to covenant not to compete with the Management Company, which
covenant shall be substantially similar to those covenants of the Medical Group
set forth on Schedule VII.
SECTION 16. Obligations of the Management Company.
16.1. No Practice of Medicine.
The Medical Group and the Management Company acknowledge that certain
Federal and state statutes severely restrict or prohibit the Management Company
from providing medical services. Accordingly, during the Term, the Management
Company shall not provide or otherwise engage in services or activities which
constitute the practice of medicine, as defined in applicable state or Federal
law, except in compliance therewith.
16.2. No Interference with Professional Judgment.
Without in any way limiting Section 16.1 hereof, during the Term, the
Management Company shall not interfere with the exercise of professional
judgment by any physician or other licensed health care professional who is a
partner, employee, or contractor of the Medical Group, nor shall the Management
Company interfere with, control, direct, or supervise any physician or other
licensed health care professional in connection with the provision of Medical
Group Services. The foregoing shall not preclude the Management Company from
assisting in the development
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of professional protocols and monitoring compliance with policies and procedures
that have been instituted in accordance with this Agreement.
16.3. Surgery Center.
The Management Company, or an affiliate of the Management Company, shall
offer the equity owners of the Medical Group an opportunity to participate in
the development of an ambulatory surgical center (the "Surgery Center") in
Lehigh County, Pennsylvania. Upon the establishment of the Surgery Center, and
in accordance with the governing documents thereof, the Management Company, or
such affiliate of the Management Company, shall cause a representative of the
Medical Group to be appointed to the executive committee of the Surgery Center.
SECTION 17. Assignment.
The Management Company shall have the right to assign its rights and
delegate its obligations hereunder for security purposes or as collateral to any
affiliate and to assign its rights hereunder to any lending institution from
which the Management Company or any affiliate obtains financing. Except as set
forth in the preceding sentence, neither the Management Company nor the Medical
Group shall have the right to assign their respective rights and delegate their
respective obligations hereunder without the prior written consent of the other
party; provided, however, that after the consummation of an initial public
offering of the Management Company's common stock, the Medical Group's consent
shall not be required in connection with any assignment by the Management
Company arising out of or in connection with a sale of all or substantially all
of the stock or assets of the Management Company or the merger, consolidation,
or reorganization of the Management Company.
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SECTION 18. Notices.
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed sufficient if personally delivered, telecopied
(with original sent by mail), sent by nationally-recognized overnight courier,
or by registered or certified mail, return receipt requested and postage
prepaid, addressed as follows:
If to the Medical Group, to:
Valley Sports & Arthritis Surgeons, P.C.
1230 South Cedar Crest Boulevard
Suite 101
Allentown, Pennsylvania 18103
Attention: David Sussman, M.D.
Telecopier: (610) 820-0359;
with a copy to:
Hourigan, Kluger & Quinn
700 Mellon Bank Center
8 West Market Street
Wilkes-Barre, Pennsylvania 18701
Attention: Terrence J. Herron, Esq.
Telecopier: (717) 829-3460; and
If to the Management Company, to:
Valley Sports Surgeons, Inc.
1230 South Cedar Crest Boulevard
Suite 101
Allentown, Pennsylvania 18103
Attention: President
Telecopier: (610) 820-0359;
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Jeffrey S. Held, Esq.
Telecopier: (212) 408-2420;
or to such other address as the party to whom notice is to be given may have
furnished to each other party in writing in accordance herewith. Any such notice
or communication shall be
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deemed to have been received (a) in the case of personal delivery and
telecopier, on the date of such delivery, (b) in the case of
nationally-recognized overnight courier, on the next business day after the date
when sent, and (c) in the case of mailing, on the third business day following
the day on which the piece of mail containing such communication is posted.
SECTION 19. Benefits of Agreement.
This Agreement shall bind and inure to the benefit of any successors to or
permitted assigns of the Management Company and the Medical Group.
SECTION 20. Severability.
It is the desire and intent of the parties hereto that the provisions of
this Agreement be enforced to the fullest extent permissible under the laws and
public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular provision of this Agreement shall be adjudicated
by a court of competent jurisdiction to be invalid, prohibited or unenforceable
for any reason, such provision, as to such jurisdiction, shall be ineffective,
without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction. Notwithstanding the
foregoing, if such provision could be more narrowly drawn so as not to be
invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such
jurisdiction, be so narrowly drawn, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
SECTION 21. Governing Law.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the Commonwealth of Pennsylvania without giving
effect to the laws and principles
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thereof, or of any other jurisdiction, which would direct the application of the
laws of another jurisdiction.
SECTION 22. Headings.
Section headings are used for convenience only and shall in no way affect
the construction of this Agreement.
SECTION 23. Entire Agreement; Amendments.
This Agreement and the exhibits and schedules hereto contain the entire
understanding of the parties with respect to its subject matter, and neither
this Agreement nor any part of it may in any way be altered, amended, extended,
waived, discharged or terminated except by a written agreement signed by all of
the parties against whom enforcement is sought.
SECTION 24. Attorneys' Fees.
In the event of any dispute or controversy arising out of or relating to
this Agreement, the prevailing party shall be entitled to recover from the other
party all reasonable costs and expenses, including attorneys' fees and
accountants' fees, incurred in connection with such dispute or controversy.
SECTION 25. Counterparts.
This Agreement may be executed in counterparts, and each such counterpart
shall be deemed to be an original instrument, but all such counterparts together
shall constitute but one agreement.
SECTION 26. Waivers.
Any party to this Agreement may, by written notice to the other party,
waive any provision of this Agreement. The waiver by any party of a breach of
any provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach.
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SECTION 27. Survival of Termination.
Notwithstanding anything contained herein to the contrary, Sections 3.3(f),
10, 11.3, 11.4, 12, 13, 14, 15, 18, 19, 20, 21, 23, 24 and this Section 27 shall
survive any expiration or termination of this Agreement.
SECTION 28. Contract Modification for Prospective Legal Events.
In the event any state or Federal laws or regulations, now existing or
enacted or promulgated after the date hereof, are interpreted by judicial
decision, a regulatory agency or legal counsel of both parties in such a manner
as to indicate that the structure of this Agreement may be in violation of such
laws or regulations, the Medical Group and the Management Company shall amend
this Agreement as necessary to avoid such violation. To the maximum extent
possible, any such amendment shall preserve the underlying economic and
financial arrangements between the Medical Group and the Management Company. If
an amendment is not possible, either party shall have the right to terminate
this Agreement. Any dispute between the parties hereto arising under this
Section 28 with respect to whether this Agreement violates any state or Federal
laws or regulations shall be jointly submitted by the parties and finally
settled by binding arbitration in Pennsylvania, pursuant to the arbitration
rules of the National Health Lawyers Association Alternative Dispute Resolution
Service. Arbitration shall take place before one arbitrator appointed in
accordance with such rules. The governing law of the arbitration shall be the
law set forth in Section 21. Any decision rendered by the arbitrator shall
clearly set forth the factual and legal basis for such decision. The decision
rendered by the arbitrator shall be non-appealable and enforceable in any court
having jurisdiction thereof. The
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administrative costs of the arbitration and the arbitrator fees shall be equally
borne by the parties. Each party shall pay its own legal costs and fees in
connection with such arbitration.
* * * * *
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IN WITNESS WHEREOF, the parties have duly executed this Management Services
Agreement as of the date first above written.
VALLEY SPORTS & ARTHRITIS
SURGEONS, P.C.
By:
--------------------------
Name:
Title:
VALLEY SPORTS SURGEONS, INC.
By:
--------------------------
Name:
Title:
Acknowledged and Agreed to
(as to Sections 8.7, 11.2, 13,
14 and 15):
/s/ George Arangio, M.D.
- ------------------------------
George Arangio, M.D.
/s/ Thomas DiBenedetto, M.D.
- ------------------------------
Thomas DiBenedetto, M.D.
/s/ Neal Stansbury, M.D.
- ------------------------------
Neal Stansbury, M.D.
/s/ David Sussman, M.D.
- ------------------------------
David Sussman, M.D.
/s/ Prodromos Ververeli, M.D.
- ------------------------------
Prodromos Ververeli, M.D.
<PAGE>
================================================================================
ASSET PURCHASE AGREEMENT
BETWEEN
BMJ MEDICAL MANAGEMENT, INC.
AND
VALLEY SPORTS & ARTHRITIS SURGEONS, P.C.
Dated as of October 3, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I TRANSFER OF PURCHASED ASSETS, ASSUMPTION OF
LIABILITIES AND RELATED MATTERS ......................... 1
1.1. Transfer of Assets ...................................... 1
1.2. Assets Not Being Transferred ............................ 2
1.3. Liabilities Being Assumed ............................... 2
1.4. Liabilities Not Being Assumed ........................... 3
1.5. Instruments of Conveyance and Transfer, Etc ............. 3
1.6. Right of Endorsement, Etc. .............................. 4
1.7. Further Assurances ...................................... 5
1.8. Assignment of Leases .................................... 5
ARTICLE II PURCHASE PRICE; ALLOCATION .............................. 6
2.1. Purchase Price; Payment ................................. 6
2.2. Allocation of Purchase Price ............................ 6
2.3 Accounts Receivable Payment ............................. 6
ARTICLE III REPRESENTATIONS AND WARRANTIES .......................... 7
3.1. Representations and Warranties of the Seller ............ 7
3.2. Representations and Warranties of the Buyer ............. 11
ARTICLE IV CONDITIONS TO CLOSING ................................... 13
4.1. Conditions to Each Party's Obligations .................. 13
4.2. Conditions to Obligations of the Buyer .................. 14
4.3. Conditions to Obligations of the Seller ................. 15
4.4. Related Agreements ...................................... 16
ARTICLE V CLOSING ................................................. 16
5.1. Date .................................................... 16
5.2. Closing Transactions .................................... 16
ARTICLE VI INDEMNIFICATION ......................................... 17
6.1. Definitions ............................................. 17
6.2. Indemnification Generally ............................... 19
6.3. Assertion of Claims ..................................... 19
6.4. Notice and Defense of Third Party Claims ................ 20
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Page
----
6.5. Survival of Representations, Warranties and Covenants ... 21
ARTICLE VII AMENDMENT, MODIFICATION AND WAIVER ...................... 22
ARTICLE VIII MISCELLANEOUS ........................................... 22
8.1. Transfer Taxes, Etc. .................................... 22
8.2. Entire Agreement ........................................ 23
8.3. Descriptive Headings .................................... 23
8.4. Notices ................................................. 23
8.5. Counterparts ............................................ 24
8.6. Bulk Sales Compliance ................................... 24
8.7. Governing Law ........................................... 25
8.8. Attorneys' Fees ......................................... 25
8.9. Benefits of Agreement ................................... 25
8.10. Pronouns ................................................ 25
(ii)
<PAGE>
EXHIBITS
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Exhibit A - Bill of Sale
Exhibit B - Assignment and Assumption Agreement
Exhibit C - Promissory Note
SCHEDULES
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1.1(a) - Medical Equipment
1.1(b) - Furniture, Furnishings, Trade
Fixtures, and Office Equipment
1.1(c) - Equipment Leases
1.1(d) - Supplies
1.1(e) - Accounts Receivable
1.1(f) - Office Leases
1.1(g) - Deposits
1.1(h) - Additional Items
2.2 - Allocation of Purchase Price
3.1(b) - Seller Consents
3.1(c) - Claims
3.1(d) - Litigation
3.2(b) - Buyer Consents
<PAGE>
Definitions
The following terms which may appear in more than one Section of this Agreement
are defined at the following pages:
TERM PAGE
- ---- ----
A/R Amount................................................................ 6
A/R Balance............................................................... 7
A/R Collections........................................................... 7
A/R Shortfall............................................................. 7
Accounts Receivable....................................................... 2
Affiliate................................................................. 17
Assignment and Assumption Agreement....................................... 3
Assumed Obligations....................................................... 3
Bill of Sale.............................................................. 3
bulk sales laws........................................................... 18
Business Day.............................................................. 24
Buyer..................................................................... 1
Buyer Indemnification Event............................................... 17
Buyer Indemnified Persons................................................. 18
Claims.................................................................... 9
Closing................................................................... 16
Closing Date.............................................................. 1
Determination Date........................................................ 6
Excluded Assets........................................................... 2
Excluded Obligations...................................................... 3
Final Statement........................................................... 6
Governance Documents...................................................... 8
Indemnified Persons....................................................... 18
Indemnifying Person....................................................... 18
Losses.................................................................... 18
Permitted Liens........................................................... 10
Purchase Price............................................................ 6
Purchased Assets.......................................................... 1
Related Agreements........................................................ 13
Seller.................................................................... 1
Seller Indemnification Event.............................................. 19
Seller Indemnified Persons................................................ 19
Statement of Allocation................................................... 6
Subject Business.......................................................... 1
<PAGE>
THIS ASSET PURCHASE
AGREEMENT is entered into on
October 3, 1997 (the "Closing
Date"), between BMJ MEDICAL
MANAGEMENT, INC., a Delaware
corporation (the "Buyer"), and
VALLEY SPORTS & ARTHRITIS SURGEONS,
P.C., a Pennsylvania professional
corporation (the "Seller").
The Seller desires to sell, transfer, convey and assign to the Buyer and
the Buyer desires to purchase from the Seller, certain of the assets,
properties, interests in properties and rights of the Seller used in the
Seller's business (the "Subject Business") upon the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements hereinafter set forth, the
parties hereby agree as follows:
ARTICLE I
TRANSFER OF PURCHASED ASSETS, ASSUMPTION OF
LIABILITIES AND RELATED MATTERS
1.1. Transfer of Assets.
On the terms and subject to the conditions of this Agreement, at the
Closing (as hereinafter defined), the Seller shall sell, transfer, convey and
assign to the Buyer, and the Buyer shall purchase, assume, and accept from the
Seller, the following assets, properties, interests in properties and rights of
the Seller (the "Purchased Assets"), as the same shall exist immediately prior
to the Closing, free and clear of all Claims (as defined below) (except
Permitted Liens (as defined below)):
(a) the medical equipment owned by the Seller and listed on Schedule
1.1(a);
<PAGE>
(b) the furniture, furnishings, trade fixtures, and office equipment owned
by the Seller and listed on Schedule 1.1(b);
(c) the Seller's rights and interests under the equipment leases identified
on Schedule 1.1(c), subject to the Buyer's assumption of the obligations
accruing thereunder as provided in Section 1.3;
(d) the supplies described on Schedule 1.1(d);
(e) the accounts receivable described on Schedule 1.1(e) (the "Accounts
Receivable") (subject to applicable law and in accordance with Section 1.6
hereof);
(f) the Seller's rights and interests under the office leases identified in
Schedule 1.1(f), subject to the Buyer's assumption of the obligations accruing
thereunder as provided in Section 1.3;
(g) the deposits identified on Schedule 1.1(g); and
(h) any additional items identified on Schedule 1.1(h).
1.2. Assets Not Being Transferred.
All assets, properties, interests in properties, and rights of the Seller
not expressly identified in Section 1.1 or the Schedules referenced therein (the
"Excluded Assets") are expressly excluded from the assets of the Seller being
sold, assigned, or otherwise transferred to the Buyer.
1.3. Liabilities Being Assumed.
Except as otherwise provided herein and subject to the terms and conditions
of this Agreement, simultaneously with the
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sale, transfer, conveyance and assignment to the Buyer of the Purchased Assets,
the Buyer shall assume, and hereby agrees to pay when due, those liabilities
accruing after the Closing Date (as hereinafter defined) under the equipment
leases identified in Schedule 1.1(c) and the office leases identified in
Schedule 1.1(f) (the "Assumed Obligations"); provided, however, that any and all
obligations and liabilities arising under any such lease as of or prior to the
Closing Date and any and all obligations and liabilities arising out of or in
connection with the Seller's breach of any such lease shall, in each case,
remain the obligations and liabilities of the Seller.
1.4. Liabilities Not Being Assumed.
The Buyer is not assuming any liabilities or obligations of the Seller
(fixed or contingent, known or unknown, matured or unmatured) whatsoever other
than the Assumed Obligations. For convenience of reference, all liabilities and
obligations of the Seller not being assumed by the Buyer are collectively
referred to as the "Excluded Obligations." The Seller hereby agrees to pay all
Excluded Obligations as and when such Excluded Obligations become due.
1.5. Instruments of Conveyance and Transfer, Etc.
At the Closing, the Seller shall deliver (or cause to be delivered) to the
Buyer such deeds, bills of sale, endorsements, assignments and other good and
sufficient instruments of sale, transfer, conveyance and assignment as shall be
necessary to sell, transfer, convey and assign to the Buyer, in accordance with
the terms hereof, title to the Purchased Assets, free and clear of all Claims
(except Permitted Liens), including, without limitation, the delivery of a Bill
of Sale (the "Bill of Sale") substantially in the form of Exhibit A attached
hereto and the delivery of an Assignment and Assumption Agreement (the
"Assignment and Assumption Agreement")
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substantially in the form of Exhibit B attached hereto. Simultaneously
therewith, the Seller shall take all steps as may be reasonably required to put
the Buyer in possession and operating control of the Purchased Assets.
1.6. Right of Endorsement, Etc.
Effective upon the Closing, the Seller hereby constitutes and appoints the
Buyer, its successors and assigns, the true and lawful attorney-in-fact of the
Seller with full power of substitution, in the name of the Buyer, or the name of
the Seller, on behalf of and for the benefit of the Buyer, to collect all
Accounts Receivable assigned to the Buyer as provided herein, to endorse,
without recourse, checks, notes and other instruments received in payment of
such Accounts Receivable, and to institute and prosecute, in the name of the
Seller or otherwise, all proceedings which the Buyer may deem proper in order to
assert or enforce any claim, right or title of any kind in or to the Purchased
Assets (provided that the Buyer shall not, without the consent of the Seller,
initiate any such proceeding to collect on Accounts Receivable acquired
hereunder), to defend and compromise any and all actions, suits or proceedings
in respect of any of the Purchased Assets and to do all such acts and things in
relation thereto as the Buyer may deem advisable. The foregoing powers are
coupled with an interest and shall be irrevocable by the Seller, directly or
indirectly, whether by the dissolution of the Seller or in any manner or for any
reason; provided, however that notwithstanding anything to the contrary
contained herein, collections of Medicare and Medicaid Accounts Receivable shall
first be deposited by the Seller into its bank account and shall thereafter be
transferred by the Seller to an account designated by the Buyer.
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<PAGE>
1.7. Further Assurances.
The Seller shall pay or cause to be paid to the Buyer promptly any amounts
which shall be received by the Seller after the Closing which constitute
Purchased Assets, including all amounts paid to the Seller on account of the
Accounts Receivable. The Seller shall, at any time and from time to time after
the Closing, upon the reasonable request of the Buyer, execute, acknowledge,
deliver and file, or cause to be executed, acknowledged, delivered or filed, and
perform or cause to be performed all such further acts, transfers, conveyances,
assignments or assurances as may reasonably be required for better selling,
transferring, conveying, assigning and assuring to the Buyer, or for aiding and
assisting in the collection of or reducing to possession by the Buyer, any of
the assets, properties, interests in properties or rights being purchased by the
Buyer hereunder. Any expenses incurred in connection with the foregoing shall be
borne by the Seller.
1.8. Assignment of Leases.
Anything contained in this Agreement to the contrary notwithstanding, this
Agreement shall not constitute an agreement or attempted agreement to assign any
office lease or equipment lease if an attempted assignment thereof, without the
consent of any other party thereto, would constitute a breach thereof or in any
way affect the rights of the Buyer or the Seller thereunder. The Seller shall
use its best efforts, and the Buyer shall cooperate with the Seller, to obtain
the consent of any such third party to the assignment thereof to the Buyer. If
such consent is not obtained, the Seller shall cooperate with the Buyer in any
arrangements reasonably necessary or desirable to provide for the Buyer the
benefits (together with the obligations to perform) thereunder.
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<PAGE>
ARTICLE II
PURCHASE PRICE; ALLOCATION
2.1. Purchase Price; Payment.
The purchase price (the "Purchase Price") to be paid for the Purchased
Assets shall equal the sum of the following amounts:
(a) $267,727; and
(b) $630,000 (the "A/R Amount"), subject to adjustment in accordance
with Section 2.3, which amount is a good faith estimate of the aggregate
face value of all Accounts Receivable outstanding as of the Closing Date
and set forth on Schedule 1.1(e).
2.2. Allocation of Purchase Price.
The Purchase Price shall be allocated among the Purchased Assets in a
statement (the "Statement of Allocation") reflecting the allocation set forth in
Schedule 2.2 attached hereto. The parties shall complete their respective tax
returns for the period which includes the Closing Date in a manner that is
consistent with the Statement of Allocation.
2.3. Accounts Receivable Payment.
The portion of the Purchase Price specified in Section 2.1(b) is subject to
adjustment and shall be paid or repaid as follows:
(a) Within thirty (30) days after March 1, 1998 (the "Determination
Date"), the Buyer shall furnish to the Seller a statement (the "Final
Statement") setting forth the aggregate amount of collections received by
the Buyer in payment of the Accounts Receivable as of the Determination
Date (the "A/R
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<PAGE>
Collections"), including detail of write-offs of any of the Accounts
Receivable, the remaining outstanding balance of the Accounts Receivable,
and any other detail relating thereto as the Seller may reasonably request.
In the event that the A/R Collections exceeds the A/R Amount (such excess
amount being referred to herein as an "A/R Balance"), the Buyer shall
deliver to the Seller within 30 days after the Determination Date a check
in an amount equal to the A/R Balance. If, as of the Determination Date,
the A/R Collections are less than the A/R Amount (such deficit being
referred to herein as the "A/R Shortfall"), the Seller shall pay the A/R
Shortfall to the Buyer by check in six equal monthly installments (the
first payment due 10 days after delivery of the Final Statement). The
parties hereto acknowledge and agree that after delivery of the Final
Statement and payment in full of the A/R Balance or A/R Shortfall, as the
case may be, neither party shall have any other obligation to the other
party with respect to the Accounts Receivable, except that all remaining
uncollected Accounts Receivable shall be turned over to the Seller for
disposition in such manner as the Seller, in its sole discretion, shall
determine.
(b) All payments by patients and third party payors shall be accounted
for on a first-in-first-out basis unless any such payment is identified as
a payment in respect of a particular invoice or otherwise is designated as
payment of a particular invoice or for a particular service.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of the Seller.
The Seller hereby represents and warrants to the Buyer, as of the date
hereof, as follows:
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(a) Organization; Good Standing; Qualification and Power. The Seller
is a professional corporation duly formed, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania and has all
requisite power and authority to own, lease and operate its properties and
to carry on its business as now being conducted and as proposed to be
conducted, to execute and deliver this Agreement, the Bill of Sale and the
Assignment and Assumption Agreement, to perform its obligations hereunder
and thereunder and to consummate the transactions contemplated hereby and
thereby. The Seller has delivered to the Buyer a true and correct copy of
its articles of incorporation and by-laws (collectively, the "Governance
Documents") as in effect on the date hereof.
(b) Authority. The execution, delivery and performance of this
Agreement, the Bill of Sale and the Assignment and Assumption Agreement and
the consummation of the transactions contemplated hereby and thereby have
been duly and validly authorized by all necessary action on the part of the
Seller. This Agreement, the Bill of Sale and the Assignment and Assumption
Agreement have been duly and validly executed and delivered by the Seller
and constitute legal, valid and binding obligations of the Seller
enforceable in accordance with their respective terms, except as
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the rights of
creditors generally. Neither the execution, delivery or performance by the
Seller of this Agreement, the Bill of Sale or the Assignment and Assumption
Agreement nor the consummation by the Seller of the transactions
contemplated hereby or thereby, nor compliance by the Seller with any
provision hereof or thereof will (i) conflict with or result in a breach of
any provision of the Governance Documents of the Seller, (ii) cause a
default (with due notice, lapse of time or both), or give rise to any right
of termination, cancellation or acceleration, under any of the terms,
conditions or provisions of any note, bond, lease, mortgage, indenture,
license or other
-8-
<PAGE>
instrument, obligation or agreement to which the Seller is a party or by
which it or any of its respective properties or assets may be bound or
(iii) violate any law, statute, rule or regulation or order, writ,
judgment, injunction or decree of any court, administrative agency or
governmental body applicable to the Seller or any of its respective
properties or assets. Except as set forth on Schedule 3.1(b), no permit,
authorization, consent or approval of or by, or any notification of or
filing with, any person (governmental or private) is required in connection
with the execution, delivery or performance by the Seller of this
Agreement, the Bill of Sale or the Assignment and Assumption Agreement or
the consummation of the transactions contemplated hereby or thereby.
(c) Title to Assets, Properties, Interests in Properties and Rights
and Related Matters.
(i) The Seller has good and valid title to all of the Purchased
Assets, free and clear of all security interests, judgments, liens,
pledges, claims, charges, escrows, encumbrances, easements, options,
rights of first refusal, rights of first offer, mortgages, indentures,
security agreements or other agreements, arrangements, contracts,
commitments, understandings or obligations, whether written or oral
and whether or not relating in any way to credit or the borrowing of
money (collectively, "Claims"), of any kind or character, except for
(A) those Claims set forth on Schedule 3.1(c) and (B) Permitted Liens.
(ii) There does not exist any condition which materially
interferes with the economic value or use (consistent with the
Seller's past practice) of any tangible personal property included in
the Purchased Assets and such property is in good operating condition
and repair, reasonable wear and tear excepted.
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<PAGE>
(iii) The Seller has the complete and unrestricted power and the
unqualified right to sell, transfer, convey and assign, and the Seller
is hereby selling, transferring conveying and assigning to the Buyer,
the Purchased Assets, and this Agreement, the Bill of Sale and the
Assignment and Assumption Agreement are sufficient to sell, transfer,
convey and assign to the Buyer all right, title and interest of the
Seller in and to the Purchased Assets, free and clear of all Claims
(other than Permitted Liens) and to vest in the Buyer good and valid
title thereto.
(iv) As used in this Agreement, "Permitted Liens" shall mean (A)
any lien for current taxes not yet due and payable, (B) liens of
carriers, warehousemen, mechanics and materialmen created in the
ordinary course of the Subject Business for amounts not yet due and
payable which do not materially detract from the value or impair the
use of any property or assets, (C) in the case of Purchased Assets,
liens incurred in the ordinary course of the Subject Business
(including, without limitation, surety bonds and appeal bonds) in
connection with workers' compensation, unemployment insurance and
other types of social security benefits and (D) statutory landlord
liens securing rents not yet due and payable.
(d) Litigation. Except as set forth on Schedule 3.1(d), there are no
(i) actions, suits, claims, investigations or legal or administrative or
arbitration proceedings pending or, to the best knowledge of the Seller,
threatened against the Seller, the Purchased Assets or the Subject
Business, whether at law or in equity, or before or by any Federal, state,
municipal or other governmental department, commission, board, bureau,
agency or instrumentality or (ii) judgments, decrees, injunctions or orders
of any court, governmental department, commission, agency, instrumentality
or arbitrator against the Seller or affecting the Purchased Assets or the
Subject Business. The Seller has delivered to the Buyer all documents and
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correspondence relating to matters referred to in said Schedule 3.1(d).
(e) Compliance; Governmental Authorizations. The Seller has complied
in all material respects with all applicable Federal, state, local or
foreign laws, ordinances, regulations and orders. The Seller has all
Federal, state, local and foreign governmental licenses and permits
necessary in the conduct of the Subject Business the lack of which would
have a material adverse effect on the Seller's ability to operate the
Subject Business after the Closing Date on substantially the same basis as
presently operated, such licenses and permits are in full force and effect,
no violations are or have been recorded in respect of any thereof and no
proceeding is pending or threatened to revoke or limit any thereof. None of
such licenses and permits shall be affected in any material respect by the
transactions contemplated hereby.
(f) Disclosure. Neither this Agreement (including the Exhibits and
Schedules attached hereto), the Bill of Sale, the Assignment and Assumption
Agreement nor any other document, certificate or written statement
furnished to the Buyer by or on behalf of the Seller in connection with the
transactions contemplated hereby contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make
the statements contained herein and therein not misleading.
3.2. Representations and Warranties of the Buyer.
The Buyer represents and warrants to the Seller, as of the date hereof, as
follows:
(a) Organization, Good Standing and Power. The Buyer (i) is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, (ii) has all requisite corporate power and
authority to own, lease and operate its properties, to carry on its
business as now being
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<PAGE>
conducted, to execute and deliver this Agreement and the Assignment and
Assumption Agreement, to perform its obligations hereunder and thereunder
and to consummate the transactions contemplated hereby and thereby.
(b) Authority. The execution, delivery and performance of this
Agreement and the Assignment and Assumption Agreement, and the consummation
of the transactions contemplated hereby and thereby, have been duly and
validly authorized by all necessary corporate action on the part of the
Buyer. This Agreement and the Assignment and Assumption Agreement have been
duly and validly executed and delivered by the Buyer, and constitute legal,
valid and binding obligations of the Buyer, enforceable in accordance with
their respective terms except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally. Neither the execution,
delivery or performance by the Buyer of this Agreement or the Assignment
and Assumption Agreement nor the consummation by the Buyer of the
transactions contemplated hereby or thereby, nor compliance by the Buyer
with any provision hereof or thereof, will (i) conflict with or result in a
breach of any provisions of the Certificate of Incorporation or By-laws of
the Buyer, (ii) cause a default (with due notice, lapse of time or both),
or give rise to any right of termination, cancellation or acceleration,
under any of the terms, conditions or provisions of any material note,
bond, lease, mortgage, indenture, license or other instrument, obligation
or agreement to which the Buyer is a party or by which it or any of its
properties or assets is or may be bound or (iii) violate any law, statute,
rule or regulation or order, writ, judgment, injunction or decree of any
court, administrative agency or governmental body applicable to the Buyer
or any of its properties or assets. Except as set forth on Schedule 3.2(b),
no permit, authorization, consent or approval of or by, or any notification
of or filing with, any person (governmental or private) is required in
connection with the execution, delivery
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or performance by the Buyer of this Agreement or the Assignment and
Assumption Agreement or the consummation by the Buyer of the transactions
contemplated hereby or thereby.
ARTICLE IV
CONDITIONS TO CLOSING
4.1. Conditions to Each Party's Obligations.
The obligations of the Seller to sell the Purchased Assets, and of the
Buyer to purchase the Purchased Assets, are subject to the satisfaction of the
following conditions unless waived in writing (to the extent such conditions can
be waived) by the Seller or the Buyer, as applicable:
(a) Legal Action. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the
consummation of the transactions contemplated hereby shall have been issued
by any Federal or state court and remain in effect. Each party agrees to
use its best efforts to have any such injunction or order lifted.
(b) Legislation. No Federal, state, local or foreign statute, rule or
regulation shall have been enacted which prohibits, restricts or delays the
consummation of the transactions contemplated by this Agreement or any of
the conditions to the consummation of such transactions.
(c) Related Agreements. Each of the related agreements identified in
Section 4.4 hereof (collectively, the "Related Agreements") shall have been
fully executed and delivered prior to or at the Closing by all of the
parties required to execute and deliver such agreements.
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<PAGE>
4.2. Conditions to Obligations of the Buyer.
The obligation of the Buyer to purchase the Purchased Assets is subject to
the satisfaction of the following conditions unless waived in writing (to the
extent such conditions can be waived) by the Buyer:
(a) Representations and Warranties. The representations and warranties
of the Seller set forth in Section 3.1 shall in each case be true and
correct in all material respects as of the Closing Date and as of the
Signature Date as though made at and as of the Signature Date.
(b) Performance of Obligations. The Seller shall have performed all
obligations required to be performed by it under this Agreement prior to
and at the Closing.
(c) Authorization. All action necessary to authorize the execution,
delivery and performance of this Agreement, the Bill of Sale and the
Assignment and Assumption Agreement by the Seller and the consummation of
the transactions contemplated hereby and thereby shall have been duly and
validly taken by the Seller and the Seller shall have full power and right
to consummate the transactions contemplated hereby and thereby.
(d) Consents and Approvals. The Seller shall have delivered to the
Buyer duly executed copies of (i) consents to the assignment of the office
leases and equipment leases listed on Schedules 1.1(c) and 1.1(f) and (ii)
all other approvals, if any, required by this Agreement or the Schedules,
in each case in form and substance satisfactory to the Buyer and counsel to
the Buyer.
(e) Government Consents, Authorizations, Etc. All consents,
authorizations, orders or approvals of, and filings or registrations with,
any Federal, state, local or foreign governmental commission, board or
other regulatory body which are
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required for or in connection with the execution and delivery by the Seller
of this Agreement, the Bill of Sale and the Assignment and Assumption
Agreement and the consummation by the Seller of the transactions
contemplated hereby and thereby shall have been obtained or made.
4.3. Conditions to Obligations of the Seller.
The obligation of the Seller to sell the Purchased Assets to the Buyer is
subject to the satisfaction of the following conditions unless waived in writing
(to the extent such conditions can be waived) by the Seller:
(a) Representations and Warranties. The representations and warranties
of the Buyer set forth in Section 3.2 shall in each case be true and
correct in all material respects as of the Closing Date and as of the
Signature Date as though made at and as of the Signature Date.
(b) Performance of Obligations. The Buyer shall have performed all
obligations required to be performed by it under this Agreement prior to
and at the Closing.
(c) Authorization. All action necessary to authorize the execution,
delivery and performance of this Agreement and the Assignment and
Assumption Agreement by the Buyer and the consummation of the transactions
contemplated hereby and thereby shall have been duly and validly taken by
the Buyer.
(d) Government Consents, Authorizations, Etc. All consents,
authorizations, orders or approvals of, and filings or registrations with,
any Federal, state, local or foreign governmental commission, board or
other regulatory body which are required for or in connection with the
execution and delivery by the Buyer of this Agreement and the Assignment
and Assumption
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<PAGE>
Agreement and the consummation by the Buyer of the transactions
contemplated hereby and thereby shall have been obtained or made.
4.4. Related Agreements.
The Related Agreements referred to in this Agreement consist of the
following:
(a) the Assignment of Office Leases, relating to each of the medical
office premises identified on Schedule 1.1(f), between the parties hereto;
(b) the Bill of Sale executed by the Seller; and
(c) the Assignment and Assumption Agreement between the Seller and the
Buyer.
ARTICLE V
CLOSING
5.1. Date.
The closing (the "Closing") for the consummation of the transactions
contemplated by this Agreement shall be deemed to have taken place at 12:01 a.m.
on the Closing Date, irrespective of the actual date(s) and time(s) that all of
the documents required hereunder are executed and delivered.
5.2. Closing Transactions.
At the Closing, the parties shall take the actions and deliver the
documents identified in this Section 5.2. The Closing shall not be deemed to
have taken place, and the transactions contemplated by this Agreement shall not
be deemed to have been consummated, unless all of the closing transactions
identified in this Section 5.2 have been completed or waived in writing by the
parties.
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(a) The Seller shall deliver to the Buyer an executed copy of the Bill
of Sale;
(b) Each of the parties shall execute and deliver to the other a copy
of the Assignment and Assumption Agreement;
(c) The Buyer shall deliver to the Seller a promissory note in the
principal amount of the Purchase Price payable by the Buyer to the Seller,
in substantially the form of Exhibit C attached hereto; and
(d) The Seller shall deliver to the Buyer a copy of the resolutions of
the Seller authorizing the transactions contemplated hereby, accompanied by
a certificate of the Seller stating that such resolutions have been duly
adopted in accordance with the Seller's Governance Documents.
ARTICLE VI
INDEMNIFICATION
6.1. Definitions.
As used in this Agreement, the following terms shall have the following
meanings:
(a) "Affiliate", as to any person, means any other person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with such person.
(b) "Buyer Indemnification Event" shall mean the following:
(i) (A) the untruth, inaccuracy or breach of any representation
or warranty of the Seller contained in this Agreement, any Schedule or
Exhibit attached hereto, the Bill of
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Sale, the Assignment and Assumption Agreement or any certificate
delivered by the Seller in connection herewith (or any facts or
circumstances constituting any such untruth, inaccuracy or breach) or
(B) the breach of any agreement or covenant of the Seller contained in
this Agreement, the Bill of Sale, or the Assumption or Assignment
Agreement;
(ii) the assertion against Buyer Indemnified Person of any
liability or obligation arising from, relating to, or in any way
connected with the operation of the Subject Business at any time prior
to the Closing;
(iii) the assertion against any Buyer Indemnified Person of any
liability or obligation arising from, relating to, or in any way
connected with any Excluded Obligation; and
(iv) any non-compliance by the Seller with any "bulk sales laws"
to the extent that such laws may be applicable to the transactions
contemplated hereby.
(c) "Buyer Indemnified Persons" shall mean and include the Buyer, its
Affiliates and their respective officers, directors, and employees.
(d) "Indemnified Persons" shall mean the Buyer Indemnified Persons or
the Seller Indemnified Persons, as the case may be.
(e) "Indemnifying Person" shall mean the Buyer or the Seller, as the
case may be.
(f) "Losses" shall mean any and all losses, claims, damages,
liabilities, expenses (including reasonable attorneys' and accountants'
fees), assessments, tax deficiencies and taxes (including interest or
penalties thereon) sustained,
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suffered or incurred by any Indemnified Person arising from any matter
which is the subject of indemnification under Section 6.2.
(g) "Seller Indemnification Event" shall mean (i) the untruth,
inaccuracy or breach of any representation or warranty of the Buyer
contained in this Agreement, any Schedule or Exhibit attached hereto, the
Assignment and Assumption Agreement or any certificate delivered by the
Buyer in connection herewith (or any facts or circumstances constituting
any such untruth, inaccuracy or breach) or (ii) the breach of any agreement
or covenant of the Buyer contained in this Agreement or the Assignment and
Assumption Agreement.
(h) "Seller Indemnified Persons" shall mean and include the Seller and
its partners and employees.
6.2. Indemnification Generally.
(a) The Seller shall indemnify, defend and hold harmless the Buyer
Indemnified Persons, and each of them, from and against any and all Losses
resulting from Buyer Indemnification Events.
(b) The Buyer shall indemnify, defend and hold harmless the Seller
Indemnified Persons, and each of them, from and against any and all Losses
resulting from Seller Indemnification Events.
6.3. Assertion of Claims.
No claim, demand, suit or cause of action shall be brought under Section
6.2 unless the Indemnified Persons, or any of them, give the Indemnifying Person
written notice of the existence of any such claim, demand, suit or cause of
action, stating with particularity the nature and basis of said claim, and the
amount thereof, to the extent known, and providing to the extent reasonably
available all written documentation relating
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thereto. Such written notice shall be delivered to the Indemnifying Person as
soon as practicable upon receipt of actual knowledge of such claim, demand, suit
or cause of action; provided, however, that the failure to provide such written
notice shall not affect the Indemnified Persons' right to indemnification
hereunder if failure to provide such written notice does not materially
adversely affect the Indemnifying Person. Upon the giving of such written notice
as aforesaid, the Indemnified Persons, or any of them, shall have the right to
commence legal proceedings subsequent to the applicable survival date, if any,
for the enforcement of their rights under Section 6.2.
6.4. Notice and Defense of Third Party Claims.
(a) In the event any action, suit or proceeding is brought by a third
party against an Indemnified Person, with respect to which an Indemnifying
Person may have liability under Section 6.2, the action, suit or proceeding
shall, upon the written agreement of the Indemnifying Person that it is
obligated with respect to such action, suit or proceeding, be defended
(including all proceedings on appeal or for review which counsel for the
defendant shall deem appropriate) and, unless otherwise provided below,
controlled by such Indemnifying Person. The Indemnified Persons shall have
the right to employ its or their own counsel in any such case, but the fees
and expenses of such counsel shall be at the expense of such Indemnified
Persons, unless (i) the employment of such counsel shall have been
authorized in writing by the Indemnifying Person in connection with the
defense of such action, suit or proceeding, (ii) the Indemnifying Person
shall fail actively and diligently to defend such action, suit or
proceeding, (iii) the Indemnified Persons shall have reasonably concluded
that such action, suit or proceeding involves to a significant extent
matters beyond the scope of the indemnity agreement contained in Section
6.2 or (iv) the Indemnified Persons shall have reasonably concluded that
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there may be one or more legal or equitable defenses available to the
Indemnified Persons which are different from or additional to those
available to the Indemnifying Person, in any of which events the
Indemnifying Person shall not have the right to direct the defense of such
action, suit or proceeding on behalf of the Indemnified Persons and that
portion of any fees and expenses of counsel related to matters covered by
the indemnity agreement and contained in Section 6.2 shall be borne by the
Indemnifying Person. The Indemnified Persons shall be kept fully informed
of such action, suit or proceeding at all stages thereof whether or not
they are so represented. The Indemnifying Person shall make available to
the Indemnified Persons and their attorneys and accountants all books and
records of the Indemnifying Person relating to such action, suit or
proceeding and the parties hereto agree to render to each other such
assistance as they may reasonably require of each other in order to ensure
the proper and adequate defense of any such action, suit or proceeding.
(b) The Indemnifying Person shall not make any settlement of any
action, suit or proceeding without the written consent of the Indemnified
Persons, which consent shall not be unreasonably withheld; provided,
however, that in the event the Indemnified Persons refuse to consent to a
settlement acceptable to the Indemnifying Person which is capable of
settlement by the payment of money only and the Indemnifying Persons shall
demonstrate to the reasonable satisfaction of the Indemnified Persons their
ability to pay such amount, the Indemnifying Person may pay the amount of
the proposed settlement to the Indemnified Persons and shall thereupon be
released from any further liability with respect to such action, suit or
proceeding.
6.5. Survival of Representations, Warranties and Covenants.
The representations and warranties of the Seller contained in Section 3.1
and the representations and warranties of the Buyer contained in Section 3.2
shall survive the Closing
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and shall terminate forty-five (45) days following the second anniversary of the
Signature Date; provided, however, that the representations and warranties of
the Seller set forth in Sections 3.1(a), 3.1(b), 3.1(c) and 3.1(e), and the
representations and warranties of the Buyer set forth in Sections 3.2(a) and
3.2(b), shall survive the Closing and remain in full force and effect until the
expiration of the statute of limitations, if any, applicable to the matters set
forth therein (and indefinitely, if none).
ARTICLE VII
AMENDMENT, MODIFICATION AND WAIVER
This Agreement shall not be altered or otherwise amended except pursuant to
an instrument in writing signed by each of the parties. The waiver by one party
of the performance of any covenant, condition or promise shall not invalidate
this Agreement, nor shall it be considered as a waiver by such party of any
other covenant, condition or promise. The delay in pursuing any remedy or in
insisting upon full performance for any breach or failure of any covenant,
condition or promise shall not prevent a party from later pursuing any remedies
or insisting upon full performance for the same or any similar breach or
failure.
ARTICLE VIII
MISCELLANEOUS
8.1. Transfer Taxes, Etc.
The Seller shall pay all sales, use and excise taxes and all registration,
recording or transfer taxes which may be
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payable in connection with the transactions contemplated by this Agreement.
8.2. Entire Agreement.
This Agreement (including the recitals hereof and the Schedules and the
Exhibits attached hereto), together with the Related Agreements referenced
herein, contains the entire agreement between the parties hereto with respect to
the transactions contemplated hereby and supersedes all prior agreements,
representations, warranties and understandings, either oral or written, between
the parties with respect thereto.
8.3. Descriptive Headings.
Descriptive headings are for convenience only and shall not control or
affect the meaning or construction of any provisions of this Agreement.
8.4. Notices.
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally or sent by
telecopier, nationally-recognized overnight courier, or certified mail, postage
prepaid, return receipt requested, addressed as follows:
(a) if to the Buyer, to:
BMJ Medical Management, Inc.
4800 North Federal Highway, Suite 104D
Boca Raton, Florida 33431
Attention: President
Telecopier: (561) 391-1389;
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Jeffrey S. Held, Esq.
Telecopier: (212) 408-2420; and
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(b) if to the Seller, to:
Valley Sports & Arthritis Surgeons, P.C.
1230 South Cedar Crest Boulevard
Suite 101
Allentown, Pennsylvania 18103
Attention: David Sussman, M.D.
Telecopier: (610) 820-0359;
with a copy to:
Hourigan, Kluger & Quinn
700 Mellon Bank Center
8 West Market Street
Wilkes-Barre, Pennsylvania 18701
Attention: Terrence J. Herron, Esq.
Telecopier: (717) 829-3460;
or to such other address as the party to whom notice is to be given may have
furnished to each other party in writing in accordance herewith. Any such
communication shall be deemed to have been given (i) when delivered if
personally delivered or sent by telecopier, (ii) on the Business Day after
dispatch if sent by nationally-recognized, overnight courier and (iii) on the
fifth Business Day after dispatch, if sent by mail. As used herein, "Business
Day" means a day that is not a Saturday, Sunday or a day on which banking
institutions in the Commonwealth of Pennsylvania are not required to be open.
8.5. Counterparts.
This Agreement may be executed in any number of counterparts, and each such
counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
8.6. Bulk Sales Compliance.
The Buyer hereby waives compliance by the Seller with the provisions of the
"bulk sales laws" of any state which may be applicable to the transactions
contemplated hereby; provided, however, that the Seller shall indemnify the
Buyer in connection
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with such noncompliance to the extent provided in Article 6 hereof.
8.7. Governing Law.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the Commonwealth of Pennsylvania without giving
effect to the laws and principles thereof, or of any other jurisdiction, which
would direct the application of the laws of another jurisdiction.
8.8. Attorneys' Fees.
In the event of any dispute or controversy arising out of or relating to
this Agreement, the prevailing party shall be entitled to recover from the other
party all costs and expenses, including attorneys' fees and accountants' fees,
incurred in connection with such dispute or controversy.
8.9. Benefits of Agreement.
The terms and provisions of this Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and permitted
assigns. Anything contained herein to the contrary notwithstanding, this
Agreement shall not be assignable by any party without the consent of the other
party hereto, and any purported assignment without such consent shall be null
and void.
8.10. Pronouns.
As used herein, all pronouns shall include the masculine, feminine, neuter,
singular and plural thereof whenever the context and facts require such
construction.
* * * *
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IN WITNESS WHEREOF, each of the parties hereto has caused this Asset
Purchase Agreement to be executed on its behalf effective as of the day and year
first above written.
BMJ MEDICAL MANAGEMENT, INC.
By:____________________________
Name:
Title:
VALLEY SPORTS & ARTHRITIS SURGEONS, P.C.
By:______________________________
Name:
Title:
<PAGE>
RESTRICTED STOCK AGREEMENT
THIS RESTRICTED STOCK AGREEMENT (the "Agreement") is entered into as of
October 3, 1997, between BMJ MEDICAL MANAGEMENT, INC., a Delaware corporation
(the "Company"), and the individuals identified on the signature page hereto
(each, a "Stockholder" and collectively, the "Stockholders"). Certain
capitalized terms used herein are defined in Section 5 below.
This Agreement is entered into in connection with and concurrently with
that certain Stock Purchase Agreement dated as of the date hereof (the "Stock
Purchase Agreement") among the Company, the Subsidiary and the Stockholders,
pursuant to which the Company acquired all of the issued and outstanding capital
stock of the Subsidiary from the Stockholders in exchange for shares of common
stock, $.001 par value (the "Common Stock"), of the Company. The issuance of
such shares of the Company's Common Stock to each Stockholder is subject to,
among other things, the execution and delivery by such Stockholder of this
Restricted Stock Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and in the Stock Purchase Agreement and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, and intending to
be legally bound hereby, the Company and each Stockholder (for himself or
herself only) hereby agree as follows:
1. Purchase and Sale of Restricted Shares; Representations and Warranties
of Stockholder.
(a) Upon execution of this Agreement, the Company shall, pursuant to
Section 1.2 of the Stock Purchase Agreement, issue to each Stockholder that
number of shares (such shares are referred to herein as the "Restricted
Shares") of Common Stock set forth opposite such Stockholder's name on
Schedule A attached hereto. The aggregate shares of Common Stock issued to
the Stockholders are referred to collectively herein as "Restricted Stock."
Simultaneously with the execution and delivery hereof, the Company is
delivering to each Stockholder the certificate(s) representing the
Restricted Shares.
(b) In connection with the issuance of the Restricted Shares
hereunder, each Stockholder represents and warrants to the Company that:
(i) the Restricted Shares to be issued to such Stockholder
pursuant to this Agreement shall be acquired for such Stockholder's
own account, for investment only and not with a view to, or intention
of, distribution thereof in violation of the 1933 Act, or any
applicable state securities laws, and the Restricted Shares will not
be
<PAGE>
disposed of in contravention of the 1933 Act or any applicable state
securities laws;
(ii) such Stockholder has generally such knowledge and experience
in business and financial matters and with respect to investments in
securities of privately held companies so as to enable such
Stockholder to understand and evaluate the risks and benefits of his
or her investment in the Restricted Shares;
(iii) such Stockholder has no need for liquidity in his or her
investment in the Restricted Shares and is able to bear the economic
risk of his or her investment in the Restricted Shares for an
indefinite period of time and understands that the Restricted Shares
have not been registered or qualified under the 1933 Act or any
applicable state securities laws, by reason of the issuance of the
Restricted Shares in a transaction exempt from the registration and
qualification requirements of the 1933 Act or such state securities
laws and, therefore, cannot be sold unless subsequently registered or
qualified under the 1933 Act or such state securities laws or an
exemption from such registration or qualification is available;
(iv) such Stockholder understands that the exemption from
registration afforded by Rule 144 (the provisions of which are known
to such Stockholder) promulgated under the 1933 Act, depends on
satisfaction of various conditions and that, if applicable, Rule 144
may only afford the basis for sales under certain circumstances and
only in limited amounts;
(v) such Stockholder is an individual (A) whose individual net
worth, or joint net worth with his or her spouse, presently exceeds
$1,000,000 or (B) who had an income in excess of $200,000 in each of
the two most recent years, or joint income with his or her spouse in
excess of $300,000 in each of those years (in each case including
foreign income, tax exempt income and the full amount of capital gains
and losses but excluding any income of other family members and any
unrealized capital appreciation) and has a reasonable expectation of
reaching the same income level in the current year; or such
Stockholder otherwise meets the requirements to be considered an
accredited investor, as defined under the 1933 Act; and
(vi) such Stockholder has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of
the Restricted Shares and has had full access to or been provided with
such other information concerning the Company as he or she has
requested.
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<PAGE>
(c) This Agreement constitutes the legal, valid and binding obligation
of each Stockholder, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by each such
Stockholder does not and will not conflict with, violate or cause a breach
of any agreement, contract or instrument to which such Stockholder is a
party or any judgment, order or decree to which such Stockholder is
subject.
(d) As an inducement to the Company to issue the Restricted Shares to
each Stockholder and as a condition thereto, each Stockholder acknowledges
and agrees that:
(i) neither the issuance of the Restricted Shares to such
Stockholder nor any provision contained herein shall affect the right
of the Subsidiary to terminate the Management Services Agreement in
accordance with its terms; and
(ii) the Company shall only be obligated to provide to such
Stockholder substantially the same information regarding the Company
that the Company regularly discloses to its other shareholders.
2. Vesting of the Restricted Shares.
(a) Except as otherwise provided in Section 2(b) below, the Restricted
Shares held by each Stockholder shall become vested in accordance with the
following schedule, if, as of each such date, (i) the Management Services
Agreement has not been terminated, (ii) there has not been a Cessation of
Active Practice by such Stockholder (as defined in Section 2(c) below),
(iii) such Stockholder has not become permanently disabled (as described in
Section 3(a)(iii) below), and (iv) such Stockholder has not died:
Anniversary Date Percentage of
of this Agreement Restricted Shares Vested
----------------- ------------------------
First 25%
Second 25%
Third 25%
Fourth 25%
For purposes of this Agreement, "Anniversary Date of this Agreement" means
September 1 of each year after 1997. Restricted Shares which have become
vested are referred to herein as "Vested Shares" and all other Restricted
Shares are referred to herein as "Unvested Shares."
(b) Notwithstanding the foregoing, in the event of the death of such
Stockholder, in addition to any shares that
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have vested in accordance with Section 2(a) above, the number of Unvested
Shares, if any, that would have become Vested Shares during the 12-month
period immediately following the date of death had such death not occurred
shall be deemed Vested Shares as of the date of death.
(c) For purposes of this Agreement, "Cessation of Active Practice"
means a physician Stockholder's resignation from or termination of
employment with the Medical Group (other than by reason of death or
permanent disability).
3. Forfeiture and Repurchase of Restricted Shares.
(a) Forfeiture. In the event of the Cessation of Active Practice by or
the death or permanent disability of a Stockholder (the "Forfeiture
Event"), the following provisions shall apply.
(i) Such Stockholder or the estate (in the case of death) of such
Stockholder shall transfer to the Medical Group, all of the Unvested
Shares held by such Stockholder. Such Unvested Shares shall be
transferred for no consideration and the stock certificate(s)
representing those shares shall be delivered to the Company, no later
than thirty (30) days after the Forfeiture Event, duly endorsed for
transfer in accordance with this Section 3(a). The Company shall,
within thirty (30) days after its receipt of a joinder to this
Agreement executed by the Medical Group, issue and deliver to the
Medical Group a certificate representing the Unvested Shares. Such
Unvested Shares shall continue to vest according to the vesting
schedule set forth in Section 2(a) above.
(ii) The Medical Group shall not Sell (as hereinafter defined)
any Unvested Shares to any Person, other than to one or more physician
employees or equity owners of the Medical Group, who prior to the
receipt of such shares from the Medical Group had not acquired any
shares of the Company's Common Stock pursuant to the Stock Purchase
Agreement. As a condition to any such Sale, the transferee shall
execute and deliver to the Company a Restricted Stock Agreement in
substantially the form of this Agreement, effective as of the date of
transfer of such shares. The Unvested Shares distributed according to
this Section 3(a) shall be subject to a vesting schedule identical to
the schedule set forth in Section 2(a) hereof.
(iii) For purposes of this Agreement, if such Stockholder is
insured under a disability insurance policy, the determination under
such policy as to whether such Stockholder's condition constitutes a
permanent disability shall be binding on the parties hereto. If such
Stockholder is not insured under a policy of disability insurance,
such
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determination shall be made by an independent qualified physician
proposed by the Medical Group, subject to the approval of the Company,
which approval shall not be unreasonably withheld.
(iv) Notwithstanding anything to the contrary contained in
Section 2(a) or this Section 3(a), if such Stockholder has (A)
attained 55 years of age, (B) elected to retire from the practice of
medicine on or after September 1, 2000, and (C) given the Company at
least one year's written notice of such retirement, then such
Stockholder's retirement shall not be deemed a Cessation of Active
Practice and such Stockholder's Restricted Shares shall continue to
vest according to the vesting schedule in Section 2(a) and such
Stockholder shall not be required to transfer any of the Unvested
Shares to the Medical Group.
(b) Repurchase. In the event that the Management Services Agreement is
terminated for any reason prior to the fourth anniversary of the
Commencement Date (as defined therein) (the "Repurchase Event"), the
Company shall have the right (but not the obligation) (the "Repurchase
Option"), to be exercised in its sole discretion, to repurchase all or any
portion of the Restricted Shares (whether vested or unvested and whether
held by the Stockholders or one or more of any Stockholder's Permitted
Transferees) pursuant to the terms and conditions set forth in this Section
3(b).
(i) The Company may elect to exercise the Repurchase Option and
repurchase all or any portion of the Restricted Shares by delivering
written notice (the "Repurchase Notice") to each Stockholder within
ninety (90) days after the Repurchase Event; provided, however, that,
if the Company elects to repurchase less than all of the Restricted
Shares, the Company shall first repurchase Unvested Shares and then
repurchase that number of Vested Shares, if any, as the Company may,
in its sole discretion, elect. The Repurchase Notice shall set forth
the number of Unvested Shares and Vested Shares to be repurchased, the
aggregate consideration to be paid for such shares, and the time and
place for the closing of the transaction. The purchase price payable
for each Unvested Share shall equal $.01 and the purchase price
payable for each Vested Share shall equal the Original Value of such
share. If the Company decides to repurchase Restricted Shares from any
Stockholder pursuant to this Section 3(b), then the Company must
purchase that number of Restricted Shares which it has elected to
repurchase from all of the Stockholders pro rata according to the
number of shares of Restricted Stock held by all of the Stockholders
at the time of delivery of such Repurchase Notice (determined as
nearly as practicable to the nearest whole share).
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(ii) The closing of the repurchase of Restricted Shares pursuant
to the Repurchase Option shall take place on the date designated by
the Company in the Repurchase Notice, which date shall not be more
than sixty (60) days nor less than five (5) days after the delivery of
the Repurchase Notice. The Company shall pay for Restricted Shares to
be purchased pursuant to the Repurchase Option by delivery of (A) a
check or wire transfer of funds, (B) subordinated note or notes
payable in up to five equal annual installments beginning on the first
anniversary of the closing of such purchase and bearing interest
(payable quarterly) at a rate per annum equal to the greater of either
the prime rate announced from time to time by The Chase Manhattan Bank
(National Association) plus 1/2% or the "applicable Federal rate" (as
defined in Section 1274(d) of the Internal Revenue Code) in effect
from time to time, or (C) a combination of both (A) and (B), in the
aggregate amount of the repurchase price for such shares; provided,
however, that in the event the Medical Group is obligated to pay to
the Subsidiary any sums in connection with the repurchase of assets by
the Medical Group pursuant to Section 13.5 of the Management Services
Agreement, the total amount of such sums may be offset by the Company
against any amounts owed by the Company to the Stockholders pursuant
to this Agreement (if any such Stockholder is, at such time, an equity
owner of or partner in the Medical Group), such offset amount to be
allocated pro rata among all of the Stockholders who at such time hold
equity of or are partners in the Medical Group. Any notes issued by
the Company pursuant to this paragraph 3(b)(ii) shall be subject to
the restrictive covenants, if any, to which the Company is subject at
the time of such repurchase. The Company shall be entitled to require
the signature of such Stockholder to be guaranteed and to receive
representations and warranties from such Stockholder regarding (x)
such Stockholder's power, authority and legal capacity to enter into
such sale and to transfer valid right, title and interest in such
Restricted Shares, (y) such Stockholder's ownership of such Restricted
Shares and the absence of any liens, pledges, and other encumbrances
on such Restricted Shares and (z) the absence of any violation,
default, or acceleration of any agreement or instrument pursuant to
which such Stockholder or such Stockholder's assets are bound
resulting from such sale.
(iii) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of Restricted Shares by the Company under
this Section 3(b) shall be subject to applicable restrictions, if any,
contained in its certificate of incorporation, any financing agreement
to which the Company is a party, Federal law or the Delaware General
Corporation Law. If any such restrictions prohibit or otherwise delay
the repurchase of Restricted Shares
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hereunder which the Company is otherwise entitled or required to make,
the Company may make such repurchases as soon as it is permitted to do
so.
(iv) In the event that any Restricted Shares are repurchased
pursuant to this Section 3(b), such Stockholder and his or her
successors and assigns shall, at the Company's expense, take all
reasonable steps to obtain all required third-party, governmental and
regulatory consents and approvals and take all other reasonable
actions necessary to facilitate consummation of such repurchase in a
timely manner.
4. Transfer Restriction; Legend.
Except as otherwise expressly provided in Section 3 and except for
Permitted Transfers, no Stockholder may sell or transfer or agree to sell or
transfer ("Sale" or "Sell") any Restricted Shares unless such Sale shall be in
accordance with the procedures set forth in this Section 4; provided, however,
that with respect to this Section 4, Restricted Shares, at any point in time,
shall be limited to Vested Shares and at no time shall any Stockholder have the
right to Sell Unvested Shares (other than pursuant to Section 3 above):
(a) In the event that a Stockholder receives a bona fide offer from a
third party (the "Prospective Stockholder") to purchase all or any part of
the Restricted Shares owned by such Stockholder, such Stockholder shall
deliver to the Company a written notice (the "Offer Notice"), which shall
be irrevocable for a period of fifteen (15) business days after delivery
thereof (the "Offer Period"), offering (the "Offer") all of the Restricted
Shares proposed to be Sold by such Stockholder to the Prospective
Stockholder at the purchase price and on the terms of the proposed Sale to
the Prospective Stockholder (such Offer Notice shall include the foregoing
information, a copy of the Prospective Stockholder's bona fide offer and
all other relevant terms of the proposed Sale, including the identification
of the Prospective Stockholder). The Company shall have the right and
option, for a period of fifteen (15) business days after delivery of the
Offer Notice, to repurchase all or any part of the Restricted Shares so
offered at the purchase price and on the terms stated in the Offer Notice.
Such acceptance shall be made by delivering a written notice to such
Stockholder within said fifteen (15) business-day period.
(b) Sales of Restricted Shares under the terms of Section 4(a) above
shall be made on a mutually satisfactory business day within fifteen (15)
business days after the expiration of the Offer Period. Delivery of
certificates or other instruments evidencing such Restricted Shares duly
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<PAGE>
endorsed for transfer shall be made on such date against payment of the
purchase price therefor.
(c) If the Company fails to purchase all of the Restricted Shares
offered for Sale pursuant to the Offer Notice, then at any time within
sixty (60) business days after the expiration of the Offer Period such
Stockholder may Sell all or any part of the remaining Restricted Shares so
offered for Sale on terms no more favorable to the Prospective Stockholder
than the terms stated in the Offer Notice; provided, however, that such
Stockholder shall not, under any circumstances, Sell any Restricted Shares
to the Prospective Stockholder if the Board of Directors of the Company, in
its sole discretion, determines in good faith that the Prospective
Stockholder is a competitor, or an Affiliate of a competitor, of the
Company or that such Prospective Stockholder's ownership of such Restricted
Shares would be contrary to the best interests of the Company. In the event
that all of such Restricted Shares are not Sold by such Stockholder to the
Prospective Stockholder during such period, the right of such Stockholder
to Sell such Restricted Shares to the Prospective Stockholder shall expire
and the obligations of such Stockholder pursuant to this Section 4 shall be
reinstated.
(d) Any Permitted Transferee (other than the Company) shall, as a
condition to such transfer, (i) agree to be bound by all of the provisions
of this Agreement applicable to such Stockholder and shall evidence such
agreement by executing and delivering to the Company a joinder to this
Agreement in form and substance satisfactory to the Company, and (ii) if
such transferee is a partner in or an equity owner or employee of the
Medical Group, execute a noncompetition agreement in form and substance
satisfactory to the Company (if such transferee is not, as of the date of
such transfer, a party to such an agreement with the Company).
(e) The certificate(s) representing the Restricted Shares will bear
the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES OR "BLUE-SKY" LAWS. THESE SECURITIES MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT OR LAWS. ADDITIONALLY, THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN REPURCHASE OPTIONS, TRANSFER RESTRICTIONS AND CERTAIN
OTHER AGREEMENTS SET FORTH IN A RESTRICTED STOCK AGREEMENT
DATED AS OF OCTOBER 3, 1997, BETWEEN THE STOCKHOLDER AND BMJ
MEDICAL MANAGEMENT, INC. A COPY OF SUCH AGREEMENT MAY BE
OBTAINED BY THE
-8-
<PAGE>
HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS
WITHOUT CHARGE."
(f) The restrictions on transfers of Vested Shares set forth in this
Section 4 shall expire, and shall be of no further force or effect, upon
the consummation of the initial public offering of the Company's Common
Stock pursuant to the 1933 Act.
5. Definitions.
(a) "Affiliate" means, with respect to any Person, (a) any director,
officer, 10% stockholder or partner of such Person and (b) any other Person
that, directly or indirectly, through one or more intermediaries, controls,
or is controlled by, or is under common control with, such Person. The term
"control" includes, without limitation, the possession, directly or
indirectly, of the power to direct the management and policies of a Person,
whether through the ownership of voting securities, by contract or
otherwise.
(b) "Internal Revenue Code" means the Internal Revenue Code of 1986,
as the same may be amended or supplemented from time to time, or any
successor statute, and the rules and regulations thereunder, as the same
are from time to time in effect.
(c) "Management Services Agreement" means the Management Services
Agreement effective as of September 1, 1997, between the Subsidiary and the
Medical Group.
(d) "Medical Group" means Valley Sports & Arthritis Surgeons, P.C.
(e) "Original Value" of each share of Restricted Stock purchased
hereunder will be equal to $2.25 (as proportionately adjusted for all
subsequent stock splits, stock dividends and other recapitalizations).
(f) "Person" shall be construed broadly and shall include, without
limitation, an individual, a partnership, an investment fund, a limited
liability corporation or partnership, a corporation, an association, a
joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or
political subdivision thereof.
(g) "Permitted Transferee" means, as to the Stockholder, any
transferee who acquires the Restricted Shares pursuant to a Permitted
Transfer or any other transfer made in accordance with the provisions of
this Agreement.
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<PAGE>
(h) "Permitted Transfer" means, as to any Stockholder, any sale or
transfer of Vested Shares to (A) the spouse or lineal descendants of such
Stockholder or (B) a trust for the benefit of any of the foregoing.
(i) "Public Sale" means any sale of Restricted Stock to the public
pursuant to an offering registered under the 1933 Act or to the public
through a broker, dealer or market maker pursuant to the provisions of Rule
144 adopted under the 1933 Act.
(j) "Restricted Shares" has the meaning set forth in Section 1(a). The
Restricted Shares will continue to be Restricted Shares in the hands of any
holder (other than the Company and any transferees in a Public Sale), and
except as otherwise provided herein, each such other holder of the
Restricted Shares will succeed to all rights and obligations attributable
to a Stockholder as the holder of the Restricted Shares hereunder. The
Restricted Shares will also include shares of the Company's capital stock
issued with respect to the Restricted Stock by way of a stock split, stock
dividend or other recapitalization.
(k) "Subsidiary" means Valley Sports Surgeons, Inc., a Pennsylvania
business corporation which, upon consummation of the transactions
contemplated by the Stock Purchase Agreement, became a wholly owned
subsidiary of the Company.
(l) "1933 Act" means the Securities Act of 1933, as the same may be
amended or supplemented from time to time, or any successor statute, and
the rules and regulations thereunder, as the same are from time to time in
effect.
6. Indemnification.
(a) The Company shall indemnify, defend and hold harmless each
Stockholder against all liability, loss or damage sustained by such
Stockholder, together with all reasonable costs and expenses related
thereto (including reasonable legal fees and expenses), relating to or
arising from the untruth, inaccuracy or breach of any of the
representations, warranties or agreements of the Company contained in this
Agreement.
(b) Each Stockholder shall indemnify and hold harmless the Company
against all liability, loss or damage, together with all reasonable costs
and expenses related thereto (including reasonable legal fees and
expenses), relating to or arising from the untruth, inaccuracy or breach of
any of the representations, warranties or agreements of such Stockholder
contained in this Agreement.
-10-
<PAGE>
7. General Provisions.
(a) Transfers in Violation of Agreement. Any sale, transfer,
assignment or other disposition (whether with or without consideration and
whether voluntarily or involuntarily or by operation of law) (each, a
"Transfer") or attempted Transfer of any Restricted Shares in violation of
any provision of this Agreement shall be void, and the Company shall not
record such Transfer on its books or treat any purported transferee of such
Restricted Shares as the owner of such stock for any purpose.
(b) Severability. It is the desire and intent of the parties hereto
that the provisions of this Agreement be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction
in which enforcement is sought. Accordingly, if any particular provision of
this Agreement shall be adjudicated by a court of competent jurisdiction to
be invalid, prohibited or unenforceable for any reason, such provision, as
to such jurisdiction, shall be ineffective, without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction. Notwithstanding
the foregoing, if such provision could be more narrowly drawn so as not to
be invalid, prohibited or unenforceable in such jurisdiction, it shall, as
to such jurisdiction, be so narrowly drawn, without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
(c) Entire Agreement. This Agreement, those documents expressly
referred to herein and other documents of even date herewith embody the
complete agreement and understanding among the parties hereto with respect
to the subject matter hereof and supersede and preempt any prior
understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any
way.
(d) Relationship Among Stockholders. No Stockholder shall have any
responsibility for any breach of this Agreement by any other Stockholder or
for any representations, warranties, acts or omissions of any other
Stockholder. Each Stockholder is entering into this Agreement for and on
behalf of such Stockholder only, and no partnership, joint venture,
unincorporated association or any other legal entity is intended to be
formed by or among the Stockholders as a result of or in connection with
this Agreement. The parties have chosen to execute a single instrument for
convenience only, and this Agreement shall be construed as separate and
several agreements among the Medical Group, the Company and each of the
respective
-11-
<PAGE>
Stockholders for all purposes. This Agreement may be executed in separate
counterparts.
(e) Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which
taken together constitute one and the same agreement.
(f) Successors and Assigns. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by each
Stockholder, the Company and their respective successors, permitted
assigns, heirs, representatives and estate, as the case may be (including
subsequent holders of Restricted Stock); provided, however, that the rights
and obligations of any Stockholder under this Agreement shall not be
assignable except in connection with a Permitted Transfer of Restricted
Shares hereunder.
(g) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without giving effect
to any choice of law or conflicting provision or rule (whether of the State
of Delaware or any other jurisdiction), that would cause the laws of any
jurisdiction other than the State of Delaware to be applied. In furtherance
of the foregoing, the internal law of the State of Delaware will control
the interpretation and construction of this agreement, even if under such
jurisdiction's choice of law or conflict of law analysis, the substantive
law of some other jurisdiction would ordinarily apply.
(h) Remedies. Each of the parties to this Agreement shall be entitled
to enforce its rights under this Agreement specifically to recover damages
and costs (including reasonable attorneys' fees) for any breach of any
provision of this Agreement and to exercise all other rights existing in
its favor. The parties hereto agree and acknowledge that money damages may
not be an adequate remedy for the Company in the event of a breach of the
provisions of this Agreement by any Stockholder and that the Company may,
in its sole discretion, apply to any court of law or equity of competent
jurisdiction for specific performance and/or other injunctive relief
(without posting any bond or deposit) in order to enforce or prevent any
violations of the provisions of this Agreement.
(i) Amendment and Waiver. The provisions of this Agreement may be
amended and waived only with the prior written consent of the Company and
the Stockholders and no course of conduct or failure or delay in enforcing
the provisions of this Agreement shall be construed as a waiver of such
provisions or affect the validity, binding effect or enforceability of this
Agreement or any provision hereof; provided, however, that the Company may,
without any Stockholder's consent, amend Schedule A hereto upon
consummation of a Permitted Transfer of Restricted
-12-
<PAGE>
Shares hereunder by any Shareholder to reflect the then current ownership
of the Restricted Stock.
(j) Notices. Any notice provided for in this Agreement must be in
writing and must be either personally delivered, transmitted via
telecopier, mailed by first class mail (postage prepaid and return receipt
requested) or sent by nationally-recognized overnight courier service
(charges prepaid) to the recipient at the address below indicated or at
such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
Notices will be deemed to have been given hereunder and received when
delivered personally, when received if transmitted via telecopier, three
business days after deposit in the U.S. mail and one business day after
deposit with a nationally-recognized overnight courier service.
(i) If to the Company, to:
BMJ Medical Management, Inc.
4800 North Federal Highway, Suite 104D
Boca Raton, Florida 33431
Attention: Naresh Nagpal, M.D., President
Telephone: (561) 391-1311
Telecopier: (561) 391-1389;
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza, 41st Floor
New York, New York 10112
Attention: Jeffrey S. Held, Esq.
Telephone: (212) 408-2417
Telecopier: (212) 408-2420; and
(ii) If to any Stockholder, to his or her address set forth on the
signature page hereto beneath his or her name;
with a copy to:
Valley Sports & Arthritis Surgeons, P.C.
1230 South Cedar Crest Boulevard, Suite 101
Allentown, Pennsylvania 18103-6231
Attention: David Sussman, M.D.
Telephone: (610) 820-5200
Telecopier: (610) 820-0359.
(k) Business Days. If any time period for giving notice or taking
action hereunder expires on a day which is a Saturday, Sunday or holiday in
the State of Florida, the time period for giving notice or taking action
shall be automatically
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<PAGE>
extended to the business day immediately following such Saturday, Sunday or
holiday.
(l) Attorneys' Fees. In the event of any dispute or controversy
arising out of or relating to this Agreement, the prevailing party shall be
entitled to recover from the other party all costs and expenses, including
attorneys' fees and accountants' fees, incurred in connection with such
dispute or controversy.
(m) Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
(n) Construction. Where specific language is used to clarify by
example a general statement contained herein, such specific language shall
not be deemed to modify, limit or restrict in any manner the construction
of the general statement to which it relates. The language used in this
Agreement shall be deemed to be the language chosen by the parties to
express their mutual intent, and no rule of strict construction shall be
applied against any party.
(o) Nouns and Pronouns. Whenever the context may require, any pronouns
used herein shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns and pronouns shall include the plural
and vice-versa.
* * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Restricted Stock
Agreement as of the date first written above.
COMPANY
BMJ MEDICAL MANAGEMENT, INC.
By: /s/ Naresh Nagpal, M.D.
-------------------------------
Naresh Nagpal, M.D.
President and Chief Executive
Officer
STOCKHOLDERS
/s/ George Arangio, M.D.
-----------------------------
George Arangio, M.D.
Address for notices:
327 N. Marshall Street
Allentown, Pennsylvania 18104
/s/ Thomas DiBenedetto, M.D.
-----------------------------
Thomas DiBenedetto, M.D.
Address for notices:
5534 Heather Lane
Orefield, Pennsylvania 18069
/s/ Neal Stansbury, M.D.
-----------------------------
Neal Stansbury, M.D.
Address for notices:
2867 Apple Valley Estates
Orefield, Pennsylvania 18069
<PAGE>
/s/ David Sussman, M.D.
-----------------------------
David Sussman, M.D.
Address for notices:
214 N. 31st Street
Allentown, Pennsylvania 18104
/s/ Prodromos Ververeli, M.D.
-----------------------------
Prodromos Ververeli, M.D.
Address for notices:
3660 Briarwood Lane
Allentown, Pennsylvania 18103
MEDICAL GROUP
ACCEPTED AND AGREED AS TO PARAGRAPH 3
VALLEY SPORTS & ARTHRITIS
SURGEONS, P.C.
By:________________________________
Name:
Title:
<PAGE>
SCHEDULE A
Stockholders
Number of
Name Restricted Shares
---- -----------------
George Arangio, M.D. 100,650
Thomas DiBenedetto, M.D. 100,650
Neal Stansbury, M.D. 100,650
David Sussman, M.D. 100,650
Prodromos Ververeli, M.D. 100,650
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<PAGE>
STOCKHOLDER NON-COMPETITION AGREEMENT
THIS STOCKHOLDER NON-COMPETITION AGREEMENT (the "Agreement") is entered
into as of October 3, 1997, among VALLEY SPORTS SURGEONS, INC., a Pennsylvania
corporation (the "Management Company"), VALLEY SPORTS & ARTHRITIS SURGEONS,
P.C., a Pennsylvania professional corporation (the "Medical Group"), each of the
individuals identified on the signature page hereof (each, a "Stockholder" and
collectively, the "Stockholders"), and BMJ MEDICAL MANAGEMENT, INC., a Delaware
corporation ("BMJ"), with reference to the following facts:
A. The Medical Group is engaged in the business of providing
orthopedic medical and surgical services and related medical and ancillary
services (the "Medical Services") to the general public.
B. Each Stockholder is a partner in or an equity owner or employee of
the Medical Group.
C. BMJ and the Management Company are engaged in the business of
providing management, administrative, financial, marketing, information
technology and related services to professional medical organizations.
D. The Medical Group and the Management Company have entered into a
Management Services Agreement effective as of September 1, 1997 (the
"Management Services Agreement"), under which the Medical Group has agreed
to cause the Stockholders to covenant not to compete against the Management
Company.
E. Pursuant to the Stock Purchase Agreement dated as of the date
hereof (the "Stock Purchase Agreement") among BMJ and the Stockholders,
pursuant to which each Stockholder is receiving shares of BMJ capital stock
in exchange for shares of capital stock of the Management Company, each
Stockholder agreed to enter into a noncompetition agreement with BMJ and
the Management Company.
NOW, THEREFORE, in consideration of and as an inducement to BMJ's entering
into the Stock Purchase Agreement and the other agreements related thereto, and
in consideration of such Stockholder's status as (i) a partner in or equity
owner or employee of the Medical Group and (ii) a selling stockholder of the
Management Company, each Stockholder (for himself or herself only) hereby agrees
for the benefit of the Medical Group, the Management Company and BMJ as follows:
<PAGE>
1. Definition.
For all purposes of this Agreement, "Competitive Business" shall mean any
business that provides (i) orthopedic medical and surgical services and related
medical and ancillary services to the general public, or (ii) administrative,
billing, collection, financial, marketing, information technology and
operational services to professional medical groups relating to such groups'
provision of the professional medical and related services described in clause
(i), or (iii) any other services provided by BMJ or the Management Company.
2. Agreement Not to Compete or Interfere with Business.
(a) Each Stockholder acknowledges that (i) he or she is receiving
benefits from the acquisition of securities from BMJ pursuant to the Stock
Purchase Agreement, (ii) as the sole stockholder of the Management Company,
BMJ intends to benefit from the Management Services Agreement, (iii) the
Medical Group and its affiliates conduct their business primarily in Lehigh
County, Pennsylvania, and (iv) due to the highly competitive nature of the
Medical Group's, the Management Company's and BMJ's businesses, the value
and goodwill of their respective businesses would be substantially impaired
if such Stockholder engaged in a Competitive Business. Accordingly, each
Stockholder hereby agrees that, during the period commencing on the date
hereof and ending two years after the earliest to occur of (x) the
expiration of the Management Services Agreement, (y) the termination of the
Management Services Agreement by the Management Company pursuant to Section
12.2 thereof, or (z) the effective date of such Stockholder's resignation
or termination of equity owner status or employment with the Medical Group,
he or she will not:
(A) engage, directly or indirectly, in any Competitive Business
at any location within twenty-five (25) miles of any Medical Group
office (the "Restricted Territory"), whether such engagement shall be
as an employee, officer, director, owner, partner, advisor,
consultant, stockholder or other participant in any Competitive
Business (or in any similar capacity in which the Stockholder derives
an economic benefit from a Competitive Business);
(B) assist others in engaging in any Competitive Business within
the Restricted Territory in the manner described in the foregoing
clause (A);
(C) solicit, entice or induce any employee or stockholder of, or
any partner in, the Medical Group, BMJ, the Management Company, or any
affiliate or subsidiary of the Medical Group, the Management Company
or
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<PAGE>
BMJ to terminate his or her employment or partnership or stockholder
status with such entity or to engage in any Competitive Business
within the Restricted Territory;
(D) solicit, entice or induce any vendor, customer or distributor
of the Medical Group, the Management Company, BMJ, or any affiliate or
subsidiary of the Medical Group, the Management Company, or BMJ to
terminate or materially diminish its relationship with the Medical
Group, the Management Company, BMJ, or any affiliate or subsidiary of
the Medical Group, the Management Company, or BMJ; or
(E) otherwise knowingly damage, disparage or interfere with the
Medical Group, BMJ, the Management Company or any affiliate or
subsidiary of the Medical Group, the Management Company, or BMJ;
provided, however, that nothing contained in this Agreement shall prohibit
the Stockholder from owning in the aggregate less than one percent (1.0%)
of a class of publicly-traded securities issued by any Competitive
Business.
(b) BMJ, the Management Company and the Medical Group acknowledge and
agree that such Stockholder shall have no further obligation pursuant to
this Agreement in the event that (i) the Medical Group terminates or
rescinds the Management Services Agreement pursuant to Section 12.1 or
Section 13 thereof, respectively, or (ii) either party to the Management
Services Agreement terminates such agreement pursuant to Section 12.3
thereof.
3. Confidentiality.
(a) Each Stockholder acknowledges and agrees that certain information
he or she has received or will receive from the Medical Group and its
Affiliates or from BMJ or the Management Company and their respective
Affiliates constitutes the confidential and proprietary trade secrets of
the Medical Group, the Management Company or BMJ, as the case may be, and
that such Stockholder's non-disclosure thereof is essential to this
Agreement and a condition to such Stockholder's use and possession thereof.
Each Stockholder shall retain in strict confidence any and all such
confidential information received from the Medical Group and/or any of its
Affiliates (the "Medical Group Confidential Information") or from BMJ or
the Management Company and/or any of their respective Affiliates (the "BMJ
Confidential Information" and, together with the Medical Group Confidential
Information, the "Confidential Information") and under no circumstances
shall such Stockholder distribute or in any way disseminate Confidential
Information, directly or indirectly, to any third party or use Confidential
Information for such Stockholder's personal benefit without the
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<PAGE>
prior written consent of the Medical Group (in the case of Medical Group
Confidential Information) or without the prior written consent of BMJ (in
the case of BMJ Confidential Information).
(b) Notwithstanding the above, no Stockholder shall have any liability
to the Medical Group or its Affiliates or to BMJ, the Management Company or
their respective Affiliates with respect to Confidential Information which:
(i) was generally known and available in the public domain at the
time it was disclosed or becomes generally known and available in the
public domain through no fault of such Stockholder;
(ii) is disclosed with the prior written consent of the Medical
Group or BMJ, as the case may be;
(iii) becomes known to such Stockholder from a source other than
the Medical Group or its Affiliates or BMJ, the Management Company or
their respective Affiliates without breach of this Agreement by such
Stockholder, without breach of any agreement between the Medical
Group, the Management Company or BMJ, as the case may be, and such
source, and otherwise not in violation of the Medical Group's or its
Affiliates' rights or the rights of the Management Company, BMJ or
their respective Affiliates; or
(iv) is disclosed pursuant to the order or requirement of a
court, administrative agency, or other governmental body; provided,
however, that such Stockholder shall provide prompt, advance notice
thereof to enable the Medical Group or its affiliate or BMJ, the
Management Company or their respective Affiliates to seek a protective
order or otherwise prevent such disclosure.
(c) Each Stockholder agrees to indemnify the Medical Group or its
Affiliates and BMJ, the Management Company or their respective Affiliates
for any damages the same may suffer as a result of such Stockholder's or
his or her agents' failure to abide by the provisions of this Section 3.
4. Acknowledgment.
Each Stockholder acknowledges that the provisions of this Agreement are not
designed to prevent such Stockholder from earning a living or fostering his or
her own career. The provisions of this Agreement are designed to prevent any
third party from gaining unfair advantage from a Stockholder's knowledge of
confidential and proprietary information relating to the Medical Group, the
Management Company or BMJ or otherwise damaging or interfering with the business
of the Medical Group, the Management Company or BMJ or from a Stockholder's
-4-
<PAGE>
participation in any Competitive Business. Each Stockholder further acknowledges
receiving sufficient consideration under the Stock Purchase Agreement to
compensate him or her for any losses he or she may suffer or incur as a result
of losing any employment or other professional opportunity as a result of
entering into and fulfilling his or her obligations under this Agreement.
5. Survival; Remedies.
Each Stockholder's covenants under this Agreement shall survive termination
of his or her equity owner status or employment with the Medical Group. Each
Stockholder acknowledges that a breach or threatened breach by such Stockholder
of this Agreement will cause irreparable damage and material loss to BMJ, the
Management Company and the Medical Group and that a remedy at law for any breach
or threatened breach of the provisions of this Agreement would be inadequate and
therefore agrees that each of the Medical Group, the Management Company and BMJ
shall be entitled to injunctive relief; provided, however, that nothing
contained herein shall be construed as prohibiting the Medical Group, the
Management Company or BMJ from pursuing any other remedies available for any
such breach or threatened breach.
6. Benefits of Agreement.
This Agreement and the rights and obligations of the parties hereto shall
bind and inure to the benefit of any successors of the Medical Group and
successors of BMJ or the Management Company by reorganization, merger or
consolidation or otherwise and any assignee of all or substantially all of the
business and properties of the Medical Group, the Management Company or BMJ.
7. Severability.
It is the desire and intent of the parties hereto that the provisions of
this Agreement shall be enforced to the fullest extent permissible under the
laws and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, if any particular provision of this Agreement shall be
adjudicated to be invalid or unenforceable, such provision shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such deletion to apply only with respect to the operation of such
provision in the particular jurisdiction in which such adjudication is made. In
addition, if any one or more of the provisions contained in this Agreement shall
for any reason be held to be excessively broad as to duration, geographical
scope, activity or subject, it shall be construed by limiting and reducing it,
so as to be enforceable to the extent compatible with the applicable law as it
shall then appear.
-5-
<PAGE>
8. Notices.
All notices or other communications required or permitted hereunder shall
be in writing and sufficient if (a) delivered personally, (b) sent by
nationally-recognized overnight courier or (c) sent by certified mail, postage
prepaid, return receipt requested, addressed as follows:
(i) If to the Medical Group, to:
Valley Sports & Arthritis Surgeons, P.C.
1230 South Cedar Crest Boulevard
Suite 101
Allentown, Pennsylvania 18103
Attention: David Sussman, M.D.
Telecopier: (610) 820-0359;
(ii) If to the Management Company, to:
Valley Sports Surgeons, Inc.
1230 South Cedar Crest Boulevard
Suite 101
Allentown, Pennsylvania 18103
Attention: President
Telecopier: (610) 820-0359;
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Jeffrey S. Held, Esq.
Telecopier: (212) 408-2420;
(iii) If to any Stockholder, to his or her address set forth on
the signature page hereto beneath his or her name; and
(iv) If to BMJ, to:
BMJ Medical Management, Inc.
4800 North Federal Highway
Suite 104D
Boca Raton, Florida 33431
Attention: Naresh Nagpal, M.D.
President
Telecopier: (561) 391-1389;
-6-
<PAGE>
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Jeffrey S. Held, Esq.
Telecopier: (212) 408-2420;
or, in each case, to such other address as the party to whom notice is to be
given may have furnished to the other party in writing in accordance herewith.
Any such communication shall be deemed to have been given (a) when delivered, if
personally delivered, (b) on the business day after dispatch, if sent by
nationally-recognized overnight courier and (c) on the third business day after
dispatch, if sent by mail.
9. Relationship Among Stockholders.
No Stockholder shall have any responsibility for any breach of this
Agreement by any other Stockholder or for any representations, warranties, acts
or omissions of any other Stockholder. Each Stockholder is entering into this
Agreement for and on behalf of such Stockholder only, and no partnership, joint
venture, unincorporated association or any other legal entity is intended to be
formed by or among the Stockholders as a result of or in connection with this
Agreement. The parties have chosen to execute a single instrument for
convenience only, and this Agreement shall be construed as separate and several
agreements among the Medical Group, the Management Company, BMJ and each of the
respective Stockholders for all purposes. This Agreement may be executed in
separate counterparts.
10. Entire Agreement; Amendments; Prior Agreements.
This Agreement, the Management Services Agreement and the Stock Purchase
Agreement and the other agreements referred to herein and therein constitute the
entire agreement between the parties with respect to the subject matter hereof
and may not be amended, supplemented, canceled or discharged except by a written
instrument executed by the parties hereto. This Agreement supersedes any and all
prior agreements among all of the parties hereto with respect to the matters
covered hereby.
11. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Pennsylvania without regard to the laws and
principles thereof or of any other jurisdiction which would direct the
application of the laws of another jurisdiction.
-7-
<PAGE>
12. Attorneys' Fees.
In the event of any dispute or controversy arising out of or relating to
this Agreement, the prevailing party shall be entitled to recover from the
losing party all costs and expenses, including attorneys' fees and accountants'
fees, incurred in connection with such dispute or controversy.
13. Headings.
The headings of the sections of this Agreement have been inserted for
convenience of reference only and shall not be deemed to be part of this
Agreement.
* * * *
-8-
<PAGE>
IN WITNESS WHEREOF, this Stockholder Non-Competition Agreement has been
executed and delivered as of the date first above written.
VALLEY SPORTS & ARTHRITIS
SURGEONS, P.C.
By:
--------------------------
Name:
Title:
BMJ MEDICAL MANAGEMENT, INC.
By: /s/ Naresh Nagpal, M.D.
--------------------------
Naresh Nagpal, M.D.
President and
Chief Executive Officer
VALLEY SPORTS SURGEONS, INC.
By: /s/ David E. Ellwanger
--------------------------
David E. Ellwanger
Secretary
STOCKHOLDERS:
/s/ George Arangio, M.D.
------------------------------
George Arangio, M.D.
Address for notices:
327 N. Marshall Street
Allentown, Pennsylvania 18104
/s/ Thomas DiBenedetto, M.D.
-----------------------------
Thomas DiBenedetto, M.D.
Address for notices:
5534 Heather Lane
Orefield, Pennsylvania 18069
<PAGE>
/s/ Neal Stansbury, M.D.
-----------------------------
Neal Stansbury, M.D.
Address for notices:
2867 Apple Valley Estates
Orefield, Pennsylvania 18069
/s/ David Sussman, M.D.
-----------------------------
David Sussman, M.D.
Address for notices:
214 N. 31st Street
Allentown, Pennsylvania 18104
/s/ Prodromos Ververeli, M.D.
-----------------------------
Prodromos Ververeli, M.D.
Address for notices:
3660 Briarwood Lane
Allentown, Pennsylvania 18103
Address for notices:
<PAGE>
===============================================================================
STOCK PURCHASE AGREEMENT
dated as of October 3, 1997
among
BMJ MEDICAL MANAGEMENT, INC.,
THE STOCKHOLDERS LISTED ON EXHIBIT A
and
VALLEY SPORTS SURGEONS, INC.
================================================================================
<PAGE>
STOCK PURCHASE AGREEMENT
TABLE OF CONTENTS
Page
----
ARTICLE I PURCHASE AND SALE OF SHARES.................. 1
1.1. Transfer of Shares........................... 1
1.2. Purchase Price; Exchange of Capital Stock.... 2
1.3. Delivery of Shares........................... 2
ARTICLE II THE CLOSING.................................. 2
ARTICLE III REPRESENTATIONS AND WARRANTIES............... 2
3.1. Representations and Warranties of the Company
and the Stockholders......................... 2
(a) Organization, Good Standing, Qualification
and Power.................................... 3
(b) Equity Investments........................... 3
(c) Authority.................................... 3
(d) Capital Structure of the Company............. 4
(e) Financial Information........................ 4
(f) Absence of Undisclosed Liabilities........... 4
(g) Absence of Changes........................... 5
(h) Tax Matters.................................. 7
(i) Litigation, Etc.............................. 8
(j) Compliance with Laws......................... 8
(k) Accounts Receivable; Accounts Payable........ 8
(l) Labor Relations; Employees................... 9
(m) Employee Benefit Plans....................... 9
(n) Insurance.................................... 10
(o) Real Property................................ 10
(p) Agreements, No Defaults, Etc................. 10
(q) Brokers...................................... 12
(r) Burdensome Restrictions...................... 12
(s) Disclosure................................... 12
3.2. Representations and Warranties of the
Stockholders................................. 12
(a) Authority, Enforceability, No Violation,
Etc.......................................... 12
(b) Record Ownership............................. 13
(c) FIRPTA Affidavit............................. 13
(d) Brokers...................................... 13
3.3. Representations and Warranties of the Buyer.. 14
(a) Authority, Enforceability, No Violation,
Etc.......................................... 14
(b) Organization, Good Standing and Power........ 14
(c) Capitalization............................... 14
(d) Financial Information........................ 15
(e) Absence of Undisclosed Liabilities........... 15
(f) Absence of Changes........................... 15
(g) Litigation, Etc.............................. 16
(h) Compliance; Governmental Authorizations...... 17
<PAGE>
Page
----
(i) Employees.................................... 17
(j) Insurance.................................... 17
(k) Burdensome Restrictions...................... 17
(l) Disclosure................................... 17
(m) Brokers...................................... 17
ARTICLE IV CONDITIONS OF CLOSING........................ 18
4.1. Conditions to Obligation of the Buyer........ 18
(a) Authorization................................ 18
(b) Performance of Obligations................... 18
(c) Representations and Warranties............... 18
(d) No Litigation or Legislation................. 18
(e) Consents..................................... 18
(f) Stockholder Certificates..................... 18
(g) Amendment of Articles........................ 19
(h) Absence of Changes........................... 19
(i) Restricted Stock Agreement................... 19
(j) Stockholder Non-Competition Agreement........ 19
(k) Opinion of Counsel to the Company............ 19
(l) Due Diligence................................ 19
(m) Company Liabilities.......................... 19
4.2. Conditions to Obligation of the Stockholders. 19
(a) Authorization................................ 19
(b) Performance of Obligations of the Buyer...... 20
(c) Amendment of Management Services Agreement... 20
(d) Restricted Stock Agreement................... 20
ARTICLE V INDEMNIFICATION.............................. 20
5.1. Definitions.................................. 20
5.2. Indemnification by the Stockholders.......... 21
5.3. Indemnification by Buyer..................... 23
5.4. Notice and Defense of Third Party Claims..... 23
5.5. Remedies Cumulative; Right of Set-Off........ 25
5.6. Survival of Representations and Warranties,
Etc.......................................... 25
ARTICLE VI MISCELLANEOUS................................ 26
6.1. Expenses..................................... 26
6.2. Purchase Price Adjustment.................... 26
6.3. Entire Agreement; Amendment.................. 26
6.4. Severability................................. 26
6.5. Descriptive Headings; Number and Gender...... 27
6.6. Public Announcements......................... 27
6.7. Notices...................................... 27
6.8. Counterparts................................. 28
6.9. Governing Law................................ 28
6.10. Benefits of Agreement........................ 28
<PAGE>
EXHIBITS
EXHIBIT A - Restricted Stock Agreement
EXHIBIT B - Stockholder Non-Competitor Agreement
EXHIBIT C - Opinion of Counsel to the Company and the
Stockholders
EXHIBIT D - Amendment to Management Services Agreement
SCHEDULES
I - Stockholders; Record Ownership; Share Exchange
II - Company Liabilities
3.1(a) - Other Business
3.1(e) - Company Financial Statements
3.1(f) - Company Undisclosed Liabilities
3.1(g) - Company Changes
3.1(h) - Tax Matters
3.1(i) - Company Litigation
3.1(k) - Accounts Receivable; Accounts Payable
3.1(l) - Company Employees
3.1(m) - Employee Benefit Plans
3.1(n) - Insurance
3.1(o) - Real Property
3.1(p) - Company Restrictions
3.1(q) - Disclosure
3.2(a) - Stockholder Consents
3.3(a) - Buyer Consents
3.3(d) - Buyer Financial Statements
3.3(e) - Buyer Undisclosed Liabilities
3.3(f) - Buyer Changes
3.3(g) - Buyer Litigation
3.3(i) - Buyer Employees
3.3(k) - Buyer Restrictions
<PAGE>
DEFINITIONS
The following capitalized terms, which may be used in more than one Section
or other location of this Agreement, are defined in the following Sections or
other locations:
Additional Purchase Price..................................................6.2
Affiliate..............................................................5.1.(a)
Buyer.................................................................Preamble
Buyer Balance Sheet.....................................................3.3(d)
Buyer Balance Sheet Date...............................................3.3.(d)
Buyer Common Stock.........................................................1.2
Buyer Group............................................................5.1.(h)
Buyer Unaudited Financial Statements....................................3.3(d)
Closing............................................................ Article II
Closing Date........................................................Article II
Company...............................................................Preamble
Company Balance Sheet..................................................3.1.(e)
Company Balance Sheet Date.............................................3.1.(e)
Company Common Stock..................................................Preamble
Company Unaudited Financial Statements.................................3.1.(e)
Contract................................................................3.1(p)
Determination Date.........................................................6.2
Employee benefit plan...............................................3.1.(m)(i)
Employee Plans......................................................3.1.(m)(i)
Employees..............................................................3.1.(l)
Encumbrances...........................................................1.1.(a)
ERISA...............................................................3.1.(m)(i)
Formation Documents....................................................3.1.(a)
GAAP...................................................................3.1.(e)
Indemnified Persons....................................................5.1.(d)
Indemnifying Persons...................................................5.1.(e)
Key Employee.......................................................3.1.(g)(xi)
Losses.................................................................5.1.(f)
Management Business...................................................Preamble
Management Services Agreement ........................................Preamble
Medical Group.........................................................Preamble
Per Share Deficiency Amount................................................6.2
Person.................................................................5.1.(g)
Purchase Price.............................................................1.2
Real Property..........................................................3.1.(o)
Returns.............................................................3.1.(h)(i)
Set-Off Cap................................................................5.5
Shares................................................................Preamble
Stockholder...........................................................Preamble
Stockholders..........................................................Preamble
Stockholder Group......................................................5.1.(i)
Subject Business......................................................Preamble
Survival Date..............................................................5.6
Tax................................................................3.1.(h)(iv)
Taxes..............................................................3.1.(h)(iv)
Transaction Documents..................................................3.1.(a)
Transferee.........................................................3.1.(h)(iv)
<PAGE>
STOCK PURCHASE AGREEMENT
dated as of October 3, 1997, among
BONE, MUSCLE AND JOINT, INC., a
Delaware corporation (the "Buyer"),
the STOCKHOLDERS listed on Schedule
I hereto and executing a
counterpart signature page hereto
(each, a "Stockholder" and
collectively, the "Stockholders"),
and VALLEY SPORTS SURGEONS, INC., a
Pennsylvania corporation (the
"Company").
The Company is a physician practice management company (the "Subject
Business") operating in the Commonwealth of Pennsylvania which was formed by the
Stockholders to manage the non-medical aspects of the medical practice conducted
by the Stockholders through Valley Sports & Arthritis Surgeons, a Pennsylvania
professional corporation (the "Medical Group"). In connection therewith,
effective September 1, 1997, the Company entered into a Management Services
Agreement with the Medical Group (the "Management Services Agreement"), pursuant
to which the Company provides non-medical management services to the Medical
Group in return for a management fee.
The Buyer is also a physician practice management company (the "Management
Business"), which is seeking to expand its market in Lehigh County,
Pennsylvania. Accordingly, the Buyer desires to purchase from the Stockholders,
and the Stockholders desire to sell to the Buyer, all of the issued and
outstanding shares (collectively, the "Shares") of common stock, $.01 par value
(the "Company Common Stock"), of the Company, on the terms and subject to the
conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants, representations and conditions hereinafter set forth, and intending
to be legally bound hereby, the parties hereto hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
1.1. Transfer of Shares. (a) On the terms and subject to the conditions of
this Agreement, at the Closing, each Stockholder shall sell, transfer, convey
and assign to the Buyer, and the Buyer shall purchase and acquire from such
Stockholder, all of the Shares owned by such Stockholder, the number of which is
set forth on Schedule I attached hereto opposite the name of such Stockholder,
free and clear of all Encumbrances. As used herein, the term "Encumbrances"
shall mean and include security interests, mortgages, liens, pledges, charges,
easements, reservations, restrictions, clouds, equities, rights of way,
<PAGE>
options, rights of first refusal and all other encumbrances, whether or not
relating to the extension of credit or the borrowing of money.
1.2. Purchase Price; Exchange of Capital Stock. In exchange for the Shares
of Company Common Stock being purchased by the Buyer, the Buyer shall, upon the
execution and delivery of a Restricted Stock Agreement by each Stockholder,
issue and deliver to the Stockholders certificates representing an aggregate of
503,250 shares (the "Purchase Price") of common stock, $.001 par value (the
"Buyer Common Stock"), of the Buyer, or 1,667.50 shares of Buyer Common Stock
per share of Company Common Stock. The stock certificates shall be registered in
the names of the respective Stockholders evidencing that number of shares to
which each such Stockholder is entitled, which number is set forth opposite the
name of such Stockholder on Schedule I attached hereto.
1.3. Delivery of Shares. At the Closing, in consideration of the Buyer's
delivery of the Purchase Price, (a) each Stockholder shall deliver to the
Company a certificate or certificates representing the Shares owned by such
Stockholder as set forth on Schedule I, duly endorsed in blank for transfer or
accompanied by undated stock powers duly executed in blank, sufficient in form
and substance to convey to the Buyer good title to all of the Shares, free and
clear of all Encumbrances and (b) the Company shall deliver to the Buyer a
certificate registered in the name of the Buyer, representing all of the Shares.
ARTICLE II
THE CLOSING
The closing (the "Closing") of the transactions contemplated by this
Agreement shall take place on the date hereof (the "Closing Date") at the
offices of O'Sullivan Graev & Karabell, LLP, 30 Rockefeller Plaza, 41st Floor,
New York, New York 10112, simultaneously with the execution and delivery of this
Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of the Company and the Stockholders.
The Company and the Stockholders hereby jointly and severally represent and
warrant to the Buyer as follows:
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<PAGE>
(a) Organization, Good Standing, Qualification and Power. The Company
is a business corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania and has all
requisite power and authority to own, lease and operate its properties and
to carry on its business as now being conducted and as proposed to be
conducted, to enter into this Agreement and the other agreements
contemplated hereby (collectively, the "Transaction Documents"), and to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. Except as set forth on
Schedule 3.1(a), the Company has never engaged in any business other than
the Subject Business. The Company has delivered to the Buyer true and
correct copies of its articles of incorporation and bylaws (collectively,
the "Formation Documents"), each as in effect on the date hereof.
(b) Equity Investments. The Company currently has no subsidiaries, nor
does the Company currently own, any capital stock or other proprietary
interest, directly or indirectly, in any Person.
(c) Authority. The execution, delivery and performance of this
Agreement and the Transaction Documents and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary action on the part of the Company. This
Agreement and the Transaction Documents have been duly and validly executed
and delivered by the Company and constitute the legal, valid and binding
obligations of the Company enforceable in accordance with their respective
terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the rights
of creditors generally. Neither the execution, delivery or performance of
this Agreement or any Transaction Document by the Company nor the
consummation by the Company of the transactions contemplated hereby or
thereby, nor compliance by the Company with any provision hereof or thereof
will (i) conflict with or result in a breach of any provision of the
Formation Documents of the Company, (ii) cause a default (with due notice,
lapse of time or both), or give rise to any right of termination,
cancellation or acceleration, under any of the terms, conditions or
provisions of any note, bond, lease, mortgage, indenture, license or other
instrument, obligation or agreement to which the Company is a party or by
which any of their respective properties or assets may be bound (with
respect to which defaults or other rights all requisite waivers or consents
shall have been obtained at or prior to the date hereof) or (iii) violate
any law, statute, rule or regulation or order, writ, judgment, injunction
or decree of any court, administrative agency or governmental body
applicable to the Company, the Subject Business or any of the Company's
properties or assets. No permit, authorization, consent or approval of or
by, or any notification of or filing with, any person (governmental or
private) is required in connection with the execution, delivery
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<PAGE>
or performance by the Company of this Agreement or the Transaction
Documents or the consummation of the transactions contemplated hereby or
thereby.
(d) Capital Structure of the Company. The authorized capital stock of
the Company consists of 300 shares of Common Stock, all of which shares
have been issued and are outstanding. The Shares are duly authorized,
validly issued and outstanding, fully paid and nonassessable, with no
personal liability attaching to the ownership thereof, and constitute all
of the issued and outstanding shares of capital stock of the Company. All
of the Shares were issued in compliance with all applicable Federal and
state securities laws, rules and regulations. No shares of capital stock
are held by the Company in its treasury. Except for the Shares, there are
no shares of capital stock or other securities of the Company issued and
outstanding, no options, warrants, rights (including, without limitation,
stock appreciation rights and/or preemptive rights), calls, agreements,
convertible securities or other commitments or rights to purchase or
acquire any unissued or treasury stock or other securities of the Company,
and no other securities of the Company are reserved for issuance for any
purpose. There are no contracts, commitments, agreements, understandings,
arrangements or restrictions of any nature to which any Stockholder or the
Company is a party or by which any Stockholder or the Company is bound or
subject relating to any shares of capital stock or other securities of the
Company, whether or not outstanding.
(e) Financial Information. Schedule 3.1(e) contains (i) the unaudited
statements of assets, liabilities and stockholders' equity of the Company
at August 31, 1997 (the "Company Balance Sheet"; and the date thereof being
referred to as the "Company Balance Sheet Date"), and the related unaudited
statements of revenue and expenses for the periods then ended (including
the notes thereto and other financial information included therein)
(collectively, the "Company Unaudited Financial Statements"), and (ii) the
compiled financial statements of the Subject Medical Business for the
periods ended December 31, 1996, December 31, 1995, and December 31, 1994
(the "Company Review Financial Statements"). The Company Unaudited
Financial Statements and the Company Review Financial Statements (i) are
true, complete and correct, (ii) were prepared in accordance with generally
accepted accounting principles ("GAAP") consistently applied, (iii) were
prepared in accordance with the books and records of the Company and (iv)
fairly present the financial position of the Company and the Subject
Business as of the dates thereof.
(f) Absence of Undisclosed Liabilities. Except as set forth on
Schedule 3.1(f), as of the Company Balance Sheet Date, (i) neither the
Company nor the Subject Business had any material liability of any nature
(matured or unmatured, fixed or contingent, known or unknown) which was not
provided for or
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<PAGE>
disclosed on the Company Balance Sheet, (ii) all liability reserves
established by the Company on the Company Balance Sheet were adequate and
(iii) there were no loss contingencies (as such term is used in Statement
of Financial Accounting Standards No. 5 issued by the Financial Accounting
Standards Board in March 1975) which were not adequately provided for or
disclosed on the Company Balance Sheet.
(g) Absence of Changes. Except as set forth on Schedule 3.1(g), since
the Company Balance Sheet Date, the Company and the Subject Business have
been operated in the ordinary course and consistent with past practice and
there has not been:
(i) any material adverse change in the condition (financial or
otherwise), assets (including, without limitation, levels of working
capital and the components thereof), liabilities, operations, results
of operations, earnings, business or prospects of the Company or the
Subject Business;
(ii) any damage, destruction or loss (whether or not covered by
insurance) in an aggregate amount exceeding $25,000 affecting any
asset or property of the Company or the Subject Business;
(iii) any obligation or liability (whether absolute, accrued,
contingent or otherwise and whether due or to become due) created or
incurred, or any transaction, contract or commitment entered into, by
the Company or the Subject Business other than such items created or
incurred in the ordinary course of the Company or the Subject Business
and consistent with past practice;
(iv) any payment, discharge or satisfaction of any claim, lien,
encumbrance, liability or obligation by the Company or the Subject
Business outside the ordinary course of the Company or the Subject
Business (whether absolute, accrued, contingent or otherwise and
whether due or to become due);
(v) any license, sale, transfer, pledge, mortgage or other
disposition of any tangible or intangible asset of the Company or the
Subject Business except in the ordinary course of the Company or the
Subject Business and consistent with past practice;
(vi) any write-off as uncollectible of any accounts receivable in
connection with the Company or the Subject Business or any portion
thereof in excess of $5,000 in the aggregate exclusive of all normal
contractual adjustments from third party payors;
-5-
<PAGE>
(vii) except for all normal contractual adjustments from third
party payors, any account receivable in connection with the Company or
the Subject Business in an amount greater than $10,000 which (A) has
become delinquent in its payment by more than 90 days, (B) has had
asserted against it any claim, refusal to pay or right of set-off, (C)
an account debtor has refused to pay for any reason or with respect to
which the Company or the Subject Business, such account debtor has
become insolvent or bankrupt or (D) has been pledged to any third
party;
(viii) any cancellation of any debts or claims of, or any
amendment, termination or waiver of any rights of material value to,
the Company or the Subject Business;
(ix) any general uniform increase in the compensation of
employees of the Company or the Subject Business (including, without
limitation, any increase pursuant to any bonus, pension,
profit-sharing, deferred compensation arrangement or other plan or
commitment) or any increase in compensation payable to any officer,
employee, consultant or agent thereof, or the entering into of any
employment contract with any officer or employee, or the making of any
loan to, or the engagement in any transaction with, any officer of the
Company or the Subject Business;
(x) any change in the accounting methods or practices followed in
connection with the Company or the Subject Business or any change in
depreciation or amortization policies or rates theretofore adopted;
(xi) any termination of employment of any key employee of the
Company or the Subject Business listed on Annex A (each, a "Key
Employee"), or any expression of intention by any Key Employee of the
Company or the Subject Business to terminate such employment with the
Company or the Subject Business;
(xii) any agreement or commitment relating to the sale of any
material fixed assets of the Company or the Subject Business;
(xiii) any other transaction relating to the Company or the
Subject Business other than in the ordinary course of the Company or
the Subject Business and consistent with past practice; or
(xiv) any agreement or understanding, whether in writing or
otherwise, for the Company or the Subject Business to take any of the
actions specified in items (i) through (xiii) above.
-6-
<PAGE>
(h) Tax Matters. (i) Except as set forth on Schedule 3.1(h), (A)
all Taxes relating to the Company or the Subject Business required to
be paid through the date hereof and all returns, declarations of
estimated Tax, Tax reports, information returns and statements
required to be filed in connection with the Company or the Subject
Business prior to the date hereof (other than those for which
extensions shall have been granted prior to the date hereof) relating
to any Taxes with respect to any income, properties or operations of
the Company or the Subject Business prior to the date hereof
(collectively, "Returns") have been duly filed; (B) as of the time of
filing, the Returns correctly reflected in all material respects (and,
as to any Returns not filed as of the date hereof, will correctly
reflect in all material respects) the facts regarding the income,
business, assets, operations, activities and status of the Company
and/or the Subject Business and any other information required to be
shown therein; (C) all Taxes relating to the operations of the Company
and/or the Subject Business that have been shown as due and payable on
the Returns have been timely paid and filed or adequate provisions
made to the books and records of the Company; (D) in connection with
the Company and the Subject Business (x) the Company has made
provision on the Company Balance Sheet for all Taxes payable for any
periods that end on or before the Company Balance Sheet Date for which
no Returns have yet been filed and for any periods that begin on or
before the Company Balance Sheet Date and end after the Company
Balance Sheet Date to the extent such Taxes are attributable to the
portion of any such period ending on the Company Balance Sheet Date
and (y) provision has been made for all Taxes payable for any periods
that end on or before the date hereof for which no Returns have then
been filed and for any periods that begin on or before the date hereof
and end after such date to the extent such Taxes are attributable to
the portion of any such period ending on such date; (E) no tax liens
have been filed with respect to any of the assets of the Company or
the Subject Business , and there are no pending tax audits of any
Returns relating to the Company or the Subject Business; and (F) no
deficiency or addition to Taxes, interest or penalties for any Taxes
relating to the operation of the Company or the Subject Business has
been proposed, asserted or assessed in writing (or any member of any
affiliated or combined group of which the Company was a member for
which the Company could be liable).
(ii) The Company is not a foreign person within the meaning
of ss.1.1445-2(b) of the Regulations under Section 1445 of the
Code.
(iii) The Company has provided the Buyer with true and
complete copies of all Federal, state and foreign Returns of the
Company for the calendar years ending December 31, 1993, 1994 and
1995.
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<PAGE>
(iv) For purposes of this Agreement, "Tax" means any of the
Taxes and "Taxes" means, with respect to any person or entity,
(A) all Federal, state, local and foreign income taxes (including
any tax on or based upon net income, or gross income, or income
as specially defined, or earnings, or profits, or selected items
of income, earnings or profits) and all Federal, state, local and
foreign gross receipts, sales, use, ad valorem, transfer,
franchise, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property or windfall
profits taxes, alternative or add-on minimum taxes, customs
duties or other Federal, state, local and foreign taxes, fees,
assessments or charges of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional
amounts imposed by any taxing authority (domestic or foreign) on
such person or entity and (B) any liability for the payment of
any amount of the type described in the immediately preceding
clause (A) as a result of being a "transferee" (within the
meaning of Section 6901 of the Code or any other applicable law)
of another person or entity or a member of an affiliated or
combined group.
(i) Litigation, Etc. Except as set forth on Schedule 3.1(i),
there are no (i) actions, suits, claims, investigations or legal or
administrative or arbitration proceedings pending or threatened
against the Company or in connection with the Subject Business,
whether at law or in equity, or before or by any Federal, state,
municipal or other governmental department, commission, board, bureau,
agency or instrumentality or (ii) judgments, decrees, injunctions or
orders of any court, governmental department, commission, agency,
instrumentality or arbitrator against the Company, its assets or
affecting the Subject Business. The Company has delivered to the Buyer
all documents and correspondence relating to matters referred to in
said Schedule 3.1(i).
(j) Compliance with Laws. The Company and the Subject Business
have complied in all material respects with all applicable material
Federal, state, local or foreign laws, ordinances, regulations and
orders.
(k) Accounts Receivable; Accounts Payable. (i) Except as set
forth on Schedule 3.1(k), all of the accounts receivable owing to the
Company in connection with the Subject Business as of the date hereof
constitute valid and enforceable claims arising from bona fide
transactions in the ordinary course of the Subject Business, the
amounts of which are actually due and owing, and as of the date hereof
there are no claims, refusals to pay or other rights of set-off
against any thereof. Except as set forth on Schedule 3.1(k), as of the
date hereof, there is (A) no account debtor or note debtor of the
Subject Business delinquent in its payment by more than 60 days, (B)
no account debtor or note debtor of the Subject Business who or which
has refused to pay its obligations for any reason or is the
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<PAGE>
subject of a bankruptcy proceeding and (C) no account receivable or
note receivable of the Company pledged to any third party.
(ii) All accounts payable and notes payable by the Company
to third parties arose in the ordinary course of business and,
except as set forth in Schedule 3.1(k), there is no account
payable or note payable past due or delinquent in its payment.
(l) Labor Relations; Employees. Schedule 3.1(l) contains a true
and complete list of the persons employed by the Company as of the
date hereof (the "Employees"). Except as set forth on Schedule 3.1(l),
(i) the Company is not delinquent in payments to any of the Employees
for any wages, salaries, commissions, bonuses or other compensation
for any services performed by them to the date hereof or amounts
required to be reimbursed to the Employees; (ii) upon termination of
the employment of any of the Employees, neither the Company, the
Subject Business nor the Buyer will by reason of anything done prior
to the date hereof, or by reason of the consummation of the
transactions contemplated hereby, be liable for any excise taxes
pursuant to Section 4980B of the Code or to any of the Employees for
severance pay or any other payments; (iii) there is no unfair labor
practice complaint against the Company or in connection with the
Subject Business pending before the National Labor Relations Board or
any comparable state, local or foreign agency; (iv) there is no labor
strike, dispute, slowdown or stoppage actually pending or threatened
against or involving the Company; (v) there is no collective
bargaining agreement covering any of the Employees; and (vi) to the
best knowledge of the Stockholders, no Employee or consultant is in
violation of any (A) employment agreement, arrangement or policy
between such person and any previous employer (private or
governmental) or (B) agreement restricting or prohibiting the use of
any information or materials used or being used by such person in
connection with such person's employment by or association with the
Company or the Subject Business.
(m) Employee Benefit Plans. (i) Schedule 3.1(m) identifies each
"employee benefit plan", as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and all
other written or oral plans, programs, policies or agreements
involving direct or indirect compensation (including any employment
agreements entered into between the Company or the Subject Business
and any Employee or former employee of the Company or in connection
with the Subject Business, but excluding workers' compensation,
unemployment compensation and other government-mandated programs)
currently or previously maintained or entered into by the Company or
in connection with the Subject Business for the benefit of any
Employee or former employee of the Company or in connection with the
Subject Business under which the Company or any affiliate thereof has
any present or future obligation or liability (the
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"Employee Plans"). The Company has provided the Buyer with true and
complete age, salary, service and related data for Employees of the
Company and in connection with the Subject Business.
(ii) Schedule 3.1(m) lists each employment, severance or
other similar contract, arrangement or policy and each plan or
arrangement (written or oral) providing for insurance coverage
(including any self-insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation
benefits, retirement benefits, deferred compensation,
profit-sharing, bonuses, stock options, stock appreciation or
other forms of incentive compensation or post-retirement
insurance, compensation or benefits currently maintained by the
Company or in connection with the Subject Business.
(n) Insurance. Schedule 3.1(n) contains a list of all policies of
liability, theft, fidelity, fire, product liability, errors and
omissions, health and other property and casualty forms of insurance
held by the Company covering the assets, properties or operations of
the Company and the Subject Business (specifying the insurer, amount
of coverage, type of insurance, policy number and any pending claims
thereunder). All such policies of insurance are valid and enforceable
policies and are outstanding and duly in force and all premiums with
respect thereto are currently paid. The Company has not, during the
last five fiscal years, been denied or had revoked or rescinded any
policy of insurance relating to the assets, properties or operations
of the Company or the Subject Business.
(o) Real Property. Schedule 3.1(o) sets forth an accurate and
complete legal description of the entire right, title and interest of
the Company in and to all real property, together with all buildings,
facilities, fixtures and improvements located on such real property,
owned or leased by the Company (the "Real Property"), together with an
accurate description of the title insurance policy or other evidence
of title issued with respect thereto, the most current survey of such
real property and a description of the use thereof. Other than the
Real Property, the Company has no other interest (leasehold or
otherwise) in real property used, held for use or intended to be used
in the Subject Business. The Company possesses a valid leasehold
interest in all Real Property leased by the Company.
(p) Agreements, No Defaults, Etc. Except as set forth on Schedule
3.1(p), the Company is not a party to any:
(i) Contract for the employment of any officer, individual
employee or other Person on a full-time, part-time, consulting or
other basis;
(ii) Contract with any Affiliate of the Company;
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(iii) Contract relating to the borrowing of money or to the
mortgaging, pledging or otherwise placing an Encumbrance on any
asset or group of assets of the Company;
(iv) Contract relating to any guarantee of any obligation
for borrowed money or otherwise;
(v) Contract with respect to the lending or investing of
funds;
(vi) Contract or indemnification with respect to any form of
intangible property, including any Intellectual Property Rights
or confidential information;
(vii) Contract or group of related Contracts with the same
party (excluding purchase orders entered into in the ordinary
course of business which are to be completed within three months
of entering into such purchase orders) for the purchase or sale
of products or services under which the undelivered balance of
such products or services has a selling price in excess of
$10,000;
(viii) Contract that prohibits it from freely engaging in
business anywhere in the world;
(ix) other Contract (x) that is not terminable by either
party without penalty upon not more than 30 days' advance notice
and involves aggregate consideration in excess of $20,000 or (y)
that involves aggregate consideration in excess of $25,000
(excluding in the case of clauses (x) and (y) above any purchase
order entered into in the ordinary course of business which is to
be completed within three months of entering into such purchase
orders); or
(x) other Contract material to the Subject Business.
As used herein, "Contract" means any (written or oral) loan or credit
agreement, note, bond, mortgage, indenture, lease, sublease, purchase order
or other agreement, instrument, permit, concession, franchise or license.
Except as set forth in on Schedule 3.1(p), there are no vehicles, boats,
aircraft, apartments or other residential or recreational properties or
facilities owned or operated by the Company for executive, administrative
or sales purposes or any social club memberships owned or paid for by it.
Except as set forth on Schedule 3.1(p), the Company has in all material
respects performed all the obligations required to be performed by it to
date and is not in default or alleged to be in default in any material
respect under any Contract, and there exists no event, condition or
occurrence which, after notice or lapse of time, or both, would constitute
such a default by the Company of any of the foregoing. The
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Company has furnished to the Buyer true and complete copies of all
Contracts listed on Schedule 3.1(p) or complete descriptions of all
material terms of any oral Contracts listed on such schedule.
(q) Brokers. No agent, broker, investment banker, or other Person
acting on behalf of the Company or under the authority of the Company is or
will be entitled to any fee or commission directly or indirectly from the
Buyer (or the Company in the event the transactions contemplated hereby do
not occur) in connection with any of the transactions contemplated hereby.
(r) Burdensome Restrictions. Except as set forth on Schedule 3.1(r),
neither the Company nor the Subject Business is bound by any oral or
written agreement or contract which by its terms prohibits it from
operating the Company or the Subject Business (or any material part
thereof).
(s) Disclosure. Neither the Transaction Documents (including the
Exhibits and Schedules attached thereto) nor any other document,
certificate or written statement furnished to the Buyer by or on behalf of
the Company and the Stockholders in connection with the transactions
contemplated hereby contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained herein and therein not misleading. Except as set forth on
Schedule 3.1(s), there have been no events or transactions, or information
which has come to the attention of the Company or the Stockholders, which,
as they relate directly to the Company or the Subject Business, could
reasonably be expected to have a material adverse effect on the business,
operations, affairs, prospects or condition of the Company or the Subject
Business.
3.2. Representations and Warranties of the Stockholders. Each of the
Stockholders hereby severally represents and warrants to the Buyer as follows:
(a) Authority, Enforceability, No Violation, Etc. Such Stockholder has
the full and absolute power to sell the Shares and enter into this
Agreement and the Transaction Documents to which it is a party as
contemplated hereby, to perform its obligations under this Agreement and
each Transaction Document, and to consummate the transactions contemplated
hereby and thereby. The execution, delivery and performance by such
Stockholder of this Agreement and each Transaction Document to which it is
a party and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by all necessary action
(corporate or otherwise) on the part of such Stockholder. This Agreement
and each Transaction Document to which such Stockholder is a party has been
duly and validly executed and delivered by such Stockholder and is a valid
and binding obligation of such Stockholder,
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enforceable against such Stockholder in accordance with its terms. Neither
the execution, delivery and/or performance by the Stockholder of this
Agreement or any Transaction Document to which it is a party, nor the
consummation of the transactions contemplated hereby or thereby nor
compliance by such Stockholder with any of the provisions hereof or thereof
will (i) conflict with or result in a breach of any provision of the
Company's Formation Documents, (ii) to the best knowledge of such
Stockholder, violate any law, statute, rule or regulation or order, writ,
judgment, injunction or decree of any court, administrative agency or
governmental authority, in each case applicable to such Stockholder, the
Shares or the Company, or (iii) cause a default (with due notice, lapse of
time or both), or give rise to any right of termination, cancellation or
acceleration, under any of the terms, conditions or provisions of any note,
bond, lease, mortgage, indenture, license or other instrument, obligation
or agreement to which such Stockholder, the Company or the Subject Business
is a party or by which they or any of their respective properties or assets
may be bound (with respect to which defaults or other rights all requisite
waivers or consents shall have been obtained at or prior to the date
hereof). Except as set forth on Schedule 3.2(a), no filing with, and no
permit, authorization, consent or approval of, any Person (private or
public) is necessary for the consummation by the Stockholder of the
transactions contemplated by this Agreement and the Transaction Documents.
(b) Record Ownership. Such Stockholder is the lawful owner, of record
and beneficially, of the Shares listed opposite such Stockholder's name on
Schedule I hereto and has good title to such Shares, free and clear of any
and all Encumbrances. Such Stockholder acquired the Shares in one or more
transactions exempt from registration under the Securities Act of 1933, as
amended. Upon the sale by such Stockholder to the Buyer of the Shares at
the Closing in accordance with the terms hereof, the Shares owned by such
Stockholder will be transferred to the Buyer, free and clear of all
Encumbrances.
(c) FIRPTA Affidavit. Such Stockholder is not a foreign person within
the meaning of Section 1445-2(b) of the regulations promulgated under
Section 1445 of the Code and will deliver to the Buyer prior to the Closing
Date a true and accurate certificate so stating which shall comply in all
respects with Section 1445-2(b)(2)(i) of such regulations.
(d) Brokers. No agent, broker, investment banker, or other Person
acting on behalf of such Stockholder or under the authority of such
Stockholder is or will be entitled to any fee or commission directly or
indirectly from the Buyer (or the Company in the event the transactions
contemplated hereby do not occur) in connection with any of the
transactions contemplated hereby.
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3.3. Representations and Warranties of the Buyer. The Buyer hereby
represents and warrants to the Stockholders as follows:
(a) Authority, Enforceability, No Violation, Etc. The Buyer has full
and absolute power and authority to execute and deliver this Agreement and
the Transaction Documents to which it is a party, to perform its
obligations under this Agreement and each such Transaction Document, and to
consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance by the Buyer of this Agreement and each
Transaction Document to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of the Buyer. This
Agreement and each Transaction Document to which the Buyer is a party is a
valid and binding obligation of the Buyer, enforceable against it in
accordance with the terms thereof. Neither the execution, delivery or
performance by the Buyer of this Agreement or any Transaction Document to
which it is a party, nor the consummation by the Buyer of the transactions
contemplated hereby or thereby nor compliance by the Buyer with any of the
provisions hereof or thereof will (i) conflict with or result in a breach
of any provision of the Buyer's certificate of incorporation or bylaws,
(ii) violate any material law, statute, rule or regulation or judgment,
order, writ, injunction or decree of any governmental authority, in each
case applicable to the Buyer or its assets, or (iii) conflict with or
result in a default or breach of any provision of any contract or agreement
to which the Buyer is a party or by which its assets may be bound. Except
as set forth on Schedule 3.3(a), no filing with, and no permit,
authorization, consent or approval of, any Person (private or public) is
necessary for the consummation by the Buyer of the transactions
contemplated by this Agreement and the Transaction Documents.
(b) Organization, Good Standing and Power. The Buyer (i) is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and (ii) has all requisite corporate power
and authority to own, lease and operate its properties, to carry on its
business as now being conducted, to execute and deliver this Agreement and
the Transaction Documents to which it is a party, to perform its
obligations hereunder and thereunder, and to consummate the transactions
contemplated hereby and thereby.
(c) Capitalization. (A) The total authorized capital of the Buyer
consists of 25,000,000 shares of common stock, of which 11,462,459 shares
are issued and outstanding, and 9,233,049 shares of preferred stock, of
which (i) 999,999 shares of Series A Convertible Preferred Stock, (ii)
2,000,001 shares of Series B Convertible Preferred Stock, (iii) 254,999
shares of Series C Convertible Preferred Stock, (iv) 188,072 shares of
Series D Convertible Preferred Stock, and (v) 741,669 shares of
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Series E Convertible Preferred Stock are all issued and outstanding. Each
of the outstanding shares of capital stock has been duly and validly
authorized and issued, is fully paid for and non-assessable, and was issued
in compliance with all applicable Federal and state securities laws.
(B) The Buyer has taken all action necessary or appropriate to
duly authorize the creation, issuance and sale of the common stock to
be issued hereunder. Such shares of common stock, when issued, sold
and delivered, as provided for herein and in the Restricted Stock
Agreements, will be validly issued, fully paid and nonassessable, with
no personal liability attaching to the ownership of the shares. The
issuance of such shares of common stock will not violate any
preemptive or similar right of any person.
(d) Financial Information. Schedule 3.3(d) contains the unaudited
statements of assets, liabilities and stockholders' equity of the
Management Business as of the date set forth therein (the "Buyer Balance
Sheet"; and the date thereof being referred to as the "Buyer Balance Sheet
Date"), and the related unaudited statements of revenue and expenses for
the periods then ended (including the notes thereto and other financial
information included therein) (collectively, the "Buyer Unaudited Financial
Statements"). The Buyer Unaudited Financial Statements (i) were prepared in
accordance with the books and records of the Management Business, and (ii)
fairly present the financial position of the Management Business as of the
dates thereof.
(e) Absence of Undisclosed Liabilities. Except as set forth on
Schedule 3.3(e), as of the Buyer Balance Sheet Date, (i) the Management
Business did not have any material liability of any nature required to be
disclosed on a balance sheet (matured or unmatured, fixed or contingent,
known or unknown) which was not provided for or disclosed on the Buyer
Balance Sheet, (ii) all liability reserves established by the Management
Business on the Buyer Balance Sheet were adequate and (iii) there were no
loss contingencies (as such term is used in Statement of Financial
Accounting Standards No. 5 issued by the Financial Accounting Standards
Board in March 1975) which were not adequately provided for or disclosed on
the Buyer Balance Sheet.
(f) Absence of Changes. Except as set forth on Schedule 3.3(f), since
the Buyer Balance Sheet Date, the Management Business has been operated in
the ordinary course and consistent with past practice and there has not
been:
(i) any material adverse change in the condition (financial or
otherwise), assets, liabilities, operations, results of operations,
earnings, business or prospects of the Management Business;
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(ii) any damage, destruction or loss (whether or not covered by
insurance) in an aggregate amount exceeding $25,000 affecting any
asset or property of the Management Business;
(iii) any obligation or liability (whether absolute, accrued,
contingent or otherwise and whether due or to become due) created or
incurred, or any transaction, contract or commitment entered into, by
the Management Business other than such items created or incurred in
the ordinary course of the Management Business and consistent with
past practice;
(iv) any payment, discharge or satisfaction of any claim, lien,
encumbrance, liability or obligation by the Management Business
outside the ordinary course of the Management Business (whether
absolute, accrued, contingent or otherwise and whether due or to
become due);
(v) any license, sale, transfer, pledge, mortgage or other
disposition of any material tangible or intangible asset of the
Management Business except in the ordinary course of the Management
Business and consistent with past practice;
(vi) any cancellation of any debts or claims of, or any
amendment, termination or waiver of any rights of material value to,
the Management Business;
(vii) any change in the accounting methods or practices followed
in connection with the Management Business or any change in
depreciation or amortization policies or rates theretofore adopted;
(viii) any other transaction relating to the Management Business
other than in the ordinary course of the Management Business and
consistent with past practice; or
(ix) any agreement or understanding, whether in writing or
otherwise, for the Management Business to take any of the actions
specified in items (i) through (viii) above.
(g) Litigation, Etc. Except as set forth on Schedule 3.3(g), there are
no (i) actions, suits, claims, investigations or legal or administrative or
arbitration proceedings pending or, to the best knowledge of the Buyer,
threatened against the Buyer or in connection with the Management Business,
whether at law or in equity, or before or by any Federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, which, if adversely determined, could have a material
adverse effect on the Buyer or (ii) judgments, decrees, injunctions or
orders of any
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court, governmental department, commission, agency, instrumentality or
arbitrator against the Buyer its assets or affecting the Management
Business.
(h) Compliance; Governmental Authorizations. The Buyer and the
Management Business shall have complied in all material respects with all
applicable material Federal, state, local or foreign laws, ordinances,
regulations and orders. The Buyer has all Federal, state, local and foreign
governmental licenses and permits necessary in the conduct of the
Management Business, the lack of which would have a material adverse effect
on the Buyer's ability to operate the Management Business after the date
hereof on substantially the same basis as presently operated, and such
licenses and permits are in full force and effect. To the best knowledge of
the Buyer, none of such licenses and permits shall be affected in any
material respect by the transactions contemplated hereby.
(i) Employees. Except as set forth on Schedule 3.3(i), the Buyer is
not delinquent in payments to any of its employees for any wages, salaries,
commissions, bonuses or other compensation for any services performed by
them through the date hereof.
(j) Insurance. The Buyer has obtained such policies of insurance as
are usual and customary for businesses of the type conducted by the Buyer.
All such policies of insurance are valid and enforceable policies, and all
premiums with respect thereto are currently paid.
(k) Burdensome Restrictions. Except as set forth on Schedule 3.3(k),
neither the Buyer nor the Management Business is bound by any oral or
written agreement or contract which by its terms prohibits it from
conducting the Buyer or the Management Business (or any material part
thereof).
(l) Disclosure. Neither the Buyer Transaction Documents (including the
Exhibits and Schedules attached thereto) nor any other document,
certificate or written statement furnished to the Medical Group by or on
behalf of the Buyer in connection with the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein
and therein not misleading.
(m) Brokers. No agent, broker, investment banker, or other Person
acting on behalf of the Buyer or under the authority of the Buyer is or
will be entitled to any fees a certificate certifying that the
representations reasonably be expected to have a material adverse effect on
the Company.
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ARTICLE IV
CONDITIONS OF CLOSING
4.1. Conditions to Obligation of the Buyer. The obligation of the Buyer to
perform this Agreement is subject to the satisfaction of the following
conditions, unless waived in writing by the Buyer:
(a) Authorization. All corporate or other action necessary to
authorize the execution, delivery and performance of this Agreement and the
Transaction Documents by the Company and the Stockholders and the
consummation of the transactions contemplated by this Agreement and the
Transaction Documents shall have been duly and validly taken by the Company
and the Stockholders, and the Company and the Stockholders shall have full
power and authority to enter into and consummate the transactions
contemplated by this Agreement and the Transaction Documents.
(b) Performance of Obligations. The Company and the Stockholders shall
deliver to the Buyer a certificate certifying that the Company and the
Stockholders have performed and complied in all material respects with all
agreements and obligations and satisfied all conditions required to be
performed, complied with or satisfied by each of them under this Agreement
and the Transaction Documents prior to or at the Closing.
(c) Representations and Warranties. The Stockholders shall deliver to
the Buyer a certificate certifying that the representations and warranties
of the Company and the Stockholders set forth in Section 3.1 and the
representation and warranties of the Stockholders set forth in Section 3.2
of this Agreement shall be true and correct in all material respects as of
the date of this Agreement.
(d) No Litigation or Legislation. There shall not be any statute, rule
or regulation which makes the transactions contemplated by this Agreement
and the Transaction Documents illegal or otherwise prohibited or any
pending or threatened investigation, hearing, order, decree or judgment
enjoining or seeking to enjoin the performance of this Agreement or the
Transaction Documents and the transactions contemplated hereby or thereby.
(e) Consents. The Company and the Stockholders shall have received all
third party consents and approvals required in connection with the
transactions contemplated hereby.
(f) Stockholder Certificates. The Buyer shall have received from each
Stockholder the certificates representing
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the Shares owned by such Stockholder duly endorsed in blank and in proper
form for transfer to the Buyer.
(g) Amendment of Articles. The Company shall have delivered to the
Buyer evidence of the amendment of its articles of incorporation changing
(i) the form of the Company from a Pennsylvania professional corporation to
a Pennsylvania business corporation and (ii) its name, which amendment
shall be satisfactory to the Buyer and its counsel.
(h) Absence of Changes. No fact, condition or event shall have
occurred which has had or could reasonably be expected to have a material
adverse effect on the Company.
(i) Restricted Stock Agreement. Each of the Stockholders shall have
executed and delivered to the Buyer a Restricted Stock Agreement, in
substantially the form of Exhibit A attached hereto.
(j) Stockholder Non-Competition Agreement. Each of the Stockholders
shall have executed and delivered to the Buyer a Stockholder
Non-Competition Agreement, in substantially the form of Exhibit B attached
hereto.
(k) Opinion of Counsel to the Company. The Buyer shall have received
an opinion dated the Closing Date from Hourigan, Kluger & Quinn, counsel to
the Company and the Stockholders, in substantially the form of Exhibit C
hereto.
(l) Due Diligence. The Buyer shall have completed its due diligence
review of (i) the business, assets and liabilities of the Company and (ii)
the Shares being transferred hereunder, and the Buyer and its counsel shall
be satisfied, in their sole discretion, with the results of such due
diligence.
(m) Company Liabilities. The Buyer shall receive evidence satisfactory
to the Buyer that as of the Closing the only liabilities of the Company are
those set forth on Schedule II, and that no other accounts payable or other
liabilities of the Company exist as of the Closing Date.
4.2. Conditions to Obligation of the Stockholders. The obligation of the
Stockholders to perform this Agreement is subject to the satisfaction of the
following conditions, unless waived by the Stockholders:
(a) Authorization. All corporate or other action necessary to
authorize the execution, delivery and performance of this Agreement and the
Transaction Documents by the Buyer and the consummation of the transactions
contemplated by this Agreement and the Transaction Documents shall have
been duly and validly taken by the Buyer and the Buyer shall have full
power and
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authority to enter into and consummate the transactions contemplated by
this Agreement and the Transaction Documents.
(b) Performance of Obligations of the Buyer. The Buyer shall have
performed and complied in all material respects with all agreements and
obligations and satisfied all conditions to be performed, complied with and
satisfied by it under this Agreement and the Transaction Documents prior to
or at the Closing.
(c) Amendment of Management Services Agreement. Immediately following
the closing of the transactions contemplated hereunder, the Buyer shall
cause the Company to enter into an amendment to the Management Services
Agreement, in substantially the form of Exhibit D attached hereto.
(d) Restricted Stock Agreement. The Buyer shall have executed and
delivered to each Stockholder a Restricted Stock Agreement.
ARTICLE V
INDEMNIFICATION
5.1. Definitions. As used in this Article V and elsewhere in this
Agreement, the following terms shall have the following meanings:
(a) "Affiliate" means, with respect to any Person, any other Person,
directly or indirectly, through one or more intermediaries, controlling,
controlled by or under common control with such Person;
(b) "Buyer Group" means and includes the Buyer, its Affiliates, their
respective directors, officers, stockholders, employees, agents and
representatives (including, after the Closing, the Company) and any of
their respective successors and assigns; and
(c) "Indemnified Persons" means the Buyer Group or the Stockholder
Group, as applicable;
(d) "Indemnifying Persons" means the Buyer or the Stockholders, as
applicable;
(e) "Losses" means the amount of any loss, obligation, liability,
damage, cost, expense, claims, actions or causes of action (including
reasonable attorneys' fees and expenses) sustained or suffered by an
Indemnified Person;
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(f) "Person" shall be construed broadly and shall include, without
limitation, an individual, a partnership, an investment fund, a limited
liability corporation or partnership, a corporation, an association, a
joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or
political subdivision thereof;
(g) "Stockholder Group" means and includes each of the Stockholders,
their Affiliates and any of their successors and assigns (excluding the
Buyer).
5.2. Indemnification by the Stockholders. (a) Subject to the limitations
contained herein, each of the Stockholders and their respective heirs, estate
and assigns shall severally indemnify and hold harmless the Buyer Group against
any and all Losses which the Buyer Group (or any member thereof) may suffer,
sustain or become subject to as the result of:
(i) the untruth, inaccuracy or breach of any representation or
warranty of such Stockholder contained in Section 3.2 of this
Agreement or any Transaction Document or in any certificate,
instrument or agreement delivered by such Stockholder pursuant hereto
or thereto or in connection with the transactions contemplated hereby
or thereby; or
(ii) the breach by such Stockholder of any covenant or agreement
to be performed by such Stockholder contained in or made pursuant to
this Agreement or any Transaction Document or in any certificate,
instrument or agreement delivered by such Stockholder pursuant hereto
or thereto or in connection with the transactions contemplated hereby
or thereby; or
(iii) all reasonable fees, costs and expenses (including, without
limitation, reasonable attorneys', accountants' and other professional
fees and expenses), incurred by the Buyer Group in connection with any
action, suit, proceeding, demand, assessment or judgment incident to
any of the matters indemnified against under this Section 5.2(a) or in
connection with the enforcement by the Buyer Group (or any member
thereof) of its rights under this Section 5.2(a).
(b) Subject to the limitations contained herein, the Stockholders and
their respective heirs, estates and assigns shall jointly and severally
indemnify and hold harmless the Buyer Group against any and all Losses
which it (or any member thereof) may suffer, sustain or become subject to
as the result of:
(i) any Taxes imposed on the Company by any Federal, state, local
or foreign authority or taxing
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jurisdiction or any reasonable attorneys', accountants' and other
professional fees and expenses sustained, suffered or incurred by the
Company or the Buyer Group, or any member thereof, relating to periods
on or prior to the Closing Date; or
(ii) the untruth, inaccuracy or breach of any representation or
warranty of the Company and the Stockholders contained in Section 3.1
of this Agreement or any Transaction Document or in any certificate,
instrument or agreement delivered by the Company pursuant hereto or
thereto or in connection with the transactions contemplated hereby or
thereby; or
(iii) any liabilities and obligations of the Company or any
Stockholder for fees, costs and expenses relating to or arising out of
the execution, delivery and performance by the Company and any such
Stockholder of this Agreement and the Transaction Documents and the
consummation of the transactions contemplated hereby or thereby,
including, without limitation, legal and accounting fees and expenses
and taxes incurred by the Company and the Stockholders; or
(iv) the breach of any covenant or agreement of the Company
contained in or made pursuant to this Agreement or any Transaction
Document or in any certificate, instrument or agreement delivered by
the Company pursuant hereto or thereto or in connection with the
transactions contemplated hereby or thereby; or
(v) any liabilities and obligations arising out of any medical
malpractice claims against the Company or any Stockholder initiated or
filed on or before the Closing Date or at any time thereafter whether
or not covered by insurance; or
(vi) [subject to due diligence review]; or
(vii) all reasonable fees, costs and expenses (including, without
limitation, reasonable attorneys', accountants' and other professional
fees and expenses), incurred by the Buyer Group in connection with any
action, suit, proceeding, demand, assessment or judgment incident to
any of the matters indemnified against under this Section 5.2(b) or in
connection with the enforcement by the Buyer Group of its rights under
this Section 5.2(b).
No claim, demand, suit or cause of action shall be brought against the
Stockholders under or pursuant to this Section 5.2 with respect to the
representations and warranties set forth in Sections 3.1 and 3.2 hereof unless
the Buyer Group, or any of its members, at any time prior to the Survival Date
(as hereinafter
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<PAGE>
defined), gives the Stockholders prompt written notice, with reasonable
specificity, of the existence of any such claim, demand, suit or cause of action
under this Agreement or any Transaction Document. Upon the giving of such
written notice as aforesaid, the Buyer Group, or any of its members, shall have
the right to commence legal proceedings for the enforcement of its or their
rights under this Agreement and the Transaction Documents.
5.3. Indemnification by Buyer. Subject to the limitations contained herein,
the Buyer shall indemnify the Stockholder Group against any Losses which the
Stockholder Group may suffer, sustain or become subject to as the result of:
(a) the untruth, inaccuracy or breach of any representation, warranty,
covenant or agreement of the Buyer contained in or made pursuant to this
Agreement or any Transaction Document or in any certificate, instrument or
agreement delivered by the Buyer pursuant hereto or thereto, or in
connection with the transactions contemplated hereby or thereby; and
(b) all reasonable fees, costs and expenses (including, without
limitation, reasonable attorneys', accountants' and other professional fees
and expenses), incurred by the Stockholder Group in connection with any
action, suit, proceeding, demand, assessment or judgment incident to any of
the matters indemnified against under this Section 5.3 or in connection
with the enforcement by the Stockholder Group of its rights under this
Section 5.3.
No claim, demand, suit or cause of action shall be brought against the Buyer
under or pursuant to this Section 5.3 with respect to the representations and
warranties set forth in Sections 3.3 hereof unless the Stockholder Group, or any
of its members, at any time prior to the Survival Date (as hereinafter defined),
gives the Buyer prompt written notice, with reasonable specificity, of the
existence of any such claim, demand, suit or cause of action under this
Agreement or any Transaction Document. Upon the giving of such written notice as
aforesaid, the Stockholder Group, or any of its members, shall have the right to
commence legal proceedings for the enforcement of its or their rights under this
Agreement and the Transaction Documents.
5.4. Notice and Defense of Third Party Claims. The obligations and
liabilities of the Indemnifying Persons under Sections 5.2 and 5.3 with respect
to claims resulting from the assertion of liability by third parties shall be
subject to the following terms and conditions:
(a) The Indemnified Persons shall give written notice to the
Indemnifying Persons of any claim which might give rise to a claim by the
Indemnified Persons against the Indemnifying Persons based on the indemnity
agreement contained in
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<PAGE>
Sections 5.2 or 5.3, stating the nature and basis of such claim and the
amount thereof, to the extent known (including any claim arising out of any
inquiry, audit or investigation by the Internal Revenue Service or any
other governmental authority with respect to Taxes).
(b) In the event any action, suit or proceeding is brought against any
Indemnified Person, with respect to which the Indemnifying Persons may have
liability under the indemnity agreement contained in Sections 5.2 or 5.3,
the action, suit or proceeding shall, upon the written agreement of the
Indemnifying Persons that they are obligated to indemnify under the
indemnity agreement contained in Sections 5.2 or 5.3, be defended
(including all proceedings on appeal or for review which counsel for the
defendant shall deem appropriate) by the Indemnifying Persons; provided,
however, that the Indemnified Persons shall have the right to employ their
own counsel in such case, but the fees and expenses of such counsel shall
be at the expense of the Indemnified Persons unless (i) the employment of
such counsel shall have been authorized in writing by the Indemnifying
Persons in connection with the defense of such action, suit or proceeding,
(ii) the Indemnifying Persons shall not have agreed, promptly after the
notice to them provided in Section 5.4(a) above, that they are obligated to
indemnify under the indemnity agreement contained in Sections 5.2 or 5.3 or
shall not have taken all reasonable actions in connection with such
obligation in a timely fashion, (iii) the Indemnified Persons shall have
reasonably concluded that such action, suit or proceeding mainly involves
matters beyond the scope of the indemnity agreement contained in Sections
5.2 or 5.3 or (iv) the Indemnified Persons shall have reasonably concluded
that a potential conflict exists or a defense is potentially available to
them which is not available to the Indemnifying Persons, in any of which
events the Indemnifying Persons shall not have the right to direct the
defense of such action, suit or proceeding on behalf of the Indemnified
Persons and that portion of such fees and expenses reasonably related to
matters covered by the indemnity agreement contained in Sections 5.2 and
5.3 shall be borne by the Indemnifying Persons. The Indemnified Persons
shall be kept fully informed of such action, suit or proceeding at all
stages thereof whether or not they are so represented. The Indemnifying
Persons shall make available to the Indemnified Persons and their attorneys
and accountants all books and records of the Indemnifying Persons relating
to such proceedings or litigation. The parties hereto agree to render to
each other such assistance as they may reasonably require of each other in
order to ensure the proper and adequate defense of any such action, suit or
proceeding, and, in connection therewith, if the Indemnifying Persons shall
have assumed the defense of any action, suit or proceeding brought or
commenced by the Internal Revenue Service or any other governmental
authority with respect to Taxes, the Indemnified Persons will provide the
Indemnifying Persons with such powers of attorney and other similar
instruments of authority as the
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<PAGE>
parties agree may be necessary to facilitate the Indemnifying Persons'
representation of the Indemnified Persons in such action, suit or
proceeding.
(c) The Indemnifying Persons shall not make any settlement of any
claims without the written consent of the Indemnified Persons, which
consent shall not be unreasonably withheld or delayed.
5.5. Remedies Cumulative; Right of Set-Off. The remedies provided for in
this Article V shall be cumulative and shall not be deemed an election of
remedies or preclude assertion by the Buyer Group of any other rights or the
seeking of any other remedies against the Indemnifying Persons. The Buyer Group,
or any of them, shall have, without need for any other action to be taken, the
express right to set-off, with or without notice, any indemnifiable losses
incurred by any member of the Buyer Group against any and all payments due to
any Stockholder under this Agreement, any Transaction Document and the
Restricted Stock Agreement. The parties hereto agree that such right of set-off
shall be in addition to, and not in lieu of, all other remedies available to the
Buyer Group, and that such right of set-off shall not be considered an election
of remedies, and in connection with the foregoing, the Stockholders expressly
agree not to claim or assert a defense based on the election of remedies. Each
of the Stockholders expressly agrees that all of the Stockholders liabilities
for payments due to the Buyer Group pursuant to this Article V shall be joint
and several, and that each Stockholder shall be fully responsible for the
payment obligations of all Stockholders.
5.6. Survival of Representations and Warranties, Etc. Subject to the
further provisions of this Article V, the representations and warranties of the
Stockholders contained in Sections 3.1 and 3.2 and the representations and
warranties of the Buyer contained in Section 3.3 shall survive the Closing and
shall terminate on the fourth anniversary of the Closing Date; provided,
however, that the representations and warranties of the Stockholders set forth
in Sections 3,1(a), 3.1(c), 3.1(d), 3.2(a) and 3.2(b) shall survive the Closing
and remain in full force and effect as provided by law and that the
representations and warranties of the Stockholders set forth in Section 3.1(h)
shall survive the Closing until the expiration of the statute of limitations, if
any, applicable to the matters set forth therein. Except as otherwise expressly
provided in this Agreement, all agreements and covenants contained in this
Agreement (including, but not limited to, the indemnification agreements
contained herein) shall survive the Closing and remain in full force and effect
as provided by applicable law. For convenience of reference, the date upon which
any representation, warranty, agreement or covenant shall terminate, if any,
shall be referred to as the "Survival Date."
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<PAGE>
ARTICLE VI
MISCELLANEOUS
6.1. Expenses. Each of the Company and the Stockholders, on the one hand,
and the Buyer, on the other hand, shall pay their respective expenses in
connection with the preparation of and consummation of the transactions
contemplated by this Agreement; provided that the Stockholders shall be
responsible for any and all expenses of the Company or the Stockholders that
remain unpaid as of the Closing Date.
6.2. Purchase Price Adjustment. In the event that the Fair Market Value (as
hereinafter defined) of a share of Buyer Common Stock, determined as of the
first anniversary of the date hereof (the "Determination Date"), is less than
$6.00 (such difference, if any, being referred to herein as the "Per Share
Deficiency Amount"), the Buyer shall pay to the Stockholders an aggregate amount
(the "Additional Purchase Price") equal to the Per Share Deficiency Amount
multiplied by 176,814. The Additional Purchase Price shall be payable by the
Buyer to the Shareholders in cash not later than 30 days after the Determination
Date and such amount shall be divided equally among the Shareholders.
6.3. Entire Agreement; Amendment. (a) This Agreement and the Exhibits and
Schedules attached hereto contain the entire agreement among the parties with
respect to the transactions contemplated hereby and supersede all prior
agreements and understandings among the parties with respect thereto.
(b) This Agreement shall not be altered or otherwise amended except
pursuant to an instrument in writing signed by the parties hereto.
6.4. Severability. It is the desire and intent of the parties hereto that
the provisions of this Agreement be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, if any particular provision of this
Agreement shall be adjudicated by a court of competent jurisdiction to be
invalid, prohibited or unenforceable for any reason, such provision, as to such
jurisdiction, shall be ineffective, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of this
Agreement or affecting the validity or enforceability of such provision in any
other jurisdiction. Notwithstanding the foregoing, if such provision could be
more narrowly drawn so as not to be invalid, prohibited or unenforceable in such
jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without
invalidating the remaining provisions of this
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<PAGE>
Agreement or affecting the validity or enforceability of such provision in any
other jurisdiction.
6.5. Descriptive Headings; Number and Gender. (a) Descriptive headings are
for convenience only and shall not control or affect the meaning or construction
of any provision of this Agreement.
(b) Any reference to the masculine, feminine or neuter gender shall
include such other genders and any reference to the singular or plural
shall include the other, in each case unless the context otherwise
requires.
6.6. Public Announcements. The parties will consult with each other before
issuing any press release or otherwise making any public statements with respect
to this Agreement and the transactions contemplated hereby, and no party will
issue any such press release or any such public statement prior to such
consultation and the agreement of the other party, except as may be required by
law.
6.7. Notices. All notices or other communications which are required
hereunder or otherwise delivered in connection herewith shall be in writing and
shall be deemed to have been duly given if delivered personally or if sent by
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
if to the Buyer, to:
I BMJ Medical Management, Inc.
4800 N. Federal Highway, Suite 104-D
Boca Raton, Florida 33431
Attention: Naresh Nagpal,
M.D. Telephone: (561) 591-1311
Telecopier: (561) 591-1389;
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza 41st Floor
New York, New York 10112
Attention: Jeffrey Held, Esq.
Telephone: (212) 408-2417
Telecopier: (212) 408-2420;
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<PAGE>
if to the Company, to:
Valley Sports Surgeons, Inc.
1230 South Cedar Crest Boulevard Suite 101
Allentown, Pennsylvania 18017
Attention: David Sussman, M.D.
Telephone: (610) 820-5200
Telecopier: (610) 820-0359; and
if to any Stockholder, to him or her at the address
listed beneath his or her name on Schedule I hereto;
with a copy to:
Hourigan, Kluger & Quinn
700 Mellon Bank Center
8 West Market Street
Wilkes-Barre, Pennsylvania 18701
Attention: Terrence J. Herron, Esq.
Telephone: (717) 825-9401
Telecopier: (717) 829-3460;
or to such other address as any party to whom notice is to be given may have
furnished to the other parties in writing in accordance herewith. Any such
notice or communication shall be effective upon receipt.
6.8. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute one and the same
agreement.
6.9. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania (without giving
effect to principles of conflicts of laws).
6.10. Benefits of Agreement. All of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Anything contained herein to the
contrary notwithstanding, this Agreement shall not be assignable by the
Stockholders without the consent of the Buyer. The Buyer may, without the
consent of the Stockholders, collaterally assign this Agreement to a financial
or lending institution providing financing to the Buyer; provided, however, that
no such assignment shall release the Buyer from its obligations hereunder.
* * *
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Stock Purchase
Agreement to be executed on the day and year first written above.
BMJ MEDICAL MANAGEMENT, INC.
By: /s/ Naresh Nagpal, M.D.
-------------------------------------
Naresh Nagpal, M.D.
President and Chief Executive
Officer
STOCKHOLDERS:
/s/ George Arangio, M.D.
---------------------------------------
George Arangio, M.D.
/s/ Thomas DiBenedetto, M.D.
---------------------------------------
Thomas DiBenedetto, M.D.
/s/ Neal Stansbury, M.D.
---------------------------------------
Neal Stansbury, M.D.
/s/ David Sussman, M.D.
---------------------------------------
David Sussman, M.D.
/s/ Prodromos Ververeli, M.D.
---------------------------------------
Prodromos Ververeli, M.D.
VALLEY SPORTS SURGEONS, INC.
By:
------------------------------------
Name:
Title:
<PAGE>
Schedule I
Stockholders; Record Ownership;
Share Exchange
===============================================================================
Stockholder Shares of Company Shares of Parent
Name and Address Common Stock Common Stock
- --------------------------------------------------------------------------------
George Arangio, M.D. 60 100,650
327 N. Marshall Street
Allentown, PA 18104
Telecopier:___________
- --------------------------------------------------------------------------------
Thomas DiBenedetto, M.D. 60 100,650
5534 Heather Lane
Orefield, PA 18069
Telecopier:___________
- --------------------------------------------------------------------------------
Neal Stansbury, M.D. 60 100,650
2867 Apple Valley Estates
Orefield, PA 18069
Telecopier:___________
- --------------------------------------------------------------------------------
David Sussman, M.D. 60 100,650
214 N. 31st Street
Allentown, PA 18104
Telecopier:___________
- --------------------------------------------------------------------------------
Prodromos Ververeli, M.D. 60 100,650
3660 Briarwood Lane
Allentown, PA 18103
Telecopier:___________
================================================================================
<PAGE>
Schedule II
Company Liabilities
[See Attached.]
<PAGE>
EXHIBIT A
Restricted Stock Agreement
See Attached.
<PAGE>
EXHIBIT B
Stockholder Non-Competition Agreement
See Attached.
<PAGE>
EXHIBIT C
Form of Opinion of Counsel to
the Company and the Stockholders
See Attached.
<PAGE>
EXHIBIT D
Amendment to
Management Services Agreement
See Attached.
<PAGE>
EXECUTION COPY
REGISTRATION RIGHTS
AGREEMENT dated as of August 1, 1997,
among BONE, MUSCLE AND JOINT, INC., a
Delaware corporation (the "Company"),
and COMDISCO, INC., a Delaware
corporation ("Comdisco") and GALTNEY
CORPORATE SERVICES, INC. a Texas
corporation (collectively with Comdisco
and together with any successors, or
permitted assigns or transferees, the
"Holders").
The Holders own or have the right to purchase or otherwise
acquire shares of the Common Stock, $.001 par value (the "Common Stock"), of the
Company. The Company and the Holders deem it to be in their respective best
interests to set forth the rights of the Holders in connection with public
offerings and sales of the Common Stock.
In consideration of the premises and mutual covenants and
obligations hereinafter set forth, the parties hereto hereby agree as follows:
SECTION 1. Definitions. As used in this Agreement, the following terms
shall have the following meanings:
"Comdisco Warrant Agreements" shall mean, collectively, (i)
that certain Warrant Agreement, dated as of the date hereof, pursuant to which
the Company granted to Comdisco warrants to purchase 125,000 shares of the
Company's Series E Convertible Preferred Stock and (ii) that certain Warrant
Agreement, dated as of the date hereof, pursuant to which the Company granted to
Comdisco warrants to purchase 5,000 shares of the Company's Series E Convertible
Preferred Stock.
"Commission" shall mean the Securities and Exchange Commission
or any other Federal agency at the time administering the Securities Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934
or any successor Federal statute, and the rules and regulations of the
Commission promulgated thereunder, all as the same shall be in effect from time
to time.
"Galtney Warrant Agreement" shall mean that certain Warrant
Agreement, dated as of August 22, 1997, pursuant to which
<PAGE>
the Company granted to Comdisco warrants to purchase 37,500 shares of the
Company's Series E Convertible Preferred Stock.
"Holders" shall have the meaning set forth in the caption
hereof and shall include the Holders that agree in writing to be treated as
Holders pursuant to this Agreement and to be bound by the terms and comply with
all applicable provisions hereof.
"Other Shares" shall mean at any time those shares of Common
Stock that do not constitute Primary Shares or Registrable Shares.
"Primary Shares" shall mean at any time the authorized but
unissued shares of Common Stock or shares of Common Stock held by the Company in
its treasury.
"Registrable Shares" shall mean the shares of Common Stock
held by the Holders that constitute Restricted Shares.
"Registration Date" shall mean the date upon which the
registration statement pursuant to which the Company shall have initially
registered shares of Common Stock under the Securities Act for sale to the
public shall have been declared effective.
"Restricted Shares" shall mean the shares of Common Stock or
any other securities which by their terms are exercisable or exchangeable for or
convertible into Common Stock and any securities received in respect thereof,
which are held by an Holders and which have not theretofore been sold to the
public pursuant to a registration statement under the Securities Act or pursuant
to Rule 144.
"Rule 144" shall mean Rule 144 promulgated under the
Securities Act or any successor rule thereto or any complementary rule thereto
(such as Rule 144A).
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any successor Federal statute, and the rules and regulations of the
Commission promulgated thereunder, all as the same shall be in effect from time
to time.
"Senior Creditor" means a bank, insurance company, pension
fund, or other institutional lender to be determined, or a syndication of such
institutional lenders that provides Senior Debt financing to the Company;
provided that Senior Creditor shall not include any officer, director,
shareholder, venture capital investor, or insider of the Company, or any
affiliate of the foregoing persons, except upon the express written consent of
the Holders.
"Senior Debt" shall mean any and all indebtedness and
obligations for borrowed money (including, without limitation,
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<PAGE>
principal, premium (if any) interest, fees, charges, expenses, costs,
professional fees and expenses, and reimbursement obligations) at any time owing
by the Company to a Senior Creditor under any Senior Loan Documents, including,
but not limited to such amounts as may accrue or be incurred before or after
default or workout or the commencement of any liquidation, dissolution,
bankruptcy, receivership or reorganization by or against the Company.
"Senior Loan Documents" shall mean the loan agreement between
the Company any a Senior Creditor any other agreement, security agreement,
documents promissory note, UCC financing statement, or instrument executed by
the Company in favor of a Senior Creditor pursuant to or in connection with the
Senior Debt or the loan agreement, as the same may from time to time be amended,
modified, supplemented, extended, renewed, restated or replaced.
"Senior Debt Shares" shall mean at any time those shares of
Common Stock held by any Senior Creditor that do not constitute Primary Shares
or Registrable Shares.
"Transfer" shall mean any disposition of any Restricted Shares
or of any interest therein that would constitute a sale thereof within the
meaning of the Securities Act other than any such disposition pursuant to an
effective registration statement under the Securities Act and complying with all
applicable state securities and "blue sky" laws.
"Venture Capitalists" means Naresh Nagpal and those venture
capital firms that have acquired, prior to the date hereof, and may acquire, at
any time hereafter, securities of the Company and in connection with such
acquisition have obtained or may obtain registration rights.
"Venture Capital Shares" means the shares of Common Stock or
any other securities which by their terms are exercisable or exchangeable for or
convertible into Common Stock and any securities received in respect thereof,
which are held by a Venture Capitalist and which have not theretofore been sold
to the public pursuant to a registration statement under the Securities Act or
pursuant to Rule 144.
SECTION 2. Piggyback Registration. If, at any time during the period
beginning on the date hereof and ending on the earlier to occur of (a) August 1,
2007, and (b) five (5) years after the effective date of the initial public
offering of the Company's Common Stock, the Company proposes for any reason to
register Primary Shares or Other Shares under the Securities Act (other than on
Form S-4 or Form S-8 promulgated under the Securities Act or any successor forms
thereto) (other than in connection with an initial public offering of the
Company's Common Stock), it shall promptly give written notice to all
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<PAGE>
holders of outstanding Registrable Shares of its intention so to register the
Primary Shares, Senior Lender Shares or Other Shares and, upon the written
request, given within 30 days after delivery of any such notice by the Company,
of the holders of Registrable Shares to include in such registration Registrable
Shares held by such holders (which request shall specify the number of
Registrable Shares proposed to be included in such registration), the Company
shall use its best efforts to cause all such Registrable Shares to be included
in such registration on the same terms and conditions as the securities
otherwise being sold in such registration; provided, however, that if the
managing underwriter advises the Company that the inclusion of all such
Registrable Shares, Senior Lender Shares or Other Shares proposed to be included
in such registration would interfere with the successful marketing (including
pricing) of Primary Shares proposed to be registered by the Company, then the
number of Primary Shares, Registrable Shares and Other Shares proposed to be
included in such registration shall be included in the following order:
(i) first, the Primary Shares;
(ii) second, the Venture Capital Shares requested to be
included in such registration by the Venture
Capitalists (pro rata based on the number of
Venture Capital Shares held by all Venture
Capitalists requesting inclusion of Venture Capital
Shares in such registration);
(iii) third, the Senior Creditor Shares held by HCFP
Funding, Inc. ("HCFP") and requested by HCFP to be
included in such registration (pro rata based on
the number of Restricted Shares held by HCFP and
its permitted assignees requesting inclusion of
Registrable Shares in such registration); and
(iv) fourth, the Registrable Shares requested to be
included in such registration by the Holders (pro
rata based on the number of Restricted Shares held
by all Holders requesting inclusion of Registrable
Shares in such registration); and
(v) sixth, the Other Shares (other than already
included herein) in such proportion as shall be
determined by the Company.
SECTION 3. Condition to Registration Obligations. The Corporation shall
not be obligated to effect the registration of the Registrable Shares pursuant
to Section 2 unless each of the Holders electing to participate in such
registration executes a power of attorney, custody arrangement and other
documents customary in such transactions and reasonably required by the
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<PAGE>
managing underwriter thereof prior to the filing of the registration statement.
SECTION 4. Holdback Agreement. If the Company at any time shall
register shares of Common Stock under the Securities Act (including any
registration pursuant to Section 2) for sale to the public, the Holders shall
not sell publicly, make any short sale of, grant any option for the purchase of,
or otherwise dispose publicly of, any Restricted Shares (other than those shares
of Common Stock included in such registration pursuant to Section 2) without the
prior written consent of the Company for a period designated by the Company in
writing to the holders of Registrable Shares, which period shall not begin more
than 10 days prior to the effectiveness of the registration statement pursuant
to which such public offering shall be made and shall not last more than 180
days after the effective date of such registration statement.
SECTION 5. Preparation and Filing. If and whenever the Company is under
an obligation pursuant to the provisions of this Agreement to use its best
efforts to effect the registration of any Registrable Shares, the Company shall,
as expeditiously as practicable:
(a) use its best efforts to cause a registration statement
that registers such Registrable Shares to become and remain effective
for a period of 90 days (or 12 months for registrations on Form S-3 or
successor form) or until all of such Registrable Shares have been
disposed of (if earlier);
(b) furnish, at least five business days before filing a
registration statement that registers such Registrable Shares, a
prospectus relating thereto or any amendments or supplements relating
to such a registration statement or prospectus, to one counsel selected
by the holders of a majority in interest of Registrable Shares (the
Holders' Counsel"), copies for review and comment during such five days
of all such documents proposed to be filed (it being understood that
such five-business-day period need not apply to successive drafts of
the same document proposed to be filed so long as such successive
drafts are supplied to the Holders' Counsel in advance of the proposed
filing by a period of time that is customary and reasonable under the
circumstances);
(c) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for at least a period of 90 days (or 12 months for
registrations on Form S-3 or successor form) or until all of such
Registrable Shares have been disposed of (if earlier) and to
-5-
<PAGE>
comply with the provisions of the Securities Act with respect to the
sale or other disposition of such Registrable Shares and furnish copies
of all such amendments and supplements to Holders' Counsel;
(d) notify in writing the Holders' Counsel promptly (i) of the
receipt by the Company of any notification with respect to any comments
by the Commission relating to such registration statement or prospectus
or any amendment or supplement thereto or any request by the Commission
for the amendment or supplement thereof or for additional information
with respect thereto, (ii) of the receipt by the Company of any
notification with respect to the issuance by the Commission of any stop
order suspending the effectiveness of such registration statement or
prospectus or any amendment or supplement thereto or the initiation or
threatening of any proceeding for that purpose and (iii) of the receipt
by the Company of any notification with respect to the suspension of
the qualification of such Registrable Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purposes and furnish copies of all such notices to Holders'
Counsel;
(e) use its best efforts to register or qualify such
Registrable Shares under such other securities or "blue sky" laws of
such jurisdictions as the Holders reasonably request and do any and all
other acts and things which may be reasonably necessary or advisable to
enable the holders of Registrable Shares to consummate the disposition
in such jurisdictions of such Registrable Shares; provided, however,
that the Company will not be required to qualify generally to do
business, subject itself to general taxation or consent to general
service of process in any jurisdiction where it would not otherwise be
required to do so but for this paragraph (e);
(f) furnish to the holders of Registrable Shares such number
of copies of a summary prospectus or other prospectus, including a
preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as the holders of Registrable
Shares may reasonably request in order to facilitate the public sale or
other disposition of such Registrable Shares;
(g) use its best efforts to cause such Registrable Shares to
be registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and
operations of the Company to enable the holders of Registrable Shares
to consummate the disposition of such Registrable Shares;
(h) notify the holders of Registrable Shares on a timely basis
at any time when a prospectus relating to such
-6-
<PAGE>
Registrable Shares is required to be delivered under the Securities Act
within the appropriate period mentioned in subparagraph (a) of this
Section 5, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing and, at the request of the holders of Registrable Shares,
prepare and furnish to the holders of Registrable Shares a reasonable
number of copies of a supplement to or amendment of such prospectus as
may be necessary so that, as thereafter delivered to the offerees of
such shares, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in
light of the circumstances then existing;
(i) make available for inspection by the holders of
Registrable Shares, any underwriter participating in any disposition
pursuant to such registration statement and any attorney, accountant or
other agent retained by the holders of Registrable Shares or any
underwriter (collectively, the "Inspectors"), all pertinent financial
and other records, pertinent corporate documents and properties of the
Company (collectively, the "Records"), as shall be reasonably necessary
to enable them to exercise their due diligence responsibility, and
cause the Company's officers, directors and employees to supply all
information (together with the Records, the "Information") reasonably
requested by any such holders of Registrable Shares in connection with
such registration statement. Any of the Information which the Company
determines in good faith to be confidential, and of which determination
the Inspectors are so notified, shall not be disclosed by the
Inspectors unless (i) the disclosure of such Information is necessary
to avoid or correct a misstatement or omission in the registration
statement, (ii) the release of such Information is ordered pursuant to
a subpoena or other order from a court of competent jurisdiction or
(iii) such Information has been made generally available to the public.
The holders of Registrable Shares agree that they will, upon learning
that disclosure of such Information is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company, at the
Company's expense, to undertake appropriate action to prevent
disclosure of the Information deemed confidential;
(j) use its best efforts to obtain from its independent
certified public accountants "cold comfort" letters in customary form
and at customary times and
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<PAGE>
covering matters of the type customarily covered by cold comfort
letters;
(k) use its best efforts to obtain from its counsel an opinion
or opinions in customary form;
(l) provide a transfer agent and registrar (which may be the
same entity and which may be the Company) for such Registrable Shares;
(m) issue to any underwriter to which the holders of
Registrable Shares may sell shares in such offering certificates
evidencing such Registrable Shares;
(n) list such Registrable Shares on any national securities
exchange on which any shares of the Common Stock are listed or, if the
Common Stock is not listed on a national securities exchange, use its
best efforts to qualify such Registrable Shares for inclusion on the
automated quotation system of the National Association of Securities
Dealers, Inc. (the "NASD"), or such other national securities exchange
as the holders of a majority of the Registrable Shares shall request;
(o) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission and make available
to its securityholders, as soon as reasonably practicable, earnings
statements (which need not be audited) covering a period of 12 months
beginning within three months after the effective date of the
registration statement, which earnings statements shall satisfy the
provisions of Section 11(a) of the Securities Act; and
(p) use its best efforts to take all other steps necessary to
effect the registration of such Registrable Shares contemplated hereby.
SECTION 6. Expenses. All expenses incurred by the Company in complying
with Section 5, including, without limitation, all registration and filing fees
(including all expenses incident to filing with the NASD), fees and expenses of
complying with securities and "blue sky" laws, printing expenses, and fees and
expenses of the Company's counsel, shall be paid by the Company; provided,
however, that all underwriting discounts and selling commissions applicable to
the Registrable Shares shall not be borne by the Company but shall be borne by
the holders of Registrable Shares in proportion to the number of Registrable
Shares sold by each of them.
SECTION 7. Indemnification. In connection with any registration of any
Registrable Shares under the Securities Act pursuant to this Agreement, the
Company shall indemnify and hold harmless the holders of Registrable Shares,
each underwriter,
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broker or any other person acting on behalf of the holders of Registrable Shares
and each other person, if any, who controls any of the foregoing persons within
the meaning of the Securities Act against any losses, claims, damages or
liabilities, joint or several (or actions in respect thereof), to which any of
the foregoing persons may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in the registration statement under which
such Registrable Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained therein or otherwise filed
with the Commission, any amendment or supplement thereto or any document
incident to registration or qualification of any Registrable Shares, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or, with respect to any prospectus, necessary to make the
statements therein in light of the circumstances under which they were made not
misleading, or any violation by the Company of the Securities Act or state
securities or "blue sky" laws applicable to the Company and relating to action
or inaction required of the Company in connection with such registration or
qualification under such state securities or blue sky laws; and shall reimburse
the holders of Registrable Shares, such underwriter, such broker or such other
person acting on behalf of the holders of Registrable Shares and each such
controlling person for any legal or other expenses reasonably incurred by any of
them in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
preliminary prospectus, final prospectus, amendment, supplement or document
incident to registration or qualification of any Registrable Shares in reliance
upon and in conformity with written information furnished to the Company through
an instrument duly executed by the holders of Registrable Shares or underwriter
specifically for use in the preparation thereof.
In connection with any registration of Registrable Shares
under the Securities Act pursuant to this Agreement, each holder of Registrable
Shares shall indemnify and hold harmless (in the same manner and to the same
extent as set forth in the preceding paragraph of this Section 7) the Company,
each director of the Company, each officer of the Company who shall sign such
registration statement, each underwriter, broker or other person acting on
behalf of the holders of Registrable Shares and each person who controls any of
the foregoing persons within the meaning of the Securities Act with respect to
any statement or omission from such registration statement, any preliminary
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<PAGE>
prospectus or final prospectus contained therein or otherwise filed with the
Commission, any amendment or supplement thereto or any document incident to
registration or qualification of any Registrable Shares, if such statement or
omission was made in reliance upon and in conformity with written information
furnished to the Company or such underwriter through an instrument duly executed
by such holder of Registrable Shares specifically for use in connection with the
preparation of such registration statement, preliminary prospectus, final
prospectus, amendment, supplement or document; provided, however, that the
maximum amount of liability in respect of such indemnification shall be limited,
in the case of each seller of Registrable Shares, to an amount equal to the net
proceeds actually received by such seller from the sale of Registrable Shares
effected pursuant to such registration.
Promptly after receipt by an indemnified party of notice of
the commencement of any action involving a claim referred to in the preceding
paragraphs of this Section 7, such indemnified party will, if a claim in respect
thereof is made against an indemnifying party, give written notice to the latter
of the commencement of such action. In case any such action is brought against
an indemnified party, the indemnifying party will be entitled to participate in
and to assume the defense thereof, jointly with any other indemnifying party
similarly notified to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be responsible for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof; provided, however, that if any indemnified party shall have
reasonably concluded that there may be one or more legal or equitable defenses
available to such indemnified party which are additional to or conflict with
those available to the indemnifying party, or that such claim or litigation
involves or could have an effect upon matters beyond the scope of the indemnity
agreement provided in this Section 7, the indemnifying party shall not have the
right to assume the defense of such action on behalf of such indemnified party
and such indemnifying party shall reimburse such indemnified party and any
person controlling such indemnified party for that portion of the fees and
expenses of any counsel retained by the indemnified party which is reasonably
related to the matters covered by the indemnity agreement provided in this
Section 7.
If the indemnification provided for in this Section 7 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, claim, damage, liability or action referred to herein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amounts paid or payable by such indemnified
party as a result of such loss, claim, damage, liability or action in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions which resulted in such loss, claim, damage,
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<PAGE>
liability or action as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
SECTION 8. Underwriting Agreement. Notwithstanding the provisions of
Sections 4, 5, 6, and 7, to the extent that the holders of Registrable Shares
shall enter into an underwriting or similar agreement, which agreement contains
provisions covering one or more issues addressed in such Sections, the
provisions contained in such Sections addressing such issue or issues shall be
of no force or effect with respect to such registration.
SECTION 9. Information by Holders. Each of the holders of Registrable
Shares proposing to sell the same pursuant to a registration to which this
Agreement relates shall furnish to the Company such written information
regarding the holders of Registrable Shares and the distribution proposed by
such holders of Registrable Shares as the Company may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Agreement.
SECTION 10. Exchange Act Compliance. From the Registration Date or such
earlier date as a registration statement filed by the Company pursuant to the
Exchange Act relating to any class of the Company's securities shall have become
effective, the Company shall comply with all of the reporting requirements of
the Exchange Act (whether or not it shall be required to do so) and shall comply
with all other public information reporting requirements of the Commission which
are conditions to the availability of Rule 144 for the sale of the Common Stock.
The Company shall cooperate with the holders of Registrable Shares in supplying
such information as may be necessary for such holders to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the availability of Rule 144.
SECTION 11. No Conflict of Rights. The Company represents and warrants
to the holders of Registrable Shares that the registration rights granted to the
holders of Registrable Shares hereby do not conflict with any other registration
rights granted by the Company. The Company shall not, after the date hereof,
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<PAGE>
grant any registration rights which conflict with or impair the registration
rights granted hereby.
SECTION 12. Termination. This Agreement shall terminate and be of no
further force or effect when there shall not be any Restricted Shares.
SECTION 13. Successors and Assigns. This Agreement shall bind and inure
to the benefit of the Company and the holders of Registrable Shares and, subject
to Section 14, the respective successors and assigns of the Company and holders
of Registrable Shares.
SECTION 14. Assignment. Each holder of Registrable Shares may assign
its rights hereunder to any purchaser or transferee acquiring all of such
holder's Restricted Shares; provided, however, that such purchaser or transferee
shall, as a condition to the effectiveness of such assignment, be required to
execute a counterpart to this Agreement agreeing to be treated as the seller or
transferor hereunder whereupon such purchaser or transferee shall have the
benefits of, and shall be subject to the restrictions contained in, this
Agreement.
SECTION 15. Entire Agreement. This Agreement, the Comdisco Warrant
Agreements, the Galtney Warrant Agreement, and the other writings referred to
therein or delivered pursuant thereto, contain the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior and
contemporaneous arrangements or understandings with respect thereto.
SECTION 16. Notices. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or sent by telecopy,
nationally-recognized overnight courier or first class registered or certified
mail, return receipt requested, postage prepaid, addressed to such party at the
address set forth below or such other address as may hereafter be designated in
writing by such party to the other parties:
(a) if to the Company, to:
Bone, Muscle and Joint, Inc.
4800 N. Federal Highway
Suite 104D
Boca Raton, Florida 33431
Attention: President
Telecopier: (561) 391-1389;
with a copy to:
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<PAGE>
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Lawrence G. Graev, Esq.;
Telecopier: (212) 408-2420; and
(b) if to any Holders, to the address of such Holders set
forth on Schedule I hereto.
All such notices, requests, consents and other communications shall be deemed to
have been delivered and received (a) in the case of personal delivery or
delivery by telecopier, on the date of such delivery, (b) in the case of
dispatch by nationally-recognized overnight courier, on the next business day
following such dispatch and (c) in the case of mailing, on the third business
day after the posting thereof.
SECTION 17. Modifications; Amendments; Waivers. The terms and
provisions of this Agreement may not be modified or amended, nor may any
provision be waived, except pursuant to a writing signed by the Company and the
Holders; provided, however, that the Company may amend Schedule I hereto to
reflect any changes to the Holders and the Registrable Shares owned by each such
Holder.
SECTION 18. Counterparts. This Agreement may be executed in any number
of counterparts, and each such counterpart hereof shall be deemed to be an
original instrument, but all such counterparts together shall constitute but one
agreement.
SECTION 19. Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be a part of this Agreement.
SECTION 20. Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of New York without
giving effect to any choice or conflict of law provision or rule (whether in the
State of New York or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of New York.
* * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Registration Rights Agreement as of the date first written above.
BONE, MUSCLE AND JOINT, INC.
By:_______________________________
Name:
Title:
COMDISCO, INC.
By:_______________________________
Name:
Title:
GALTNEY CORPORATE SERVICES, INC.
By:_______________________________
Name:
Title:
<PAGE>
SCHEDULE I
Holders
Comdisco, Inc.
6111 North River Road
Rosemont, Illinois 60018
Attention: James Labe, Venture Group
Telecopier: (847) 518-5465
with a copy to:
Comdisco, Inc.
6111 North River Road
Rosemont, Illinois 60018
Attention: General Counsel
Telecopier: (847) 518-5088
Galtney Corporate Services, Inc.
820 Gessner, Suite 1000
Houston, Texas 77024-4259
Attention: Karen Kassouf
Telecopier: (713) 467-8031
<PAGE>
EXECUTION COPY
REGISTRATION RIGHTS
AGREEMENT dated as of September 9, 1997,
among BONE, MUSCLE AND JOINT, INC., a
Delaware corporation (the "Company"),
HEALTH CARE SERVICES-BMJ, LLC, a
Delaware limited liability company
("HCS-BMJ") and H&Q SERV*IS VENTURES
L.P., a Delaware limited partnership
(collectively with HCS-BMJ and with any
successors, or permitted assigns or
transferees, the "Holders").
The Holders own or have the right to purchase or otherwise
acquire shares of the Common Stock, $.001 par value (the "Common Stock"), of the
Company. The Company and the Holders deem it to be in their respective best
interests to set forth the rights of the Holders in connection with public
offerings and sales of the Common Stock. Execution and delivery of this
Agreement is a condition precedent to the consummation of the transactions
contemplated by the Purchase Agreement (hereinafter defined).
In consideration of the premises and mutual covenants and
obligations hereinafter set forth, the parties hereto hereby agree as follows:
SECTION 1. Definitions. As used in this Agreement, the following terms
shall have the following meanings:
"Commission" shall mean the Securities and Exchange Commission
or any other Federal agency at the time administering the Securities Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934
or any successor Federal statute, and the rules and regulations of the
Commission promulgated thereunder, all as the same shall be in effect from time
to time.
"Holders" shall have the meaning set forth in the caption
hereof and shall include the Holders that agree in writing to be treated as
Holders pursuant to this Agreement and to be bound by the terms and comply with
all applicable provisions hereof.
<PAGE>
"Other Shares" shall mean at any time those shares of Common
Stock that do not constitute Primary Shares or Registrable Shares.
"Primary Shares" shall mean at any time the authorized but
unissued shares of Common Stock or shares of Common Stock held by the Company in
its treasury.
"Purchase Agreement" shall mean the Convertible Debenture
Purchase Agreement, dated as of the date hereof, among the Company, the Holders
and the other purchasers named therein, as such agreement may be amended,
modified or otherwise supplemented from time to time.
"Registrable Shares" shall mean the shares of Common Stock
held by the Holders that constitute Restricted Shares.
"Registration Date" shall mean the date upon which the
registration statement pursuant to which the Company shall have initially
registered shares of Common Stock under the Securities Act for sale to the
public shall have been declared effective.
"Restricted Shares" shall mean the shares of Common Stock or
any other securities which by their terms are exercisable or exchangeable for or
convertible into Common Stock and any securities received in respect thereof,
which are held by the Holders and which have not theretofore been sold to the
public pursuant to a registration statement under the Securities Act or pursuant
to Rule 144.
"Rule 144" shall mean Rule 144 promulgated under the
Securities Act or any successor rule thereto or any complementary rule thereto
(such as Rule 144A).
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any successor Federal statute, and the rules and regulations of the
Commission promulgated thereunder, all as the same shall be in effect from time
to time.
"Senior Debt" shall have the meaning specified in Section 5.1
of the Purchase Agreement.
"Senior Debt Shares" shall mean at any time those shares of
Common Stock held by any holder of Senior Debt of the Company that do not
constitute Primary Shares or Registrable Shares.
"Transfer" shall mean any disposition of any Restricted Shares
or of any interest therein that would constitute a sale thereof within the
meaning of the Securities Act other than any such disposition pursuant to an
effective registration statement under the Securities Act and complying with all
applicable state securities and "blue sky" laws.
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"Venture Capitalists" means Naresh Nagpal and those venture
capital firms that have acquired, prior to the date hereof, and may acquire, at
any time hereafter, securities of the Company and in connection with such
acquisition have obtained or may obtain registration rights.
"Venture Capital Shares" means the shares of Common Stock,
which are held (or may be acquired upon the conversion or exercise of
outstanding securities) by a Venture Capitalist and which have not theretofore
been sold to the public pursuant to a registration statement under the
Securities Act or pursuant to Rule 144.
SECTION 2. Required Registration. At any time after the date which is
six months after the consummation of the initial public offering of the Common
Stock, if the Company shall be requested by in excess of thirty percent (30%) in
interest of the Holders to effect the registration under the Securities Act of
Registrable Shares, then the Company shall, within 10 days of such request,
deliver a written notice of such proposed registration to all Holders of
outstanding Registrable Shares and shall offer to include in such proposed
registration any Registrable Shares requested to be included in such proposed
registration by the Holders of Registrable Shares who or which shall respond in
writing to the Company's notice within 15 days after delivery thereof. The
Company shall promptly thereafter use its best efforts to effect such
registration under the Securities Act of the Registrable Shares which the
Company has been so requested to register; provided, however, that the Company
shall not be obligated to effect any registration under the Securities Act
except in accordance with the following provisions:
(a) the Company shall not be obligated to use its best efforts
to file and cause to become effective (i) more than one (1)
registration statement initiated pursuant to this Section 2 pursuant to
which all of the Registrable Shares requested to be included therein by
the Holders have been effectively sold thereunder or (ii) any
registration statement during any period in which any other
registration statement (other than on Form S-4 or Form S-8 promulgated
under the Securities Act or any successor forms thereto) pursuant to
which Primary Shares are to be or were sold has been filed and not
withdrawn or has been declared effective within the prior 90 days;
(b) the Company may delay the filing or effectiveness of any
registration statement for a period of up to 180 days after the date of
a request for registration pursuant to this Section 2 if at the time of
such request (i) the Company is engaged, or has fixed plans to engage
within 180 days of the time of such request, in a firm commitment
underwritten public offering of Primary Shares in which the
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holders of Registrable Shares may include Registrable Shares pursuant
to Section 3 or (ii) the Company reasonably determines that such
registration and offering would interfere with any material transaction
involving the Company, as approved by the Board of Directors (as used
herein, "material transaction" shall mean any transaction which would
require a supplemental filing to a quarterly report filed under Form
8-K with the Commission), provided that the Company may only so delay
the filing or effectiveness of a registration statement once pursuant
to clause (i) above and once pursuant to clause (ii) above; and
(c) with respect to any registration pursuant to this Section
2, the Company may include in such registration any Primary Shares or
Other Shares; provided, however, that, in such case, such registration
shall not be treated as a registration initiated pursuant to this
Section 2 if Primary Shares are in fact sold pursuant to such
Registration Statement; provided further, however, that if the managing
underwriter advises the Company that the inclusion of all Registrable
Shares, Primary Shares and Other Shares proposed to be included in such
registration would interfere with the successful marketing (including
pricing) of the Registrable Shares proposed to be included in such
registration, then (i) such registration shall be treated as a
registration initiated pursuant to this Section 2 if no Primary Shares
are in fact sold pursuant to such Registration Statement and (ii) the
number of Registrable Shares, Primary Shares and/or Other Shares
proposed to be included in such registration shall be included in the
following order:
(i) first, the Registrable Shares requested to be
included in such registration by the Holders (pro
rata based on the number of Restricted Shares held
by all Holders requesting inclusion of Registrable
Shares in such registration);
(ii) second, the Primary Shares; and
(iii) third, the Other Shares, in such proportion as
shall be determined by the Company.
SECTION 3. Piggyback Registration. If, at any time during the period
beginning on the date hereof and ending on the earlier to occur of (a) September
9, 2007, and (b) five (5) years after the effective date of the initial public
offering of the Company's Common Stock, the Company proposes for any reason to
register Primary Shares, Senior Lender Shares, Venture Capital Shares or Other
Shares under the Securities Act (other than on Form S-4 or Form S-8 promulgated
under the Securities Act or any successor forms thereto) (other than in
connection with an initial public offering of the Company's Common Stock
consummated prior to February 28, 1998), it shall promptly give written
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notice to all holders of outstanding Registrable Shares of its intention so to
register the Primary Shares, Senior Lender Shares or Other Shares and, upon the
written request, given within 30 days after delivery of any such notice by the
Company, of the holders of Registrable Shares to include in such registration
Registrable Shares held by such holders (which request shall specify the number
of Registrable Shares proposed to be included in such registration), the Company
shall use its best efforts to cause all such Registrable Shares to be included
in such registration on the same terms and conditions as the securities
otherwise being sold in such registration; provided, however, that if the
managing underwriter advises the Company that the inclusion of all such
Registrable Shares, Senior Lender Shares, Venture Capital Shares or Other Shares
proposed to be included in such registration would interfere with the successful
marketing (including pricing) of Primary Shares proposed to be registered by the
Company, then the number of Primary Shares, Registrable Shares, Venture Capital
Shares and Other Shares proposed to be included in such registration shall be
included in the following order:
(i) first, the Primary Shares;
(ii) second, the Venture Capital Shares requested to be
included in such registration by the Venture
Capitalists and the Registrable Shares requested to
be included in such registration by the Holders
(pro rata based on the number of Venture Capital
Shares and Registrable Shares held by all Venture
Capitalists and Holders requesting inclusion of
Venture Capital Shares and Registrable Shares in
such registration);
(iii) third, the Senior Lender Shares held by HCFP
Funding, Inc. ("HCFP") and requested by HCFP to be
included in such registration (pro rata based on
the number of Restricted Shares held by HCFP and
its permitted assignees requesting inclusion of
Registrable Shares in such registration); and
(iv) fourth, the Senior Debt Shares held by holders of
Senior Debt (other than HCFP) requested by such
holders to be included in such registration (pro
rata based on the number of Restricted Shares held
by all such holders requesting inclusion of
Registrable Shares in such registration); and
(v) fifth, the Other Shares (other than already
included herein) in such proportion as shall be
determined by the Company.
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SECTION 4. Registrations on Form S-3. Anything contained in Section 2
to the contrary notwithstanding, at such time as the Company shall have
qualified for the use of Form S-3 promulgated under the Securities Act or any
successor form thereto, the holders of thirty percent (30%) of the Registrable
Shares shall have the right to request in writing no more than two registrations
on Form S-3 per year, or such successor form, of Registrable Shares held by them
(the Company to bear the costs of such registrations), which request or requests
shall (i) specify the number of Registrable Shares intended to be sold or
disposed of, (ii) state the intended method of disposition of such Registrable
Shares and (iii) relate to Registrable Shares having an anticipated aggregate
offering price of at least $1,000,000. A requested registration on Form S-3, or
any such successor form, in compliance with this Section 4 shall not count as a
registration statement initiated pursuant to Section 2 but shall otherwise be
treated as a registration initiated pursuant to Section 2 and shall, except as
otherwise expressly provided in this Section 4, be subject to Section 2.
SECTION 5. Condition to Registration Obligations. The Corporation shall
not be obligated to effect the registration of the Registrable Shares pursuant
to Sections 2, 3 or 4 unless each of the Holders electing to participate in such
registration executes a power of attorney, custody arrangement and other
documents which are customary in such transactions, reasonably required by the
managing underwriter thereof prior to the filing of the registration statement
and executed in substantially similar form by all other selling securityholders
participating in such offering.
SECTION 6. Holdback Agreement. If the Company at any time shall
register shares of Common Stock under the Securities Act (including any
registration pursuant to Sections 2, 3 or 4) for sale to the public, the Holders
shall not sell publicly, make any short sale of, grant any option for the
purchase of, or otherwise dispose publicly of, any Restricted Shares (other than
those shares of Common Stock included in such registration pursuant to Sections
2, 3 or 4) without the prior written consent of the Company for a period
designated by the Company in writing to the holders of Registrable Shares, which
period shall not begin more than 10 days prior to the effectiveness of the
registration statement pursuant to which such public offering shall be made and
shall not last more than 180 days after the effective date of such registration
statement.
SECTION 7. Preparation and Filing. If and whenever the Company is under
an obligation pursuant to the provisions of this Agreement to use its best
efforts to effect the registration of any Registrable Shares, the Company shall,
as expeditiously as practicable:
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(a) use its best efforts to cause a registration statement
that registers such Registrable Shares to become and remain effective
for a period of 90 days (or 12 months for registrations on Form S-3 or
successor form) or until all of such Registrable Shares have been
disposed of (if earlier);
(b) furnish, at least five business days before filing a
registration statement that registers such Registrable Shares, a
prospectus relating thereto or any amendments or supplements relating
to such a registration statement or prospectus, to one counsel selected
by the holders of a majority in interest of Registrable Shares (the
Holders' Counsel"), copies for review and comment during such five
days of all such documents proposed to be filed (it being understood
that such five-business-day period need not apply to successive drafts
of the same document proposed to be filed so long as such successive
drafts are supplied to the Holders' Counsel in advance of the proposed
filing by a period of time that is customary and reasonable under the
circumstances);
(c) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for at least a period of 90 days (or 12 months for
registrations on Form S-3 or successor form) or until all of such
Registrable Shares have been disposed of (if earlier) and to comply
with the provisions of the Securities Act with respect to the sale or
other disposition of such Registrable Shares and furnish copies of all
such amendments and supplements to Holders' Counsel;
(d) notify in writing the Holders' Counsel promptly (i) of the
receipt by the Company of any notification with respect to any comments
by the Commission relating to such registration statement or prospectus
or any amendment or supplement thereto or any request by the Commission
for the amendment or supplement thereof or for additional information
with respect thereto, (ii) of the receipt by the Company of any
notification with respect to the issuance by the Commission of any stop
order suspending the effectiveness of such registration statement or
prospectus or any amendment or supplement thereto or the initiation or
threatening of any proceeding for that purpose and (iii) of the receipt
by the Company of any notification with respect to the suspension of
the qualification of such Registrable Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purposes and furnish copies of all such notices to Holders'
Counsel;
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<PAGE>
(e) use its best efforts to register or qualify such
Registrable Shares under such other securities or "blue sky" laws of
such jurisdictions as the Holders reasonably request and do any and all
other acts and things which may be reasonably necessary or advisable to
enable the holders of Registrable Shares to consummate the disposition
in such jurisdictions of such Registrable Shares; provided, however,
that the Company will not be required to qualify generally to do
business, subject itself to general taxation or consent to general
service of process in any jurisdiction where it would not otherwise be
required to do so but for this paragraph (e);
(f) furnish to the holders of Registrable Shares such number
of copies of a summary prospectus or other prospectus, including a
preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as the holders of Registrable
Shares may reasonably request in order to facilitate the public sale or
other disposition of such Registrable Shares;
(g) use its best efforts to cause such Registrable Shares to
be registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and
operations of the Company to enable the holders of Registrable Shares
to consummate the disposition of such Registrable Shares;
(h) notify the holders of Registrable Shares on a timely basis
at any time when a prospectus relating to such Registrable Shares is
required to be delivered under the Securities Act within the
appropriate period mentioned in subparagraph (a) of this Section 7, of
the happening of any event as a result of which the prospectus included
in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing and, at the
request of the holders of Registrable Shares, prepare and furnish to
the holders of Registrable Shares a reasonable number of copies of a
supplement to or amendment of such prospectus as may be necessary so
that, as thereafter delivered to the offerees of such shares, such
prospectus shall not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing;
(i) make available for inspection by the holders of
Registrable Shares, any underwriter participating in any disposition
pursuant to such registration statement and any attorney, accountant or
other agent retained by the holders
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of Registrable Shares or any underwriter (collectively, the
"Inspectors"), all pertinent financial and other records, pertinent
corporate documents and properties of the Company (collectively, the
"Records"), as shall be reasonably necessary to enable them to exercise
their due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information (together with the
Records, the "Information") reasonably requested by any such holders of
Registrable Shares in connection with such registration statement. Any
of the Information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so
notified, shall not be disclosed by the Inspectors unless (i) the
disclosure of such Information is necessary to avoid or correct a
misstatement or omission in the registration statement, (ii) the
release of such Information is ordered pursuant to a subpoena or other
order from a court of competent jurisdiction or (iii) such Information
has been made generally available to the public. The holders of
Registrable Shares agree that they will, upon learning that disclosure
of such Information is sought in a court of competent jurisdiction,
give notice to the Company and allow the Company, at the Company's
expense, to undertake appropriate action to prevent disclosure of the
Information deemed confidential;
(j) use its best efforts to obtain from its independent
certified public accountants "cold comfort" letters in customary form
and at customary times and covering matters of the type customarily
covered by cold comfort letters;
(k) use its best efforts to obtain from its counsel an opinion
or opinions in customary form;
(l) provide a transfer agent and registrar (which may be the
same entity and which may be the Company) for such Registrable Shares;
(m) issue to any underwriter to which the holders of
Registrable Shares may sell shares in such offering certificates
evidencing such Registrable Shares;
(n) list such Registrable Shares on any national securities
exchange on which any shares of the Common Stock are listed or, if the
Common Stock is not listed on a national securities exchange, use its
best efforts to qualify such Registrable Shares for inclusion on the
automated quotation system of the National Association of Securities
Dealers, Inc. (the "NASD"), or such other national securities exchange
as the holders of a majority of the Registrable Shares shall request;
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(o) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission and make available
to its securityholders, as soon as reasonably practicable, earnings
statements (which need not be audited) covering a period of 12 months
beginning within three months after the effective date of the
registration statement, which earnings statements shall satisfy the
provisions of Section 11(a) of the Securities Act; and
(p) use its best efforts to take all other steps necessary to
effect the registration of such Registrable Shares contemplated hereby.
SECTION 8. Expenses. All expenses incurred by the Company in complying
with Section 7, including, without limitation, all registration and filing fees
(including all expenses incident to filing with the NASD), fees and expenses of
complying with securities and "blue sky" laws, printing expenses, and fees and
expenses of the Company's counsel and one counsel for the Holders, shall be paid
by the Company; provided, however, that all underwriting discounts and selling
commissions applicable to the Registrable Shares shall not be borne by the
Company but shall be borne by the holders of Registrable Shares in proportion to
the number of Registrable Shares sold by each of them.
SECTION 9. Indemnification. In connection with any registration of any
Registrable Shares under the Securities Act pursuant to this Agreement, the
Company shall indemnify and hold harmless the holders of Registrable Shares,
each underwriter, broker or any other person acting on behalf of the holders of
Registrable Shares and each other person, if any, who controls any of the
foregoing persons within the meaning of the Securities Act against any losses,
claims, damages or liabilities, joint or several (or actions in respect
thereof), to which any of the foregoing persons may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in the
registration statement under which such Registrable Shares were registered under
the Securities Act, any preliminary prospectus or final prospectus contained
therein or otherwise filed with the Commission, any amendment or supplement
thereto or any document incident to registration or qualification of any
Registrable Shares, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or, with respect to any
prospectus, necessary to make the statements therein in light of the
circumstances under which they were made not misleading, or any violation by the
Company of the Securities Act or state securities or "blue sky" laws applicable
to the Company and relating to action or inaction required of the Company in
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connection with such registration or qualification under such state securities
or blue sky laws; and shall reimburse the holders of Registrable Shares, such
underwriter, such broker or such other person acting on behalf of the holders of
Registrable Shares and each such controlling person for any legal or other
expenses reasonably incurred by any of them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company shall not be liable in any such case to the extent that any
such loss, claim, damage, liability or action arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in said registration statement, preliminary prospectus, final prospectus,
amendment, supplement or document incident to registration or qualification of
any Registrable Shares in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by the
holders of Registrable Shares or underwriter specifically for use in the
preparation thereof.
In connection with any registration of Registrable Shares
under the Securities Act pursuant to this Agreement, each holder of Registrable
Shares shall indemnify and hold harmless (in the same manner and to the same
extent as set forth in the preceding paragraph of this Section 9) the Company,
each director of the Company, each officer of the Company who shall sign such
registration statement, each underwriter, broker or other person acting on
behalf of the holders of Registrable Shares and each person who controls any of
the foregoing persons within the meaning of the Securities Act with respect to
any statement or omission from such registration statement, any preliminary
prospectus or final prospectus contained therein or otherwise filed with the
Commission, any amendment or supplement thereto or any document incident to
registration or qualification of any Registrable Shares, if such statement or
omission was made in reliance upon and in conformity with written information
furnished to the Company or such underwriter through an instrument duly executed
by such holder of Registrable Shares specifically for use in connection with the
preparation of such registration statement, preliminary prospectus, final
prospectus, amendment, supplement or document; provided, however, that the
maximum amount of liability in respect of such indemnification shall be limited,
in the case of each seller of Registrable Shares, to an amount equal to the net
proceeds actually received by such seller from the sale of Registrable Shares
effected pursuant to such registration.
Promptly after receipt by an indemnified party of notice of
the commencement of any action involving a claim referred to in the preceding
paragraphs of this Section 9, such indemnified party will, if a claim in respect
thereof is made against an indemnifying party, give written notice to the latter
of the commencement of such action. In case any such action is brought against
an indemnified party, the indemnifying party will
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<PAGE>
be entitled to participate in and to assume the defense thereof, jointly with
any other indemnifying party similarly notified to the extent that it may wish,
with counsel reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be responsible for
any legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof; provided, however, that if any indemnified
party shall have reasonably concluded that there may be one or more legal or
equitable defenses available to such indemnified party which are additional to
or conflict with those available to the indemnifying party, or that such claim
or litigation involves or could have an effect upon matters beyond the scope of
the indemnity agreement provided in this Section 9, the indemnifying party shall
not have the right to assume the defense of such action on behalf of such
indemnified party and such indemnifying party shall reimburse such indemnified
party and any person controlling such indemnified party for that portion of the
fees and expenses of any counsel retained by the indemnified party which is
reasonably related to the matters covered by the indemnity agreement provided in
this Section 9.
If the indemnification provided for in this Section 9 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, claim, damage, liability or action referred to herein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amounts paid or payable by such indemnified
party as a result of such loss, claim, damage, liability or action in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions which resulted in such loss, claim, damage,
liability or action as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
SECTION 10. Underwriting Agreement. Notwithstanding the provisions of
Sections 6, 7, 8 and 9, to the extent that the holders of Registrable Shares
shall enter into an underwriting or similar agreement, which agreement contains
provisions covering one or more issues addressed in such Sections, the
provisions contained in such Sections addressing such issue or issues shall be
of no force or effect with respect to such registration.
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<PAGE>
SECTION 11. Information by Holders. Each of the holders of Registrable
Shares proposing to sell the same pursuant to a registration to which this
Agreement relates shall furnish to the Company such written information
regarding the holders of Registrable Shares and the distribution proposed by
such holders of Registrable Shares as the Company may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Agreement.
SECTION 12. Exchange Act Compliance. From the Registration Date or such
earlier date as a registration statement filed by the Company pursuant to the
Exchange Act relating to any class of the Company's securities shall have become
effective, the Company shall comply with all of the reporting requirements of
the Exchange Act (whether or not it shall be required to do so) and shall comply
with all other public information reporting requirements of the Commission which
are conditions to the availability of Rule 144 for the sale of the Common Stock.
The Company shall cooperate with the holders of Registrable Shares in supplying
such information as may be necessary for such holders to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the availability of Rule 144.
SECTION 13. No Conflict of Rights. The Company represents and warrants
to the holders of Registrable Shares that the registration rights granted to the
holders of Registrable Shares hereby do not conflict with any other registration
rights granted by the Company. The Company shall not, after the date hereof,
grant any registration rights which conflict with or impair the registration
rights granted hereby.
SECTION 14. Termination. This Agreement shall terminate and be of no
further force or effect when there shall not be any Restricted Shares.
SECTION 15. Successors and Assigns. This Agreement shall bind and inure
to the benefit of the Company and the holders of Registrable Shares and, subject
to Section 16, the respective successors and assigns of the Company and holders
of Registrable Shares.
SECTION 16. Assignment. Each holder of Registrable Shares may assign
its rights hereunder to any purchaser or transferee acquiring all of such
holder's Restricted Shares; provided, however, that such purchaser or transferee
shall, as a condition to the effectiveness of such assignment, be required to
execute a counterpart to this Agreement agreeing to be treated as the seller or
transferor hereunder whereupon such purchaser or transferee shall have the
benefits of, and shall be subject to the restrictions contained in, this
Agreement.
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<PAGE>
SECTION 17. Entire Agreement. This Agreement, the Purchase Agreement,
and the other writings referred to therein or delivered pursuant thereto,
contain the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior and contemporaneous arrangements or
understandings with respect thereto.
SECTION 18. Notices. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or sent by telecopy,
nationally-recognized overnight courier or first class registered or certified
mail, return receipt requested, postage prepaid, addressed to such party at the
address set forth below or such other address as may hereafter be designated in
writing by such party to the other parties:
(a) if to the Company, to:
Bone, Muscle and Joint, Inc.
4800 N. Federal Highway
Suite 104D
Boca Raton, Florida 33431
Attention: President
Telecopier: (561) 391-1389;
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Lawrence G. Graev, Esq.;
Telecopier: (212) 408-2420; and
(b) if to any Holders, to the address of such Holders set
forth on Schedule I hereto.
All such notices, requests, consents and other communications shall be deemed to
have been delivered and received (a) in the case of personal delivery or
delivery by telecopier, on the date of such delivery, (b) in the case of
dispatch by nationally-recognized overnight courier, on the next business day
following such dispatch and (c) in the case of mailing, on the third business
day after the posting thereof.
SECTION 19. Modifications; Amendments; Waivers. The terms and
provisions of this Agreement may not be modified or amended, nor may any
provision be waived, except pursuant to a writing signed by the Company and the
Holders; provided, however, that the Company may amend Schedule I hereto to
reflect any changes to the Holders and the Registrable Shares owned by each such
Holder.
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<PAGE>
SECTION 20. Counterparts. This Agreement may be executed in any number
of counterparts, and each such counterpart hereof shall be deemed to be an
original instrument, but all such counterparts together shall constitute but one
agreement.
SECTION 21. Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be a part of this Agreement.
SECTION 22. Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of New York without
giving effect to any choice or conflict of law provision or rule (whether in the
State of New York or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of New York.
* * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Registration Rights Agreement as of the date first written above.
BONE, MUSCLE AND JOINT, INC.
By:______________________________________
Name: David F. Fater
Title: Chief Financial Officer
H&Q BONE MUSCLE AND JOINT INVESTORS, L.P.
By:______________________________________
Name:
Title:
H&Q SERV*IS VENTURES L.P.
By: ____________________________________,
General Partner
By:______________________________________
Name:
Title:
<PAGE>
SCHEDULE I
Holders
H & Q Bone Muscle and Joint Investors, L.P.
c/o Hambrecht & Quist, LLC
One Bush Street
San Francisco, California 94104
Attention: Bama Rucker
Telephone: (415) 677-7796
Telecopier: (415) 399-4631
H&Q SERV*IS Ventures L.P.
c/o Hambrecht & Quist, LLC
One Bush Street
San Francisco, California 94104
Attention: Bama Rucker
Telephone: (415) 677-7796
Telecopier: (415) 399-4631
<PAGE>
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT dated
as of September 15, 1997, among BMJ
MEDICAL MANAGEMENT, INC. (formerly
known as Bone, Muscle and Joint,
Inc.), a Delaware corporation (the
"Company"), and HEALTHCARE
FINANCIAL PARTNERS, INC., a
Delaware corporation (together with
any successors, or permitted
assigns or transferees, the
"Holders").
The Holders own or have the right to purchase or otherwise acquire shares
of the Common Stock, $.001 par value (the "Common Stock"), of the Company. The
Company and the Holders deem it to be in their respective best interests to set
forth the rights of the Holders in connection with public offerings and sales of
the Common Stock. The Secured Term Note was subject to the execution and
delivery of this Agreement.
In consideration of the premises and mutual covenants and obligations
hereinafter set forth, the parties hereto hereby agree as follows:
SECTION 1. Definitions. As used in this Agreement, the following terms
shall have the following meanings:
"Commission" shall mean the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934 or any
successor Federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"Holders" shall have the meaning set forth in the caption hereof and shall
include the Holders that agree in writing to be treated as Holders pursuant to
this Agreement and to be bound by the terms and comply with all applicable
provisions hereof.
"Other Shares" shall mean at any time those shares of Common Stock that do
not constitute Primary Shares or Registrable Shares.
"Primary Shares" shall mean at any time the authorized but unissued shares
of Common Stock or shares of Common Stock held by the Company in its treasury.
<PAGE>
"Registrable Shares" shall mean the shares of Common Stock held by the
Holders that constitute Restricted Shares.
"Registration Date" shall mean the date upon which the registration
statement pursuant to which the Company shall have initially registered shares
of Common Stock under the Securities Act for sale to the public shall have been
declared effective.
"Restricted Shares" shall mean the shares of Common Stock or any other
securities which by their terms are exercisable or exchangeable for or
convertible into Common Stock and any securities received in respect thereof,
which are held by an Holders and which have not theretofore been sold to the
public pursuant to a registration statement under the Securities Act or pursuant
to Rule 144.
"Rule 144" shall mean Rule 144 promulgated under the Securities Act or any
successor rule thereto or any complementary rule thereto (such as Rule 144A).
"Secured Term Note" shall mean the Secured Term Note dated as of the date
hereof between HCFP Funding, Inc., a Delaware corporation, and the Company.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
successor Federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"Transfer" shall mean any disposition of any Restricted Shares or of any
interest therein that would constitute a sale thereof within the meaning of the
Securities Act other than any such disposition pursuant to an effective
registration statement under the Securities Act and complying with all
applicable state securities and "blue sky" laws.
"Venture Capitalists" means Naresh Nagpal and those venture capital firms
that have acquired, prior to the date hereof, and may acquire, at any time
hereafter, securities of the Company and in connection with such acquisition
have obtained or may obtain registration rights.
"Venture Capital Shares" means the shares of Common Stock or any other
securities which by their terms are exercisable or exchangeable for or
convertible into Common Stock and any securities received in respect thereof,
which are held by a Venture Capitalist and which have not theretofore been sold
to the public pursuant to a registration statement under the Securities Act or
pursuant to Rule 144.
SECTION 2. Piggyback Registration. If, at any time during the period
beginning on the date hereof and ending on the earlier to occur of (a) September
15, 2007, and (b) five (5)
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years after the effective date of the initial public offering of the Company's
Common Stock, the Company proposes for any reason to register Primary Shares or
Other Shares under the Securities Act (other than on Form S-4 or Form S-8
promulgated under the Securities Act or any successor forms thereto), it shall
promptly give written notice to all holders of outstanding Registrable Shares of
its intention so to register the Primary Shares or Other Shares and, upon the
written request, given within 30 days after delivery of any such notice by the
Company, of the holders of Registrable Shares to include in such registration
Registrable Shares held by such holders (which request shall specify the number
of Registrable Shares proposed to be included in such registration), the Company
shall use its best efforts to cause all such Registrable Shares to be included
in such registration on the same terms and conditions as the securities
otherwise being sold in such registration; provided, however, that if the
managing underwriter advises the Company that the inclusion of all such
Registrable Shares or Other Shares proposed to be included in such registration
would interfere with the successful marketing (including pricing) of Primary
Shares proposed to be registered by the Company, then the number of Primary
Shares, Registrable Shares and Other Shares proposed to be included in such
registration shall be included in the following order:
(i) first, the Primary Shares;
(ii) second, the Venture Capital Shares requested to be included in
such registration by the Venture Capitalists (pro rata based on
the number of Venture Capital Shares held by all Venture
Capitalists requesting inclusion of Venture Capital Shares in
such registration);
(iii) third, the Registrable Shares requested to be included in such
registration by the Holders (pro rata based on the number of
Restricted Shares held by all Holders requesting inclusion of
Registrable Shares in such registration); and
(iv) fourth, the Other Shares (other than already included herein) in
such proportion as shall be determined by the Company.
SECTION 3. Condition to Registration Obligations. The Corporation shall not
be obligated to effect the registration of the Registrable Shares pursuant to
Section 2 unless each of the Holders electing to participate in such
registration executes a power of attorney, custody arrangement and other
documents customary in such transactions and reasonably required by the managing
underwriter thereof prior to the filing of the registration statement.
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<PAGE>
SECTION 4. Holdback Agreement. If the Company at any time shall register
shares of Common Stock under the Securities Act (including any registration
pursuant to Section 2) for sale to the public, the Holders shall not sell
publicly, make any short sale of, grant any option for the purchase of, or
otherwise dispose publicly of, any Restricted Shares (other than those shares of
Common Stock included in such registration pursuant to Section 2) without the
prior written consent of the Company for a period designated by the Company in
writing to the holders of Registrable Shares, which period shall not begin more
than 10 days prior to the effectiveness of the registration statement pursuant
to which such public offering shall be made and shall not last more than 180
days after the effective date of such registration statement. Notwithstanding
anything contained in this Section 4, in the event that any Holder requests to
be included in such registration and is not so included as a result of the
priority of inclusion set forth in Section 2 hereof, the provisions of this
Section 4 shall not, with respect to such registration, be applicable to such
Holder.
SECTION 5. Preparation and Filing. If and whenever the Company is under an
obligation pursuant to the provisions of this Agreement to use its best efforts
to effect the registration of any Registrable Shares, the Company shall, as
expeditiously as practicable:
(a) use its best efforts to cause a registration statement that
registers such Registrable Shares to become and remain effective for a
period of 90 days (or 12 months for registrations on Form S-3 or successor
form) or until all of such Registrable Shares have been disposed of (if
earlier);
(b) furnish, at least five business days before filing a registration
statement that registers such Registrable Shares, a prospectus relating
thereto or any amendments or supplements relating to such a registration
statement or prospectus, to one counsel selected by the holders of a
majority in interest of Registrable Shares (the Holders' Counsel"), copies
for review and comment during such five days of all such documents proposed
to be filed (it being understood that such five-business-day period need
not apply to successive drafts of the same document proposed to be filed so
long as such successive drafts are supplied to the Holders' Counsel in
advance of the proposed filing by a period of time that is customary and
reasonable under the circumstances);
(c) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for at least a period of 90 days (or 12 months for
registrations
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<PAGE>
on Form S-3 or successor form) or until all of such Registrable Shares have
been disposed of (if earlier) and to comply with the provisions of the
Securities Act with respect to the sale or other disposition of such
Registrable Shares and furnish copies of all such amendments and
supplements to Holders' Counsel;
(d) notify in writing the Holders' Counsel promptly (i) of the receipt
by the Company of any notification with respect to any comments by the
Commission relating to such registration statement or prospectus or any
amendment or supplement thereto or any request by the Commission for the
amendment or supplement thereof or for additional information with respect
thereto, (ii) of the receipt by the Company of any notification with
respect to the issuance by the Commission of any stop order suspending the
effectiveness of such registration statement or prospectus or any amendment
or supplement thereto or the initiation or threatening of any proceeding
for that purpose and (iii) of the receipt by the Company of any
notification with respect to the suspension of the qualification of such
Registrable Shares for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purposes and furnish copies of all
such notices to Holders' Counsel;
(e) use its best efforts to register or qualify such Registrable
Shares under such other securities or "blue sky" laws of such jurisdictions
as the Holders reasonably request and do any and all other acts and things
which may be reasonably necessary or advisable to enable the holders of
Registrable Shares to consummate the disposition in such jurisdictions of
such Registrable Shares; provided, however, that the Company will not be
required to qualify generally to do business, subject itself to general
taxation or consent to general service of process in any jurisdiction where
it would not otherwise be required to do so but for this paragraph (e);
(f) furnish to the holders of Registrable Shares such number of copies
of a summary prospectus or other prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and
such other documents as the holders of Registrable Shares may reasonably
request in order to facilitate the public sale or other disposition of such
Registrable Shares;
(g) use its best efforts to cause such Registrable Shares to be
registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and operations of
the Company to enable the holders of Registrable Shares to consummate the
disposition of such Registrable Shares;
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<PAGE>
(h) notify the holders of Registrable Shares on a timely basis at any
time when a prospectus relating to such Registrable Shares is required to
be delivered under the Securities Act within the appropriate period
mentioned in subparagraph (a) of this Section 5, of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing and, at the request of the holders of
Registrable Shares, prepare and furnish to the holders of Registrable
Shares a reasonable number of copies of a supplement to or amendment of
such prospectus as may be necessary so that, as thereafter delivered to the
offerees of such shares, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing;
(i) make available for inspection by the holders of Registrable
Shares, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained
by the holders of Registrable Shares or any underwriter (collectively, the
"Inspectors"), all pertinent financial and other records, pertinent
corporate documents and properties of the Company (collectively, the
"Records"), as shall be reasonably necessary to enable them to exercise
their due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information (together with the
Records, the "Information") reasonably requested by any such holders of
Registrable Shares in connection with such registration statement. Any of
the Information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified,
shall not be disclosed by the Inspectors unless (i) the disclosure of such
Information is necessary to avoid or correct a misstatement or omission in
the registration statement, (ii) the release of such Information is ordered
pursuant to a subpoena or other order from a court of competent
jurisdiction or (iii) such Information has been made generally available to
the public. The holders of Registrable Shares agree that they will, upon
learning that disclosure of such Information is sought in a court of
competent jurisdiction, give notice to the Company and allow the Company,
at the Company's expense, to undertake appropriate action to prevent
disclosure of the Information deemed confidential;
(j) use its best efforts to obtain from its independent certified
public accountants "cold comfort"
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letters in customary form and at customary times and covering matters of
the type customarily covered by cold comfort letters;
(k) use its best efforts to obtain from its counsel an opinion or
opinions in customary form;
(l) provide a transfer agent and registrar (which may be the same
entity and which may be the Company) for such Registrable Shares;
(m) issue to any underwriter to which the holders of Registrable
Shares may sell shares in such offering certificates evidencing such
Registrable Shares;
(n) list such Registrable Shares on any national securities exchange
on which any shares of the Common Stock are listed or, if the Common Stock
is not listed on a national securities exchange, use its best efforts to
qualify such Registrable Shares for inclusion on the automated quotation
system of the National Association of Securities Dealers, Inc. (the
"NASD"), or such other national securities exchange as the holders of a
majority of the Registrable Shares shall request;
(o) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission and make available to its
securityholders, as soon as reasonably practicable, earnings statements
(which need not be audited) covering a period of 12 months beginning within
three months after the effective date of the registration statement, which
earnings statements shall satisfy the provisions of Section 11(a) of the
Securities Act; and
(p) use its best efforts to take all other steps necessary to effect
the registration of such Registrable Shares contemplated hereby.
SECTION 6. Expenses. All expenses incurred by the Company in complying with
Section 5, including, without limitation, all registration and filing fees
(including all expenses incident to filing with the NASD), fees and expenses of
complying with securities and "blue sky" laws, printing expenses, and fees and
expenses of the Company's counsel, shall be paid by the Company; provided,
however, that all underwriting discounts and selling commissions applicable to
the Registrable Shares shall not be borne by the Company but shall be borne by
the holders of Registrable Shares in proportion to the number of Registrable
Shares sold by each of them.
SECTION 7. Indemnification. In connection with any registration of any
Registrable Shares under the Securities Act pursuant to this Agreement, the
Company shall indemnify and hold
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harmless the holders of Registrable Shares, each underwriter, broker or any
other person acting on behalf of the holders of Registrable Shares and each
other person, if any, who controls any of the foregoing persons within the
meaning of the Securities Act against any losses, claims, damages or
liabilities, joint or several (or actions in respect thereof), to which any of
the foregoing persons may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in the registration statement under which
such Registrable Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained therein or otherwise filed
with the Commission, any amendment or supplement thereto or any document
incident to registration or qualification of any Registrable Shares, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or, with respect to any prospectus, necessary to make the
statements therein in light of the circumstances under which they were made not
misleading, or any violation by the Company of the Securities Act or state
securities or "blue sky" laws applicable to the Company and relating to action
or inaction required of the Company in connection with such registration or
qualification under such state securities or blue sky laws; and shall reimburse
the holders of Registrable Shares, such underwriter, such broker or such other
person acting on behalf of the holders of Registrable Shares and each such
controlling person for any legal or other expenses reasonably incurred by any of
them in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
preliminary prospectus, final prospectus, amendment, supplement or document
incident to registration or qualification of any Registrable Shares in reliance
upon and in conformity with written information furnished to the Company through
an instrument duly executed by the holders of Registrable Shares or underwriter
specifically for use in the preparation thereof.
In connection with any registration of Registrable Shares under the
Securities Act pursuant to this Agreement, each holder of Registrable Shares
shall indemnify and hold harmless (in the same manner and to the same extent as
set forth in the preceding paragraph of this Section 7) the Company, each
director of the Company, each officer of the Company who shall sign such
registration statement, each underwriter, broker or other person acting on
behalf of the holders of Registrable Shares and each person who controls any of
the foregoing persons within the meaning of the Securities Act with respect to
any statement or
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<PAGE>
omission from such registration statement, any preliminary prospectus or final
prospectus contained therein or otherwise filed with the Commission, any
amendment or supplement thereto or any document incident to registration or
qualification of any Registrable Shares, if such statement or omission was made
in reliance upon and in conformity with written information furnished to the
Company or such underwriter through an instrument duly executed by such holder
of Registrable Shares specifically for use in connection with the preparation of
such registration statement, preliminary prospectus, final prospectus,
amendment, supplement or document; provided, however, that the maximum amount of
liability in respect of such indemnification shall be limited, in the case of
each seller of Registrable Shares, to an amount equal to the net proceeds
actually received by such seller from the sale of Registrable Shares effected
pursuant to such registration.
Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in the preceding
paragraphs of this Section 7, such indemnified party will, if a claim in respect
thereof is made against an indemnifying party, give written notice to the latter
of the commencement of such action. In case any such action is brought against
an indemnified party, the indemnifying party will be entitled to participate in
and to assume the defense thereof, jointly with any other indemnifying party
similarly notified to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be responsible for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof; provided, however, that if any indemnified party shall have
reasonably concluded that there may be one or more legal or equitable defenses
available to such indemnified party which are additional to or conflict with
those available to the indemnifying party, or that such claim or litigation
involves or could have an effect upon matters beyond the scope of the indemnity
agreement provided in this Section 7, the indemnifying party shall not have the
right to assume the defense of such action on behalf of such indemnified party
and such indemnifying party shall reimburse such indemnified party and any
person controlling such indemnified party for that portion of the fees and
expenses of any counsel retained by the indemnified party which is reasonably
related to the matters covered by the indemnity agreement provided in this
Section 7.
If the indemnification provided for in this Section 7 is held by a court of
competent jurisdiction to be unavailable to an indemnified party with respect to
any loss, claim, damage, liability or action referred to herein, then the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
shall contribute to the amounts paid or payable by such
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<PAGE>
indemnified party as a result of such loss, claim, damage, liability or action
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions which resulted in such loss, claim,
damage, liability or action as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
SECTION 8. Underwriting Agreement. Notwithstanding the provisions of
Sections 4, 5, 6, and 7, to the extent that the holders of Registrable Shares
shall enter into an underwriting or similar agreement, which agreement contains
provisions covering one or more issues addressed in such Sections, the
provisions contained in such Sections addressing such issue or issues shall be
of no force or effect with respect to such registration.
SECTION 9. Information by Holders. Each of the holders of Registrable
Shares proposing to sell the same pursuant to a registration to which this
Agreement relates shall furnish to the Company such written information
regarding the holders of Registrable Shares and the distribution proposed by
such holders of Registrable Shares as the Company may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Agreement.
SECTION 10. Exchange Act Compliance. From the Registration Date or such
earlier date as a registration statement filed by the Company pursuant to the
Exchange Act relating to any class of the Company's securities shall have become
effective, the Company shall comply with all of the reporting requirements of
the Exchange Act (whether or not it shall be required to do so) and shall comply
with all other public information reporting requirements of the Commission which
are conditions to the availability of Rule 144 for the sale of the Common Stock.
The Company shall cooperate with the holders of Registrable Shares in supplying
such information as may be necessary for such holders to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the availability of Rule 144.
SECTION 11. No Conflict of Rights. The Company represents and warrants to
the holders of Registrable Shares that the registration rights granted
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to the holders of Registrable Shares hereby do not conflict with any other
registration rights granted by the Company. The Company shall not, after the
date hereof, grant any registration rights which conflict with or impair the
registration rights granted hereby.
SECTION 12. Termination. This Agreement shall terminate and be of no
further force or effect when there shall not be any Restricted Shares.
SECTION 13. Successors and Assigns. This Agreement shall bind and inure to
the benefit of the Company and the holders of Registrable Shares and, subject to
Section 14, the respective successors and assigns of the Company and holders of
Registrable Shares.
SECTION 14. Assignment. Each holder of Registrable Shares may assign its
rights hereunder to any purchaser or transferee acquiring all of such holder's
Restricted Shares; provided, however, that such purchaser or transferee shall,
as a condition to the effectiveness of such assignment, be required to execute a
counterpart to this Agreement agreeing to be treated as the seller or transferor
hereunder whereupon such purchaser or transferee shall have the benefits of, and
shall be subject to the restrictions contained in, this Agreement.
SECTION 15. Entire Agreement. This Agreement, the Secured Term Note, the
Common Stock Purchase Warrant, and the other writings referred to therein or
delivered pursuant thereto, contain the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior and contemporaneous
arrangements or understandings with respect thereto.
SECTION 16. Notices. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or sent by telecopy,
nationally-recognized overnight courier or first class registered or certified
mail, return receipt requested, postage prepaid, addressed to such party at the
address set forth below or such other address as may hereafter be designated in
writing by such party to the other parties:
(a) if to the Company, to:
BMJ Medical Management, Inc.
4800 N. Federal Highway
Suite 104D
Boca Raton, Florida 33431
Attention: President
Telecopier: (561) 391-1389;
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<PAGE>
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Lawrence G. Graev, Esq.;
Telecopier: (212) 408-2420; and
(b) if to any Holders, to the address of such Holders set forth on
Schedule I hereto.
All such notices, requests, consents and other communications shall be deemed to
have been delivered and received (a) in the case of personal delivery or
delivery by telecopier, on the date of such delivery, (b) in the case of
dispatch by nationally-recognized overnight courier, on the next business day
following such dispatch and (c) in the case of mailing, on the third business
day after the posting thereof.
SECTION 17. Modifications; Amendments; Waivers. The terms and provisions of
this Agreement may not be modified or amended, nor may any provision be waived,
except pursuant to a writing signed by the Company and the Holders; provided,
however, that the Company may amend Schedule I hereto to reflect any changes to
the Holders and the Registrable Shares owned by each such Holder.
SECTION 18. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
SECTION 19. Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be a part of this Agreement.
SECTION 20. Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of New York without
giving effect to any choice or conflict of law provision or rule (whether in the
State of New York or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of New York.
* * * *
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IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement as of the date first written above.
BMJ MEDICAL MANAGEMENT, INC.
(formerly known as Bone, Muscle and
Joint, Inc.)
By:_______________________________
David H. Fater
Executive Vice President
and Chief Financial Officer
HEALTHCARE FINANCIAL PARTNERS, INC.
By:_______________________________
Name:
Title:
<PAGE>
SCHEDULE I
Holders
Health Care Financial Partners, Inc.
2 Wisconsin Circle
Suite 320
Chevy Chase, Maryland 20815
Attention: Ethan D. Leder
President
Telecopier: (301) 664-9860
<PAGE>
THIRD AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT dated
as of September 30, 1997, among BMJ
MEDICAL MANAGEMENT, INC. (f/k/a
BONE, MUSCLE AND JOINT, INC.), a
Delaware corporation (the
"Company"), and the INVESTORS (as
hereinafter defined).
The Investors own or have the right to purchase or otherwise acquire shares
of the Common Stock, $.001 par value (the "Common Stock"), of the Company. The
Company and the Investors deem it to be in their respective best interests to
set forth the rights of the Investors in connection with public offerings and
sales of the Common Stock.
The Company and certain of the Investors are party to that certain Second
Amended and Restated Registration Rights Agreement dated as of March 12, 1997
(the "Original Agreement"). The Company and the Investors desire to amend and
restate the Original Agreement as provided herein.
In consideration of the premises and mutual covenants and obligations
hereinafter set forth, the parties hereto hereby agree as follows:
SECTION 1. Definitions. As used in this Agreement, the following terms
shall have the following meanings:
"Commission" shall mean the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934 or any
successor Federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"Investors" shall mean each of the persons identified as an Investor on
Schedule I hereto, and shall include any successor to, or assignee or transferee
of, any of the Investors who or that agree in writing to be treated as an
Investor pursuant to this Agreement and to be bound by the terms and comply with
all applicable provisions hereof.
Original Agreement" has the meaning specified in the recitals hereof.
<PAGE>
"Other Shares" shall mean at any time those shares of Common Stock that do
not constitute Primary Shares or Registrable Shares.
"Primary Shares" shall mean at any time the authorized but unissued shares
of Common Stock or shares of Common Stock held by the Company in its treasury.
"Registrable Shares" shall mean the shares of Common Stock held by the
Investors that constitute Restricted Shares.
"Registration Date" shall mean the date upon which the registration
statement pursuant to which the Company shall have initially registered shares
of Common Stock under the Securities Act for sale to the public shall have been
declared effective.
"Restricted Shares" shall mean the shares of Common Stock or any other
securities which by their terms are exercisable or exchangeable for or
convertible into Common Stock and any securities received in respect thereof,
which are held by an Investor and which have not theretofore been sold to the
public pursuant to a registration statement under the Securities Act or pursuant
to Rule 144.
"Rule 144" shall mean Rule 144 promulgated under the Securities Act or any
successor rule thereto or any complementary rule thereto (such as Rule 144A).
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
successor Federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
"Transfer" shall mean any disposition of any Restricted Shares or of any
interest therein that would constitute a sale thereof within the meaning of the
Securities Act other than any such disposition pursuant to an effective
registration statement under the Securities Act and complying with all
applicable state securities and "blue sky" laws.
SECTION 2. Required Registration. Upon the earlier to occur of (i) February
1, 2000 or (ii) that date which is six months after the consummation of the
initial public offering of the Common Stock, if the Company shall be requested
by in excess of 30 percent in interest of the Investors to effect the
registration under the Securities Act of Registrable Shares, then the Company
shall, within 10 days of such request, deliver a written notice of such proposed
registration to all holders of outstanding Registrable Shares and shall offer to
include in such proposed registration any Registrable Shares requested to be
included in such proposed registration by the holders of Registrable Shares who
or which shall respond in writing to the Company's notice within 15 days after
delivery thereof. The
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Company shall promptly thereafter use its best efforts to effect such
registration under the Securities Act of the Registrable Shares which the
Company has been so requested to register; provided, however, that the Company
shall not be obligated to effect any registration under the Securities Act
except in accordance with the following provisions:
(a) the Company shall not be obligated to use its best efforts to file
and cause to become effective (i) more than three registration statements
initiated pursuant to this Section 2 pursuant to which all of the
Registrable Shares requested to be included therein by the Investors have
been effectively sold thereunder or (ii) any registration statement during
any period in which any other registration statement (other than on Form
S-4 or Form S-8 promulgated under the Securities Act or any successor forms
thereto) pursuant to which Primary Shares are to be or were sold has been
filed and not withdrawn or has been declared effective within the prior 90
days;
(b) the Company may delay the filing or effectiveness of any
registration statement for a period of up to 180 days after the date of a
request for registration pursuant to this Section 2 if at the time of such
request (i) the Company is engaged, or has fixed plans to engage within 180
days of the time of such request, in a firm commitment underwritten public
offering of Primary Shares in which the holders of Registrable Shares may
include Registrable Shares pursuant to Section 3 or (ii) the Company
reasonably determines that such registration and offering would interfere
with any material transaction involving the Company, as approved by the
Board of Directors (as used herein "material transaction" shall mean any
transaction which would require a supplemental filing to a quarterly report
filed under Form 8-K with the Commission), provided that the Company may
only so delay the filing or effectiveness of a registration statement once
pursuant to clause (i) above and once pursuant to clause (ii) above; and
(c) with respect to any registration pursuant to this Section 2, the
Company may include in such registration any Primary Shares or Other
Shares; provided, however, that, in such case, such registration shall not
be treated as a registration initiated pursuant to this Section 2 if
Primary Shares are in fact sold pursuant to such Registration Statement;
provided further, however, that if the managing underwriter advises the
Company that the inclusion of all Registrable Shares, Primary Shares and
Other Shares proposed to be included in such registration would interfere
with the successful marketing (including pricing) of the Registrable Shares
proposed to be included in such registration, then (i) such registration
shall be treated as a registration initiated pursuant to this Section 2 if
no Primary Shares
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are in fact sold pursuant to such Registration Statement and (ii) the
number of Registrable Shares, Primary Shares and/or Other Shares proposed
to be included in such registration shall be included in the following
order:
(i) first, the Registrable Shares requested to be included in
such registration by the Investors (pro rata based on the
number of Restricted Shares held by all Investors requesting
inclusion of Registrable Shares in such registration);
(ii) second, the Primary Shares; and
(iii) third, the Other Shares, in such proportion as shall be
determined by the Company.
SECTION 3. Piggyback Registration. If the Company at any time proposes for
any reason to register Primary Shares or Other Shares under the Securities Act
(other than (i) registrations on Form S-4 or Form S-8 promulgated under the
Securities Act or any successor forms thereto or (ii) any registrations in
connection with an initial public offering of its Common Stock), it shall
promptly give written notice to all holders of outstanding Registrable Shares of
its intention so to register the Primary Shares or Other Shares and, upon the
written request, given within 30 days after delivery of any such notice by the
Company, of the holders of Registrable Shares to include in such registration
Registrable Shares held by such holders (which request shall specify the number
of Registrable Shares proposed to be included in such registration), the Company
shall use its best efforts to cause all such Registrable Shares to be included
in such registration on the same terms and conditions as the securities
otherwise being sold in such registration; provided, however, that if the
managing underwriter advises the Company that the inclusion of all such
Registrable Shares or Other Shares proposed to be included in such registration
would interfere with the successful marketing (including pricing) of Primary
Shares proposed to be registered by the Company, then the number of Primary
Shares, Registrable Shares and Other Shares proposed to be included in such
registration shall be included in the following order:
(i) first, the Primary Shares;
(ii) second, the Registrable Shares requested to be included in
such registration by the Investors (pro rata based on the
number of Restricted Shares held by all Investors requesting
inclusion of Registrable Shares in such registration); and
(iii) third, the Other Shares in such proportion as shall be
determined by the Company.
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<PAGE>
SECTION 4. Registrations on Form S-3. Anything contained in Section 2 to
the contrary notwithstanding, at such time as the Company shall have qualified
for the use of Form S-3 promulgated under the Securities Act or any successor
form thereto, the holders of 30 percent of the Registrable Shares shall have the
right to request in writing an unlimited number of registrations on Form S-3, or
such successor form, of Registrable Shares held by them (the Company to bear the
costs of such registrations), which request or requests shall (i) specify the
number of Registrable Shares intended to be sold or disposed of, (ii) state the
intended method of disposition of such Registrable Shares and (iii) relate to
Registrable Shares having an anticipated aggregate offering price of at least
$500,000. A requested registration on Form S-3, or any such successor form, in
compliance with this Section 4 shall not count as a registration statement
initiated pursuant to Section 2 but shall otherwise be treated as a registration
initiated pursuant to Section 2 and shall, except as otherwise expressly
provided in this Section 4, be subject to Section 2.
SECTION 5. Condition to Registration Obligations. The Corporation shall not
be obligated to effect the registration of the Registrable Shares pursuant to
Section 2, 3 or 4 unless each of the Stockholders electing to participate in
such registration executes a power of attorney, custody arrangement and other
documents customary in such transactions and reasonably required by the managing
underwriter thereof prior to the filing of the registration statement.
SECTION 6. Holdback Agreement. If the Company at any time shall register
shares of Common Stock under the Securities Act (including any registration
pursuant to Sections 2, 3 or 4) for sale to the public, the Investors shall not
sell publicly, make any short sale of, grant any option for the purchase of, or
otherwise dispose publicly of, any Restricted Shares (other than those shares of
Common Stock included in such registration pursuant to Sections 2, 3 or 4)
without the prior written consent of the Company for a period designated by the
Company in writing to the holders of Registrable Shares, which period shall not
begin more than 10 days prior to the effectiveness of the registration statement
pursuant to which such public offering shall be made and shall not last more
than 180 days after the effective date of such registration statement.
SECTION 7. Preparation and Filing. If and whenever the Company is under an
obligation pursuant to the provisions of this Agreement to use its best efforts
to effect the registration of any Registrable Shares, the Company shall, as
expeditiously as practicable:
(a) use its best efforts to cause a registration statement that
registers such Registrable Shares to become
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and remain effective for a period of 90 days (or 12 months for
registrations on Form S-3 or successor form) or until all of such
Registrable Shares have been disposed of (if earlier);
(b) furnish, at least five business days before filing a registration
statement that registers such Registrable Shares, a prospectus relating
thereto or any amendments or supplements relating to such a registration
statement or prospectus, to one counsel selected by the holders of a
majority in interest of Registrable Shares (the Investors' Counsel"),
copies for review and comment during such five days of all such documents
proposed to be filed (it being understood that such five-business-day
period need not apply to successive drafts of the same document proposed to
be filed so long as such successive drafts are supplied to the Investors'
Counsel in advance of the proposed filing by a period of time that is
customary and reasonable under the circumstances);
(c) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for at least a period of 90 days (or 12 months for
registrations on Form S-3 or successor form) or until all of such
Registrable Shares have been disposed of (if earlier) and to comply with
the provisions of the Securities Act with respect to the sale or other
disposition of such Registrable Shares and furnish copies of all such
amendments and supplements to Investors' Counsel;
(d) notify in writing the Investors' Counsel promptly (i) of the
receipt by the Company of any notification with respect to any comments by
the Commission relating to such registration statement or prospectus or any
amendment or supplement thereto or any request by the Commission for the
amendment or supplement thereof or for additional information with respect
thereto, (ii) of the receipt by the Company of any notification with
respect to the issuance by the Commission of any stop order suspending the
effectiveness of such registration statement or prospectus or any amendment
or supplement thereto or the initiation or threatening of any proceeding
for that purpose and (iii) of the receipt by the Company of any
notification with respect to the suspension of the qualification of such
Registrable Shares for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purposes and furnish copies of all
such notices to Investors' Counsel;
(e) use its best efforts to register or qualify such Registrable
Shares under such other securities or "blue sky" laws of such jurisdictions
as the Investors reasonably request
-6-
<PAGE>
and do any and all other acts and things which may be reasonably necessary
or advisable to enable the holders of Registrable Shares to consummate the
disposition in such jurisdictions of such Registrable Shares; provided,
however, that the Company will not be required to qualify generally to do
business, subject itself to general taxation or consent to general service
of process in any jurisdiction where it would not otherwise be required to
do so but for this paragraph (e);
(f) furnish to the holders of Registrable Shares such number of copies
of a summary prospectus or other prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and
such other documents as the holders of Registrable Shares may reasonably
request in order to facilitate the public sale or other disposition of such
Registrable Shares;
(g) use its best efforts to cause such Registrable Shares to be
registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and operations of
the Company to enable the holders of Registrable Shares to consummate the
disposition of such Registrable Shares;
(h) notify the holders of Registrable Shares on a timely basis at any
time when a prospectus relating to such Registrable Shares is required to
be delivered under the Securities Act within the appropriate period
mentioned in subparagraph (a) of this Section 6, of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing and, at the request of the holders of
Registrable Shares, prepare and furnish to the holders of Registrable
Shares a reasonable number of copies of a supplement to or amendment of
such prospectus as may be necessary so that, as thereafter delivered to the
offerees of such shares, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing;
(i) make available for inspection by the holders of Registrable
Shares, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained
by the holders of Registrable Shares or any underwriter (collectively, the
"Inspectors"), all pertinent financial and other records, pertinent
corporate documents and properties of the Company
-7-
<PAGE>
(collectively, the "Records"), as shall be reasonably necessary to enable
them to exercise their due diligence responsibility, and cause the
Company's officers, directors and employees to supply all information
(together with the Records, the "Information") reasonably requested by any
such holders of Registrable Shares in connection with such registration
statement. Any of the Information which the Company determines in good
faith to be confidential, and of which determination the Inspectors are so
notified, shall not be disclosed by the Inspectors unless (i) the
disclosure of such Information is necessary to avoid or correct a
misstatement or omission in the registration statement, (ii) the release of
such Information is ordered pursuant to a subpoena or other order from a
court of competent jurisdiction or (iii) such Information has been made
generally available to the public. The holders of Registrable Shares agree
that they will, upon learning that disclosure of such Information is sought
in a court of competent jurisdiction, give notice to the Company and allow
the Company, at the Company's expense, to undertake appropriate action to
prevent disclosure of the Information deemed confidential;
(j) use its best efforts to obtain from its independent certified
public accountants "cold comfort" letters in customary form and at
customary times and covering matters of the type customarily covered by
cold comfort letters;
(k) use its best efforts to obtain from its counsel an opinion or
opinions in customary form;
(l) provide a transfer agent and registrar (which may be the same
entity and which may be the Company) for such Registrable Shares;
(m) issue to any underwriter to which the holders of Registrable
Shares may sell shares in such offering certificates evidencing such
Registrable Shares;
(n) list such Registrable Shares on any national securities exchange
on which any shares of the Common Stock are listed or, if the Common Stock
is not listed on a national securities exchange, use its best efforts to
qualify such Registrable Shares for inclusion on the automated quotation
system of the National Association of Securities Dealers, Inc. (the
"NASD"), or such other national securities exchange as the holders of a
majority of the Registrable Shares shall request;
(o) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission and make available to its
securityholders, as soon as reasonably
-8-
<PAGE>
practicable, earnings statements (which need not be audited) covering a
period of 12 months beginning within three months after the effective date
of the registration statement, which earnings statements shall satisfy the
provisions of Section 11(a) of the Securities Act; and
(p) use its best efforts to take all other steps necessary to effect
the registration of such Registrable Shares contemplated hereby.
SECTION 8. Expenses. All expenses incurred by the Company in complying with
Section 7, including, without limitation, all registration and filing fees
(including all expenses incident to filing with the NASD), fees and expenses of
complying with securities and "blue sky" laws, printing expenses, fees and
expenses of the Company's counsel and accountants and fees and expenses of the
Investors' Counsel, shall be paid by the Company; provided, however, that all
underwriting discounts and selling commissions applicable to the Registrable
Shares shall not be borne by the Company but shall be borne by the holders of
Registrable Shares in proportion to the number of Registrable Shares sold by
each of them.
SECTION 9. Indemnification. In connection with any registration of any
Registrable Shares under the Securities Act pursuant to this Agreement, the
Company shall indemnify and hold harmless the holders of Registrable Shares,
each underwriter, broker or any other person acting on behalf of the holders of
Registrable Shares and each other person, if any, who controls any of the
foregoing persons within the meaning of the Securities Act against any losses,
claims, damages or liabilities, joint or several (or actions in respect
thereof), to which any of the foregoing persons may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in the
registration statement under which such Registrable Shares were registered under
the Securities Act, any preliminary prospectus or final prospectus contained
therein or otherwise filed with the Commission, any amendment or supplement
thereto or any document incident to registration or qualification of any
Registrable Shares, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or, with respect to any
prospectus, necessary to make the statements therein in light of the
circumstances under which they were made not misleading, or any violation by the
Company of the Securities Act or state securities or "blue sky" laws applicable
to the Company and relating to action or inaction required of the Company in
connection with such registration or qualification under such state securities
or blue sky laws; and shall reimburse the holders of Registrable Shares, such
underwriter, such broker or
-9-
<PAGE>
such other person acting on behalf of the holders of Registrable Shares and each
such controlling person for any legal or other expenses reasonably incurred by
any of them in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in said
registration statement, preliminary prospectus, final prospectus, amendment,
supplement or document incident to registration or qualification of any
Registrable Shares in reliance upon and in conformity with written information
furnished to the Company through an instrument duly executed by the holders of
Registrable Shares or underwriter specifically for use in the preparation
thereof.
In connection with any registration of Registrable Shares under the
Securities Act pursuant to this Agreement, each holder of Registrable Shares
shall indemnify and hold harmless (in the same manner and to the same extent as
set forth in the preceding paragraph of this Section 9) the Company, each
director of the Company, each officer of the Company who shall sign such
registration statement, each underwriter, broker or other person acting on
behalf of the holders of Registrable Shares and each person who controls any of
the foregoing persons within the meaning of the Securities Act with respect to
any statement or omission from such registration statement, any preliminary
prospectus or final prospectus contained therein or otherwise filed with the
Commission, any amendment or supplement thereto or any document incident to
registration or qualification of any Registrable Shares, if such statement or
omission was made in reliance upon and in conformity with written information
furnished to the Company or such underwriter through an instrument duly executed
by such holder of Registrable Shares specifically for use in connection with the
preparation of such registration statement, preliminary prospectus, final
prospectus, amendment, supplement or document; provided, however, that the
maximum amount of liability in respect of such indemnification shall be limited,
in the case of each seller of Registrable Shares, to an amount equal to the net
proceeds actually received by such seller from the sale of Registrable Shares
effected pursuant to such registration.
Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in the preceding
paragraphs of this Section 9, such indemnified party will, if a claim in respect
thereof is made against an indemnifying party, give written notice to the latter
of the commencement of such action. In case any such action is brought against
an indemnified party, the indemnifying party will be entitled to participate in
and to assume the defense thereof, jointly with any other indemnifying party
similarly notified to the extent that it may wish, with counsel reasonably
satisfactory
-10-
<PAGE>
to such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be responsible for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof; provided, however, that if any indemnified party shall have reasonably
concluded that there may be one or more legal or equitable defenses available to
such indemnified party which are additional to or conflict with those available
to the indemnifying party, or that such claim or litigation involves or could
have an effect upon matters beyond the scope of the indemnity agreement provided
in this Section 9, the indemnifying party shall not have the right to assume the
defense of such action on behalf of such indemnified party and such indemnifying
party shall reimburse such indemnified party and any person controlling such
indemnified party for that portion of the fees and expenses of any counsel
retained by the indemnified party which is reasonably related to the matters
covered by the indemnity agreement provided in this Section 9.
If the indemnification provided for in this Section 9 is held by a court of
competent jurisdiction to be unavailable to an indemnified party with respect to
any loss, claim, damage, liability or action referred to herein, then the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
shall contribute to the amounts paid or payable by such indemnified party as a
result of such loss, claim, damage, liability or action in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and of the indemnified party on the other in connection with the statements
or omissions which resulted in such loss, claim, damage, liability or action as
well as any other relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
SECTION 10. Underwriting Agreement. Notwithstanding the provisions of
Sections 6, 7, 8 and 9, to the extent that the holders of Registrable Shares
shall enter into an underwriting or similar agreement, which agreement contains
provisions covering one or more issues addressed in such Sections, the
provisions contained in such Sections addressing such issue or issues shall be
of no force or effect with respect to such registration.
SECTION 11. Information by Holder. Each of the holders of Registrable
Shares proposing to sell the same pursuant to a registration to which this
Agreement relates shall furnish to the Company such written information
regarding the holders of
-11-
<PAGE>
Registrable Shares and the distribution proposed by such holders of Registrable
Shares as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Agreement.
SECTION 12. Exchange Act Compliance. From the Registration Date or such
earlier date as a registration statement filed by the Company pursuant to the
Exchange Act relating to any class of the Company's securities shall have become
effective, the Company shall comply with all of the reporting requirements of
the Exchange Act (whether or not it shall be required to do so) and shall comply
with all other public information reporting requirements of the Commission which
are conditions to the availability of Rule 144 for the sale of the Common Stock.
The Company shall cooperate with the holders of Registrable Shares in supplying
such information as may be necessary for such holders to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the availability of Rule 144.
SECTION 13. No Conflict of Rights. The Company represents and warrants to
the holders of Registrable Shares that the registration rights granted to the
holders of Registrable Shares hereby do not conflict with any other registration
rights granted by the Company. The Company shall not, after the date hereof,
grant any registration rights which conflict with or impair the registration
rights granted hereby.
SECTION 14. Termination. This Agreement shall terminate and be of no
further force or effect when there shall not be any Restricted Shares.
SECTION 15. Successors and Assigns. This Agreement shall bind and inure to
the benefit of the Company and the holders of Registrable Shares and, subject to
Section 16, the respective successors and assigns of the Company and holders of
Registrable Shares.
SECTION 16. Assignment. Each holder of Registrable Shares may assign its
rights hereunder to any purchaser or transferee acquiring at least 50,000 of
such holder's Restricted Shares; provided, however, that such purchaser or
transferee shall, as a condition to the effectiveness of such assignment, be
required to execute a counterpart to this Agreement agreeing to be treated as
the seller or transferor hereunder whereupon such purchaser or transferee shall
have the benefits of, and shall be subject to the restrictions contained in,
this Agreement.
SECTION 17. Entire Agreement. This Agreement amends, restates and
supersedes in its entirety the Original Agreement,
-12-
<PAGE>
and contains the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior and contemporaneous arrangements or
understandings with respect thereto.
SECTION 18. Notices. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or sent by telecopy,
nationally-recognized overnight courier or first class registered or certified
mail, return receipt requested, postage prepaid, addressed to such party at the
address set forth below or such other address as may hereafter be designated in
writing by such party to the other parties:
(a) if to the Company, to:
BMJ Medical Management, Inc.
4800 N. Federal Highway
Suite 104D
Boca Raton, Florida 33431
Attention: President
Telecopier: (561) 391-1389;
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Lawrence G. Graev, Esq.;
Telecopier: (212) 408-2420; and
(b) if to any Investor, to the address of such Investor set forth on
Schedule I hereto.
All such notices, requests, consents and other communications shall be deemed to
have been delivered and received (a) in the case of personal delivery or
delivery by telecopier, on the date of such delivery, (b) in the case of
dispatch by nationally-recognized overnight courier, on the next business day
following such dispatch and (c) in the case of mailing, on the third business
day after the posting thereof.
SECTION 19. Modifications; Amendments; Waivers. The terms and provisions of
this Agreement may not be modified or amended, nor may any provision be waived,
except pursuant to a writing signed by (i) the Company and (ii) the holders of
at least 80% of the Restricted Shares then issued and outstanding; provided,
however, that no modification or amendment shall be effective to reduce the
percentages of the shares of the holders the approval of which is required under
this Section 19 nor shall any modification or amendment discriminate against any
Investor without the consent of such Investor.
-13-
<PAGE>
SECTION 20. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
SECTION 21. Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be a part of this Agreement.
SECTION 22. Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of New York without
giving effect to any choice or conflict of law provision or rule (whether in the
State of New York or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of New York.
* * * *
-14-
<PAGE>
IN WITNESS WHEREOF, the parties set forth below, constituting the holders
of at least 80% of the Restricted Shares, have executed this Third Amended and
Restated Registration Rights Agreement as of the date first written above.
BMJ MEDICAL MANAGEMENT, INC.
(f/k/a/ BONE, MUSCLE AND JOINT, INC.)
By:_______________________________
David H. Fater.
Executive Vice President and Chief
Financial Officer
DELPHI VENTURES III, L.P.
By: DELPHI MANAGEMENT PARTNERS
III, L.L.C,
its General Partner
By:_______________________________
Donald J. Lothrop
Managing Member
DELPHI BIOINVESTMENTS III, L.P.
By: DELPHI MANAGEMENT PARTNERS
III, L.L.C,
its General Partner
By:_______________________________
Donald J. Lothrop
Managing Member
OAK INVESTMENT PARTNERS VI, LIMITED
PARTNERSHIP
By: OAK ASSOCIATES VI, LIMITED
PARTNERSHIP,
its General Partner
By:_______________________________
Ann H. Lamont
Managing Member
<PAGE>
OAK VI AFFILIATES FUND, LIMITED
PARTNERSHIP, L.P.
By: OAK VI AFFILIATES, LLC,
its General Partner
By:_______________________________
Ann H. Lamont
Managing Member
----------------------------------
Naresh Nagpal, M.D.
CGJR HEALTH CARE SERVICES PRIVATE
EQUITIES, L.P.
By: CGJR CAPITAL MANAGEMENT, INC.,
its General Partner
By:_________________________________
Christopher Grant, Jr.
President
CGJR II, L.P.
By: CGJR CAPITAL MANAGEMENT, INC.,
its General Partner
By:_________________________________
Christopher Grant, Jr.
President
<PAGE>
CGJR/MF III, L.P.
By: CGJR CAPITAL MANAGEMENT, INC.,
its General Partner
By:_________________________________
Christopher Grant, Jr.
President
HIS VENTURES, LLC
By:_________________________________
Name:
Title:
<PAGE>
SCHEDULE I
Investors
Delphi Ventures III, L.P. Delphi BioInvestments III, L.P.
3000 Sand Hill Road 3000 Sand Hill Road
Building 1, Suite 135 Building 1, Suite 135
Menlo Park, California 94025 Menlo Park, CA 94025
Telecopier: (415) 854-2961 Telecopier: (415) 854-2961
Oak Investment Partners Oak VI Affiliates Fund
VI, L.P. Limited Partnership
One Gorham Island One Gorham Island
Westport, Connecticut 06880 Westport, Connecticut 06880
Telecopier: (203) 227-0372 Telecopier: (203) 227-0372
Scheer & Company, Inc. Naresh Nagpal, M.D.
250 West Main Street 2378 N.W. 60th Street
P.O. Box 299 Boca Raton, Florida 33496
Branford, Connecticut 06405 Telecopier: (407) 998-4649
Telecopier: (203) 481-4164
CGJR Health Care Services CGJR II, L.P.
Private Equities, L.P. 104 Woodmont Boulevard
104 Woodmont Boulevard Suite 410
Suite 410 Nashville, Tennessee 37205
Nashville, Tennessee 37205 Telecopier: (615) 297-6730
Telecopier: (615) 297-6730
CGJR/MF III, L.P. HIS Ventures, LLC
104 Woodmont Boulevard 820 Gessner
Suite 410 Suite 1000
Nashville, Tennessee 37205 Houston, Texas 77024-4259
Telecopier: (615) 297-6730 Telecopier: (713) 467-8031
<PAGE>
Exhibit 11
BMJ Medical Management, Inc.
Computation of Per Share Earnings
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996 1997
------------------------------------------------------
(unaudited) (audited)
<S> <C> <C> <C>
Net loss $ (1,109,379) $ (686,000) $ (3,152,000)
------------------------------------------------------
Weighted average common shares outstanding 966,721 785,760 1,625,000
Shares related to Staff Accounting Bulletin No. 83(1):
Common stock 7,886,924 7,886,924 7,886,924
Common stock options 1,212,913 1,212,913 1,212,913
Common stock warrants 115,973 115,973 115,973
Convertible preferred stock 1,657,865 1,657,865 1,657,865
------------------------------------------------------
11,870,395 11,659,434 12,498,674
------------------------------------------------------
------------------------------------------------------
Net loss per common share $ (0.09) $ (0.06) $ (0.25)
------------------------------------------------------
------------------------------------------------------
</TABLE>
(1) Common share equivalents (stock options, warrants and convertible
preferred stock) are excluded from the computation of loss per share as
their effect is antidilutive, except that, pursuant to Securities and
Exchange Commission Staff Accounting Bulletin No. 83, common stock
options and warrants issued and common and convertible preferred
stock sold in the 12 months preceding the offering date have been
included in the calculation as if outstanding for all periods
presented using the treasury stock method and the assumed initial
public offering price of $8.00.
<PAGE>
Subsidiaries
Jurisdiction of
Name of Subsidiary Incorporation or Organization
- ------------------ -----------------------------
1. BMJ of Lake Tahoe, Inc. Nevada
2. BMJ of Bethlehem, Inc. Pennsylvania
3. BMJ of North Broward, Inc. Delaware
4. BMJ Capital Corp. Delaware
5. BMJ of Bakersfield, Inc. Delaware
6. Surgical Associates of Lake Tahoe Nevada
7. BMJ Surgical Associates of Bethlehem, L.P. Pennsylvania
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our reports as follows in Amendment
No. 2 to the Registration Statement on Form S-1 (File No. 333-35759) and
related Prospectus of BMJ Medical Management, Inc. dated December 2, 1997.
Report on Finacial Statements Date of Report
- --------------------------------------------------------------------------------
BMJ Medical Management, Inc. November 11, 1997
Orthopaedic Associates of Bethlehem, Inc. May 28, 1997, except
for Note 13, as to
which the date is
August 14, 1997
Southern California Orthopedic Institute Medical May 23, 1997
Group, a California General Partnership
South Texas Spinal Clinic, P.A. June 5, 1997
Tri-City Orthopedic Surgery Medical Group, Inc. May 17, 1997
Lauderdale Orthopaedic Surgeons May 21, 1997
Fishman and Stashak, M.D.'s, P.A. d/b/a/ Gold Coast July 9, 1997
Orthopedics
Sun Valley Orthopaedic Surgeons, an Arizona General July 18, 1997
Partnerahip
Orthopaedic Surgery Associates, P.A. October 10, 1997
Broward Institute of Orthopaedic Specialties, P.A. September 5, 1997
/s/ Ernst & Young LLP
West Palm Beach, Florida
November 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BMJ MEDICAL MANAGEMENT, INC. AND AFFILIATED MEDICAL
PRACTICES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,404,000
<SECURITIES> 0
<RECEIVABLES> 34,435,000
<ALLOWANCES> 15,110,000
<INVENTORY> 0
<CURRENT-ASSETS> 21,771,000
<PP&E> 4,365,000
<DEPRECIATION> 488,000
<TOTAL-ASSETS> 42,429,000
<CURRENT-LIABILITIES> 10,793,000
<BONDS> 0
0
42,000
<COMMON> 10,000
<OTHER-SE> 15,104,000
<TOTAL-LIABILITY-AND-EQUITY> 42,429,000
<SALES> 0
<TOTAL-REVENUES> 20,447,000
<CGS> 0
<TOTAL-COSTS> 22,782,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 817,000
<INCOME-PRETAX> (3,152,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,152,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,152,000)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
