AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON_______________, 1998
REGISTRATION STATEMENT 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
MEDI-CEN MANAGEMENT, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
MARYLAND 8721 52-1892451
STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
5301 WISCONSIN AVENUE, SUITE 620
WASHINGTON, D.C. 20015
(301) 961-2799
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MR. MICHAEL MACEDO
CHIEF EXECUTIVE OFFICER
5301 WISCONSIN AVENUE, SUITE 620
WASHINGTON, D.C. 20015
(301) 961-2799
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
Copies of Communications to:
Jeffrey A. Baumel, Esq. Elizabeth Hughes, Esq.
Gibbons, Del Deo, Dolan, Venable, Baetjer & Howard, LLP
Griffinger & Vecchione 1800 Mercantile Bank & Trust
One Riverfront Plaza Two Hopkins Place
Newark, New Jersey 07102 Baltimore, Maryland
(973) 596-4500 (410) 244-7400
APPROXIMATE DATE OF COMMENCEMENT PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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, 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(d)
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 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 OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM
TITLE OF EACH CLASS AMOUNT PROPOSED AGGREGATE AMOUNT
OF SECURITIES TO BE MAXIMUM PRICE OFFERING OF
TO BE REGISTERED REGISTERED PER SECURITY(1) PRICE(1) REGISTRATION FEE
---------------- ---------- --------------- -------- ----------------
<S> <C> <C> <C> <C>
Common Stock, par value $.0024 per share ....... 2,300,000(2) $10.00 $23,000,000 $6,969.70
Total Registration Fee ............................................................................... $6,969.70
</TABLE>
(1) Estimated solely for purposes of calculating registration fee.
(2) Includes 300,000 shares of Common Stock subject to an over-allotment option
granted to the Underwriter.
<PAGE>
SUBJECT TO COMPLETION DATED MARCH 16, 1998
PROSPECTUS [LOGO]
2,000,000 SHARES
MEDI-CEN MANAGEMENT, INC.
COMMON STOCK
[RED HERRING LANGUAGE: Information contained herein is subject to completion or
amendment. A registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time this registration statement
becomes effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.]
All of the shares of Common Stock, par value $0.0024 per share (the Common
Stock) offered hereby are being sold by Medi-Cen Management, Inc. (MMI or the
Company). Prior to this offering (the Offering), there has been no significant
public market for the Common Stock of the Company. For a discussion of the
factors considered in determining the initial public offering price, see
Underwriting.
It is currently estimated that the initial public offering price will be
between $8.00 and $10.00 per share. The Company has applied for listing of the
shares of Common Stock for quotation on the Nasdaq National Market under the
symbol MCEN.
SEE RISK FACTORS BEGINNING ON PAGE 6 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
SHARES OF COMMON STOCK OFFERED HEREBY.
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.
UNDERWRITING
PRICE TO DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
Per Share ................. $ $ $
Total (3) ................. $ $ $
(1) Does not include additional consideration to be received by Ferris, Baker
Watts, Incorporated (the Representative) in the form of a one percent
non-accountable expense allowance and the value of warrants to be issued to
the Representative to purchase 200,000 shares of Common Stock at an
exercise price of 110% of the Price to Public (the Representative's
Warrants). The Company has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended (the Securities Act). See Underwriting.
(2) Before deducting expenses of the Offering payable by the Company estimated
at $905,000, including the Underwriter's non-accountable expense allowance.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 300,000 shares of Common Stock on the same terms and
conditions as set forth herein, solely to cover over-allotments, if any. If
the Underwriters exercise such option in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively. See Underwriting.
The shares of Common Stock are offered by the Underwriters named herein,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters and subject to their right to reject any order in whole or in part.
It is expected that delivery of certificates representing the shares of Common
Stock will be made against payment therefor at the offices of Ferris, Baker
Watts, Incorporated, 1720 Eye Street, N.W., Washington, D.C., or through the
Depository Trust Company on or about , 1998.
FERRIS, BAKER WATTS
Incorporated
The date of this Prospectus is ________, 1998
<PAGE>
AVAILABLE INFORMATION
As of the date of this Prospectus, the Company will become subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
Exchange Act), and in accordance therewith, will file reports, proxy statements
and other information with the Securities and Exchange Commission (the
Commission). The Company intends to furnish its stockholders with annual reports
containing audited financial statements and such other periodic reports as the
Company deems appropriate or as may be required by law.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS,
ON NASDAQ, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE, WHICH STABILIZE,
MAINTAIN OR OTHERWISE AFFECT THE PRICES OF THE COMMON STOCK. SPECIFICALLY, THE
UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING AND MAY BID FOR AND
PURCHASE SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE UNDERWRITING.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information, including risk factors and
financial statements, including the notes thereto, appearing elsewhere in this
Prospectus. Each prospective investor is urged to read this Prospectus in its
entirety. Unless otherwise indicated, the information contained in this
Prospectus, including per share data and information relating to the number of
shares outstanding gives effect to (i) a 4.132 for one stock split of the Common
Stock effected on the date of this Prospectus, (ii) the merger (Merger) of
Medi-Cen Corporation of America (MCA) into a wholly owned subsidiary of the
Company effective on the date of this Prospectus, (iii) and assumes no exercise
of the Underwriters' over-allotment option. All references herein to the Company
shall include the Company and MCA together. See Description of Securities and
Underwriting. This Prospectus contains forward looking statements that involve
risks and uncertainties. The Company's actual results may differ materially from
the results discussed in the forward looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed in Risk
Factors.
THE COMPANY
Medi-Cen Management, Inc. (MMI or the Company) provides or arranges for the
provision of management services to medical practices and develops low-cost
physician driven provider networks and medical mall facilities. The Company has
developed three medical mall facilities in the Washington, D.C. metropolitan
area, each providing medical services ranging from general family practice to
selected specialties. Through the medical mall facilities, the Company enables
health care providers and payors to offer patients high-quality medical services
on a cost-effective basis. Additional physician management services provided by
the Company include marketing, health care payor contracting and financial and
administrative management. The Company currently manages a network of
approximately 57 licensed health care providers that treat over 100,000 active
patients. The Company intends to rapidly expand the medical mall concept
throughout the Washington-Baltimore metropolitan area and throughout the
mid-Atlantic region to take advantage of market opportunities.
The Company believes that there are several advantages to its medical mall
strategy. The one-stop facility permits patients to see both primary care
providers and specialists under one roof, which is both convenient and
time-saving. In addition, the Company provides patients with a single
comprehensive monthly statement for all medical services provided at the medical
malls, thereby reducing paperwork and confusion. The Company also believes that
the medical malls reduce overhead expenses, ultimately resulting in lower health
care delivery costs. Finally, the Company believes the medical malls will help
attract high-quality health care providers by: (i) increasing provider
compensation by lowering overhead costs; (ii) allowing health care providers to
locally control the practice of medicine; (iii) offering providers the ability
to consult with other specialists in the facilities; and (iv) providing the
financial incentive and automony of controlling the physical assets and
non-professional costs of the medical practices through its franchise structure.
The Company affiliates with licensed health care providers who are seeking
the resources necessary to function effectively in health care markets that are
evolving from fee-for-service to managed care payor systems. The Company
enhances the operations of medical practices by centralizing administrative
functions and introducing management tools, such as clinical guidelines,
utilization review and outcomes measurement. The Company also provides medical
practices with access to capital and sophisticated management information
systems. In addition, the Company receives payments from over 1,400 health
maintenance organizations and other third-party payors. These relationships
provide licensed health care providers with the opportunity to operate under a
variety of payor arrangements and to increase their patient flow.
The Company has developed a corporate structure that provides licensed
health care providers control over the delivery of medical services while the
Company provides, or arranges for the provision of, administrative services. The
Company has entered into long-term management service agreements with two
networks of health care providers, Yater Medical Group, P.C. (Yater) and
Medi-Cen Physician Services, L.L.P. (MPS, and together with Yater, the PCs),
which directly employ the health care providers that treat the patients in
3
<PAGE>
the medical malls. The management services agreements require the Company to
provide, or arrange for the provision of, substantially all non-professional
services on behalf of the PCs, including, but not limited to, billing,
recruitment and establishment of medical malls. The Company has arranged for a
franchisee, Medi-Cen, Corp. of Maryland, Inc. (MOM) to provide operational
services at the medical malls, including the payment of rent for the facilities,
the purchase of supplies and equipment and salaries for non-professional staff.
A majority of the health care providers employed by the PCs are also equity
owners in MOM and, accordingly, have direct input into local governance and
certain operations of the medical practices as well as a direct incentive to
efficiently utilize the facilities.
Fee-for-service reimbursement is rapidly being replaced by alternative
reimbursement models, including capitated and other discounted-fee arrangements.
In response, individual physicians and small group practices are increasingly
affiliating with larger group practices and physician practice management
companies. The Washington, D.C. area in which the Company operates has been
particularly affected by the changing health care environment. The Company
believes that fewer than 6% of physicians in the Washington - Baltimore
metropolitan area have entered into practice management agreements, providing
significant opportunities for the Company to assist physicians in developing
medical mall facilities and managing the administrative aspects of group
practices and networks.
The Company believes that it is well positioned to attract, organize and
manage medical group practices by offering, through the unique medical mall and
franchise concept, a full range of integrated management services and access to
managed care patients. The Company's strategy includes (i) developing additional
medical mall facilities, (ii) providing low cost medical services by increasing
operational efficiencies and cost reductions, (iii) attracting high quality
health care providers, (iv) diversifying its payor base, and (v) utilizing
sophisticated management information systems.
The Company was incorporated on March 25, 1994 under the laws of the State
of Maryland and commenced operations on January 1, 1995. The Company's principal
executive offices are located at 5301 Wisconsin Avenue, Suite 620, Washington,
DC 20015, and its telephone number is (301) 961-2799.
THE OFFERING
Common Stock Offered by the Company.. 2,000,000 shares
Common Stock to be Outstanding after
the Offering ..................... 5,378,046 shares (1)
Use of Proceeds .................... The Company intends to use the net
proceeds of the Offering for the
development of medical mall facilities,
the repayment of certain debt to finance
acquisitions and expansion of the PCs,
working capital, and general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market
Symbol ........................... MCEN
(1) Excludes (i) 2,000,000 shares of Common Stock issuable upon the exercise of
options under the Company's Stock Option Plan, 1,800,000 of which have been
granted at an exercise price equal to the initial public offering price;
(ii) 945,826 shares of Common Stock issuable pursuant to the exercise of
certain other options and warrants at a weighted average exercise price of
$4.36; (iii) approximately 36,111 shares of Common Stock issuable upon
consummation of this Offering in lieu of compensation valued at the initial
public offering price; and (iv) up to 116,109 shares of Common Stock
issuable upon consummation of the Merger. See "Management-Stock Option
Plan," "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Overview" and "Underwriting."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
Due to control by the Company, the summary consolidated financial data
presented below reflects the consolidation of the operations of MPS with those
of the Company for all periods presented and the operations of Yater with those
of the Company for the period ending December 31, 1997.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997
---- ---- ----
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C>
Total revenue........................................................... $ 1,151,144 $ 1,304,130 $ 6,603,791
Operating income........................................................ 268,669 278,149 1,044,558
Net income.............................................................. 284,107 267,008 1,046,563
Net income per share.................................................... $ 0.31
Weighted average number of shares outstanding........................... 3,363,084
CERTAIN OPERATING DATA:
Staff health care providers............................................. 8 11 53
Independent network health care providers............................... 120 123 114
Patients treated........................................................ 4,498 13,952 104,481
Payors.................................................................. 553 987 1,406
DECEMBER 31, 1997
------------------------------
ACTUAL AS ADJUSTED(1)
------ --------------
BALANCE SHEET DATA:
Working capital (deficit)........................................................... $ 1,930,487 $ 17,632,791
Total assets........................................................................ 7,204,222 22,533,353
Total long term debt, net of current maturities..................................... 3,805,138 3,672,442
Stockholders' equity................................................................ 1,517,597 17,352,597
</TABLE>
(1) Adjusted to give effect to the sale of the 2,000,000 shares of Common Stock
offered hereby (at an assumed initial public offering price of $9.00 per
share) and the application of the estimated net proceeds therefrom. See
"Use of Proceeds."
5
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully by prospective investors
prior to making an investment in the Common Stock offered hereby. Information
contained in this Prospectus contains forward-looking statements which can be
identified by the use of forward-looking terminology such as believes, expects,
may, will, should, or anticipates or the negative thereof or other variations
thereon or comparable terminology or as discussions of strategy. No assurance
can be given that the future results covered by the forward-looking statements
will be achieved or that the events contemplated thereby will occur or have the
effects anticipated. The following matters constitute cautionary statements
identifying important factors with respect to such forward-looking statements,
including certain risks and uncertainties that could cause actual results to
vary materially from the anticipated results covered in such forward-looking
statements. Other factors could also cause actual results to vary materially
from the anticipated results covered in such forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed in this section and in the sections entitled Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Business, as well as those discussed elsewhere in this Prospectus.
Dependence on Growth. The Company's future growth and profitability is
substantially dependent upon the expansion of Yater Medical Group, P.C. (Yater)
and Medi-Cen Physician Services, L.L.P. (MPS, and together with Yater, the PCs)
through the employment of new licensed health care providers or the acquisition
of new medical practices for whom the Company will provide management services.
Competition for such personnel is intense, and there can be no assurance that
the Company will be successful in attracting or retaining such personnel. In
addition, there can be no assurance that the employment of such providers or the
acquisition of such practices can be made on satisfactory terms, or at all. The
future growth and profitability of the Company is also dependent on the
Company's ability to effectively integrate the practices of the PCs with any new
medical practices, to manage and control costs and to realize economies of
scale. The integration of new medical practices, as well as the maintenance of
existing contracts, is made more difficult by reduced reimbursement rates of
health care payors at a time when the cost of providing medical services
continues to increase. The Company intends to use a substantial portion of the
proceeds of this Offering to assist the PCs in expanding their business through
the acquisition of additional medical practices. See Use of Proceeds. There can
be no assurance that the PCs or the Company will successfully identify, complete
or integrate additional acquisitions or that any acquisition will perform as
expected or will contribute significant revenues or profits to the Company.
Limited Operating History; Uncertainty Of Future Profitability. The Company
was incorporated in March 25, 1994, began providing physician practice
management services on January 1, 1995 and began developing medical malls on
March 1, 1996. Accordingly, the Company has only a limited operating history
upon which an evaluation of the Company and its prospects can be based. There
can be no assurance that the Company will continue to be profitable in the
future. The Company's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stages of development, particularly companies in rapidly evolving markets. To
address these risks, the Company must, among other things, increase the number
of licensed health care providers in the medical malls, open new medical mall
facilities in expanded geographical areas, expand sales of its physician
practice and network management services, continue to enhance its clinical
information systems, respond to competitive developments and continue to attract
and retain qualified personnel. Accordingly, there can be no assurance that the
Company will be able to generate sufficient revenue to maintain profitability on
a quarterly or annual basis or to sustain or increase its revenue growth in
future periods. See Management's Discussion and Analysis of Financial Condition
and Results of Operations and Business.
Dependence on Franchisee. Pursuant to the management service agreements
between the Company and each of the PCs, the Company is obligated to provide
management services for the medical practices of the PCs. The Company has
arranged with its franchisee, Medi-Cen, Corp. of Maryland, Inc., (MOM) pursuant
to a franchise agreement between the Company and MOM, for the provision of
certain of those services. Accordingly, the Company will be substantially
dependent upon the efforts of others, over whom it may not have direct control,
for its success. To the extent MOM is unable or unwilling to fulfill its
obligations under the franchise agreement with the Company to provide
6
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such services, the Company will be required either to locate a new provider of
these services or perform the services itself. There can be no assurance that
the Company will be able to locate a new provider on satisfactory terms, or at
all. In addition, there can be no assurance that the Company's operating results
and financial condition will not be materially adversely affected in the event
the Company is required to provide these services itself. In 1997, the
management fee payable to MOM was less than its expenses and the Company was
required to loan to MOM an amount sufficient to permit MOM to pay its
operational expenses. At December 31, 1997, the Company's balance sheet
reflected an outstanding receivable of $1.2 million for such advances. The PCs
typically do not acquire a new health care provider's receivables when such
health care provider becomes employed by a PC or his or her practice is acquired
by a PC. Therefore, during the period between the commencement of billing for
such health care provider and the receipt of collections in respect of such
billings, no cash is collected. Furthermore, when medical malls open, a further
delay in collections occurs during the start-up phase as the health care
provider goes through the credentialing process with payors. As a result of
these delays, the payments to MOM in respect of its management fees are
significantly reduced as the MOM fee is based on collected net patient service
revenue. The Company believes that once a medical mall has a full complement of
health care providers who have reestablished a billing receivables base, the
management fees payable to MOM out of collections will likely be sufficient to
cover its expenses and the Company will not be required to advance management
fee payments to MOM. There can be no assurance that management fees payable to
MOM will be sufficient to cover its operating costs.
Conflicts of Interest. Certain of the Company's executive officers and
directors hold management positions and/or ownership interests in the PCs and
MOM. These entities have entered into contractual relationships with one
another, the terms of which were not negotiated on an arms length basis. In the
future, the Company expects to enter into additional related party transactions
which will involve potential conflicts of interest. All ongoing and future
transactions with affiliates of the Company, if any, will be on terms believed
by the Company to be no less favorable than are available from unaffiliated
third parties and will be approved by a majority of disinterested directors of
the Company. See "Certain Transactions."
Dependence on Third-Party Payors; Delay in Payments. Physician groups that
render services on a fee-for-service basis typically bill various third-party
payors, such as governmental programs (e.g., Medicare and Medicaid), private
insurance plans and managed care plans, for the health care services provided to
their patients. A majority of the Company's total revenue is derived from fee
for-service payments by these third-party payors. Recently, many health care
providers have experienced significant delays in receiving payments from payors.
There can be no assurance that payments under governmental programs or from
other third-party payors will remain at present levels or that there will not be
significant delays in receipt of such payments by the Company. Substantial
delays in payments by various payors have resulted in cash flow shortfalls for
the Company, Yater and MOM in the past and may continue to do so in the future.
In addition, third-party payors can deny reimbursement for a variety of reasons,
including technical compliance matters such as timely accreditation with the
payor or for other reasons. A majority of the contracts between the Company and
the health care payors may be terminated by the payor upon 30 days notice. Any
material decrease or delay in payments received from such third-party payors or
the termination of contracts with such payors could have a material adverse
effect on the operating results and financial condition of the Company.
Dependence On Executive Officers. The Company's ability to market and
deliver its services and systems and to achieve and maintain a competitive
position is dependent in large part upon the efforts of its senior management,
particularly P. Steven Macedo, M.D., the Company's Chairman of the Board, and
Michael Macedo, the Company's Chief Executive Officer. Although the Company is
the beneficiary of a $1,000,000 key man life insurance policy on the life of Dr.
Macedo and has applied for such a policy on the life of Mr. Macedo, the Company
does not believe such amount would be adequate to compensate for the loss of the
services of any such executive. In addition, although the Company has entered
into employment agreements with most of its senior executives, including Dr.
Macedo and Mr. Macedo, such agreements will not assure the services of such
employees. The loss of the services of one or more members of its senior
management could have a material adverse effect on the Company. The Company's
future success also will depend upon its ability to attract and retain qualified
management, technical and marketing employees to support its future growth.
Competition for such personnel is intense, and there can be no assurance that
the Company will be successful in attracting or retaining such personnel. The
failure to attract and retain such persons could materially adversely affect the
Company. See Management.
Control by Certain Shareholders. As of the date of this Prospectus, the two
largest stockholders of the Company, Dr. Steven Macedo and Michael Macedo, owned
an aggregate of 88.8% of the outstanding shares of Common Stock, excluding any
outstanding options owned by such individuals. After giving effect to this
Offering, Dr. Steven Macedo and Michael Macedo will own an aggregate of 55.8% of
the outstanding shares of Common Stock, excluding any outstanding options owned
by such individuals. Accordingly, if Dr. Macedo and Mr. Macedo were to vote in
the same manner on the election of members of the Board of Directors or on any
other matter requiring approval of a majority of the outstanding shares of
Common Stock, such matter would likely be approved or defeated, as the case may
be, depending on the vote of such stockholders. See "Principal Shareholders."
Management Of Growth. The Company recently has experienced, and expects to
continue to experience, substantial growth and has significantly expanded and
expects to continue to expand, its operations. This growth and expansion has
placed, and will continue to place, significant demands on the Company's
management, technical, financial and other resources. To manage growth
effectively, the Company must maintain a high level of operational quality and
efficiency, and must continue to enhance its operational, financial and
management
7
<PAGE>
systems and to expand, train and manage its employee base. To date, the Company
has only limited experience in providing physician practice management services
and in developing medical malls. To execute its growth strategy, the Company
plans to significantly increase the number of medical practices under
management, open new medical malls and expand its sales and marketing
organization. The ability of the Company to manage growth through acquisitions
depends on its ability to maintain the high quality of services that it provides
to customers, to successfully integrate the different services that it provides
and to recruit, motivate and retain qualified personnel. There can be no
assurance that the Company will be able to manage growth effectively, and any
failure to do so could have a material adverse effect on the Company's business,
financial condition and results of operations and the price of the Common Stock.
See Use of Proceeds and Business - Strategy.
Risks Relating to Control of Health Care Costs. Recently, many providers
have experienced pricing pressures with respect to negotiations with health care
payors. In addition, employer groups are becoming increasingly successful in
negotiating reductions in the growth of premiums paid for their employees'
health insurance, which tends to depress the reimbursement for health care
services. At the same time, employer groups are demanding higher accountability
from payors and providers of health care services with respect to measurable
accessibility, quality and service. If these trends continue, the cost of
providing medical services could increase while the level of reimbursement could
grow at a lower rate or could decrease. There can be no assurance that these
pricing pressures will not have a material adverse effect on the operating
results and financial condition of the Company. In addition, changes in health
care practices, inflation, new technologies, major epidemics, natural disasters
and numerous other factors affecting the delivery and cost of health care could
have a material adverse effect on the operating results and financial condition
of the Company.
Cost Containment and Reimbursement Trends. The health care industry is
experiencing a trend toward cost containment as government and private
third-party payors seek to impose lower reimbursement and utilization rates and
negotiate reduced payment schedules with service providers. The federal
government has implemented, through the Medicare program, a resource-based
relative value scale (RBRVS) payment methodology for medical services. This
methodology went into effect in 1992 and continued to be implemented in annual
increments through December 31, 1996. RBRVS is a fee schedule that, except for
certain geographical and other adjustments, pays similarly situated physicians
the same amount for the same services. The RBRVS is adjusted each year, and is
subject to increases or decreases at the discretion of Congress. To date, the
implementation of RBRVS has reduced payment rates for certain of the procedures
provided by the PCs. Management estimates that approximately 14% of the revenues
of the PCs are derived from government sponsored health care programs
(principally Medicare and Medicaid). RBRVS-type payment systems have also been
adopted by certain private third-party payors and may become a predominant
payment methodology. More wide-spread implementation of such programs would
reduce payments by private third-party payors. Rates currently paid by many
private third-party payors are based on established physician and hospital
charges and are generally higher than Medicare payment rates. A change in the
patient mix of the PCs that results in a decrease in patients covered by private
insurance could adversely affect the Company's results of operations if the
Company is unable to assist health care providers in containing the cost of the
provision of medical services. To the extent that the PCs receive lower revenue
for medical services, there can be no assurance that the Company will be able to
derive sufficient revenues from its relationship with the PCs to achieve or
maintain profitability. The Company believes that cost containment trends will
continue to result in a reduction from historical levels in per-patient revenue
for medical practices. Further reductions in payments to health care providers
or other changes in reimbursement for health care services could have an adverse
effect on the Company's operations, unless the Company is otherwise able to
offset such payment reductions. There can be no assurance that the effect of any
or all of these changes in third-party reimbursement could be offset by the
Company through costs reductions, increased volume, introduction of new services
and systems or otherwise. See Risk Factors - Government Regulation - Uncertainty
Related to Health Care Reform and Business - Government Regulation.
Highly Competitive Industry. The physician practice management industry is
highly competitive. The industry is also subject to continuing changes in how
services and products are provided and how providers are selected and paid. As
prepaid medical care continues to grow, the Company may encounter increased
competition. Certain companies are expanding their presence in the physician
management market through the use of several approaches. A number of companies
provide broad management services to primary care, multi-specialty and
single-specialty physician groups, while other companies provide claims
processing, utilization
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review and other more focused management services. In addition, certain of the
Company's competitors are dedicated to the management of single-specialty
practices focused on specific diseases. Certain of the Company's competitors are
significantly larger, have access to greater resources, provide a wider variety
of services and products, have greater experience in providing health care
management services and products and/or have longer established relationships
with customers for these services and products than the Company. The Company
believes that competition for services is based on cost and quality of services.
There can be no assurance that the Company's strategy will allow it to compete
favorably in negotiating agreements with health care payors or expanding or
maintaining its medical group practices or in existing or new markets. In
addition, many health care providers are consolidating to create larger health
care delivery enterprises with greater regional market power. Such consolidation
could erode the Company's customer base and reduce the size of the Company's
target market. In addition, the resulting enterprises could have greater
bargaining power, which could lead to price erosion affecting the Company's
services. The reduction in the size of the Company's target market or the
failure of the Company to maintain adequate price levels could have a material
adverse effect on the Company's business, financial condition and results of
operations and on the price of the Common Stock. See Business - Competition.
Government Regulation. As a participant in the health care industry, the
Company's operations and relationships are subject to extensive and increasing
regulation under numerous laws administered by governmental entities at the
federal, state and local levels. See Business - Government Regulation.
Fraud and Abuse Statutes. Federal anti-kickback provisions prohibit the
solicitation, payment, receipt or offer of any direct or indirect remuneration
for the referral of federal health care program patients (including Medicare and
Medicaid patients) or for the order or provision of covered services, items or
equipment. Other fraud and abuse laws also impose restrictions on physicians'
referrals for designated health services to entities with which they have
financial relationships (known as the Stark laws). In addition, federal law
imposes significant penalties for false or improper billings. Violations of any
of these laws may result in substantial civil or criminal penalties for
individuals or entities, including large civil monetary penalties and exclusion
from participation in the Medicare and Medicaid programs. Several states,
including states in which the Company operates, have adopted similar laws that
cover patients in private and workers' compensation programs as well as
government programs. Violations of any of the fraud and abuse laws by any of the
Company, Yater or MPS could have a material adverse effect on the Company's
business and financial condition and on the price of the Common Stock.
Corporate Practice of Medicine and Fee Splitting. The laws of many states
prohibit non-physician entities from practicing medicine and employing
physicians to practice medicine. The Company provides only non-medical
administrative services and clinical information systems to the PCs, does not
represent to the public or its clients that it offers medical services and does
not exercise control over the practice of medicine by the PCs. These limitations
on the Company's activities are incorporated into each management service
agreement, which is the contract governing the relationship between the Company
and the PCs. The PCs are responsible for providing medical care and are
independent from the Company, which provides, or arranges for the provision of,
administrative services. The Company believes its operations are in material
compliance with applicable laws in all jurisdictions in which it operates.
Nevertheless, because of the structure of its relationship with the PCs, many
aspects of the Company's business operations have not been the subject of formal
state or federal regulatory interpretation and there can be no assurance that a
review of the Company's structure by courts or regulatory authorities would not
result in a determination that could adversely affect the operations of the
Company or the PCs (for example, by rendering the Company's management services
agreement with the PCs unenforceable) or that the health care regulatory
environment will not change so as to restrict the existing operations or
expansion plans of the Company or the PCs. In addition, recently released
regulations dealing with the use of physician incentives may restrict the extent
to which payors or the Company may impose financial risk upon physicians (or
other health care providers). Violation of such regulations could result in
substantial penalties. Such regulations may also reduce the Company's ability to
control its expenses.
Confidentiality of Patient Records. The confidentiality of patient records
and the circumstances under which such records may be released are subject to
substantial regulation by state and federal laws and regulations, which govern
both the disclosure and use of confidential patient medical record information.
The Company believes that it complies with the laws and regulations regarding
the collection and distribution of patient data in all
9
<PAGE>
jurisdictions in which it operates, but regulations governing patient
confidentiality rights are evolving rapidly and are often unclear and difficult
to apply in the restructuring health care market. Additional legislation
governing the dissemination of medical record information is continually being
proposed at both the state and federal level. For example, 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 identified health information and creates a
federal criminal offense for knowing disclosure and misuse of such information.
Additional proposed legislation could require patient consent before even coded
or anonymous patient information may be shared with third parties and further
require that holders or users of such information implement security measures.
In addition, the American Medical Association (the AMA) has issued a Current
Opinion to the effect that a physician who does not obtain a patient's consent
to disclosure of patient information for commercial purposes, including
anonymous disclosure, violates the AMA's ethical standards with respect to
patient confidentiality. While the AMA's Current Opinions are not law, they may
influence physicians' willingness to obtain patient consents or agree to permit
the Company to access clinical data in their systems without such consents. Any
such restrictions could have a material adverse effect on the Company's ability
to market its services and systems. Although the Company intends to safeguard
patient privacy when clinical data is accessed and transmitted over private and
public networks, including the Internet, and to enter patient medical
information into or receive such information from its database only with the
consent of the patient, if a patient's privacy is violated, the Company could be
liable for damages incurred by such patient. There can be no assurance that
changes to state or federal laws will not materially restrict the ability of the
Company to obtain or disseminate patient information.
Uncertainty Related To Health Care Reform. The Company anticipates that
Congress and state legislatures will continue to review and assess alternative
health care delivery and payment systems. Potential approaches that have been
considered include mandated basic health care benefits, controls on health care
spending through limitations on the growth of private health insurance premiums
and Medicare and Medicaid spending, the creation of large insurance purchasing
groups and other fundamental changes to the health care delivery system.
Proposals have also been discussed which would provide incentives for the
provision of cost-effective, quality health care through formation of regional
delivery systems. Private sector providers and payors have embraced certain
elements of reform, resulting in increased consolidation of medical groups and
competition among managers of medical practice groups as these providers and
payors seek to form alliances in order to provide quality, cost-effective care.
Due to uncertainties regarding the ultimate features of reform initiatives and
their enactment and implementation, the Company cannot predict which, if any, of
such reform proposals will be adopted, when they may be adopted or what impact
they may have on the Company, and there can be no assurance that the adoption of
reform proposals will not have a material adverse effect on the Company's
business, operating results or financial condition. In addition, the
announcement of reform proposals and the investment community's reaction to such
proposals, as well as announcements by competitors and third-party payors of
their strategies to respond to such initiatives, could produce volatility in the
trading and market price of the Common Stock.
Technological Change. The health care information industry is relatively
new and is experiencing rapid technology change, changing customer needs,
frequent new product instructions and evolving industry standards. There can be
no assurance that the Company will not experience difficulties, including lack
of necessary capital or expertise, that could delay or prevent the successful
development and introduction of system enhancements or new systems in response
to technological changes. The Company's inability to respond to technological
changes in a timely and cost-effective manner could have a material adverse
effect on the Company's business, financial condition and results of operations
and on the price of the Common Stock. See Business.
Franchise Regulation. Except for Maryland and Virginia, the Company is not
yet licensed to sell franchises in other states in which a license is required.
The business of franchising is subject to regulation by Federal and state
authorities, including the Federal Trade Commission. There can be no assurance
that the Company will be licensed to sell franchises in any other states in
which it wishes to sell franchises. Compliance with rules and regulations that
apply to franchising can be expensive and time consuming. The application of
existing or future Federal and state laws and regulations could prevent the
Company from selling franchises in certain states and could substantially impair
and delay the marketing and operation of the Company's franchise program. State
laws or regulations as they now or may in the future exist, could have a
material adverse effect upon the Company's results of operations and financial
condition.
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Risk Of Liability Claims. Customer reliance on the Company's services and
systems could result in exposure of the Company to liability claims if the
Company's services and systems fail to perform as intended or if patient care
decisions based in part on guidance from the Company's services and systems are
challenged. Even unsuccessful claims would result in the expenditure of funds in
litigation, diversion of management time and resources or damage to the
Company's reputation and the marketability of the Company's services and
systems. While no such claims have been made against the Company to date, and
although the Company takes contractual steps to obtain indemnification for
certain liabilities and maintains general commercial liability insurance, there
can be no assurance that a successful claim could not be made against the
Company, that the amount of indemnification payments or insurance would be
adequate to cover the costs of defending against or paying such a claim or that
the costs of defending against such a claim or the payment of damages by the
Company would not have a material adverse effect on the Company's business,
financial condition and results of operations and on the price of the Common
Stock.
Dilution. The purchasers of the shares of Common Stock offered hereby will
experience immediate and substantial dilution in the net tangible book value of
their shares of Common Stock in the amount of $5.84 per share (assuming a public
offering price of $9.00 per share and after deducting underwriting discounts and
commissions and estimated offering expenses). Such investors will experience
additional dilution upon the exercise of certain outstanding options and
warrants. In addition, in the event the Company issues additional Common Stock
in the future, including shares that may be issued in connection with the Merger
or future acquisitions, investors may experience further dilution. See Dilution,
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Business - Contractual Relationships with Yater and MPS.
Shares Eligible For Future Sale. Sales of shares of Common Stock (including
shares issued upon the exercise of outstanding options) in the public market
after this Offering could adversely affect the market price of the Common Stock.
Such sales also might make it more difficult for the Company to sell equity
securities or equity-related securities in the future at the time and price that
the Company deems appropriate. Upon completion of this Offering, the Company
will have approximately 5,378,046 shares of Common Stock outstanding. The
2,000,000 shares of Common Stock offered hereby will be freely tradeable without
restriction unless they are held by affiliates of the Company as the term is
used under the Securities Act of 1933, as amended (the Securities Act), and the
regulations promulgated thereunder. The remaining approximately 3,378,046 shares
are restricted securities that may be sold only if registered under the
Securities Act or sold in accordance with an applicable exemption from
registration, such as Rule 144 or Rule 144(k) promulgated under the Securities
Act. As a result of the provisions of Rule 144, such shares will generally be
available for sale in the public market 90 days after the date of this
Prospectus, subject in certain cases, to the volume, manner of sale and
reporting requirements of Rule 144. The Company, and its officers, directors and
principal stockholders have agreed for a period of 180 days from the
consummation of this Offering not to offer, sell or otherwise dispose of any
shares of Common Stock (or any securities convertible into or exercisable for
Common Stock) or grant any options or warrants to purchase shares of Common
Stock without the prior written consent of Ferris, Baker Watts, Incorporated
(the Representative). See Shares Eligible for Future Sale and Description of
Capital Stock
No Assurance of Public Market; Determination of Offering Price; Possible
Volatility of Market Price of Common Stock. Prior to this Offering, there has
been no established public trading market for the Common Stock. Consequently,
the initial public offering price of the Common Stock has been determined by
negotiations between the Company and the Underwriters and do not necessarily
reflect the Company's book value or other established criteria of value. There
can be no assurance that a regular trading market of the Common Stock will
develop after this Offering or that, if developed, it will be sustained. The
market prices of the Company's securities following this offering may be highly
volatile as has been the case with the securities of other emerging companies.
Factors such as the Company's operating results, announcements by the Company or
its competitors of new physician practice and network management service
contracts, and various factors affecting the health care industry generally, may
have a significant impact on the market price of the Company's securities. In
general, in recent years, the stock market has experienced a high level of price
and volume volatility and market prices for the stock of many companies,
particularly of small and emerging growth companies, the
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<PAGE>
common stock of which trade in the Over-the-Counter market, have experienced
wide price fluctuations which have not necessarily been related to the operating
performance of such companies. See Underwriting.
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT TO THE FINANCIAL
CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY, INCLUDING
STATEMENTS UNDER THE CAPTIONS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS AND BUSINESS. THESE FORWARD LOOKING
STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES. NO ASSURANCE CAN BE GIVEN
THAT ANY SUCH MATTERS WILL BE REALIZED.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company hereby are estimated to be approximately $15.8 million
($18.3 million if the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $9.00 per share and after deducting
underwriting discounts, commissions and estimated offering expenses. The Company
intends to use the net proceeds: (i) for the development of up to five
additional medical mall facilities; (ii) for the repayment of certain debt;
(iii) to finance acquisitions and expansion of the PCs; (iv) for working
capital; and (v) for general corporate purposes, including to secure debt that
may be incurred by MOM or any future franchisee. Such debt may be incurred in
connection with the employment of new health care providers, the acquisition of
additional physician practices and the opening of new medical mall facilities.
Development costs associated with new medical mall facilities include the
identification of a site, negotiation of a lease, construction and finishing
expenses, acquisition of supplies and equipment, recruitment of health care
providers and operating staff and other start-up costs. The Company may also use
a portion of the net proceeds to make improvements to existing medical mall
facilities. The Company intends to repay an aggregate of approximately $935,000
of debt, including $270,000 owed to Dr. Steven Macedo and Michael Macedo. These
obligations bear interest at rates ranging from 9.5% to prime plus 1.5% per
annum and mature between May 28, 1998 and May 28, 2002. See Certain
Transactions.
From time to time in the ordinary course of its business, the Company
evaluates possible acquisitions of businesses, products and technologies that
are complementary to those of the Company. The Company currently has no
agreements or understandings, and is not engaged in active negotiations, with
respect to any material acquisition.
Pending the application of the net proceeds of this Offering, the Company
intends to invest such proceeds in short-term, investment-grade,
interest-bearing U.S. government securities or money market funds.
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<PAGE>
DILUTION
The difference between the initial public offering price per share of
Common Stock and net tangible book value per share of Common Stock after this
Offering constitutes the dilution to investors in this Offering. Net tangible
book value per share is determined on any given date by dividing the net
tangible book value of the Company (total tangible assets less total
liabilities) on such date by the number of then outstanding shares of Common
Stock.
At December 31, 1997, the net tangible book value of the Company was
$1,127,657, or $0.33 per share of Common Stock. After giving effect to the sale
of the 2,000,000 shares of Common Stock offered hereby (at an assumed initial
public offering price of $9.00 per share) and the receipt and application of the
estimated net proceeds therefrom (less underwriting discounts and commissions
and estimated offering expenses), the as adjusted net tangible book value of the
Company as of December 31, 1997 would have been $16,962,657 or $3.16 per share,
representing an immediate increase in net tangible book value of $2.83 per share
to existing stockholders and an immediate dilution of $5.84 per share to new
investors.
The following table illustrates the foregoing information with respect to
dilution to new investors on a per share basis:
Initial public offering price..................................... $9.00
Net tangible book value per share at December 31, 1997....... $0.33
Increase attributable to investors in this Offering.......... $2.83
As adjusted net tangible book value after this Offering........... $3.16
Dilution to new investors in this Offering........................ $5.84
The following table sets forth a comparison between the Company's existing
stockholders and new investors in this Offering, with respect to the number of
shares of Common Stock acquired from the Company, the percentage ownership of
such shares, the total consideration paid, the percentage of total consideration
paid and the average price per share:
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ------------
Existing stockholders.... 3,378,046 63% $ 604,464 3% $0.18
New investors............ 2,000,000 37% 18,000,000 97% 9.00
--------- --- ---------- ---
Total............... 5,378,046 100% $18,604,464 100% $3.47
The above tables assume no exercise of the Underwriters' over-allotment
option. If such option is exercised in full, the new investors will have paid
$20,700,000 for 2,300,000 shares of Common Stock offered by the Company,
representing approximately 97% of the total consideration, for 40% of the total
number of shares of Common Stock outstanding. In addition, the above table
excludes (i) 2,000,000 shares of Common Stock issuable upon the exercise of
options under the Company's Stock Option Plan, 1,800,000 of which have been
granted at an exercise price equal to the initial public offering price; (ii)
945,826 shares of Common Stock issuable pursuant to the exercise of certain
other options and warrants at a weighted average exercise price of $4.36; (ii)
approximately 36,111 shares of Common Stock issuable upon consummation of this
Offering in lieu of compensation valued at the initial public offering price;
(iii) up to 116,109 shares of Common Stock issuable upon consummation of the
Merger. To the extent that such options and warrants are exercised, and such
shares issued, there will be further dilution to new investors. See Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources, Management - Stock Option Plan, and
Underwriting.
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PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
There is no significant trading market in the Company's Common Stock. No
closing price, bid or ask information is reported for the Common Stock and the
Company is not aware that any brokers currently make a market in the Common
Stock of the Company. In addition, to the extent that any shares have been
traded, the volume has been very low and sporadic.
The Company has declared and paid cash dividends on its capital stock at
the following times in the indicated amounts:
DATE DIVIDEND
---- --------
March 29, 1996...................................... $.0012 per share
January 1, 1997 through March 1, 1997............... $.0024 per share per month
April 1, 1997 through December 31, 1997............. $.0048 per share per month
The Company expects to pay quarterly dividends in the future to the extent
that the Board of Directors determines it to be in the best interests of the
Company and its shareholders and to the extent allowable under Maryland law. The
payment of any cash dividends in the future will depend on the Company's
earnings, financial condition, results of operations, capital needs and other
factors deemed pertinent by the Company's Board of Directors, subject to laws
and regulations then in effect.
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1997 on a historical basis and as adjusted to give effect to the
sale by the Company of the shares of Common Stock offered hereby.
ACTUAL AS ADJUSTED
------ -----------
Due to related parties(1).............................. $ 135,000 --
Current maturities of long-term debt................... 460,146 $ 221,973
Long term debt, net of current maturities.............. 3,805,138 3,672,442
Stockholders' equity:
Common stock, $.0024 par value, 10,000,000 shares
authorized, 3,366,841 shares issued and outstanding
actual and 5,366,841 shares issued and outstanding
as adjusted(2)....................................... 8,080 12,880
Additional paid in capital............................. 570,002 16,426,581
Retained earnings...................................... 939,515 939,515
---------- -----------
Total stockholders' equity........................ $1,517,597 $17,378,976
---------- -----------
Total capitalization.............................. $5,782,881 $21,273,391
========== ===========
(1) The Company owes Dr. and Mr. Macedo $135,000 at December 31, 1997 for
short-term cash advances.
(2) Excludes 11,205 shares of Common Stock issued on March 11, 1998 to an
executive officer.
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SELECTED FINANCIAL DATA
The consolidated selected financial data presented below for the Company's
consolidated statements of operations data for the years ended December 31,
1995, 1996 and 1997 and the balance sheet data at December 31, 1996 and 1997 are
derived from the Company's consolidated financial statements which have been
audited by KPMG Peat Marwick LLP, independent public accountants, and as
indicated in their report included elsewhere in this Prospectus. The selected
consolidated balance sheet data at December 31, 1995 is derived from the
consolidated financial statements of the Company which have been audited by KPMG
Peat Marwick LLP, independent public accountants, but which are not included in
this Prospectus. The Company commenced operations on January 1, 1995. Due to
control by the Company, the operations of MPS have been consolidated with those
of the Company for all periods presented and the operations of Yater have been
consolidated for the period ending December 31, 1997 and should be read in
conjunction with the Company's consolidated financial statements and the notes
thereto, and the information in Management's Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere in this
Prospectus.
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
---------- ---------- ----------
STATEMENT OF OPERATIONS DATA:
Net patient service revenue................. $1,117,962 $1,078,343 $6,028,181
Fee revenue--related parties................ 33,182 225,787 575,610
Total revenue............................... 1,151,144 1,304,130 6,603,791
Operating expenses:
Medical malls salaries, benefits and
other costs.......................... 567,535 596,520 2,133,064
Medical malls management fee expenses.. -- -- 1,140,744
Medical malls bad debt expense......... 133,094 86,786 912,799
Fee-related expenses................... 124,028 200,870 413,503
General and administrative expenses.... 37,735 111,246 841,532
Depreciation and amortization.......... 20,083 30,559 117,591
Total operating expenses.................... 882,475 1,025,981 5,559,233
Income from operations...................... 268,669 278,149 1,044,558
Net interest expense........................ (14,886) (24,765) (193,154)
Gain on sale of equipment................... -- -- 424,499
Income before income taxes.................. 253,783 253,384 1,275,903
Provision (benefit) for income taxes........ (30,324) (13,624) 229,340
Net income.................................. $ 284,107 $ 267,008 $1,046,563
Net income per share........................ $ .31
Weighted average number of shares out
standing.................................. 3,363,084
DECEMBER 31,
----------------------------------
1995 1996 1997
---------- ---------- ----------
BALANCE SHEET DATA:
Working capital............................. $ 423,123 $ 549,198 $1,930,487
Total assets................................ 678,173 881,659 7,204,222
Long-term debt, net of current maturities... 164,230 232,463 3,805,138
Total stockholders' equity.................. 271,391 388,477 1,517,597
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements (and the related notes thereto)
included elsewhere in this Prospectus. This discussion contains forward-looking
statements that involve risks and uncertainties, the Company's actual results
may differ materially from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in Risk Factors.
OVERVIEW
The Company provides or arranges for the provision of management services
to medical practices and develops low-cost physician driven provider networks
and medical mall facilities. The Company has developed three medical mall
facilities in the Washington, D.C. metropolitan area, each providing medical
services ranging from general family practice to selected specialties. Through
the medical mall facilities, the Company enables health care providers and
payors to offer patients high-quality medical services on a cost-effective
basis. Additional physician management services provided by the Company include
marketing, health care payor contracting and financial and administrative
management. The Company currently manages a network of approximately 57 licensed
health care providers that treat over 100,000 active patients. The Company
intends to rapidly expand the medical mall concept throughout the
Washington-Baltimore metropolitan area and throughout the mid-Atlantic region to
take advantage of market opportunities.
The Company's consolidated financial statements reflect the combined
operations of the PCs for the year ended December 31, 1997. MPS is wholly owned
by Dr. Steven Macedo, the Chairman of the Board of the Company, and his wife,
Dr. Ilene Macedo. Yater was purchased by Drs. Steven and Ilene Macedo on January
17, 1997. Prior to this Offering, Dr. Macedo and his brother, Michael Macedo,
the Chief Executive Officer of the Company, beneficially owned approximately
88.8% of the outstanding shares of Common Stock of the Company. Accordingly,
notwithstanding the lack of technical majority ownership of the PCs, through Dr.
Macedo's ownership interest in the PCs, the Company may be deemed to have
sufficient control over the operations of such entities so that consolidation of
the operations of the PCs into those of the Company is necessary to present
fairly the financial position and results of operations of the Company. The
Company is also a party to transfer restriction agreements with the shareholders
of Yater and partners of MPS. These agreements restrict the sale of the
ownership interests by Drs. Steven and Ilene Macedo in Yater and automatically
transfer the ownership interests to a Company-designated transferee upon the
death, disability, or disqualification of the owners or dissolution of Yater.
Nominal consideration is required upon such involuntary transfer of the Yater
shares. The MPS partnership interest transfer restriction agreement provides for
a payment from the Company to the estate of the partners upon the partners
death, disability or disqualification or the dissolution of MPS at a mutually
agreed-upon fair value at time of transfer. Due to the presence of this common
control by the Macedos in conjunction with the ownership transfer restriction
agreements effective December 31, 1997, the PCs have been consolidated with the
operations of the Company for the year ended December 31, 1997. Yater was not
consolidated with the Company until 1997 since common control was not
established until that time.
The Company's total revenue consists primarily of patient revenue generated
by the PCs. The Company has numerous contracts with third-party payors and
managed care companies to provide physician services based on contracted or
negotiated fee schedules. Services under these agreements are recorded as
revenue when provided. No contracts with third-party payors or individual
managed care agreements are material to the Company.
Operating expenses consisted primarily of costs to operate the medical
malls and include salaries, benefits and other costs, management fee expenses
and bad debt expenses. Under the management service agreements between the
Company and the PCs, the Company is responsible for providing or arranging for
the provision of management and administrative services for the medical
practices of the PCs. In connection with its services, the Company has retained
for the benefit of the PCs, a separate company to provide certain management
services. This company, Medi-Cen, of Maryland, Inc. (MOM), has entered into a
franchise agreement with the Company providing MOM with the right to use the
Medi-Cen name
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and model in connection with the development of medical mall facilities and the
obligation to provide operational services at the medical malls, including
payment of rent for the facilities, purchase of supplies and equipment and
salaries for non-professional staff.
In consideration of 34.25% of collections of net patient service revenue,
MOM has agreed to assume responsibility for all expenses related to rent,
non-medical personnel, equipment and supplies in the operation of the PCs and
the medical malls. During 1997, 34.25% of collections of net patient service
revenue equaled 17.3% of total revenue or 18.9% of net patient service revenue,
giving effect to the delay in timing of the receipt of net patient service
revenue. MOM is primarily owned by the health care providers employed by the PCs
and as equity owners, the providers make decisions regarding the operation of
the facilities and also bear the economic risk that amounts paid to MOM under
the franchise agreement will be sufficient to pay the expenses of such
operation.
The Company has responsibility for all other costs and services relating to
the management of the medical malls and the PCs, including, but not limited to,
management information systems, insurance and quality control. More importantly,
the Company also works with the PCs to develop additional medical malls,
including locating mall sites, recruiting additional health care providers,
merging other health care practices into the PCs, negotiating contracts with
managed care organizations and providing additional ancillary services. To
reduce or control expenses, among other things, the Company reviews staffing
levels at the medical malls to make sure they are appropriate, assists the
health care providers in developing more cost-effective clinical practice
patterns, and intends to establish centralized purchasing for medical supplies.
After the payment of all costs relating to the management of the medical
mall facilities, including the fees paid to MOM, the Company is entitled to
receive, as its management fee, 60% of the remaining collections. This amount is
a minimum of $500,000 per year and may not exceed $1,000,000 annually for
existing medical mall facilities and $500,000 annually for new medical mall
facilities. The remaining collections are retained by the PCs to satisfy all
professional costs, including health care provider salaries, taxes and certain
other professional costs. During 1997, medical malls salaries, benefits and
other costs were in fact equal to 29.7% of total revenue, giving effect to the
Company's accrual based accounting method.
In 1997, the management fee payable to MOM was less than its expenses and
the Company was required to loan to MOM an amount sufficient to permit MOM to
pay its operational expenses. At December 31, 1997, the Company's balance sheet
reflected an outstanding receivable of $1.2 million for such advances. The PCs
typically do not acquire a new health care provider's receivables when such
health care provider becomes employed by a PC or his or her practice is acquired
by a PC. Therefore, during the period between the commencement of billing for
such health care provider and the receipt of collections in respect of such
billings, no cash is collected. Furthermore, when medical malls open, a further
delay in collections occurs during the start-up phase as the health care
provider goes through the credentialing process with payors. As a result of
these delays, the payments to MOM in respect of its management fees are
significantly reduced as the MOM fee is based on collected net patient service
revenue. The Company believes that once a medical mall has a full complement of
health care providers who have reestablished a billing receivables base, the
management fees payable to MOM out of collections will likely be sufficient to
cover its expenses and the Company will not be required to advance management
fee payments to MOM. In addition, during start-up phases for particular health
care providers, the Company or Yater may advance some amount of funds to such
providers while collections may lag behind billings.
Simultaneously with the closing of this Offering, the Company will acquire
Medi-Cen Corporation of America (MCA) through a merger of MCA into a wholly
owned subsidiary of the Company (the Merger). In connection with the Merger, the
Company will issue up to 116,109 shares of its Common Stock to the shareholders
of MCA. Prior to the Merger, MCA developed the medical mall franchise concept
and received franchise fees from MOM in connection with this operation. MCA also
provided services to the PCs in connection with negotiations for insurance and
managed care contracts. The effects of this Merger will be insignificant to the
consolidated financial position and operations of the Company.
17
<PAGE>
RESULTS OF OPERATIONS
The Company believes that its historical results of operations from period
to period are not comparable and that such results are not necessarily
indicative of results for any future periods. The following table sets forth
certain items from the Company's Statements of Operations as a percentage of
total revenue for the periods indicated:
YEARS ENDED DECEMBER 31,
------------------------
1995 1996 1997
---- ---- ----
Total revenue.......................................... 100.0% 100.0% 100.0%
Medical malls salaries benefits and other costs... 49.3 45.7 32.3
Medical malls management fee expenses............. -- -- 17.3
Medical malls bad debt expense.................... 11.6 6.7 13.8
Fee related expenses.............................. 10.8 15.4 6.3
General and administrative expenses............... 3.3 8.5 12.7
Depreciation and amortization..................... 1.7 2.3 1.8
----- ----- -----
Income from operations................................. 23.3 21.4 15.8
Net interest expense.............................. 1.3 1.9 2.9
Gain on sale of equipment......................... -- -- 6.4
Provision (benefit) for income taxes.............. (2.6) (1.0) 3.5
----- ----- -----
Net income............................................. 24.6% 20.4% 15.8%
===== ===== =====
Year Ended December 31, 1997 compared to year ended December 31, 1996
Total revenue. Total revenue was approximately $6.6 million for the year
ended December 31, 1997 (Fiscal Year 1997) as compared to approximately $1.3
million for the year ended December 31, 1996 (Fiscal Year 1996), an increase of
$5.3 million or 408%. This increase was primarily attributable to an increase in
the number of licensed health care providers and the associated patient volume
related to the addition of Yater and growth in MPS. In Fiscal Year 1997, total
revenues was comprised of 91.3% net patient service revenue and 8.7% fee revenue
from related parties. In Fiscal Year 1996, the Company's total revenues was
comprised of 82.7% net patient service revenue and 17.3% fee revenue from
related parties. Fee revenue from related parties reflects payments made by MOM
to the Company on behalf of the PCs for management information services. This
amount will now be collected by the Company directly from the PCs pursuant to
the management services agreement.
Medical malls salaries, benefits and other costs. Medical malls salaries,
benefits and other costs were approximately $2.1 million for Fiscal Year 1997 as
compared to $596,520 for Fiscal Year 1996, an increase of approximately $1.5
million or 251%. This increase was attributable to the execution of a management
services agreement with Yater, which significantly expanded the professional
staff from 11 providers to 53. As a percentage of total revenue, these expenses
decreased from 45.7% Fiscal Year 1996 to 32.3% Fiscal Year 1997 due to the
ability of the PCs to negotiate lower prices for the acquisition of medical
practices.
Medical malls management fee expenses. In Fiscal Year 1997, the Company
incurred medical malls management fee expenses of approximately $1.1 million.
These expenses are attributable to the fees paid to MOM for the provision of
certain administrative services on behalf of the PCs.
Medical malls bad debt expense. Medical malls bad debt expense was $912,799
for Fiscal Year 1997 as compared to $86,786 for Fiscal Year 1996, an increase of
$826,013 or 952%. This expense is attributable to the default by patients
responsible for the payment of any co-payments or other unreimbursed costs of
medical services. The increase in Fiscal Year 1997 was primarily attributable to
the inclusion of Yater in this calculation. As a percentage of total revenues,
this expense increased from 6.7% in Fiscal Year 1996 to 13.8% in Fiscal Year
1997 due to the costs associated with integrating new medical practices into the
medical malls. Because there can be a delay between the time a newly acquired
health care provider begins to treat patients and the time such provider becomes
credentialed by health care payors, payments for such services are frequently
delayed and as a result medical malls bad debt expense increases.
18
<PAGE>
Fee related expenses. Fee related expenses were $413,503 for Fiscal Year
1997 as compared to $200,870 for Fiscal Year 1996, an increase of $212,633 or
106%. These expenses relate to the direct costs of the Company to provide
management information systems to the PCs pursuant to the management services
agreements. The increase of these expenses in Fiscal Year 1997 was primarily
attributable to the addition of management information systems provided to Yater
in 1997. As a percentage of total revenue, these expenses decreased from 15.4%
in Fiscal Year 1996 to 6.3% in Fiscal Year 1997 due to efficiencies gained by
costs being distributed among a larger number of health care providers.
General and administrative expenses. General and administrative expenses
were $841,532 for Fiscal Year 1997 as compared to $111,246 for Fiscal Year 1996,
an increase of $730,286 or 656%. This increase was primarily attributable to the
costs of expansion and professional fees. These expenses increased as a
percentage of total revenue from 8.5% in Fiscal Year 1996 to 12.7% in Fiscal
Year 1997 due to the increase in medical practices acquired.
Depreciation and amortization. Depreciation and amortization was $117,591
for Fiscal Year 1997 as compared to $30,559 for Fiscal Year 1996, an increase of
$87,032 or 285%. This increase was primarily attributable to the amortization of
the goodwill resulting from the acquisition of Yater.
Income from operations. As a result of the foregoing, income from
operations was approximately $1.0 million for Fiscal Year 1997 as compared to
$278,149 for Fiscal Year 1996, an increase of $766,409 or 276%. However, income
from operations decreased as a percentage of total revenue from 21.4% in Fiscal
Year 1996 to 15.8 % in Fiscal Year 1997 due to the additional expenses related
to the acquisition of Yater.
Net interest expense. Net interest expense was $193,154 for Fiscal Year
1997 as compared to $24,765 for Fiscal Year 1996, an increase of $168,389 or
680%. This increase is attributable to the increased borrowings of the PCs to
finance the acquisition of medical practices.
Gain on sale of equipment. In Fiscal Year 1997, the Company realized
$424,499 from the sale of equipment by the PCs to MOM.
Provision (benefit) for income taxes. Provision for income taxes was
$229,340 for Fiscal Year 1997 as compared to a benefit of $13,624 for Fiscal
Year 1996, an increase of $242,964. This increase is attributable to higher
income generated during the period.
Net income. As a result of the foregoing, net income was $1,046,563 for
Fiscal Year 1997 as compared to $267,008 for Fiscal Year 1996, an increase of
$779,555 or 292%.
Year Ended December 31, 1996 compared to year ended December 31, 1995
Total revenue. Total revenue was approximately $1.3 million for Fiscal Year
1996 as compared to approximately $1.2 million for the year ended December 31,
1995 (Fiscal Year 1995), an increase of $152,986 or 13.3%. This increase was
attributable to an increase in patient volume. In Fiscal Year 1996, the
Company's total revenues was comprised of 82.7% net patient service revenue and
17.3% fee revenue from related parties. In Fiscal Year 1995, total revenues was
comprised of 97.1% net patient service revenue and 2.9% fee revenue from related
parties.
Medical malls salaries, benefits and other costs. Medical malls salaries,
benefits and other costs was $596,520 for Fiscal Year 1996 as compared to
$567,535 for Fiscal Year 1995, an increase of $28,985 or 5.1%. This increase was
attributable to the employment of additional health care providers by MPS and
was partly offset by the termination of employment of certain other providers.
Medical malls bad debt expense. Medical malls bad debt expense was $86,786
for Fiscal Year 1996 as compared to $133,094 for Fiscal Year 1995, a decrease of
$46,308 or 34.8%. This decrease was attributable to a decrease in defaults by
patients responsible for the payment of any co-payments or other unreimbursed
costs of medical services.
Fee related expenses. Fee related expenses were $200,870 for Fiscal Year
1996 as compared to $124,028 for Fiscal Year 1995, an increase of $76,842 or
62%. This increase was attributable to management information systems provided
to one new medical mall facility.
19
<PAGE>
General and administrative expenses. General and administrative expenses
were $111,246 for Fiscal Year 1996 as compared to $37,735 for Fiscal Year 1995,
an increase of $73,511 or 195%. This increase was attributable to the costs of
expansion and professional fees.
Depreciation and amortization. Depreciation and amortization was $30,559
for Fiscal Year 1996 as compared to $20,083 for Fiscal Year 1995, an increase of
$10,476 or 52.2%.
Income from operations. As a result of the foregoing, income from
operations was $278,149 for Fiscal Year 1996 as compared to $268,669 for Fiscal
Year 1995, an increase of $9,480 or 3.5%. However, income from operations
decreased as a percentage of total revenue from 23.3% in Fiscal Year 1995 to
21.3% in Fiscal Year 1996 due to additional expenses related to the expansion of
MPS.
Net interest expense. Net interest expense was $24,765 for Fiscal Year 1996
as compared to $14,886 for Fiscal Year 1995, an increase of $9,879 or 66%. This
increase is attributable to increased borrowings by MPS to finance the
acquisition of medical practices.
Provision (benefit) for income taxes. Provision (benefit) for income taxes
was $(13,624) for Fiscal Year 1996 as compared to $(30,324) for Fiscal Year
1995, an increase of $16,700.
Net income. As a result of the foregoing, net income was $267,008 for
Fiscal Year 1996 as compared to $284,107 for Fiscal Year 1995, a decrease of
$17,099 or 6.0%.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has financed its operations, including working
capital, using bank borrowings and loans from corporate officers, as well as
from cash flow generated from operating activities. As of December 31, 1997, the
Company had net working capital of $1,930,487, as compared to a net working
capital at December 31, 1996 of $549,198.
At December 31, 1997, the Company's current liabilities included $383,534
in accrued salaries and benefits, payable in the ordinary course of its
business. It also included $135,000 payable to Dr. Steven Macedo and Michael
Macedo, officers of the Company. As of the date of this Prospectus, the Company
owes approximately $270,000, together with interest at the rate of prime rate
plus 0.5%, to Dr. Macedo and Michael Macedo and these amounts are expected to be
repaid from a portion of the net proceeds of the Offering. See Use of Proceeds.
In October 1996, the Company obtained a bank loan in the amount of
$105,000, which bears interest at the rate of prime rate plus 1% per annum and
must be repaid by October 1, 2001. The assets of the Company, excluding
certificates of deposit, secure this loan. Furthermore, Dr. Steven Macedo and
Michael Macedo, officers of the Company, have each personally guaranteed
repayment of this loan. The Company intends to use a portion of the net proceeds
from this Offering to repay this debt. See Use of Proceeds.
In May 1997, the Company obtained two bank loans in the aggregate amount of
$300,000. $200,000 of this loan bears interest at the rate of prime rate plus
1.5% per annum and must be repaid by May 28, 1998. $100,000 of this loan bears
interest at the rate of 9.5% per annum and must be repaid by May 28, 2002. The
assets of the Company, excluding certificates of deposit, secure these loans.
Furthermore, Dr. Steven Macedo and Michael Macedo, officers of the Company, have
each personally guaranteed repayment of these loans. The Company intends to use
a portion of the net proceeds from this Offering to repay these amounts. See Use
of Proceeds.
In December 1997, the Company obtained a bank loan and a line of credit to
fund the acquisition of new medical practices. The loan is in the principal
amount of $3,000,000, which bears interest at the rate of prime rate plus 0.5%
per annum and must be repaid by January 1, 2004. Interest is due monthly on this
loan until February 1, 1999 when principal payments of $50,000 also become due
monthly. The line of credit is available in the amount of $1,500,000, which
bears interest at the rate of prime rate plus 0.5% per annum and must be repaid
by January 1, 2004. As of the date of this Prospectus, the outstanding balance
on this line of credit is approximately $708,000. Interest is due monthly on
outstanding balances under this line of credit until February 1, 1999 when
principal payments become payable over 60 months. The PCs are co-borrowers on
these obligations, which are secured by all assets of the PCs as well as certain
other collateral more particularly defined in
20
<PAGE>
the financing documents. These obligations are guaranteed by Dr. Macedo and
his wife. Dr. Macedo's parents have also guaranteed up to $1,500,000 of this
debt.
In February 1998, the Company obtained a revolving bank line of credit in
the amount of $260,000, which bears interest at the rate of prime rate plus 0.5%
per annum. As of the date of this Prospectus, the outstanding balance on this
line of credit is $260,000. The Company intends to use a portion of the net
proceeds from this Offering to repay such outstanding balance. See Use of
Proceeds.
From inception, the Company's operations have been funded by bank
borrowings and borrowings from individuals. The Company's operating activities
provided (used) cash of $(1,164,639), $163,639, $274,504 for the Fiscal Years
1997, 1996 and 1995, respectively. In Fiscal Year 1997 cash was primarily used
by an increase in accounts receivable from the increased patient volume related
to the acquisition of Yater and advances made to related parties. In Fiscal Year
1996, cash was primarily provided by operating activities. In Fiscal Year 1995,
cash was primarily provided by the receipt of fees from MOM.
The Company's investing activities provided (used) cash of $(1,175,575),
$(639) and $33,244 in Fiscal Year 1997, 1996 and 1995, respectively. In Fiscal
Year 1997 cash was primarily used in the purchases of certificates of deposit,
all of which were utilized to guarantee debt of the PCs, as well as to make
advances to related parties. In Fiscal Year 1996, cash was used in the purchase
of furniture and equipment. In Fiscal Year 1995, cash was provided by the return
of deposits.
The Company's financing activities provided (used) cash of $2,969,636,
$(222,771) and $(232,933), in Fiscal Year 1997, 1996 and 1995, respectively. In
Fiscal Year 1997, cash was primarily provided by borrowings of long-term debt by
the PCs. In Fiscal Year 1996, cash was primarily used by distributions to the
partners of MPS, who are Dr. Steven Macedo and Dr. Ilene Macedo, which was
partly offset by cash provided by long-term borrowings. In Fiscal Year 1995,
cash was primarily used by distributions to the partners of MPS, Drs. Steven and
Ilene Macedo.
The Company's cash position was $648,069 and $18,647 at December 31, 1997
and 1996, respectively.
The Company intends to seek to expand its operations through the
acquisition of additional medical practices and the establishment of new medical
mall facilities. The Company believes that the combination of the net proceeds
raised from this Offering, together with internally generated funds, will
provide sufficient cash to meet the Company's capital and other cash
requirements for at least the next twelve months.
Management believes that there has been no significant impact on the
Company's operations as a result of inflation.
SEASONALITY
The health care practice industry is somewhat seasonal in nature, and it
has been the Company's experience that patients visit health care providers less
frequently during the winter months particularly in the mid-Atlantic region and
Northeast United States. Accordingly, patient revenue may be lower from December
through February. In addition, as many health care payors require that patients
pay a deductible amount at the beginning of each calendar year, the Company has
experienced lower collection rates during the first three months of each year.
21
<PAGE>
BUSINESS
OVERVIEW
Medi-Cen Management, Inc. (MMI or the Company) provides or arranges for the
provision of management services to medical practices and develops low-cost
physician driven provider networks and medical mall facilities. The Company has
developed three medical mall facilities in the Washington, D.C. metropolitan
area, each providing medical services ranging from general family practice to
selected specialties. Through the medical mall facilities, the Company enables
health care providers and payors to offer patients high-quality medical services
on a cost-effective basis. Additional physician management services provided by
the Company include marketing, health care payor contracting and financial and
administrative management. The Company currently manages a network of
approximately 57 licensed health care providers that treat over 100,000 active
patients (treated in the last 36 months). The Company intends to rapidly expand
the medical mall concept throughout the Washington-Baltimore metropolitan area
and throughout the mid-Atlantic region to take advantage of market
opportunities.
The Company believes that there are several advantages to its medical mall
strategy. The one-stop facility permits patients to see both primary care
providers and specialists under one roof, which is both convenient and
time-saving. In addition, the Company provides patients with a single
comprehensive monthly statement for all medical services provided at the medical
malls, thereby reducing paperwork and confusion. The Company also believes that
the medical malls reduce overhead expenses, ultimately resulting in lower health
care delivery costs. Finally, the Company believes the medical malls will help
attract high-quality health care providers by: (i) increasing provider
compensation by lowering overhead costs; (ii) allowing health care providers to
locally control the practice of medicine; (iii) offering providers the ability
to consult with other specialists in the facilities; and (iv) providing the
financial incentive and autonomy of owning and operating the physical assets and
non-professional costs of the medical practices through its franchise structure.
INDUSTRY
The Health Care Financing Administration estimates that national health
care spending in 1997 was in excess of $1 trillion, with physicians controlling
more than 80 percent of the overall expenditures. The American Medical
Association reports that approximately 613,000 physicians are actively involved
in patient care in the United States, with a growing number participating in
multi-specialty or single-specialty groups. Expenditures directly attributable
to physicians are estimated at $246 billion. Under such programs, managed care
payors typically govern the provision of health care with the objective of
ensuring delivery of quality care in a cost-effective manner. The traditional
fee-for-service method of compensating health care providers offers few
incentives for the efficient utilization of resources and is generally believed
to contribute to health care cost increases at rates significantly higher than
inflation. Consequently, fee-for-service reimbursement is rapidly being replaced
by alternative reimbursement models, including capitated and other
discounted-fee arrangements. The growth in enrollment in these new reimbursement
models is shifting the financial risk of delivering health care from payors to
providers.
As a result of this changing health care environment, health care cost
containment pressures have increased physician management responsibilities while
lowering reimbursement rates to physicians. Consequently, physician compensation
has declined. Because the majority of all physicians currently practice
individually or in small groups, their ability to lower costs and to negotiate
with payors is limited. Individual physicians and small group practices also
tend to have limited administrative capacity, limited ties to other health care
providers (restricting their ability to coordinate care across a variety of
specialties), limited capital to invest in new clinical equipment and
technologies and limited purchasing power with vendors of medical supplies. In
addition, individual physicians and small group practices typically lack the
information systems necessary to enter into and manage risk-sharing contracts
with payors and to implement disease management programs efficiently.
In response to the foregoing factors, individual physicians and small group
practices are increasingly affiliating with larger group practices and physician
practice management companies (PPMs). By affiliating with physician practices,
PPMs are providing physicians with lower administrative costs, leverage with
vendors and payors and economies of scale necessary to attract capital
resources. In addition, management companies and consultants are organizing
independent physician practices, independent physician associations, physician
22
<PAGE>
hospital organizations and other physician organizations for the purpose of
enabling physicians to enter into agreements with managed care payors. In 1995,
only 6% of physicians nationally were affiliated with a publicly traded practice
management company. It is estimated that by the year 2000, in excess of 20% of
physicians will be affiliated with such companies.
Physicians have historically sought to maintain their independence. With
the prevalence of managed care, physician revenue has declined and physicians
who have not sought to develop cost efficient operations have suffered
financially. In traditional physician hospital organizations and other
practices managed by third parties, physician input has often been low,
therefore such arrangements have not been favored by health care providers.
Accordingly, such providers have sought to affiliate with physician-driven
organizations.
The Washington, D.C. area in which the Company operates has been
particularly affected by the changing health care environment described above.
As the number of health care providers has risen in the Company's market and
managed care has become more prevalent, the competition among providers for
health care payor credentials has increased and many health care plans have
closed their plans to new physicians. Accordingly, health care providers who
have been closed out of plans have encountered more difficulty in attracting
patients, who may be required to consult only with providers participating in
such plans. The Company believes that by negotiating contracts with the majority
of the payors within its markets, it can provide health care providers with a
steady stream of patients.
As the practice management industry matures, the Company believes that
established companies such as the Company will have a competitive advantage over
new entrants since they already have a critical mass of health care providers
and a stable operating history. In addition, entities such as the Company which
have developed relationships with diversified payors offer providers decreased
dependence on any one payor source and leverage in negotiating discounts and
capitation rates.
The Company believes that fewer than 6% of physicians in the Washington
D.C. metropolitan area have entered into practice management agreements.
Therefore, there are significant opportunities for the Company to assist
physicians in developing medical mall facilities and managing the administrative
aspects of group practices and networks.
STRATEGY
The Company's strategy is to develop and sustain an alliance among high
quality regional primary care and specialized licensed health care providers in
order to create a comprehensive, integrated health care delivery system that
reduces medical costs for patients and health care payors. The Company intends
to:
o Develop Additional Medical Mall Facilities. The Company intends to
develop additional medical mall facilities, initially in the Washington -
Baltimore metropolitan area and then throughout the mid-Atlantic region. MMI
will identify sites, negotiate leases, develop facilities, establish operational
structure and recruit physicians. The Company intends to develop up to five
additional medical mall facilities during the next 12 months.
o Provide Low Cost Medical Services by Increasing Operational Efficiencies
and Cost Reductions. By consolidating primary-care based multi-specialty
practices within medical mall facilities, the Company may reduce overhead,
increase efficiency and improve the operations for the provision of medical
services. Specialists employed by the PCs may rotate among medical mall
facilities, spreading a larger patient base over a smaller number of specialists
and making an increased range of specialty services available to patients. The
Company is also seeking to increase its operating efficiency through expansion
of its market area and number of patients, development of additional in-house
services and increase emphasis on outpatient care. The Company also intends to
improve the economies of scale of medical practices through centralized billing,
information management and other services.
o Attract High Quality Health Care Providers. The Company will seek to
attract high-quality health care providers to the medical malls by offering an
environment conducive to providing superior medical care. The Company believes
the medical mall concept will attract additional high-quality providers because
it: (i) reduces overhead costs; (ii) increases patient volume by offering the
opportunity to consult with other specialists in the
23
<PAGE>
facilities; (iii) increases revenue enhancement potential by diversifying the
payor base; and (iv) provides more control over local practice governance than
other PPMs.
o Diversify Payor Base. The Company's mix of patients is reflective of the
payor system in its markets. This broad customer base affords leverage in
negotiating discounts and capitation rates and lowers dependence on any one
payor source. As of December 31, 1997, the Company received payments from over
1,400 health care payors.
o Utilize Sophisticated Management Information Systems. The Company
believes that information technology is critical to the growth of integrated
health care delivery systems, quality control and cost containment. The Company
develops and maintains sophisticated management information systems that collect
and analyze administrative data. These systems allow the Company to control
overhead expenses, maximize reimbursement and provide utilization management.
The Company evaluates the administrative functions of the medical practices in
the medical malls and modifies these functions as appropriate in conjunction
with the implementation of the Company's management information systems.
CORPORATE STRUCTURE
Physician practice management companies typically employ three methods for
providing management services to medical groups: (i) physician service
arrangements under which a management company administers a contract or supplies
labor for a hospital-based specialty group, such as an emergency room; (ii)
equity arrangements, where the management company is responsible for the
operations of acquired practices and physicians are responsible for providing
medical services and where both the management company and the physician are
compensated by a percentage of revenues and a percentage of profits; and (iii)
network management agreements, which allows independent physicians to form a
group to leverage negotiations with managed care companies while remaining
independent.
The following chart depicts the corporate structure of the Company.
[CHART TO COME WILL SHOW RELATIONSHIP BETWEEN THE
FOLLOWING ENTITIES: THE COMPANY, MOM, THE PCs,
INDEPENDENT PHYSICIAN NETWORK AND MEDICAL MALLS]
The Company has developed a model by which licensed health care providers
in its medical mall facilities are both employees of the PCs that control all
aspects of medical delivery and, in many instances, are also equity owners in
MOM, the franchisee that controls non-professional medical services and
operation of the medical mall facilities.
The PCs are owned by P. Steven Macedo, M.D. and Ilene S. Macedo, M.D. and
controlled by the Company. Pursuant to management services agreements with the
PCs, the Company develops the medical malls, recruits physicians and either
provides or arranges through its franchisee for the provision of, general
management services. Management services provided by the Company include but are
not limited to, financial management, human resources management, management
information systems and managed care contracting.
The Company has arranged for a portion of the management services provided
to the medical mall practices to be provided by its franchisee, MOM. This
physician-owned and operated company provides for local governance and has
financial responsibility for the payment of rent for the facilities, salaries
for non-professional staff and the purchase of supplies and equipment. See
Business-Franchise Arrangements. The Company has also entered into a franchise
agreement with Medi-Cen, Corp. of Virginia, whose operations are currently
immaterial.
24
<PAGE>
Through MOM, the Company also has a relationship with a network of
independent licensed health care providers who retain their own offices and
treat their own patients. This network plays an important role in recruiting new
providers to the medical mall facilities.
MEDICAL MALL FACILITIES
The Company has developed the medical mall model as a market-based approach
to meet health care payor demand for price competitive, quality services that
incorporate primary care and specialty health care providers into a network
dedicated to serving a targeted geographic area. Primary care includes family
practice, internal medicine, pediatrics and obstetrics/gynecology. Key
specialties include cardiology, radiology, neurosciences, surgery, ophthalmology
and ear, nose and throat. At certain facilities, heath care providers and
support personnel operate centers for diagnostic imaging, urgent care, cancer
management, mental health treatment and health education.
The Company currently operates the following three medical malls:
<TABLE>
<CAPTION>
DATE PROVIDERS BASED PROVIDERS ROTATING
LOCATION ESTABLISHED AT LOCATIONS AMONG LOCATIONS PRACTICE AREAS
-------- ----------- ------------ --------------- --------------
<S> <C> <C> <C> <C>
Chevy Chase, MD March 1996 16 2 Neurology, Family Medicine,
Neuropsychology, Psychology, Clinical Social
Work, Podiatry, Physical Therapy, Pediatrics,
Optometry
Washington, D.C. January 1997 39 8 Internal Medicine, Cardiology, General Surgery,
Ear, Nose and Throat, Oncology, Neurology,
Nephrology, Opthamology, OB-GYN, Orthopedics,
Pediatrics, Clinical Social Work, Physical Therapy,
Podiatry, Dermatology, Neuroscience,
Radiology
Oxon Hill, MD March 1997 2 17 Family Medicine, Internal Medicine, Cardiology,
OB-GYN, Neurology, Physical Therapy, Pediatrics,
Radiology, Psychology, Clinical Social Work,
Podiatry
</TABLE>
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(1) Certain specialists rotate among the medical mall facilities.
To attract high-quality health care providers to the medical mall
facilities, the Company offers a comprehensive set of physician practice
management services, including practice formation, site location, financial
consulting, marketing, and payor contracting and management.
Practice Formation. The Company assists medical group practices that join
the medical malls in developing and expanding their practices through a
combination of professional recruitment, professional specialty mix analysis,
acquisition evaluation and integration, ancillary services evaluation,
operations development and strategic planning.
Site Location. The Company identifies and assists in the negotiations for
new medical mall locations and arranges for and supervises any necessary
facility buildout.
Financial Consulting. The Company arranges financing for the expansion and
acquisition of medical practices and in the future intends to provide credit
support for such acquisitions and expansions.
Marketing. The Company assists health care providers in marketing their
medical services to health care payors, insurance companies, self-insured
companies, referring physicians, hospitals and the patient community.
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The Company, in close cooperation with the providers, develops public relations
and community outreach programs designed to educate managed care entities and
the patient community about the medical services provided at the medical malls.
Payor Contracting and Management. The Company assists health care providers
in negotiating and structuring managed care contracts with payors for the
provision of medical services. The Company also works with medical group
practices to meet credentialling standards and to manage the provider/payor
relationship.
FRANCHISE ARRANGEMENTS
As discussed above, the Company has arranged for MOM, its franchisee, to
provide certain management services to the PCs. MOM is primarily owned by the
licensed health care providers that provide medical services at the medical
malls. MOM provides local governance and has the financial responsibility for
the payment of rent for the facilities, salaries for non-professional staff and
the purchase of supplies and equipment. As payment for its services, MOM has
been entitled to receive 43.25% of collections of net patient service revenue.
Of this amount, MOM paid to the Company 8% in respect of fees for management
information systems and 1% for a franchise fee.
The Company and MOM have entered into a franchise agreement which grants
MOM the exclusive right to use the Medi-Cen name in the State of Maryland. In
exchange, MOM transferred certain assets to the Company as payment for a
one-time fee of $50,000 for use of the Company franchise and a one time fee of
$150,000 for franchise services. In addition, MOM makes periodic payments of 1%
of the gross billings of MOM each month. The initial term of the franchise
agreement is 20 years with an option to renew for five additional years.
The Company has entered into an identical franchise agreement with
Medi-Cen, Corp. of Virginia for the State of Virginia, whose operations are
currently immaterial.
MEDICAL PRACTICE SERVICES
General. The Company provides a full range of integrated services to form
and develop provider networks within the medical malls and to manage medical
risk. These integrated services include billing services, information systems
and administrative support. The services provided by the Company to the medical
malls are also available to a network of independent licensed health care
providers on a fee for service basis. MMI provides management information
systems and practice management services for approximately 57 health care
providers employed by the PCs. These providers have, with the Company's
assistance, aggregated their practices into group practices in the medical
malls.
Medical Information. MMI maintains the hardware and software necessary to
ensure compliance with all relevant information capture and reporting needs and
requirements for the operation of the PCs. The Company also develops and
maintains customized forms for the purpose of automated communication with
payors and patients and monitors the status of statements and billing cycles to
maximize effectiveness. MMI works with and provides operations support to each
medical mall facility for the purpose of developing accurate, complete and
timely capture of charge and demographic information. Additionally, the Company
develops and maintains relevant monthly health care provider reports and payor
reports, which provide information needed for practice management, business
planning, marketing and accounting. MMI additionally establishes and maintains
automated mechanisms for the receipt and exchange of relevant information
between medical malls, to and from payors and to and from authorized outside
agents.
MMI provides practice profile reports which sort and list patient
utilization data by managed care plan, diagnosis, type of service, amount of
payment and time of payment for the PCs. The Company's management information
systems permit health care providers to comply with all reporting requirements
of third-party payors from which the PCs receive reimbursement, and to validate
and verify the accuracy of reports or profiles of patient services utilization
data generated by managed care plans and other payors.
Management Information Systems. MMI develops and maintains the systems used
to capture charges for professional services at the medical malls and reconciles
account information to minimize lost charges and non-billable services. MMI also
develops and maintains mechanisms for the capture of demographic information
required for utilization data and reviews clinical procedure coding to ensure
accurate, complete and ethical description of professional services performed.
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MMI creates accounts as utilization data is received from the health care
providers upon the completion of a patient's visit and prepares documents
necessary to provide bills for medical services including any customized
documents requested by the PCs. The Company's systems daily produce primary and
secondary claims and filings for relevant payors. The Company also performs
annual revisions of clinical procedure coding and facilitates the maintenance of
a professional charge description paradigm to reflect a complete and accurate
menu of procedures for the PCs. MMI additionally maintains systems for
production or capture of medical reports needed to substantiate each medical
practice's charges and manages a mechanism to provide authorized legal access to
medical records as required to comply with court subpoenas, legal agents and
health care payor needs for documentation of services performed.
Collection and Account Management. MMI's services related to collection and
account management include: (i) processing or arranging for the processing of
claims for medical services; (ii) arranging for the PCs to submit information to
support claims; (iii) submitting standard forms for the payment of claims
received from the PCs; and (iv) conducting coordination of benefits consistent
with the terms of applicable health insurance or plans. MMI also establishes and
maintains escrow or client trust accounts in federally insured banking
institutions to facilitate the expeditious receipt of payments from third party
payors and patients and the deposit of funds to appropriate accounts for the
PCs. In addition, MMI coordinates any appropriate collection efforts with the
PCs, reviews credit balance accounts and maintains medical practice accounts in
such a manner as to allow the production of patient account information which is
required by authorized outside legal and auditing agents.
Patient Services. Patients may contact MMI directly to resolve any problems
that may arise from the billing and collection of patients' accounts
receivables. Patient services include maintaining a dedicated phone line to
allow patients direct access to a patient service representative; processing
patient and insurance company correspondence related to resolution of patient
accounts; and processing patient refunds when appropriate.
Deposit of Funds. MMI is responsible for depositing or directing the
deposit of collected amounts into the accounts of the PCs. The Company also
initiates transfers from the escrow or trust accounts maintained for payment of
fees to MMI in accordance with the management services agreements.
Financial and Administrative Management. The Company offers a variety of
financial and administrative management services to the PCs. The Company's
financial management services include accounting, payroll, finance, payables
management, financial reporting, financial controls, insurance negotiation and
management information systems.
MANAGEMENT INFORMATION SYSTEMS
The Company develops and maintains sophisticated management information
systems to support its growth and acquisition plans. The Company's overall
information systems design is open, modular and flexible.
The software currently used on the system is a customized version of the
program Medical Manager. The software has been modified to allow multiple
practices to bill using the same copy of the software under separate E.I.N.
numbers; to allow for electronic filing and remission; to allow patient
statements to be electronically transmitted to a remote billing house which
mails out the statements to the patients; and to print deposit slips. The
software is also currently being modified to automatically handle referrals for
managed care. The Company intends to further modify its software to
automatically calculate single capitation payments to separate health care
providers in multi-specialty practices.
COMPETITION
The provision of physician practice management services is a highly
competitive business in which the Company competes with several national and
many regional and local companies. Certain of the Company's competitors are
dedicated to or specialize in the management of single-specialty practices
focused on specialties such as neurology, cardiology, podiatry and radiology and
may compete with the Company for providers of these specialties. The Company's
competitors in the development of medical mall facilities include physician
hospital organizations, health maintenance organizations and physician practices
in general. The Company believes that it is able to compete
27
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in this industry by: (i) increasing provider compensation by lowering overhead
costs; (ii) allowing health care providers to locally control the practice of
medicine; (iii) offering providers the ability to consult with other specialists
in the facilities; and (iv) providing the financial incentive and autonomy of
controlling the physical assets and non-professional costs of the medical
practices through its franchise structure.
Many of the Company's competitors and potential competitors have
substantially greater financial, product development, technical, marketing and
other resources than the Company, and currently have, or may develop or acquire
substantially more health care providers under employment or management than the
Company. Although the Company believes that the barriers to entry into physician
practice management industry are relatively high, additional competitors may
enter the market and competition may intensify. There can be no assurance that
future competition will not have a material adverse effect on the Company. See
Risk Factors - Highly Competitive Industry.
GOVERNMENT REGULATION
As a participant in the health care industry, the Company's operations and
relationships are subject to extensive and increasing regulation by a number of
governmental entities at the federal, state and local levels. The Company
believes its operations are in material compliance with applicable laws.
Nevertheless, because of the nature of the Company's relationship with physician
organizations, many aspects of the Company's business operations have not been
the subject of formal state or federal regulatory interpretations and there can
be no assurance that a review by courts or regulatory authorities of the
Company's business or that of the PCs will not result in a determination that
could adversely affect the operations of the Company or that the health care
regulatory environment will not change so as to restrict the existing operations
or expansion plans of the Company or the PCs.
Reimbursement. Management estimates that approximately 14% of the revenues
of the PCs are derived from payments made by government sponsored health care
programs (principally Medicare and Medicaid). Consequently, any change in
reimbursement regulations, policies, practices, interpretations or statutes
could adversely affect the operations of the Company. The federal Medicare
program has implemented a system of resource-based relative value scale (RBRVS)
payment methodology for medical services. The Company expects that future
changes in the RBRVS fee schedule, as required by law, and in Medicare
reimbursement generally, will result, in some cases, in a reduction and, in some
cases, in an increase from historical levels in the per-patient Medicare revenue
received by the PCs. Although the Company does not believe any such reductions
would have a material adverse effect on the Company, the RBRVS fee schedule may
be adopted by other private payors, which could have a material adverse effect
on the Company. See Risk Factors - Cost Containment and Reimbursement Trends.
Billing. There are state and federal civil and criminal statutes which
impose substantial penalties, including civil and criminal fines and
imprisonment, on health care providers who fraudulently or wrongfully bill
governmental or other third-party payors for health care services. The federal
law prohibiting false billings allows a private person to bring a civil action
and there can be no assurance that the Company's activities will not be
challenged or scrutinized by governmental authorities. Moreover, technical
Medicare and other reimbursement rules affect the structure of physician billing
arrangements. The Company believes it is in material compliance with such
regulations, but regulatory authorities may differ in their interpretations of
such regulations, and in such event, the Company may have to modify its
relationship with the PCs. Noncompliance with such regulations could have a
material adverse effect on the business, financial condition and results of
operations of the Company and subject it or the PCs to penalties and additional
costs.
Corporate Practice of Medicine and Fee Splitting. The laws of many states
prohibit business corporations such as the Company from practicing medicine and
employing physicians to practice medicine. These laws forbid both direct control
over medical decisions and indirect interference, such as splitting medical fees
with physicians or controlling budgetary allotments for patient care. Laws
regarding the corporate practice of medicine vary from state to state and are
enforced by the courts and by regulatory authorities. The management service
agreements between the Company and the PCs address this issue by providing that
the PCs retain complete control over medical decision making, and that the
Company may neither interfere with the professional judgment of medical
personnel nor control, direct or supervise the provision of medical services.
Furthermore, the management services agreements provide that the Company may not
perform any services or activities which constitute the practice of medicine,
patient care or quality monitoring. Administrative policies, budgets and
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<PAGE>
fee schedules affecting the delivery of medical services are developed by a
Joint Management Advisory Board, which is at all times controlled by licensed
health care providers. MOM, the Company's franchisee, performs administrative
and business functions on behalf of the PCs. Although the Company believes it is
in material compliance with regulations regarding the corporate practice of
medicine, no assurance can be given that its operations will not be challenged
by regulatory authorities.
Fraud and Abuse Statutes. Certain provisions of the Social Security Act,
commonly referred to as the Anti-kickback Statute, prohibit the offer, payment,
solicitation or receipt of any form of remuneration 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 broadly
interpreted by courts in many jurisdictions. Read literally, the statute places
at risk many business arrangements, potentially subjecting such arrangements to
lengthy and expensive investigations and prosecutions initiated by federal and
state government officials. Many states, including some of those in which the
Company does business, have adopted similar statutory provisions which cover
other third-party payor patients. The Company believes that, although it is
receiving remuneration under the management service agreements from the PCs for
management services, it is not in a position to make or influence the referral
of patients or services reimbursed under government programs to these medical
practices and, therefore, believes it has not violated the Anti-kickback
Statute. Moreover, the Company is not a separate provider of Medicare or state
health program reimbursed services. To the extent the Company is deemed to be
either a referral source or a separate provider under its management service
agreements with the PCs and to receive referrals from physicians, the financial
arrangements under such agreements could be subject to scrutiny and prosecution
under the Anti-kickback Statute. Violation of the Anti-kickback Statute is a
felony, punishable by criminal fines up to $25,000 per violation and
imprisonment for up to five years; a civil monetary penalty of $50,000; and/or
civil damages of not more than three times the amount of remuneration offered,
paid, solicited or received without regard to whether any portion of such
remuneration was for a lawful purpose. In addition, the U.S. Department of
Health and Human Services (HHS) may impose civil penalties excluding violators
from participation in Medicare or state health programs.
In July 1991, in part to address concerns regarding the Anti-kickback
Statute, the federal government published regulations that provided exceptions,
or safe harbors, for transactions that will be deemed not to violate the
Anti-kickback Statute. The federal government has adopted "Safe Harbors" which
exclude remuneration received in transactions described in the regulations from
the definition of remuneration under the Anti kickback rules. Safe Harbors have
been adopted for: return on an investment interest, such as a dividend or
interest income, made to an investor in large publicly traded companies and in
companies which meet standards limiting the percentage of total equity which can
be held by investors in a position to refer to the entity; the lease of space or
equipment; bona fide employment; the one time purchase of a practice by a
physician; certain price reductions offered to certain health maintenance
organizations; certain warranties or discounts; certain referral services; and
payments made by a principal to an agent under personal service or management
contracts. Some of these safe harbors are applicable to the activities of the
Group practices, their employee physicians, and the Company, including
provisions related to space and equipment leases, personal service and
management contracts, the sale of practices to physicians, bona fide employment
relationships, group practices, physician incentive plans and certain managed
care contracting activities. Basically, all agreements must be in writing,
describe all services to be provided, be on commercially reasonable terms, and
require payment consistent with fair market value in arms length transactions
which is not determined by taking into account the volume or value of referrals
of Medicare and Medicaid business. The Company believes that its lease and
management activities generally fall within the safe harbors. However, no
independent appraisal or fairness opinion concerning the fair market value of
such leases or services agreements or the reasonableness of the consideration
received by the Company therefor has been secured, and there can be no assurance
that federal or state regulators might not challenge some of the transactions or
practices of the Company. Failure to comply with a safe harbor exception or the
lack of a safe harbor with respect to a transaction does not itself result in,
or constitute a violation of, the fraud and abuse rules. Although the Company
believes that it is not in violation of the Anti-kickback Statute, its
operations may not fit within any of the existing or proposed safe harbors.
As a component of the recently enacted Health Insurance Portability and
Accountability Act of 1996, Congress directed the Secretary of HHS to issue
advisory opinions regarding compliance with the Anti-kickback Statute. 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 civil or criminal penalties under the
applicable exclusion. 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
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<PAGE>
to violate the Anti-kickback Statute. The Company has not sought, and has no
present intention of seeking, an advisory opinion regarding any aspect of its
current operations or arrangements with physicians.
Significant prohibitions against physician referrals were enacted by
Congress in the Omnibus Budget Reconciliation Act of 1993. These prohibitions,
commonly known as Stark II, amended prior physician self-referral legislation
known as Stark I by dramatically enlarging the field of physician-owned or
physician-interested entities to which the referral prohibitions apply.
Effective January 1, 1995, Stark II prohibits, subject to certain exemptions, a
physician or a member of his or her immediate family from referring Medicare
patients to an entity providing designated health services in which the
physician has an ownership or investment interest, or with which the physician
has entered into a compensation arrangement, including the physician's group
practice. The designated health services include radiology and other diagnostic
services, radiation therapy services, physical and occupational therapy services
and the provision of durable medical equipment, parenteral and enteral
nutrients, equipment and supplies, prosthetics, orthotics, outpatient
prescription drugs, home health services and inpatient and outpatient hospital
services. The penalties for violating Stark II include a prohibition on payment
by these government programs and civil penalties of as much as $15,000 for each
violative referral and $100,000 for participation in a "circumvention scheme."
The Company believes that its activities are not in violation of Stark I or
Stark II. The federal government issued interim final regulations which
addressed Stark I and portions of Stark II in August 1995. Proposed regulations
interpreting Stark II were published on January 9, 1998. The comment period on
the proposed Stark II regulations has not yet run. The proposed regulations
define the designated health services, refine the definition of a group
practice, and impose additional requirements on the exception for referrals
within a group practice for in office ancillary services. Therefore, there can
be no assurance that the Company's operations will not be challenged by
regulatory authorities.
Stark II also governs a physician's ability to refer patients for
designated health services within the practices and networks that the Company
manages in light of the physician's ongoing compensation arrangements with such
practices and networks. An exception for in-office ancillary services requires
that the practices and networks 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 law's
definition of "group practice." The proposed regulations impose new requirements
on the structure and operation of a group practice, and impose new limitations
on the ability of physicians in a group practice to refer radiology, physical
therapy and other designated health services within the group. The affiliated
group practices currently offer several of the designated health services within
the groups, and will have to comply with the Stark II regulations when they
become effective. The Company believes that the affiliated group practices will
be able to meet the requirements imposed by the proposed regulations, or can be
successfully restructured to meet the requirements. Regulations are subject to
change, and there can be no certainty that the affiliated group practices will
be able to meet the definition of group practice under regulations ultimately
adopted. Any adverse changes to the group practice definition may have a
material adverse effect on the Company by severely limiting the ability of the
medical practices that the Company manages to bill the Medicare and Medicaid
Programs for certain ancillary services furnished by those practices.
In the recently enacted Balanced Budget Act of 1997, Congress directed the
Secretary of 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 began in November
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 regarding its current operations,
arrangements with health care providers or the referral activities of health
care providers in the practices it manages.
A number of states have enacted self-referral laws that are similar in
purpose to Stark II but which impose different restrictions on referrals from
Stark II. 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. Most of the
states in which the Company conducts business have adopted some form of
self-referral law. Many states, including Pennsylvania, have self-referral laws
that are particularly applicable to workers' compensation patients. The Company
believes that it current operations and the structure of the medical practices
it manages are in material compliance with the self-referral laws of the states
in which such practices are located.
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). 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,
30
<PAGE>
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
the Anti-kickback Statute or the Stark law have been deemed to be, or may under
certain circumstances be construed to be, false claims.
State physician self referral laws and Stark II have not been extensively
judicially interpreted and there is considerable uncertainty concerning how such
laws will be interpreted, including specifically how broadly the exemptions and
exceptions to their application will be applied. Physicians participating in the
Company's network or employed by an affiliated group practice will have several
financial relationships with the Company, including the lease of space and
equipment, the purchase of practices, loans or advances of money, and the
provision of billing and management services. Certain physicians may refer
patients among themselves within their group practices and as part of the
network, and refer designated health services under the In Office Ancillary
Service exception available to certain referrals within a group practice. The
Company can not be sure that all of its relationships with the physicians and
affiliated group practices will fall within one of the exemptions under Stark
II, as interpreted under final regulations. However, the Company believes that
it is not an entity to which referrals can be made, and that the referrals of
patients by physicians within the group practices should fall within one or more
of the exceptions permitted by Stark II and the state self-referral laws. Final
regulations or future regulations or statutes might require the Company to
restructure its relationships with its group practices. Violations of Stark II
by the Company or its Group practices could result in significant fines and
financial losses which could adversely affect the Company.
While the Company believes that it is in compliance with the foregoing
federal and state laws, future regulations could require the Company to modify
the form of its relationships with physician organizations. Moreover, the
violation of any such state or federal law by the Company or the PCs, could have
a material adverse effect on the Company.
Anti-Trust. Although the PCs are managed by the Company, they remain
separate legal entities and they may be deemed competitors subject to a range of
antitrust laws which 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 and the
United States Department of Justice to prohibit joint negotiations 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, the medical mall
facilities, but there can be no assurance that review of the Company's business
by courts or regulatory authorities will not result in a determination that
could adversely affect the operations of the Company or the PCs.
Insurance Regulations. Laws in all states regulate the business of
insurance and the operation of health maintenance organizations. On August 10,
1995, the NAIC issued a report opining that certain risk-transferring
arrangements may entail the business of insurance, to which state licensure laws
apply, but that licensure laws would not apply where an unlicensed entity
contracts to assume downstream risk from a duly licensed health insurer or
health care payor for health care provided to that carrier's enrollees. In
addition, in December 1996, the NAIC issued a report 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 some of those in which the Company does
business, these statutes and regulations subject any physician or physician
network engaged in risk-based contracting, even if through health care payors
and insurance companies, to applicable insurance laws and regulations, or other
laws and regulations, which may include, among other things, providing for
minimum capital requirements and other safety and soundness requirements.
Although the NAIC's conclusions are not binding on the states, the Company
believes that additional regulation at the state level will be forthcoming in
response to the NAIC initiatives. The Company will enter into capitated
contracts only with licensed insurance companies and health maintenance
organizations, and only if allowed by state law. The Company believes that it is
in compliance with these laws in the states in which it does business, but there
can be no assurance that future interpretations of insurance laws and health
care network laws by the 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.
Health Care Reform. As a result of the continued escalation of health care
costs and the inability of many individuals to obtain health insurance, numerous
proposals have been and may continue to be introduced in the U.S. 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 to 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. Although
the Company does not currently collect aggregate clinical data for utilization
review and quality assurance purposes, it plans to develop such databases. Data
entries to these databases would delete any patient identifiers, including name,
address, hospital and physician. 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.
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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
HHS 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.
Licensure, Certificate of Need and Prescription Laws. Certain of the
ancillary services that the Company anticipates providing on behalf of the PCs
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 PCs
will be able to obtain such licenses or certificate of need approval to the
extent required for the particular ancillary service. Finally, each state
establishes rules related to the practice of medicine, including the method of
prescribing drugs.
CONTRACTUAL RELATIONSHIPS WITH YATER AND MPS
The relationship between the Company and the PCs is set forth in the
management service agreements. Through the management service agreements, the
Company agrees to provide, or arrange for the provision of, management and
administration services for the medical practices. The services the Company
provides includes but are not limited to, business planning, financial
management, bookkeeping, accounting and data processing, maintenance of medical
records, human resource management, billing and collecting, facility utilization
and cost and quality management. As discussed above, the Company has arranged
for its franchisee, MOM, to provide operational services at the medical malls,
including the payment of rent for the facilities, the purchase of supplies and
equipment and salaries for non-professional staff.
The PCs are consolidated medical practices that have either directly
entered into contracts with health care payors or that have the right to receive
payment directly from health care payors for the provision of medical services
in the medical malls. MMI obtains a controlling financial interest in the PCs by
virtue of the long-term management service agreement with each entity, the
transfer restriction agreements discussed below and the fact that the PCs are
each owned by Dr. Steven Macedo, the Chairman of the Board of the Company, and
his wife, Dr. Ilene Macedo.
Under the management service agreements, the Company is responsible for the
billing and collection of all revenue for services provided at the medical malls
but is not responsible for the payment of professional salaries and certain
benefits. Accordingly, the PCs are responsible and at risk for all such
expenses, and the Company, since it is not the owner of these medical practices,
does not have a substantive capital investment that is at risk. The PCs are each
entitled to receive 40% of collections of net patient service revenue from their
respective medical malls as fees for services rendered, which is used to pay the
salaries of the licensed health care providers employed by the PCs.
The Company's management service agreements with the PCs are long-term and
provide the Company with unilateral control over the administrative aspects of
physician practices. The management agreements include the following provisions:
(i) the initial term is 30 years; (ii) renewal provisions call for automatic and
successive five year renewal periods; and (iii) neither of the PCs can
unilaterally terminate their agreements with the Company unless the Company
fails to cure a breach of its contractual responsibilities thereunder within one
year after notification of such breach.
The Company has also entered into transfer restriction agreements with the
shareholders of Yater and the partners of MPS. These agreements restrict the
resale of the ownership interest of Drs. Steven and Ilene Macedo in Yater and
their partnership interests in MPS. See Management's Discussion and Analysis of
Financial Condition and Results of Operations.
CORPORATE LIABILITY AND INSURANCE
The Company's business entails an inherent risk of claims of medical
professional liability. In recent years participants in the health care industry
have become increasingly subject to large claims based on theories of medical
malpractice that entail substantial defense costs. The Company maintains general
liability insurance of $1.0 million per occurrence and other customary insurance
on an occurrence basis, in amounts deemed appropriate by management based upon
historical claims and the nature and risks of the business. There can be
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<PAGE>
no assurance that a future claim will not exceed the limits of available
insurance coverage or that such coverage will continue to be available.
Moreover, the Company requires the PCs to obtain and maintain professional
liability of $4 million per occurrence and $6 million in the aggregate, and
workers' compensation insurance coverage. Such insurance will likely not provide
additional coverage, subject to policy limits, in the event the Company were
held liable as a co-defendant in a lawsuit for professional malpractice against
a licensed health care provider. In addition, generally, the Company is
indemnified under the management service agreements by the PCs for liabilities
resulting from the performance of medical services. However, there can be no
assurance that any future claim or claims will not exceed the limits of these
available insurance coverages or that indemnification will be available for all
such claims.
EMPLOYEES
As of the date of this Prospectus, the Company had 16 employees, all of
whom were employed on a full-time basis. Approximately six of such employees are
management and 10 provide administrative support. As of the date of this
Prospectus, MOM had 63 employees that provide non-professional services at the
medical malls and the PCs collectively employed 57 licensed health care
providers. None of the Company's employees are represented by labor unions and
the Company believes its relationship with its employees is good.
PROPERTIES
MMI currently leases 1,113 square feet of office space in Bethesda,
Maryland pursuant to a lease agreement dated January 3, 1995 (the Lease). The
annual minimum rent for the year commencing February 1998 is $18,243 payable in
monthly installments of $1,520.
The Lease terminates upon the commencement of the Lease Agreement dated
July 16, 1997 (the Lease Agreement) covering 3,570 square feet at the same
premises in Bethesda, Maryland. The term of the Lease Agreement is five years
from the date of occupancy with three options to renew for additional five year
terms each. The initial annual minimum rent under the Lease Agreement is
$40,000, payable in equal monthly installments. Annual rent will increase to
approximately $64,000 in the fifth year of occupancy. The Company expects to
occupy this property on or about May 1, 1998.
33
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are:
NAME AGE POSITION
--------- --- --------
P. Steven Macedo, M.D. 37 Chairman of the Board
Michael Macedo 34 Chief Executive Officer and Director
Frank Cronin 58 President
Harrison G. Jett 45 Chief Financial Officer and Director
Bruce A. Kehr 47 Vice President of Provider Relations
James Cornelson 44 Director
William Lester 73 Director
P. STEVEN MACEDO, M.D. has served as Chairman of the Board of the Company
since its inception in March 1994. Dr. Macedo is also Chairman of the Board and
Chief Executive Officer of each of MOM, the Company's franchisee, and Medi-Cen,
Corp. of Virginia, Inc., a franchisee whose current operations are immaterial.
Dr. Macedo is a neurologist who has been in private practice as a partner of MPS
since 1991, with special expertise in Behavioral and Forensic Neurology. Since
January 1997 Dr. Macedo also has been an owner of Yater, a multi-specialty
medical practice. Dr. Macedo is also currently a Clinical Associate Professor at
the George Washington University Department of Neurology and a Director of
Taxsoft, Inc., an Internet tax software company. Dr. Macedo was President of
Forensic Medicine Institute, Inc., a continuing legal education provider, from
1994 to 1997, and Chief Executive Officer and Chairman of the Board of Directors
of NeuroData, Inc., a neurological medical equipment company, from 1993 to 1996.
He served as Chief Resident of Neurology between 1990 and 1991 at Georgetown
University, Washington Veterans Administration Medical Center, and Children's
Hospital National Medical Center.
MICHAEL MACEDO has served as Chief Executive Officer and a Director of the
Company since its inception in March 1994. He is also Vice President and
Secretary of Taxsoft, Inc., an Internet tax software company. From 1994 to 1997,
he was Vice President of Forensic Medicine Institute, Inc. a continuing legal
education provider. Mr. Macedo has been in the private practice of law since
1988 with offices in Washington, D.C. and New York, N.Y.
FRANK CRONIN has served the Company in several capacities since January
1996 and has been President of the Company since February 1998. He was Vice
President of MIIX Healthcare Group, a health care consulting firm from August
1997 to February 1998. From August 1995 to August 1997 he was President of MCR
Healthcare, Inc., a health care consulting firm. Mr. Cronin was President and
Chief Executive Officer of Central New England Health Alliance, an integrated
health care delivery system, from 1992 to August 1995. Since 1995, he has been
on the Board of Directors of the American Academy of Medical Administrators,
which named him Healthcare Executive of the Year in 1994. He is also on the
Boards of the National Council of Community Hospitals and the New England
Healthcare Assembly and is a Paul Harris Fellow of Rotary International.
HARRISON G. JETT has served as Chief Financial Officer and a Director of
the Company since August 1996. He is also the Treasurer of MOM, the Company's
franchisee. From 1988 to January 1996, Mr. Jett was the owner and principal
broker of RE/MAX Realty Associates, a franchisee of RE/MAX International, Inc.,
a commercial and residential real estate company.
BRUCE A. KEHR has been Vice President of Provider Relations of the Company
since April 1996. He is also the Vice President and Director of MOM, the
Company's franchisee, and Secretary and Director of Medi-Cen, Corp. of Virginia.
Dr. Kehr is a board certified psychiatrist who has been in private practice
since 1976. Dr. Kehr has been President of Contemporary Psychiatric Services
since 1982 and President of Medication Management Technologies, Inc. since 1994.
Since 1988, he has been President and Chief Operating Officer of American
Neuroscience Centers, Inc., where he was Vice President and Director from 1987
to 1988.
JAMES W. CORNELSON has agreed to become a Director of the Company upon the
consummation of this Offering. He is currently President of Old Line National
Bank. He had been Senior Vice President of Sequoia
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Bank from 1992 to 1994, where he served as Chief Lending Officer in charge of
all credit aspects of the institution. Previously, Mr. Cornelson worked for
fourteen years as Vice-President of Citizen Bank of Maryland.
WILLIAM LESTER has agreed to become a Director of the Company upon the
consummation of this Offering. He has been President of William Lester
Associates, Inc. since 1989 and President of International Facilitators, Inc.
since 1992, where he provides management and business development consulting in
the United States and international markets including exclusive services to CEOs
and entrepreneurs.
P. Steven Macedo, M.D. and Michael Macedo are brothers.
BOARD OF DIRECTORS' COMMITTEES AND COMPENSATION
The Board of Directors of the Company has appointed two committees: the
Audit Committee and the Compensation Committee. The members of the Audit
Committee are Dr. Steven Macedo, William Lester and James W. Cornelson. The
Audit Committee periodically reviews the Company's auditing practices and
procedures, makes recommendations to management or to the Board of Directors as
to any changes to such practices and procedures deemed necessary from time to
time to comply with applicable auditing rules, regulations and practices, and
recommends independent auditors for the Company to be elected by the
stockholders. The members of the Compensation Committee are Michael Macedo,
William Lester and James W. Cornelson. The Compensation Committee meets
periodically to make recommendations to the Board of Directors concerning the
compensation and benefits payable to the Company's executive officers and other
senior executives. The Company currently reimburses directors for their
out-of-pocket expenses incurred in attending Board and Committee meetings and
intends to pay outside Directors $1,600 for each Board of Directors meeting
attended upon consummation of this Offering.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation for services in all
capacities to the Company of that person who was, as of December 31, 1997, the
Company's Chief Executive Officer and for the other most highly compensated
Executive Officer of the Company (collectively, the Named Executive Officers)
for the year ended December 31, 1997.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
--------------------------------- -----------------------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS
- --------------------------- ---- ------ ----- ------------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
P. Steven Macedo, M.D., Chairman.................. 1997 $ 0(1) $ 0 $ 273,618(2) 0 0
Michael Macedo, Chief Executive Officer........... 1997 $ 0(3) $ 0 $ 328,987(4) 0 0
</TABLE>
(1) Does not include loan amounts owed by the Company to Dr. Macedo of $125,000
as of December 31, 1997 and $163,000 as of February 12, 1998.
(2) Represents amounts received by Dr. Macedo of: $73,000 plus loan interest
payments of $2,200 and car payments of $4,785 from Yater; and $185,500
plus $3,665 of car payments from MPS; and $4,468 from MCA.
(3) Does not include (a) legal fees from the Company to the law firm of Michael
Carlos Buarque de Macedo of $17,106, (b) legal fees from MOM to the law
firm of Michael Carlos Buarque de Macedo of $17,465, (c) legal fees from
Yater to the law firm of Michael Carlos Buarque de Macedo of $15,489 and
(d) loan amounts owed by the Company to Mr. Macedo of $10,000 as of
December 31, 1997 and $107,933 as of February 12, 1998.
(4) Represents amounts received by Mr. Macedo of: consulting fees of $225,000,
bonus of $65,000, car payments of $8,920, and loan interest of $600 from
Yater; consulting fees of $25,000 from MPS; and $4,467 from MCA.
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<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into two year employment agreements effective March
11, 1998 with each of Dr. Steven Macedo and Michael Macedo. Pursuant to each
employment agreement, Dr. Macedo will act as Chairman of the Board of Directors
and Secretary and Mr. Macedo will act as Chief Executive Officer. Each of Dr.
Macedo and Mr. Macedo will be entitled to receive base compensation in an amount
determined by the Board of Directors and options to purchase up to 900,000
shares of Common Stock at a price equal to the initial public offering price.
The Company has entered into a one year employment agreement effective
February 1, 1998 with Frank Cronin, President of the Company. The agreement
provides for an annual salary of $250,000, $500 per month for payment of
disability, life, dental and health insurance and a car allowance. The agreement
also prevents Mr. Cronin from competing with the Company for a period of two
years subsequent to the termination of his employment.
Michael Macedo has entered into a five year consulting agreement with Yater
effective January 20, 1997, which provides that Mr. Macedo shall receive annual
compensation of $300,000 and $60,000 per year in other benefits.
Dr. Steven Macedo has entered into a five year employment contract
effective January 1, 1998, which provides that Dr. Macedo shall receive annual
compensation of $300,000 and $60,000 per year in fringe benefits.
STOCK OPTION PLAN
The Company adopted the Medi-Cen Management, Inc. Stock Option Plan (the
Plan) in 1998 to encourage stock ownership by key management employees of the
Company and to provide an incentive for such employees to expand and improve the
profits of the Company. The purpose of the Plan is to support the Company's
ongoing efforts to develop and retain qualified directors, employees and
consultants and to provide the Company with the ability to more directly link
incentives to the profitability of the Company's business and increases in
stockholder value.
The Plan provides for the award to eligible employees of the Company and
others of stock options, stock appreciation rights, restricted stock, and other
stock-based awards, as well as cash-based annual and long-term incentive awards.
The Plan reserves 2,000,000 shares of Common Stock for issuance. As of the date
of this Prospectus, 1,800,000 options have been granted under the Plan, at an
exercise price equal to the initial public offering price. The Plan will be
administered by the Compensation Committee of the Board of Directors. This
committee will select the persons to whom awards will be granted and will
determine the terms and conditions of such awards. The shares of Common Stock
comprising any award that terminates, expires or is cashed out without payment
being made in the form of Common Stock will again be available for distribution
under the Plan, as will shares that are used by an employee to pay withholding
taxes or as payment for the exercise price of an award.
Awards under the Plan are not transferable except in the event of the
person's death or unless otherwise required by law. Other terms and conditions
of each award will be set forth in award agreements.
INDEMNIFICATION AND LIMITATION OF LIABILITY
The Company's Certificate of Incorporation provides that the Company shall
indemnify any and all persons whom it shall have power to indemnify under
Maryland law, as from time to time amended, from and against any and all of the
expense, liabilities or other matters referred to in or covered by the Maryland
General Corporation Law. The Company maintains insurance on behalf of any person
who is or was a director, officer, employee, or agent of the Company, or is or
was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability, or loss incurred by such person in
any such capacity or arising out of his status as such, whether or not the
Company would have the power to indemnify him against such liability under
Maryland law.
Under Maryland law, the Company is permitted to indemnify directors,
officers, employees and agents made a party to any proceeding by reason of
service in that capacity unless it is established that: (1) the act or omission
of the party was material to the matter giving rise to the proceeding and (i)
was committed in bad faith, or (ii) was
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<PAGE>
the result of active and deliberate dishonesty; or (2) the party actually
received an improper personal benefit in money, property or services; or (3) in
the case of any criminal proceeding, the party had reasonable cause to believe
that the act or omission was unlawful. Maryland law further provides that a
party may not be indemnified in respect of any proceeding charging improper
personal benefit, whether or not involving action in such party's official
capacity, in which the party was adjudged to be liable on the basis that
personal benefit was improperly received. In Paragraph 4 of Clause 7 of its
amended Certificate of Incorporation, the Company has included a provision which
limits the liability of its directors and officers for money damages in
accordance with the Maryland law. Paragraph 4 of Clause 7 does not eliminate or
otherwise limit the fiduciary duties or obligations of the Company's directors
and officers, does not limit non-monetary forms or recourse against such
directors and officers, and, in the opinion of the Securities and Exchange
Commission, does not eliminate the liability of a director or officer under the
federal securities laws.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's shares of Common Stock as of March 13,
1998, and as adjusted to reflect the sale of the shares of Common Stock offered
hereby, by (i) each person who is known to the Company to own beneficially more
than 5% of the Company's shares of Common Stock and (ii) all directors and
executive officers as a group. Unless otherwise indicated, the persons named in
this table have sole voting and investment power with respect to the shares of
Common Stock shown as beneficially owned by them.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
------------------------ ---------------------
NAME AND ADDRESS OF
BENEFICIAL OWNER(1) NUMBER PERCENT NUMBER PERCENT
<S> <C> <C> <C> <C>
P. Steven Macedo, M.D................................................ 1,957,349(2) 40.7% 1,957,349(2) 28.7
Michael Macedo....................................................... 1,942,007(2) 40.4 1,942,007(2) 28.5
Frank Cronin......................................................... 53,716(3) 1.1 53,716(3) --
Harrison Jett........................................................ 54,117(4) 1.1 54,117(4) --
Bruce Kehr........................................................... 413,200(3) 8.6 413,200(3) 6.1
James Cornelson...................................................... 8,330(3) -- 8,330(3) --
William Lester....................................................... 25,825(5) -- 25,825(5) --
All directors and executive officers as a group (7 persons)(6)....... 4,454,544 92.6 4,454,544 65.4
</TABLE>
(1) The address for all persons is 5301 Wisconsin Avenue, Suite 620,
Washington, D.C. 20015.
(2) Includes options to purchase 450,000 shares of Common Stock. Does not
include 450,000 additional shares issuable upon the exercise of options
that are not exercisable within 60 days. Each of Dr. Macedo and Michael
Macedo have entered into an agreement with Yater, under which Yater has
agreed to purchase from each of them, commencing January 22, 1998, 620
shares of Common Stock per week for $7.26 per share through the date of
this Prospectus. Yater intends to use the shares of Common Stock purchased
from the Macedos as consideration for the purchase by Yater of medical
practices from health care providers.
(3) Represents options to purchase Common Stock.
(4) Includes options to purchase 33,056 shares of Common Stock.
(5) Includes options to purchase 24,792 shares of Common Stock.
(6) Includes options to purchase 1,433,094 shares of Common Stock.
CERTAIN TRANSACTIONS
P. Steven Macedo, Secretary and Chairman of the Board of Directors of the
Company is also a Director and Chief Executive Officer of MOM and Medi-Cen,
Corp. of Virginia, Inc., and is an owner of the PCs, medical practices managed
by the Company. For his services, excluding income received for physician
services and as an owner of medical practices, Dr. Macedo has received, in 1996,
$4,807 from MOM and in 1997, $4,468 from MCA.
Michael Macedo, Director and Chief Executive Officer of the Company, is
also: Management Consultant to MOM; Consultant to the PCs, medical practices
owned by his brother, Dr. Macedo and managed by the
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<PAGE>
Company; and sole proprietor of the law firm of Michael Carlos Buarque de
Macedo. In 1996, Michael Macedo received $13,060 from MOM as compensation for
consultant services. During 1997, Michael Macedo received as compensation for
services: $290,000 plus $8,920 of automobile lease payments from Yater; $25,000
from MPS; and $4,467 from MCA. In 1996, the law firm of Michael Carlos Buarque
de Macedo was paid $75,000 by the selling shareholders of the Company for legal
services in connection with the preparation of the securities offering effective
November 15, 1995 and $30,000 was paid by the firm as salary to Tatiana Daniels
Macedo, Esq., an attorney employed by the firm, and a sister-in-law of Michael
Macedo, Esq. and Dr. Macedo. For 1997, the law firm of Michael Carlos Buarque de
Macedo received, for general counsel services, reimbursements of $17,106 from
the Company, $17,465 from MOM and $15,489 from Yater, and $37,216 was paid by
the firm as salary to Tatiana Daniels Macedo, Esq., an attorney employed by the
firm, and a sister-in-law of Michael Macedo and Dr. Macedo.
As of the date of this Prospectus, the Company owes Dr. Steven Macedo and
Michael Macedo $163,000 and $107,933, respectively. These amounts bear interest
at the rate of prime rate plus 0.5% per annum and are payable upon demand. The
Company intends to use a portion of the net proceeds of this Offering to pay all
amounts outstanding to Dr. Macedo and Mr. Macedo. See Use of Proceeds.
Bruce A. Kehr, M.D., Vice President of Provider Relations of the Company,
is also a Director, Vice President and Secretary of MOM; Director and Secretary
of Medi-Cen, Corp. of Virginia, Inc.; and owner of Contemporary Psychiatric
Services, one of the independent physician practices associated with the
Company. Dr. Kehr and the Company have entered into a contract pursuant to which
the Company provides billing and collection services to Dr. Kehr's medical
practice. In 1997, the Company received approximately $60,000 from such
contracts. In 1997, excluding income received for physician services or as an
owner of medical practices, Bruce A. Kehr, M.D. received $4,468 from MCA for
services therefor. He also received interest payments from MOM of $350 in 1996.
Pursuant to Dr. Kehr's Vice President and Provider Relations Center with the
Company, dated April 30, 1996, Dr. Kehr has also received stock options to
purchase 413,200 shares of Common Stock of the Company at a price of $2.42.
In 1997, Dr. Steven Macedo and his wife, Dr. Ilene Macedo received an
aggregate of $73,000 in dividends from Yater. In 1996 and 1997, Drs. Steven and
Ilene Macedo received $228,000 and $185,500, respectively, from MPS as
partnership distributions.
MOM has paid the Company a fee of $150,000 for billing and collection
services, and has entered into a 20 year contract to pay the Company an ongoing
eight percent (8%) of gross collections of billing attributable to providers
using Company negotiated contracts. Medi-Cen, Corp. of Virginia, Inc. has also
entered into a 20 year contract with the Company upon the same terms and
conditions, but has not yet paid its fees to MMI and is currently inactive.
Yater has entered into a five year contract with MMI for billing and related
services for a fee of 8% of moneys actually collected. MPS has entered into an
identical five year contract. See Business.
In 1997, Michael Macedo loaned $20,000 to Yater which bore interest at the
rate of 1% per month. This loan was fully repaid in 1997.
Steven Macedo owes Yater $400,000 in connection with the purchase of Yater.
The loan will be repaid beginning in 1999. Interest is earned on the outstanding
balance at prime plus 0.5%.
Upon consummation of this offering, the law firm of Michael Carlos Buarque
de Macedo will receive approximately 11,111 shares of Common Stock valued at the
initial public offering price.
Each of Dr. Macedo and Michael Macedo have entered into an agreement with
Yater, under which Yater has agreed to purchase from each of them, 620 shares of
Common Stock per week for $7.26 per share until the date of this Prospectus. As
of the date of this Prospectus, Yater has purchased an aggregate of 9,917
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<PAGE>
shares of Common Stock from Dr. Macedo and Mr. Macedo. Yater intends to use the
shares of Common Stock purchased from the Company as consideration for the
purchase by Yater of medical practices from health care providers.
All ongoing and any future transaction with affiliates of the Company, if
any, will be on terms believed by the Company to be no less favorable than are
available from unaffiliated third parties and will be approved by a majority of
disinterested directors.
DESCRIPTION OF SECURITIES
GENERAL
Upon consummation of this Offering, the Company will be authorized to issue
up to 10,000,000 shares of Common Stock, par value $.0024 per share. As of the
date of this Prospectus, there are 3,378,046 shares of Common Stock outstanding
held by approximately 45 stockholders. Upon the consummation of this Offering,
there will be 5,378,046 shares of Common Stock outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. If dividends are
declared, whether payable in cash, property or securities of the Company,
holders of the Common Stock are entitled to share equally in such dividends. In
the event of any voluntary or involuntary liquidation, dissolution or winding up
of the Company, each holder of Common Stock will be entitled to share equally in
the assets available for distribution.
Holders of shares of Common Stock have no preemptive rights to acquire any
additional shares of the Common Stock and have no cumulative voting rights. All
currently outstanding shares of Common Stock are duly authorized, validly
issued, fully paid and non-assessable.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Gemisys
Corporation.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this offering, the Company will have outstanding
5,378,046 shares of Common Stock, of which the 2,000,000 shares offered hereby
will be freely tradeable without restriction or further registration under the
Securities Act, except for shares purchased by an affiliate of the Company (in
general, a person who has a controlling position with regard to the Company),
which will be subject to the resale limitations of Rule 144 promulgated under
the Securities Act.
The remaining 3,378,046 shares of Common Stock outstanding are deemed to be
restricted securities, as that term is defined under Rule 144 promulgated under
the Securities Act, and may only be sold pursuant to an effective registration
under the Securities Act, in compliance with the exemption provisions of Rule
144 or pursuant to another exemption under the Securities Act. Such restricted
shares of Common Stock will become eligible for sale, under Rule 144, subject to
certain volume limitations prescribed by Rule 144.
In general, under Rule 144, subject to the satisfaction of certain other
conditions, a person, including an affiliate of the Company (or persons whose
shares are aggregated with an affiliate) who has owned restricted shares of
Common Stock beneficially for at least one year is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of 1% of
the then outstanding shares of the issuer's Common Stock or the average weekly
trading volume during the four calendar weeks preceding such sale, provided that
certain public information about the issuer as required by Rule 144 is then
available and the seller complies with certain other requirements. A person who
is not an affiliate, has not been an affiliate within three months prior to
sale, and has beneficially owned the restricted shares for at least two years is
entitled to sell such shares under Rule 144 without regard to any of the
limitations described above.
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<PAGE>
The Company and its executive officers, directors and principal
stockholders have agreed that for a period of 180 days following the Offering,
without the prior written consent of the Representatives, they will not,
directly or indirectly, offer or agree to sell, hypothecate, pledge or otherwise
dispose of any shares of Common Stock (or securities convertible into,
exchangeable or exercisable for or evidencing the right to purchase shares of
Common Stock). As a result of these contractual restrictions, shares subject to
lock-up agreements will not be saleable until such agreements expire.
Future sales of Common Stock in the public market following this Offering
by the current stockholders of the Company, or the perception that such sales
could occur, could adversely affect the market price for the Common Stock. The
Company's principal stockholders hold a significant portion of the outstanding
shares of Common Stock and a decision by one or more of these stockholders to
sell shares pursuant to Rule 144 under the Securities Act or otherwise could
materially adversely affect the market price of the Common Stock. See Risk
Factors - Shares Eligible for Future Sale.
Prior to this Offering, there has been no market for the Common Stock and
no prediction can be made as to the effect, if any, that market sales of Common
Stock or the availability of such shares for sale will have on the market price
prevailing from time to time. Nevertheless, the possibility that substantial
amounts of Common Stock may be sold in the public market may adversely affect
prevailing market prices for the Common Stock and could impair the Company's
ability to raise capital through the sale of its equity securities.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to each of the underwriters named
below (the Underwriters), for whom Ferris, Baker Watts, Incorporated are acting
as representative (the Representative), and each of the Underwriters has
severally agreed to purchase from the Company the respective number of shares of
Common Stock set forth opposite its name below:
UNDERWRITER NUMBER OF SHARES
----------- ----------------
Ferris, Baker Watts, Incorporated..........................
Total................................................. 2,000,000
The nature of the respective obligations of the Underwriters is such that
all of the shares of Common Stock must be purchased if any are purchased. The
Underwriting Agreement provides that the obligations of the Underwriters to pay
for and accept delivery of the shares of Common Stock are subject to certain
conditions, including the approval of certain legal matters by counsel.
The Company has been advised by the Representative that the Underwriters
propose to offer the share of Common Stock initially at the public offering
price set forth on the cover page of this Prospectus and to certain selected
dealers at such price less a concession not to exceed $ per share; that the
Underwriters may allow, and such selected dealers may reallow, a concession to
certain other dealers not to exceed $ per share; and that after the
commencement of the Offering, the public offering price and the concessions may
be changed.
The Company has granted the Underwriters an option to purchase in the
aggregate up to 300,000 additional shares of Common Stock solely to cover
over-allotments, if any. The option may be exercised in whole or in part at any
time within 30 days after the date of this Prospectus. To the extent the option
is exercised, the Underwriters will be severally committed, subject to certain
conditions, to purchase the additional shares of Common Stock in proportion to
their respective purchase commitments as indicated in the preceding table.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and, where such
indemnification is unavailable, to contribute to payments that the Underwriters
may be required to make in respect of such liabilities.
The executive officers, directors and stockholders of the Company have
agreed that they will not offer, sell, contract to sell or grant an option to
purchase or otherwise dispose of any shares of the Company's Common Stock,
options to acquire shares of Common Stock or any securities exercisable for, or
convertible into Common Stock owned by them, for a period of 180 days from the
date of this Prospectus, without the prior written consent of the
Representative. The Company also has agreed not to offer, sell or issue any
shares of Common Stock, options to acquire Common Stock or any securities
exercisable for, or convertible into Common Stock, for
40
<PAGE>
a period of 180 days from the date of this Prospectus, without the prior written
consent of the Representative, except that the Company may issue securities
pursuant to the Company's stock option and incentive plans and upon the exercise
of any outstanding options and warrants.
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price for the shares of Common Stock included
in this Offering has been determined by negotiation among the Company and the
Representative. Among the factors considered in determining such price were the
history of and prospects for the Company's business and the industry in which it
operates, an assessment of the Company's management, past and present revenues
and earnings of the Company, the prospects for growth of the Company's revenues
and earnings and currently prevailing conditions in the securities markets,
including current market valuations of publicly traded companies which are
comparable to the Company. There can be no assurance, however, that the prices
at which the shares of Common Stock will sell in the public market after this
Offering will not be lower than the price at which it is sold by the
Underwriters.
The Representative has advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
Certain persons participating in the Offering may over allot or engage in
transactions that stabilize, maintain or otherwise affect the market price of
the Common Stock, including entering stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid or effecting 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 the Common Stock sold by the syndicate member is purchased in
syndicate covering transactions. Any of the transactions described above may
result in the maintenance of the price of the Common Stock at a level above that
which might otherwise prevail in the open market. Such stabilizing activities,
if commenced, may be discontinued at any time.
At the request of the Company, the Underwriters have reserved up to 5% of
the shares of Common Stock offered hereby for sale to certain directors,
officers, employees and certain other persons having business relationships with
the Company, who have expressed an interest in purchasing shares of Common Stock
in this Offering. The price for such reserved shares will be the initial public
offering price. The number of shares available to the general public will be
reduced to the extent such persons purchase the reserved shares. Any reserved
shares that are not so purchased by such persons at the initial closing of this
Offering will be sold by the Underwriters to the general public on the same
terms and conditions as the other shares of Common Stock offered hereby.
The Company has agreed to issue to the Representative, for consideration of
$.001 per warrant, warrants (the Representative's Warrants) to purchase up to
200,000 shares of Common Stock at an exercise price per share equal to 110% of
the initial public offering price. The Representative's Warrants are exercisable
for a period of five years beginning one year from the effective date of the
Company's registration statement, of which this Prospectus is a part. The
holders of the Representative's Warrants will have no voting or other
stockholder rights unless and until the Representative's Warrants are exercised.
The Representative's Warrants may not be sold, transferred, assigned, pledged or
hypothecated by any person, other than among the Underwriters and bona fide
officers or partners of the Underwriters, for a period of one year following the
effective date of the Company's registration statement, of which this Prospectus
is a part. In addition, the Company has granted the holders of the
Representative's Warrants certain rights to register the shares of Common Stock
underlying the Representative's Warrants under the Securities Act.
The Company has also agreed to pay the Representative a non-accountable
expense allowance equal to 1% of the gross proceeds of the Offering for expenses
incurred in connection therewith.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby will be passed upon for the Company by Gibbons, Del Deo, Dolan,
Griffinger & Vecchione, a Professional Corporation, Newark,
41
<PAGE>
New Jersey. Certain legal matters will be passed upon for the Underwriters by
Venable, Baetjer and Howard, LLP, Baltimore, Maryland.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1996 and 1997 and for each of the years in the three year period ended December
31, 1997, have been included herein and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
Commission) a Registration Statement on Form S-1 under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement and the exhibits and
schedules to the Registration Statement. For further information with respect to
the Company and such Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules filed as part of the
Registration Statement. Statements contained in this Prospectus concerning the
contents of any contract or any other document referred to are not necessarily
complete and in each instance reference is made to the copy of such contract or
document filed as an exhibit to the Registration Statement. Each such statement
is qualified in all respects by such reference to such exhibit. The Registration
Statement, including exhibits and schedules thereto, as well as the reports and
other information filed by the Company with the Commission, may be inspected
without charge at the Public Reference Room of the Commission's principal office
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at Seven World Trade Center, 13th Floor, New York,
New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can also be obtained at prescribed rates from the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549. Electronic filings made through the Electronic
Data Gathering Analysis and Retrieval System are also publicly available through
the Commission's Web Site (http://www.sec.gov).
The Company is not currently subject to the periodic reporting and
informational requirements of the Securities Exchange Act of 1934, as amended
(the Exchange Act). As a result of this Offering, the Company will be required
to file reports and other information with the Commission pursuant to the
requirements of the Exchange Act. Such reports and other information may be
obtained from the Commission's Public Reference Section and copied at the public
reference facilities and regional offices of the Commission referred to above.
The Company intends to furnish holders of the Common Stock with annual reports
containing financial statements audited by an independent public accounting
firm.
42
<PAGE>
Medi-Cen Management, Inc. and Affiliates
Index to Consolidated Financial Statements
Page
Medi-Cen Management, Inc. and Affiliates
Report of Independent Public Accountants ........................F-2
Consolidated Balance Sheets:
As of December 31, 1996 and 1997 ..............................F-3
Consolidated Statements of Operations:
For the years ended December 31, 1995, 1996 and 1997 ..........F-4
Consolidated Statements of Stockholders' Equity:
For the years ended December 31, 1995, 1996 and 1997 ..........F-5
Consolidated Statements of Cash Flow:
For the years ended December 31, 1995, 1996 and 1997 ..........F-6
Notes to Consolidated Financial Statements ......................F-7
Yater Medical Group, P.C.
Report of Independent Public Accountants ........................F-20
Balance Sheet:
As of December 31, 1996 .......................................F-21
Statements of Operations:
For the years ended December 31, 1995, 1996 ...................F-22
Statement of Stockholders' Equity:
For the years ended December 31, 1995, 1996 ...................F-23
Statement of Cash Flows:
For the years ended December 31, 1995, 1996 ...................F-24
Notes to Financial Statements ...................................F-25
F-1
<PAGE>
When the events referred to in Note 13 of the Notes to the Consolidated
Financial Statements have been consummated, we will be in a position to render
the following report.
[signed] KPMG Peat Marwick LLP
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Medi-Cen Management, Inc. and Affiliates:
We have audited the accompanying consolidated balance sheets of Medi-Cen
Management, Inc. and Affiliates (the Company) as of December 31, 1996 and 1997,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three year period ended December 31,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Medi-Cen Management,
Inc. and Affiliates as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
McLean, Virginia
February 13, 1998, except as to Note 13
which is as of __________, 1998
F-2
<PAGE>
MEDI-CEN MANAGEMENT, INC. AND AFFILIATES
Consolidated Balance Sheets
December 31, 1996 and 1997
1996 1997
---- ----
ASSETS
Current assets:
Cash.................................................. $ 18,647 $ 648,069
Patient accounts receivable, net of allowance for
doubtful accounts of $129,313 and $715,468 in 1996
and 1997, respectively.............................. 493,076 2,729,205
Accounts receivable--related parties (note 4)......... 149,492 115,111
Other current assets.................................. 11,353 47,364
-------- ----------
Total current assets....................................... 672,568 3,539,749
-------- ----------
Furniture and equipment, net (note 5)...................... 148,742 221,193
-------- ----------
Other assets
Certificates of deposit (note 8)...................... -- 1,125,000
Due from related parties (note 4)..................... -- 1,721,088
Intangible assets, net (note 6)....................... -- 389,940
Deferred income taxes (note 9)........................ 56,130 130,588
Other................................................. 4,219 76,664
-------- ----------
Total other assets......................................... 60,349 3,443,280
-------- ----------
$881,659 $7,204,222
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 24,709 $ 42,558
Accrued salaries and benefits......................... 13,091 383,534
Other accrued expenses................................ 5,744 76,203
Income taxes payable.................................. 10,595 304,673
Deferred income taxes (note 9)........................ -- 207,148
Due to related parties (note 4)....................... -- 135,000
Current portion of long-term debt (note 7):
Banks............................................ 21,000 238,173
Other............................................ 48,231 221,973
-------- ----------
Total current liabilities.................................. 123,370 1,609,262
-------- ----------
Long-term liabilities:
Long-term debt (note 7):
Banks............................................ 80,500 3,307,086
Other............................................ 151,963 498,052
Deferred revenue...................................... 137,349 272,225
-------- ----------
Total long-term liabilities................................ 369,812 4,077,363
-------- ----------
Total liabilities.......................................... 493,182 5,686,625
-------- ----------
Stockholders' equity (note 10):
Common stock, par value $0.0024, 10,000,000 shares
authorized, 3,347,239 and 3,366,841 shares issued
and outstanding in 1996 and 1997, respectively...... 8,033 8,080
Additional paid-in capital............................ 82,577 570,002
Retained earnings/partners' capital................... 297,867 939,515
-------- ----------
Total stockholders' equity................................. 388,477 1,517,597
-------- ----------
Commitments (note 8)....................................... $881,659 $7,204,222
======== ==========
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
MEDI-CEN MANAGEMENT, INC. AND AFFILIATES
Consolidated Statements of Operations
Years ended December 31, 1995, 1996, and 1997
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net patient service revenue............................ $1,117,962 $1,078,343 $6,028,181
Fee revenue--related parties (note 4).................. 33,182 225,787 575,610
---------- ---------- ----------
Total revenue.......................................... 1,151,144 1,304,130 6,603,791
---------- ---------- ----------
Operating expenses:
Medical malls salaries, benefits and other costs.. 567,535 596,520 2,133,064
Medical malls management fee expenses (note 4).... -- -- 1,140,744
Medical malls bad debt expense.................... 133,094 86,786 912,799
Fee related expenses.............................. 124,028 200,870 413,503
General and administrative expenses (note 4)...... 37,735 111,246 841,532
Depreciation and amortization..................... 20,083 30,559 117,591
---------- ---------- ----------
Total expenses......................................... 882,475 1,025,981 5,559,233
---------- ---------- ----------
Income from operations................................. 268,669 278,149 1,044,558
Other income (expense):
Net interest expense.............................. (14,886) (24,765) (193,154)
Gain on sale of equipment (note 4)................ -- -- 424,499
---------- ---------- ----------
Total other income (expense)........................... (14,886) (24,765) 231,345
---------- ---------- ----------
Income before income taxes............................. 253,783 253,384 1,275,903
Provision (benefit) for income taxes (note 9).......... (30,324) (13,624) 229,340
---------- ---------- ----------
Net income............................................. $ 284,107 $ 267,008 $1,046,563
========== ========== ==========
Earnings per common share.............................. $ .31
==========
Weighted average number of common shares outstanding... 3,363,084
==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
MEDI-CEN MANAGEMENT, INC. AND AFFILIATES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1995, 1996, and 1997
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS/
------------------ PAID-IN PARTNERS'
SHARES AMOUNT CAPITAL CAPITAL TOTAL
------ ------ ---------- --------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994................ 3,430,880 $8,234 $ -- $ 217,749 $ 225,983
Issuance of common stock.................. 40,000 96 -- (95) 1
Distributions to partners................. -- -- -- (238,700) (238,700)
Net income................................ -- -- -- 284,107 284,107
--------- ------ -------- ---------- ----------
Balance, December 31, 1995................ 3,470,880 8,330 -- 263,061 271,391
Options issued in exchange for services... -- -- 48,054 -- 48,054
Purchase of common shares................. (137,785) (331) 327 -- (4)
Stock issued in exchange for services..... 14,144 34 34,196 -- 34,230
Dividends paid............................ -- -- -- (4,202) (4,202)
Distributions to partners................. -- -- -- (228,000) (228,000)
Net income................................ -- -- -- 267,008 267,008
--------- ------ -------- ---------- ----------
Balance, December 31, 1996................ 3,347,239 8,033 82,577 297,867 388,477
Assumption of control of Yater............ -- -- 400,000 -- 400,000
Options issued in exchange for services... -- -- 40,032 -- 40,032
Stock issued in exchange for services..... 19,602 47 47,393 -- 47,440
Dividends paid............................ -- -- -- (259,415) (259,415)
Contributions from partners............... -- -- -- 40,000 40,000
Distributions to partners................. -- -- -- (185,500) (185,500)
Net income................................ -- -- -- 1,046,563 1,046,563
--------- ------ -------- ---------- ----------
Balance, December 31, 1997................ 3,366,841 $8,080 $570,002 $ 939,515 $1,517,597
========= ====== ======== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
MEDI-CEN MANAGEMENT, INC. AND AFFILIATES
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1996, and 1997
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.......................................................... $ 284,107 $ 267,008 $ 1,046,563
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization................................... 20,083 30,559 117,591
Provision (benefit) for deferred income taxes................... (49,486) (5,057) (74,458)
Provision for bad debt expense.................................. 133,094 86,786 912,799
Gain on sale of equipment....................................... -- -- (424,499)
Stock and options issued in exchange for services............... -- 82,284 87,472
Payment of services with stock investment....................... -- -- 20,000
Changes in operating assets and liabilities:
Accounts receivable........................................... (276,732) (294,485) (1,972,548)
Other assets.................................................. (2,053) (6,198) (28,847)
Income taxes payable.......................................... 19,162 (8,567) 294,078
Accounts payable.............................................. 18,278 4,037 (178,306)
Accrued salaries and benefits................................. (164) 12,858 257,238
Other accrued expenses........................................ 3,637 1,643 (139,083)
Deferred revenue.............................................. 124,578 (7,229) 134,876
Due from related parties...................................... -- -- (1,217,515)
--------- --------- -----------
Cash provided by (used in) operating activities....................... 274,504 163,639 (1,164,639)
--------- --------- -----------
Cash flows from investing activities:
Purchase of furniture and equipment................................. (11,056) (639) (812)
Deposits returned................................................... 44,300 -- --
Sale of equipment................................................... -- -- 483,810
Loans to related parties............................................ -- -- (540,909)
Repayments on loans to related parties.............................. -- -- 37,336
Purchase of certificates of deposit................................. -- -- (1,125,000)
Purchase of physician practice...................................... -- -- (30,000)
--------- --------- -----------
Cash provided by (used in) investing activities....................... 33,244 (639) (1,175,575)
--------- --------- -----------
Cash flows from financing activities:
Purchase of treasury stock.......................................... -- (4) --
Loan fees paid...................................................... -- -- (42,500)
Borrowings on long-term debt........................................ 40,000 145,000 5,781,825
Dividends paid...................................................... -- (4,202) (259,415)
Payments on long-term debt.......................................... (34,234) (135,565) (2,459,774)
Proceeds from issuance of common stock.............................. 1 -- --
Distributions to partners........................................... (238,700) (228,000) (185,500)
Due to related parties.............................................. -- -- 135,000
--------- --------- -----------
Cash provided by (used in) financing activities....................... (232,933) (222,771) 2,969,636
--------- --------- -----------
Net increase (decrease) in cash....................................... 74,815 (59,771) 629,422
Cash, beginning of year............................................... 3,603 78,418 18,647
--------- --------- -----------
Cash, end of year..................................................... $ 78,418 $ 18,647 $ 648,069
========= ========= ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest.......................................................... $ 16,534 $ 25,803 $ 216,063
Income taxes...................................................... 1,415 12,950 9,720
========= ========= ===========
Supplemental schedule of noncash investing and financing activities:
Assets acquired under capital lease................................. $ 72,937 $ 74,223 $ 90,783
Payment of note with stock investment............................... -- -- 20,000
Capital contributed through stock investment........................ -- -- 40,000
Assumption of control of Yater:
Assets acquired................................................... -- -- 1,679,156
Liabilities assumed............................................... -- -- 1,279,156
Net assets acquired............................................... -- -- 400,000
========= ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
MEDI-CEN MANAGEMENT, INC. AND AFFILIATES
Notes to Consolidated Financial Statements
December 31, 1995, 1996, and 1997
- --------------------------------------------------------------------------------
(1) DESCRIPTION OF BUSINESS
Medi-Cen Management, Inc. and Affiliates (the Company), incorporated in
1994 in Maryland, provides or arranges for the provision of management
services to medical practices and develops low-cost physician driven
provider networks and medical mall facilities. The Company has developed
three medical mall facilities in the Washington metropolitan area, each
providing medical services ranging from general family practice to selected
specialties. Through the medical mall facilities, the Company enables
health care providers and payors to offer patients high-quality medical
services on a cost-effective basis. Additional physician management
services provided by the Company include marketing, health care payor
contracting and financial and administrative management. The Company
currently manages a network of 57 licensed health care providers that treat
over 100,000 active patients. The Company's current customers are primarily
affiliates (see note 4). The Company intends to rapidly expand the medical
mall concept throughout the Washington-Baltimore metropolitan area and
throughout the mid-Atlantic region to take advantage of market
opportunities. The Company operates in a highly competitive market and is
subject to the risk that it will be unable to identify and recruit suitable
physicians on satisfactory terms to support continued growth.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements have been prepared on the accrual
basis of accounting and include the accounts of the Company and two
entities under common control, Yater Medical Group, P.C. (Yater) and
Medi-Cen Physician Services, LLP (MPS).
The Company, notwithstanding the lack of majority ownership of the stock of
Yater and MPS, has sufficient control over the operations of such entities
so that consolidation of Yater and MPS is required to present fairly the
financial position and results of operations of the Company because of
control by means other than ownership of stock. Control by the Company is
other than temporary because on December 31, 1997, the Company entered into
ownership transfer restriction agreements with the shareholders of Yater
and partners of MPS. These agreements restrict the sale of the ownership
interests and provide for the transfer of the ownership interests to a
Company-designated transferee. No consideration is required upon such
involuntary transfer of the Yater shares. The MPS partnership interest
transfer restriction agreement provides for a payment from the Company to
the estate of the partners upon the partners death at a mutually
agreed-upon fair value at time of death. These transfer restriction
agreements provide the Company sole authority over ownership of the
practices, subject to permissible shareholders restrictions under
applicable state law.
Steven Macedo and his wife are the sole partners of MPS. Yater was
purchased by Steven Macedo and his wife on January 17, 1997. The Company is
owned 90% by Steven Macedo and his brother, Michael Macedo. Due to the
presence of this common control by the Macedos, in conjunction with the
ownership transfer restriction agreements effective December 31, 1997, and
the management services agreements effective January 1, 1997, MPS has been
consolidated with the accounts of the Company for all periods presented.
Yater has been consolidated with these two entities for the period ending
December 31, 1997, the period when common control was established. The
consolidation of these entities has been accounted for on a historical cost
basis (see note 3). All intercompany accounts and transactions have been
eliminated in the consolidation.
(Continued)
F-7
<PAGE>
MEDI-CEN MANAGEMENT, INC. AND AFFILIATES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(2) CONTINUED
Net Patient Service Revenue
Net patient service revenue is reported at the estimated net realizable
amounts from patients, third-party payors, and others for services
rendered. The Company has numerous agreements under managed care
arrangements to provide physician services based on negotiated fee
schedules. Services under these agreements are recorded as revenue when
provided. No contracts with third party payors or individual managed care
agreements are material to the Company.
Fee Revenue--Related Parties
The Company enters into contracts with all of its customers to provide
medical information services. The Company earns an ongoing fee based on a
fixed percentage of total charges billed by the Company on behalf of the
medical practice. These contracts have 20-year terms and can only be
terminated for cause as outlined in the agreement. Certain of these
contracts provide for a one-time initial management fee of $150,000 for the
start-up and initial establishment of the administrative services related
to the medical information services to be provided. This fee is included in
deferred revenue and is being amortized into income over the term of the
contract.
Furniture and Equipment
Furniture and equipment is stated at cost. Capitalized leased assets are
stated at the lower of the present value of the future minimum lease
payments or fair market value at the inception of the lease. Expenditures
for maintenance and repairs which do not materially extend the useful lives
of the equipment are expensed as incurred.
Provisions for depreciation and amortization are provided on the
straight-line basis over estimated useful lives, or the term of the lease,
if shorter, generally ranging from three to ten years.
Income Taxes
Income taxes are accounted for in accordance with Financial Accounting
Standards Board Statement No. 109 (Statement 109). Under the asset and
liability method of Statement 109, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax rates and
laws that are expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
A provision for income taxes has not been provided for MPS, since any tax
benefit or liability is the responsibility of the individual partners. A
provision has also not been provided for Yater. Yater, with the consent of
its stockholders, elected to have its income taxed as an S corporation
under Section 1362 of the Internal Revenue Code effective January 1, 1997.
This section provides that, in lieu of corporation income taxes, the
shareholders report their proportionate share of the taxable income or loss
on their individual income tax returns. However, a deferred tax liability
for Yater has been presented in accordance with Statement 109 for an
unrealized built-in gain as a result of Yater converting from a C
corporation to an S corporation on January 1, 1997.
Earnings Per Share
The Company adopted Statement 128, Earnings Per Share, in 1997. Earnings
per share are computed by dividing net income by the weighted average
number of common shares outstanding. Common stock options do not have a
dilutive effect under the treasury stock method and are not included in
this calculation.
(Continued)
F-8
<PAGE>
MEDI-CEN MANAGEMENT, INC. AND AFFILIATES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(2) CONTINUED
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 effect the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
those estimates.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, as reflected
in the accompanying consolidated balance sheets, approximate fair value.
Financial instruments consist of cash, accounts receivable, certificates of
deposit, due from/to related parties, accounts payable, accrued expenses,
and long term debt.
Stock Option Plan
The Company accounts for its stock option plan in accordance with Statement
123, Accounting for Stock-Based Compensation, which permits entities to
recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, Statement 123
allows entities to continue to apply the provisions of Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees, and provide pro forma net income and pro forma earnings per
share disclosures for employee stock option grants as if the
fair-value-based method defined in Statement 123 had been applied. Under
APB Opinion No. 25, compensation expense would be recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. The Company has elected to continue to apply the provisions
of APB Opinion No. 25 and provide the pro forma disclosure provisions of
Statement 123 for employee stock option grants. Non-employee stock option
grants are recorded in accordance with the provisions of Statement 123.
Intangible Assets
Intangible assets consist primarily of patient lists which were acquired in
the acquisition of Yater and are being amortized on a straight-line basis
over the estimated useful life of 20 years.
On January 1, 1996, the Company adopted Statement 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of. Under Statement 121, intangibles are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable. If this review indicates that the carrying
amount of the asset may not be recoverable, as determined based on the
undiscounted cash flows of the operations acquired over the remaining
amortization period, the carrying value of the asset is reduced to fair
value. Management has determined that long-lived assets are fairly stated
in the accompanying consolidated balance sheets, and that no indicators of
impairment are present.
(3) BUSINESS COMBINATIONS
The Company entered into ownership transfer restriction agreements with the
shareholders of Yater and partners of MPS effective December 31, 1997. As
more fully described in note 2, these agreements give the Company a
controlling financial interest over the operations of Yater and MPS. The
Company and MPS were under common control for all periods presented. Yater
was under common control for 1997 only. Because of the presence of this
common control, the consolidation of these entities in the accompanying
financial statements is accounted for in a manner similar to a pooling of
interests.
(Continued)
F-9
<PAGE>
MEDI-CEN MANAGEMENT, INC. AND AFFILIATES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(3) CONTINUED
The results of operations previously reported by the separate entities and
the combined amounts presented in the accompanying consolidated financial
statements are as follows:
1995 1996 1997
---- ---- ----
Total revenue:
MPS............................ $1,117,962 $1,078,343 $1,819,626
Yater.......................... -- -- 4,208,555
MMI............................ 97,946 311,829 1,467,360
---------- ---------- ----------
1,215,908 1,390,172 7,495,541
Intercompany eliminations........... 64,764 86,042 891,750
---------- ---------- ----------
Combined after eliminations......... 1,151,144 1,304,130 6,603,791
---------- ---------- ----------
Net income (loss):
MPS............................ 329,206 291,518 33,841
Yater.......................... -- -- 632,531
MMI............................ (45,099) (24,510) 380,191
---------- ---------- ----------
Combined............................ $ 284,107 $ 267,008 $1,046,563
========== ========== ==========
Transactions eliminated upon consolidation included management and billing
fees between MMI, MPS and Yater.
(4) RELATED-PARTY TRANSACTIONS
Fee Revenue
The Company earns substantially all its fee revenue from a related company,
Medi-Cen, Corp. of Maryland (MOM). The chief executive officer and board
chairman of MOM is Steven Macedo. Steven Macedo is also the chief executive
officer and board chairman of Medi-Cen Corporation of America (MCA), which
is the franchiser of the Medi-Cen name and philosophy of medical
management. The franchise agreement requires MOM to contract with the
Company for its medical information services. Steven and Michael Macedo own
approximately 20% of the stock of MOM, and 22% of the stock of MCA.
The Company's remaining fee revenue, totaling $62,888 and $81,332 for the
years ended December 31, 1996 and 1997, respectively, was earned from a
physician practice owned by an officer of the Company. In addition, during
1996 the Company earned $141,038 from Yater, prior to the date it was
acquired by Steven Macedo.
Accounts receivable related to these fees was $149,492 and $115,111 at
December 31, 1996 and 1997, respectively.
Medical Malls Management Fee Expense
During 1997, both Yater and MPS entered into management agreements with
MOM. Under these agreements, MOM provides operational services, including
facilities, equipment, nonprofessional staff, and billing and collecting
services, for a fee equal to 43.25% of cash collections of the physician
practices. Expenses are accrued as cash is collected. These agreements may
be terminated by either party with 90 days notice with MOM having no claim
to uncollected revenue.
(Continued)
F-10
<PAGE>
MEDI-CEN MANAGEMENT, INC. AND AFFILIATES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(4) CONTINUED
Due From Related Parties
Both Yater and MPS prepaid management fees to MOM during 1997. Amounts
outstanding of $1,217,515 are included in due from related parties in the
accompanying consolidated balance sheets at December 31, 1997. These fees
are to be repaid out of certain cash collections as agreed to by the
parties. Interest is earned on the outstanding balance at prime plus .5%.
MPS has a loan receivable from an employee with an outstanding balance of
$103,573 at December 31, 1997. This loan is being repaid out of certain
cash collections from billings of this employee physician. This loan is
fully collateralized by certain accounts receivable of the employee as well
as the employee's personal residence.
Steven Macedo owes Yater $400,000 in connection with the purchase of Yater.
This unsecured loan will be repaid beginning in 1999. Interest is earned on
the outstanding balance at prime plus .5%.
Due to Related Parties
The Company owes Steven and Michael Macedo a total of $135,000 at December
31, 1997 for short term cash advances. These advances are expected to be
repaid in 1998 with interest at prime plus .5% out of the proceeds of the
anticipated initial public offering.
Gain on Sale of Equipment
Both Yater and MPS sold certain equipment with a net book value of $59,311
to MOM during 1997. Cash proceeds from these sales totaled $483,810, which
approximated the fair value of the equipment.
Consulting Expenses
Both Yater and MPS have entered into agreements with Michael Macedo in 1997
to provide business development consulting services. These contracts are
for 5 years and have fixed payments due totaling $1,455,000 over the
remaining term of the agreements. Total consulting expenses incurred under
these agreements were $317,500 in 1997 and are included in general and
administrative expenses in the accompanying consolidated statements of
operations.
(5) FURNITURE AND EQUIPMENT
Furniture and equipment at December 31, 1996 and 1997, consisted of the
following:
1996 1997
---- ----
Computer equipment and software.................... $ 186,369 $ 277,151
Furniture and office equipment..................... 64,245 119,205
--------- ---------
250,614 396,356
Less accumulated depreciation and amortization..... (101,872) (175,163)
--------- ---------
Furniture and equipment, net....................... $ 148,742 $ 221,193
========= =========
(Continued)
F-11
<PAGE>
MEDI-CEN MANAGEMENT, INC. AND AFFILIATES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(6) INTANGIBLE ASSETS
Intangible assets are summarized as follows:
1996 1997
---- ----
Patient lists........................................ $ -- $419,411
Less accumulated amortization........................ -- (29,471)
------ --------
Intangible assets, net............................... $ -- $389,940
====== ========
Substantially all of the intangible assets of the Company were intangible
assets of Yater which were acquired through the business combination with
Yater (see note 3).
(Continued)
F-12
<PAGE>
MEDI-CEN MANAGEMENT, INC. AND AFFILIATES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(7) LONG-TERM DEBT
Long-term debt consists of the following at December 31:
1996 1997
---- ----
Note and line of credit payable to a bank, interest
only due monthly on the term loan of $3,000,000
until February 1, 1999 when monthly principal
payments of $50,000 are also due; line of credit
is available in the maximum amount of $1,500,000
to fund the acquisition of new medical practices,
$174,644 has been drawn as of December 31, 1997,
interest only due monthly until February 1, 1999
when principal payments become payable over
60 months. Yater and MPS are co-borrowers on
these obligations which bear interest at prime
plus .5% (9% at December 31, 1997), are due on
January 1, 2004, are secured by all assets of Yater
and MPS as well as certain other collateral defined
in the agreement, and are guaranteed by Steven
Macedo and his wife. Steven Macedo's parents have
also guaranteed up to $1,500,000 of this debt.
Yater and MPS are subject to certain financial
and other covenants as outlined in the agreements
dated December 31, 1997 .......................... $ -- $3,174,644
Three notes payable to two banks, monthly principal
payments of $1,750 plus interest at prime plus 1%
on one of the notes, due October 1, 2001, and
monthly principal and interest payments of $2,017
with interest at 9.5% on the second note, due
May 28, 2002. The third note requires monthly
interest payments at prime plus 1.5% with the
principal of $199,750 due on May 28, 1998. The
assets of MMI, excluding the certificates
of deposit, secure these notes. The notes are
guaranteed by Steven and Michael Macedo........... 101,500 370,615
Various notes payable to former owners of Yater;
total monthly principal and interest payments
of $10,000 with interest at 8%; due July 1, 2002;
secured by the assets of Yater, subordinated to the
note and line of credit above..................... -- 529,808
Various capital lease obligations, primarily for
computer equipment; monthly payments totaling
$6,626 at December 31, 1997 with interest ranging
from 11.9% to 18%; due at varying dates from
November 26, 1999 to August 2002; guaranteed by
Michael Macedo. Cost recorded for the equipment
is $144,585 and $232,907 with accumulated
amortization of $19,854 and $58,338 at December 31,
1996 and 1997, respectively....................... 130,861 180,217
Other long-term debt................................. 69,333 10,000
-------- ----------
301,694 4,265,284
Less current portion................................. (69,231) (460,146)
-------- ----------
$232,463 $3,805,138
======== ==========
Maturities of long-term debt are as follows:
1998............................................... $ 460,146
1999............................................... 819,057
2000............................................... 804,591
2001............................................... 800,712
2002............................................... 702,997
Thereafter......................................... 677,781
----------
$4,265,284
==========
F-13
<PAGE>
MEDI-CEN MANAGEMENT, INC. AND AFFILIATES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(8) COMMITMENTS
Operating Leases
The Company has entered into a lease for new office space expected to be
occupied by April 1998. The lease is for five years with annual rent
increases as specified in the lease. The lease may be extended for three
additional terms of five years each. This lease will replace the current
office lease with the same landlord which will automatically terminate when
the Company moves into its new space.
Yater and MPS have entered into various operating lease agreements for
clinic space and office equipment. All lease payments for MPS and Yater are
being paid by MOM as part of the management services agreement described in
note 4. The leases have not been assigned to or assumed by MOM, and are
included below under physician practices lease commitments. If the
management services agreement were to terminate, the Company would resume
payments on these leases.
Future minimum lease payments under these noncancelable operating leases,
including equipment leases, are as follows:
PHYSICIAN
COMPANY PRACTICES
------- ---------
1998.................................... $ 58,475 $ 606,559
1999.................................... 69,643 362,092
2000.................................... 74,634 277,405
2001.................................... 62,664 277,528
2002.................................... 63,642 97,925
Thereafter.............................. 21,420 --
-------- ----------
$350,478 $1,621,509
======== ==========
Total rent expense under all operating leases, including various equipment
leases, was $76,005, $74,344, and $89,452 for the years ended December 31,
1995, 1996, and 1997, respectively.
Affiliate Debt
The Company has collateralized debt of MOM with certificates of deposit
totaling $1,125,000 as of December 31, 1997. The Company has also
guaranteed up to $90,000 of this debt.
(Continued)
F-14
<PAGE>
MEDI-CEN MANAGEMENT, INC. AND AFFILIATES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(9) INCOME TAX EXPENSE
Income tax expense (benefit) for the years ended December 31, 1995, 1996,
and 1997 consists of the following:
1995 1996 1997
---- ---- ----
Current:
Federal.............................. $ 15,689 $ (7,098) $248,734
State................................ 3,473 (1,469) 55,064
-------- -------- --------
19,162 (8,567) 303,798
-------- -------- --------
Deferred:
Federal.............................. (40,319) (4,457) (65,638)
State................................ (9,167) (600) (8,820)
-------- -------- --------
(49,486) (5,057) (74,458)
-------- -------- --------
Total.................................. $(30,324) $(13,624) $229,340
======== ======== ========
Total income tax expense differed from the amount computed by applying the
U.S. federal income tax rate of 34% for the years ended December 31, 1995,
1996, and 1997 to income before income taxes as a result of the following:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense............................ $ 86,286 $ 86,150 $ 433,807
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal income tax benefit.... 11,725 11,705 58,945
Income (loss) not taxed at corporate level............... (128,335) (112,403) (265,816)
Other.................................................... -- 924 2,404
--------- --------- ---------
Total income tax expense................................... $ (30,324) $ (13,624) $ 229,340
========= ========= =========
</TABLE>
The significant components of the deferred tax benefit for the years ended
December 31, 1995, 1996, and 1997 are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Deferred revenue........................................... $ (56,385) $ 2,819 $ (52,602)
Book depreciation in excess of tax depreciation............ 5,312 10,865 4,333
Net operating loss......................................... 1,587 -- --
Stock compensation......................................... -- (18,741) (26,189)
--------- --------- ---------
Total deferred tax benefit................................. $ (49,486) $ (5,057) $ (74,458)
========= ========= =========
</TABLE>
(Continued)
F-15
<PAGE>
MEDI-CEN MANAGEMENT, INC. AND AFFILIATES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(9) CONTINUED
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset (liability) are presented below:
1996 1997
---- ----
Deferred tax assets:
Stock compensation................................. $18,741 $ 44,930
Deferred revenue................................... 53,566 106,168
------- --------
Total deferred tax assets............................ 72,307 151,098
------- --------
Deferred tax liabilities:
Unrealized built-in gain........................... -- 207,148
Property and equipment, principally
differences in depreciation...................... 16,177 20,510
------- --------
Total deferred tax liabilities....................... 16,177 227,658
------- --------
Net noncurrent deferred tax assets................... 56,130 130,588
------- --------
Net current deferred tax liability................... $ -- $207,148
======= ========
(10) STOCKHOLDERS' EQUITY
Common Stock
The Company was originally capitalized through the issuance of 83 shares of
common stock for $1 each, at a par value of $.01. After 1 additional share
was issued in 1995, the Board of Directors approved a 10,000 for 1 stock
split in July 1995. All share and per share amounts in the accompanying
consolidated financial statements have been retroactively adjusted to
reflect the stock split (see also note 13).
Dividends
During 1996 and 1997, dividends of $0.0012 per share and $0.05 per share,
respectively, were paid to shareholders of the Company. In addition, during
1997, dividends totaling $73,000 were paid to the shareholders of Yater.
Stock Issued for Services Rendered
Common stock issued to employees and consultants in recognition of services
rendered totaled 14,144 and 19,602 shares during the years ended December
31, 1996 and 1997, respectively, at a fair value of $34,230 and $47,440,
respectively.
Stock Option Plan
Options to purchase common stock under the Company's stock option plan are
granted to employees at prices which are at or exceed fair market value as
determined by the Board of Directors. The options vest either immediately
or when certain objectives are met. The expiration dates of options are
determined by the Company's Board of Directors and are generally 5 years
after issuance.
(Continued)
F-16
<PAGE>
MEDI-CEN MANAGEMENT, INC. AND AFFILIATES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(10) CONTINUED
The Company applies APB Opinion No. 25 in accounting for its stock option
plan for options granted to employees and accordingly, no compensation
expense has been recognized in the financial statements. Had the Company
determined compensation expense based on the fair value at the grant date
for its stock options under Statement 123, the Company's net income would
have been reduced to the pro forma amounts indicated below (no options
granted prior to 1996):
1996 1997
Net income:
As reported............................... $267,008 $1,046,563
Pro forma................................. 172,659 1,011,990
Earnings per common share:
As reported............................... $ .31
Pro forma................................. .30
======== ==========
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions generally used for grants in 1996 and 1997, respectively:
dividend yield of .1 and 2.4%, expected volatility of 28.8 and 62.0%, risk
free interest rate of 6.2 and 6.25%, and expected lives of 5 and 3 years.
A summary of the status of the Company's stock options as of December 31,
1996 and 1997, and changes during the years ended on those dates is
presented below:
1996 1997
---------------- ----------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------ ----- ------ -----
Outstanding at beginning of year........ -- $ -- 491,708 $2.42
Granted............................. 491,708 2.42 84,706 6.43
------- ----- ------- -----
Outstanding at end of year.............. 491,708 2.42 576,414 3.00
------- ----- ------- -----
Options exercisable at year-end......... 179,329 2.42 256,712 3.17
------- ----- ------- -----
Weighted-average fair value of options
granted during the year:
Exercise price equals market value.. $3.54 $4.48
Exercise price exceeds market value. $ -- $2.76
======= ===== ======= =====
At December 31, 1997, after giving effect to the planned change in the
Company's capital structure as described in note 13, 524,764 outstanding
options under the Company's stock option plan have an exercise price of
$2.42 and 45,824 have an exercise price of $10.00. Of the exercisable
options, 227,623 have an exercise price of $2.42 and 29,089 have an
exercise price of $10.00. The weighted-average remaining contractual life
of the outstanding and exercisable options is approximately 7 years for the
$10.00 options and 5 years for the $10.00 options.
Options outstanding and exercisable at December 31, 1996 and 1997, issued
to non-employees, totaled 73,000 and 114,353, respectively, with an
exercise price of $2.42. Compensation expense recognized in 1996 and 1997
for compensation awards to consultants was $48,054
(Continued)
F-17
<PAGE>
MEDI-CEN MANAGEMENT, INC. AND AFFILIATES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(10) CONTINUED
and $40,032, respectively, based on 73,000 and 41,353 options issued, with
a weighted average value per option of $2.72 and $4.00, respectively.
(11) CONCENTRATION OF CREDIT RISK
The Company grants credit to its customers, primarily affiliates, without
collateral. These receivables are generally considered collectible by the
Company.
MPS and Yater grant credit without collateral to all its patients, most of
whom are local residents and are insured under third-party payor
agreements. Appropriate allowances have been made on those receivables that
are considered uncollectible. A breakdown of the percentage of gross
patient accounts receivable as of December 31 by type of payor follows:
1996 1997
---- ----
Medicare................................................. 20% 11%
Blue Cross Blue Shield (all plans)....................... 17 17
Self-pay................................................. 18 33
Other (none more than 10%)............................... 45 39
--- ---
100% 100%
=== ===
(12) PROFESSIONAL AND GENERAL LIABILITY INSURANCE
MPS and Yater maintain professional and general liability insurance to
cover medical malpractice claims. Management is not aware of any claims
against the Company.
(13) SUBSEQUENT EVENTS
Modifications to Capital Structure
On March 11, 1998 the Company's Board of Directors authorized the filing of
a Registration Statement on Form S-1 in connection with a planned initial
public offering of the Company's stock. The Company intends to effect a
stock split of the Company's common stock and options issued and
outstanding in the amount of 4.132 shares for every one share outstanding
as of the effective date of the transaction. The Company's Board of
Directors also approved an increase in the number of authorized shares to
10,000,000 with a par value of $0.0024. All share, option and per share
information in the accompanying consolidated financial statements have been
retroactively adjusted to give effect to the planned modification to the
Company's capital structure.
The Board of Directors granted 900,000 stock options to each of Steven and
Michael Macedo under the employee stock option plan.
(14) NEW FINANCIAL ACCOUNTING STANDARDS
Physician Practice Management Companies
In November 1997, the Emerging Issues Task Force of the Financial
Accounting Standards Board reached a consensus on issue 97-2. All changes
that would be required under this consensus have been reflected in the
accompanying consolidated financial statements.
Statement 130
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income.
Statement 130 establishes standards for the required reporting and display
of comprehensive income and its components in equal prominence with other
(Continued)
F-18
<PAGE>
MEDI-CEN MANAGEMENT, INC. AND AFFILIATES
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(14) CONTINUED
financial statements. Statement 130 was issued to address concerns over the
practice of reporting elements of comprehensive income directly in equity.
Statement 130 is effective for both interim and annual periods beginning
after December 15, 1997. Comparative financial statements provided for
earlier periods are required to be reclassified to reflect the provisions
of this Statement. It is not anticipated that Statement 130 will have any
material effect on current or prior period financial statement displays
presented by the Company.
Statement 131
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information. Statement 131 establishes standards for
the way public business enterprises are to report information about
operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services, geographic
areas and major customers.
Statement 131 is effective for financial statements for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated, unless it is impracticable
to do so. Statement 131 need not be applied to interim financial statements
in the initial year of its application, but comparative information for
interim periods in the initial year of application shall be reported in
financial statements for interim periods in the second year of application.
It is not anticipated that Statement 131 will have any material effect on
current or prior period disclosures presented by the Company.
F-19
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Yater Medical Group, P.C.:
We have audited the accompanying balance sheet of Yater Medical Group, P.C. (the
Company) as of December 31, 1996, and the related statements of operations,
stockholders' equity, and cash flows for the years ended December 31, 1995 and
1996. 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 Yater Medical Group, P.C. as of
December 31, 1996, and the results of its operations and its cash flows for the
years ended December 31, 1995 and 1996 in conformity with generally accepted
accounting principles.
McLean, Virginia
February 6, 1998
F-20
<PAGE>
YATER MEDICAL GROUP, P.C.
Balance Sheet
December 31, 1996
- --------------------------------------------------------------------------------
ASSETS
Current assets:
Cash............................................................. $ 2,348
Accounts receivable, net of allowance for doubtful
accounts of $330,757........................................... 1,142,001
Prepaid expenses and other assets................................ 14,509
----------
Total current assets............................................... 1,158,858
----------
Furniture and equipment............................................ 1,267,672
Less accumulated depreciation...................................... (1,139,385)
----------
Furniture and equipment, net....................................... 128,287
Deposits........................................................... 2,600
----------
$1,289,745
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. $ 196,155
Accrued expenses (note 3)........................................ 305,096
Deferred income taxes (note 5)................................... 204,267
Due to former partners (note 6).................................. 77,572
----------
Total liabilities.................................................. 783,090
----------
Stockholders equity (note 6):
Preferred stock, no par value, 10,000 shares authorized,
4,000 shares issued and outstanding............................ 73,303
Common stock, par value $1.00, 40,000 shares authorized,
4,000 shares issued and outstanding............................ 4,000
Additional paid-in capital....................................... 848,513
Accumulated deficit.............................................. (419,161)
----------
Total stockholders' equity......................................... 506,655
----------
Commitments (note 4)............................................... $1,289,745
==========
See accompanying notes to financial statements.
F-21
<PAGE>
YATER MEDICAL GROUP, P.C.
Statements of Operations
Years ended December 31, 1995 and 1996
- --------------------------------------------------------------------------------
1995 1996
---- ----
Net patient service revenues.......................... $5,778,452 4,765,699
Expenses:
Clinic salaries and benefits........................ 3,186,932 2,718,350
Clinic rent and lease expenses...................... 392,935 392,400
Clinic pharmaceuticals and supplies................. 657,671 552,921
Other clinic costs.................................. 811,327 799,658
Bad debt expense.................................... 409,141 501,474
Depreciation........................................ 67,067 40,518
---------- ---------
Total expenses........................................ 5,525,073 5,005,321
---------- ---------
Net income (loss) before income taxes................. 253,379 (239,622)
Income tax expense (benefit) (note 5)................. 296,892 (92,625)
---------- ---------
Net loss.............................................. $ (43,513) (146,997)
========== ========
See accompanying notes to financial statements.
F-22
<PAGE>
YATER MEDICAL GROUP, P.C.
Statements of Stockholders' Equity
Years ended December 31, 1995 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
PARTNERS' ---------------- --------------- PAID-IN ACCUMULATED
CAPITAL SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
------- ------ ------ ------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994......... $1,583,629 -- $ -- -- $ -- -- -- 1,583,629
Distributions to partners.......... (886,464) -- -- -- -- -- -- (886,464)
Net income (loss).................. 228,651 -- -- -- -- -- (272,164) (43,513)
Transfer of remaining partners'
capital to the corporation....... (925,816) 4,000 73,303 4,000 4,000 848,513 -- --
---------- ----- ------- ----- ------ ------- -------- ---------
Balance, December 31, 1995......... -- 4,000 73,303 4,000 4,000 848,513 (272,164) 653,652
Net loss........................... -- -- -- -- -- -- (146,997) (146,997)
---------- ----- ------- ----- ------ ------- -------- ---------
Balance, December 31, 1996......... $ -- 4,000 $73,303 4,000 $4,000 848,513 (419,161) 506,655
========== ===== ======= ===== ====== ======= ======== =========
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE>
YATER MEDICAL GROUP, P.C.
Statements of Cash Flows
Years ended December 31, 1995 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................. $ (43,513) (146,997)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation..................................................... 67,067 40,518
Provision (benefit) for deferred income taxes.................... 296,892 (92,625)
Provision for bad debt expense................................... 409,141 501,474
Changes in operating assets and liabilities:
Accounts receivable............................................ (290,628) (690,599)
Prepaid expenses and other assets.............................. 15,534 5,500
Accounts payable............................................... 4,909 125,953
Accrued expenses............................................... 2,846 220,167
--------- --------
Cash provided by (used in) operating activities........................ 462,248 (36,609)
--------- --------
Cash flows used in investing activities--purchase of
fixed assets......................................................... -- (2,589)
--------- --------
Cash flows used in financing activities--distributions
to partners.......................................................... (808,892) --
--------- --------
Net decrease in cash................................................... (346,644) (39,198)
Cash, beginning of year................................................ 388,190 41,546
--------- --------
Cash, end of year...................................................... $ 41,546 2,348
========= ========
Supplemental disclosure of noncash investing and financing activities:
Conversion of the partnership into a corporation:
Issuance of common stock for partnership interests................. $ 4,000 --
Issuance of preferred stock for partnership interests.............. 73,303 --
Conversion of remaining partnership interests into additional
paid-in capital.................................................. 848,513 --
Issuance of notes payable for withdrawing partner interests........ 77,572 --
========= ========
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE>
YATER MEDICAL GROUP, P.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
- --------------------------------------------------------------------------------
(1) DESCRIPTION OF BUSINESS
YaterMedical Group, P.C., (the Company) was originally organized as a
general partnership in the District of Columbia. The Company was
reorganized into a professional corporation effective October 1, 1995. The
Company provides specialty physician services to its patients.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net Patient Service Revenue
Net patient service revenue is reported at the estimated net realizable
amounts from patients, third-party payors, and others for services
rendered. The Company has numerous agreements under managed care
arrangements to provide physician services based on negotiated fee
schedules. Services under these agreements are recorded as revenue when
provided. No contracts with third-party payors or individual managed care
agreements are material to the Company.
Furniture and Equipment
Furniture and equipment is stated at cost. Expenditures for maintenance and
repairs which do not materially extend the useful lives of the equipment
are expensed as incurred.
Depreciation is provided on the straight-line basis over estimated useful
lives generally ranging from three to ten years.
Income Taxes
Income taxes are accounted for in accordance with Financial Accounting
Standards Board Statement No. 109 (Statement 109). Under the asset and
liability method of Statement 109, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax rates and
laws that are expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
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 effect the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
those estimates.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, as reflected
in the accompanying balance sheet, approximate fair value. Financial
instruments consist of cash, accounts receivable, accounts payable, accrued
expenses and due to former partners.
(3) ACCRUED EXPENSES
Accrued expenses consists of the following:
Salaries and benefits............................................ $113,205
Billing fees..................................................... 99,872
Professional fees................................................ 67,388
Property taxes................................................... 24,631
---------
$305,096
========
F-25
<PAGE>
(4) COMMITMENTS
The Company leases office space in three locations under leases expiring
through January 1999. Two of the leases have original terms of five years
with annual rent increases as specified in the leases. The other lease is a
renewable one-year lease with rent negotiated annually.
Future minimum lease payments under these noncancelable operating leases,
including equipment leases, are as follows:
1997................................................... $452,764
1998................................................... 352,607
1999................................................... 97,499
2000................................................... 1,722
--------
$904,592
========
Total rent expense under all operating leases, including various equipment
leases, was $392,935 and $392,400 for the years ended December 31, 1995 and
1996, respectively.
(5) INCOME TAX EXPENSE
Income tax expense (benefit) for the years ended December 31, 1995 and 1996
consists of the following:
1995 1996
---- ----
Deferred:
Federal........................................... $243,604 (80,348)
State............................................. 53,288 (12,277)
-------- -------
Total income tax expense (benefit).................. $296,892 (92,625)
======== =======
Total income tax expense (benefit) differed from the amount computed by
applying the U.S. federal income tax rate of 34 percent for the years ended
December 31, 1995 and 1996 to earnings before income taxes as a result of
the following:
1995 1996
---- ----
Computed "expected" tax expense......................... $ 8,407 (81,471)
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal income tax benefit. (924) (11,784)
Converting partnership to taxable corporation......... 288,683 --
Other................................................... 726 630
-------- -------
Total income tax expense (benefit)...................... $296,892 (92,625)
======== =======
The significant components of the deferred tax expense (benefit) for the
years ended December 31, 1995 and 1996 are as follows:
1995 1996
---- ----
Cash basis reporting for tax purposes................... $ 32,534 (68,402)
Converting partnership to taxable corporation........... 288,683 --
Net operating loss...................................... (24,325) (24,223)
-------- -------
Total deferred income tax expense (benefit)............. $296,892 (92,625)
======== =======
The Company converted from a partnership to a taxable corporation during
1995. Under Statement 109, a deferred tax asset or liability is to be
recognized for temporary differences at the date that a nontaxable
enterprise becomes a taxable enterprise. The effect of recognizing the
deferred tax asset or liability is to be included in income from continuing
operations. The tax effects of temporary differences that give rise to the
deferred tax liability are primarily related to this conversion.
F-26
<PAGE>
At December 31, 1996, the Company has net operating loss carryforwards of
approximately $125,000 for federal income tax purposes which expire in 2010
and 2011.
(6) STOCKHOLDERS' EQUITY
The Company was reorganized from a general partnership to a professional
corporation effective October 1, 1995. Partners' capital at September 30,
1995, including net income of the partnership for the nine months ended
September 30, 1995, was converted into 4,000 shares of common stock (par
value $1) and 4,000 shares of preferred stock (no par value). Two partners'
withdrew from the partnership at the conversion date and are owed $77,572
for the balance in their partners' capital accounts. The balance of
partners' capital was credited to additional paid-in capital.
(7) CONCENTRATION OF CREDIT RISK
The Company grants credit without collateral to all its patients, most of
whom are local residents and are insured under third-party payor
agreements. A breakdown of the percentage of gross patient accounts
receivable by type of payor follows:
Medicare....................................................... 20%
Blue Cross Blue Shield (all plans)............................. 17
Self-pay....................................................... 18
Other (none more than 10%)..................................... 45
---
100%
===
(8) PROFESSIONAL AND GENERAL LIABILITY INSURANCE
The Company maintains professional and general liability insurance to cover
medical malpractice claims. Management is not aware of any claims against
the Company which might have a material impact on the Company's financial
position.
(9) SUBSEQUENT EVENTS
On January 17, 1997, the Company was sold under a stock purchase agreement
to an unrelated party for $400,000. Immediately prior to the sale, the
Company redeemed its preferred stock for approximately $493,000. On
December 31, 1997, the new owner entered into a stock transfer restriction
agreement which gives control of the Company to Medi-Cen Management, Inc.,
an affiliate of the new owner.
F-27
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY
SECURITIES BY ANY PERSON 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. 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 DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
TABLE OF CONTENTS
PAGE
Prospectus Summary ............................
Risk Factors ..................................
Use of Proceeds ...............................
Dilution ......................................
Divided Policy ................................
Capitalization ................................
Selected Financial Data .......................
Management's Discussion and Analysis of
Financial Condition and Results of Operations
.............................................
Business ......................................
Management ....................................
Principal Stockholders ........................
Certain Transactions ..........................
Description of Securities .....................
Shares Eligible for Future Sale ...............
Underwriting ..................................
Legal Matters .................................
Experts .......................................
Additional Information ........................
Index to Financial Statements ................. F-1
UNTIL _________, 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE SHARES OF COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS 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.
2,000,000 SHARES
MEDI-CEN
MANAGEMENT, INC.
COMMON STOCK
PROSPECTUS
FERRIS, BAKER WATTS
INCORPORATED
, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Maryland law, the Company is permitted to indemnify directors,
officers, employees and agents made a party to any proceeding by reason of
service in that capacity unless it is established that: (1) the act or omission
of the party was material to the matter giving rise to the proceeding and (i)
was committed in bad faith, or (ii) was the result of active and deliberate
dishonesty; or (2) the party actually received an improper personal benefit in
money, property or services; or (3) in the case of any criminal proceeding, the
party had reasonable cause to believe that the act or omission was unlawful.
This provision offers persons who serve on the Board of Directors of the
Registrant protection against awards of monetary damages resulting from breaches
of their duty of care (except as indicated above). As a result of this
provision, the ability of the Registrant or a stockholder thereof to
successfully prosecute an action against a director for breach of his duty of
care is limited. However, the provision does not affect the availability of
equitable remedies such as an injunction or rescission based upon a director's
breach of his duty of care. The Securities and Exchange Commission has taken the
position that this provision will have no effect on claims arising under the
Federal securities laws.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the fees and expenses to be incurred in
connection with the issuance and distribution of the shares of Common Stock
offered hereby.
Securities and Exchange Commission Registration Fee........ $ 6,970
NASD Filing Fee............................................ $ 2,800
NASDAQ Listing Fee......................................... $ *
Blue Sky Fees and Expenses................................. $ *
Legal Fees and Expenses.................................... $ *
Accounting Fees............................................ $ *
Printing and Engraving Costs............................... $ *
Transfer Agent Fees........................................ $ *
Miscellaneous Expenses..................................... $ *
Total $ *
* To be included by amendment
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following table sets forth all sales of unregistered securities by the
Registrant within the past three years.
<TABLE>
<CAPTION>
NATURE OF AGGREGATE
TRANSACTION AND CLASS OF OFFERING PRICE PER
DATE PURCHASERS SECURITIES SOLD PRICE SHARE
<S> <C> <C> <C> <C>
9/27/94 Michael Carlos 1,652,800 shares $40.00 --
Initial Buarque de Macedo
Capitalization
9/27/94 P. Steven & Illene 1,652,800 shares $40.00 --
Initial S. Macedo TBE
Capitalization
9/27/94 Blaine T. Kuser 123,960 shares $3.00 --
Initial
Capitalization
6/08/95 Diane Mejia 20,660 shares $.50 --
7/10/95 Tracy L. Ziadeh 20,660 shares $.50 --
8/5/96 Harrison Jett Option for 33,056 shares Services N/A
10/24/96 William Lester Option for 24,792 shares Services N/A
12/01/96 Kass Consulting, Option for 123,960 Services N/A
LLC shares
12/20/96 Harrison G. Jett 8,979 shares Services N/A
Treasury Stock
12/20/96 Alan J. 4,132 shares Services N/A
Treasury Stock Silverstone
& Kylanne G.
Silverston, JTWROS
12/20/96 William Lester 1,033 shares Services N/A
12/20/96 Bruce A. Kehr, Option for 413,200 Services N/A
M.D. shares
12/20/96 Gregory A. Winston Option for 20,660 shares Services N/A
12/20/96 Rosen & Hoover, Option for 20,660 shares Services N/A
LLC
12/20/96 Jerry W. Clever Option for 24,792 shares Services N/A
4/09/97 Harrison G. Jett 5,603 shares Services N/A
Treasury Stock
4/09/97 Francis Cronin Option for 33,056 shares Services N/A
4/09/97 Francis Cronin Option for 14,834 shares Services N/A
8/14/97 Lansing Holman Option for 1,653 shares Services N/A
8/13/97 Harrison G. Jett 5,603 shares Services N/A
Treasury Stock
8/13/97 Rosen, Sapperstein 7,157 shares Services N/A
Treasury Stock & Friedlander,
Chartered
12/30/97 Scott E. Sheridan 8,677 shares Services N/A
Treasury Stock
12/31/97 Joshua Korsower Option for 5,785 shares Services N/A
</TABLE>
The Company relied on Section 4(2) of the Securities Act and Rule 701
promulgated thereunder for each issuance. No underwriters were involved nor any
commissions paid in connection with any of the above transactions.
II-2
<PAGE>
ITEM 27. EXHIBITS
EXHIBIT
NO. DESCRIPTION
1.1* Form of Underwriting Agreement
3.1 Articles of Incorporation, as amended
3.2 Amended and Restated By-Laws
4.1* Specimen Common Stock Certificate
5* Opinion of Gibbons, Del Deo, Dolan, Griffinger & Vecchione
10.1 Form of 1998 Stock Option Plan
10.2 CMO Franchise Agreement dated June 3, 1995 between Medi-Cen, Corp. of
America, Inc. and Medi-Cen, Corp. of Maryland, Inc.
10.3 CMO Franchise Agreement dated June 3, 1995 between Medi-Cen, Corp. of
America, Inc. and Medi-Cen, Corp. of Virginia, Inc.
10.4 Management Agreement dated January 1, 1998 between the Company and
Washington Neurology Associates, L.L.P.
10.5 Management Agreement dated January 1, 1998 between the Company and Yater
Medical Group, P.C.
10.6 Stock Transfer Restriction Agreement dated December 31, 1997 among Yater
Medical Group, P.C., P. Steven Macedo, M.D., Ilene S. Macedo, M.D. and
the Company, as amended
10.7 Partnership Interest Transfer Restriction Agreement dated December 31,
1997 among Washington Neurology Associates, L.L.P., P. Steven Macedo,
M.D., Ilene S. Macedo, M.D. and the Company
10.8 Employment Agreement dated March 11, 1998 between the Company and Steven
Macedo, M.D.
10.9 Employment Agreement dated March 11, 1998 between the Company and
Michael Macedo
10.10 Employment Agreement dated January 1, 1998 between Yater Medical Group,
P.C. and Steven Macedo, M.D.
10.11 Consulting Agreement dated January 20, 1997 between Yater Medical Group,
P.C. and Michael Macedo
10.12 Employment Agreement dated March 11, 1998 between the Company and
Francis J. Cronin
10.13 Letter Agreements among Medi-Cen, Corp. of Maryland, Medi-Cen
Management, Inc. and Yater Medical Group, P.C.
10.14 Executive Officer Agreement dated August 5, 1996 between Medi-Cen
Management, Inc. and Harrison Jett, as amended
10.15 Consultant Contract dated April 19, 1997 between Medi-Cen Management,
Inc. and Frank Cronin, as amended
10.16 Billing Agent Agreement (Medicare/Medicaid) between Medi-Cen Management,
Inc. and Washington Neurology Associates, L.L.P.
10.17 Vice-President of Provider Relations Contract, dated April 30, 1996
between the Company and Bruce Kehr
10.18 Stock Purchase Agreement dated March 11, 1998 between Yater Medical
Group, P.C. and Michael Macedo
10.19 Stock Purchase Agreement dated March 11, 1998 between Yater Medical
Group, P.C. and P. Steven Macedo
10.20 Billing Agent Agreement (Medicare/Medicaid) between Medi-Cen Management,
Inc. and Yater Medical Group, P.C.
24.1* Consent of Gibbons, Del Deo, Dolan, Griffinger & Vecchione (included in
Exhibit 5)
24.2 Consent of KPMG Peat Marwick LLP
24.3* Consent of James Cornelson
24.4* Consent of William Lester
* To be filed by amendment
II-3
<PAGE>
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to Item 24 hereof, 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 the 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, 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 of 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 undersigned Registrant further undertakes that: (i) 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 a 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; (ii) 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 the time shall be deemed
to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Washington, D.C., on
, 1998.
MEDI-CEN MANAGEMENT, INC.
By:_________________________
Michael Macedo
Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated. Each person whose signature appears below hereby constitutes and
appoints P. Steven Macedo and Michael Macedo, or either of them, as such
person's true and lawful attorney-in-fact and agent with full power of
substitution for such person and in such person's name, place and stead, in any
and all capacities, to sign and to file with the Commission, any and all
amendments and post-effective amendments to this Registration Statement, with
exhibits thereto and other documents in connection therewith, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as such person might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or any substitute therefor, may lawfully do or cause to be done by virtue
thereof.
NAME TITLE DATE
_____________________________ Chairman of the Board , 1998
P. Steven Macedo
_____________________________ Chief Executive Officer , 1998
Michael Macedo and Director (Principal
Executive Officer)
_____________________________ Principal Financial and , 1998
Harrison G. Jett Accounting Officer and
Director
_____________________________ Director , 1998
James Cornelson
_____________________________ Director , 1998
William Lester
II-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Medi-Cen Management Inc. and Affiliates:
Under date of February 13, 1998, except as to note 13, which is as of _______,
1998, we reported on the consolidated balance sheets of Medi-Cen Management,
Inc. and Affiliates as of December 31, 1996 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1997, which are
included in the Prospectus. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedules in the registration statement. These consolidated
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statement schedules based on our audits.
In our opinion, such consolidated financial statement schedules, when considered
in relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
Mclean, Virginia
February 13, 1998 except as to note 13,
which is as of __________, 1998
II-6
<PAGE>
MEDI-CEN MANAGEMENT, INC. AND AFFILIATES
Valuation and Qualifying Accounts
Years ended December 31, 1995, 1996, and 1997
ADD BALANCE
BALANCE AT FOR YATER ADDITIONS BALANCE AT
BEGINNING AT DATE OF CHARGED TO END OF
OF PERIOD ACQUISITION EXPENSE WRITE-OFFS PERIOD
--------- ----------- ------- ---------- ------
December 31, 1995
Accounts receivable
allowances..... $ 49,509 -- 133,094 (78,766) 103,837
December 31, 1996
Accounts receivable
allowances..... $ 103,837 -- 86,786 (61,310) 129,313
December 31, 1997
Accounts receivable
allowances..... $ 129,313 330,757 912,799 (657,401) 715,468
II-7
03-25-94 at 12:39 p.m.
ARTICLES OF INCORPORATION OF HEALTH QUALITY MANAGEMENT, INC.
The undersigned, being a natural person and acting as Incorporator, does
hereby adopt the following Articles of Incorporation for the purpose of forming
a business close corporation in the State of Maryland, pursuant to the
provisions of the Maryland General Corporation Law.
FIRST: (1) The name of the incorporator is Michael C. Macedo.
(2) The said incorporator's address, including the street and number, if
any, including the county or municipal area, and including the state or country,
is 6756 Kenwood Forest, Chevy Chase, county of Montgomery, of the state of
Maryland, USA.
(3) The said incorporator is at least eighteen years of age.
(4) The said incorporator is forming the close corporation named in these
Articles of Incorporation under the general laws of the State of Maryland, to
wit, the Maryland General Corporation Law.
SECOND: The name of the corporation (hereinafter called the "corporation")
is HEALTH QUALITY MANAGEMENT, INC.
THIRD: The corporation is formed for the following purpose or purposes:
To provide quality control management and billing services and other
services for medical doctors, medical offices and medical management firms.
To purchase, receive, take by grant, gift, devise, bequest or otherwise,
lease, or otherwise acquire, own, hold, improve, employ, use, and otherwise
deal in and with real or personal property, or any interest therein, wherever
situated, and to sell, convey, lease, exchange, transfer, or otherwise dispose
of, or mortgage or pledge, all or any of its property and assets, or any
interest therein, wherever situated.
To carry on a general mercantile, industrial, investing, and trading
business in all its branches; to devise, invent, manufacture, fabricate,
assemble, install, service, maintain, alter, buy, sell, import, export, license
as licensor or licensee, lease as lessor or lessee, distribute, job, enter into,
negotiate, execute, acquire, and assign contracts in respect of, acquire,
receive, grant, and assign licensing arrangements, options, franchises, and
other rights in respect of, and generally deal in and with, at wholesale and
retail, as principal, and as sales, business, special, or general agent,
representative, broker, factor, merchant, distributor, jobber, advisor, and in
any other lawful capacity, goods, wares, merchandise, commodities, and
unimproved, improved, finished, processed, and other real, personal, and mixed
property of any and all kinds, together with the components, resultants, and
by-products thereof.
To engage generally in the real estate business as principal, agent,
broker, and in any lawful capacity, and generally to take, lease, purchase, or
otherwise acquire, and to own, use, hold, sell, convey, exchange, lease, manage,
operate, deal in, and dispose of real estate, real property, lands,
multiple-dwelling structures, houses, buildings, and other works and any
interest or right therein; to take, lease, purchase, or otherwise acquire, and
to own, use hold, sell, convey, exchange, hire, lease, pledge, mortgage, and in
any lawful capacity, such personal property, chattels, chattels real, rights,
easements, privileges, notes, bonds, mortgages and securities as may lawfully be
acquired, held, or disposed of; and to acquire, purchase, sell, assign,
transfer, dispose of, and generally deal in and with, as principal, agent,
broker, and in any lawful capacity, mortgages and other interests in real,
personal, and mixed properties; to carry on a general
<PAGE>
construction, contracting, building, and realty management business as
principal, agent, representative, contractor, subcontractor, and in any other
lawful capacity.
To apply for, register, obtain, purchase, lease, take licenses in respect
of, or otherwise acquire, and to hold, own, use, operate, develop, enjoy, turn
to account, grant licenses and immunities in respect of, manufacture under and
to introduce, sell, assign, mortgage, pledge, or otherwise dispose of, and, in
any manner deal with and contract with reference to:
(a) inventions, devices, formulae, processes, and any improvements
and modifications thereof;
(b) letters patent, patent rights, patented processes, copyrights,
designs, and similar rights, trade-marks, trade symbols and other
indications or origin and ownership granted by or recognized under
the laws of the United States of America or of any state or
subdivision thereof, and all rights connected therewith or
appertaining thereunto;
(c) franchises, licenses, grants, and concessions.
To have all of the powers conferred upon corporations organized under the
provisions of the Maryland General Corporation Law.
FOURTH: The address, including street and number, if any, and the county
or municipal area, of the principal office of the corporation within the State
of Maryland, is 5530 Wisconsin Ave., Suite 1045, Chevy Chase, county of
Montgomery, of the state of Maryland, USA. 20815
FIFTH: The name and the address, including street and number, if any, and
the county or municipal area, of the resident agent of the corporation with the
State of Maryland, is David S. Feldmann, 17 West Jefferson Street, Rockville,
Maryland, 20850.
SIXTH: (1) The total number of shares of stock which the corporation has
authority to issue is one hundred (100), all of which have a par value of $.01
per share and are all designated as Common Stock.
(2) The Board of Directors of the corporation is authorized, from time to
time, to issue any additional stock or convertible securities of the corporation
without the approval of the holders of outstanding stock.
(3) The Board of Directors of the corporation is authorized, from time to
time, to classify or to reclassify, as the case may be, any unissued shares of
stock of the corporation or in any agreement or agreements duly entered into.
(4) Provisions, if any, governing the restriction on the transferability
of any of the shares of stock of the corporation may be set forth in the Bylaws
of the corporation or in any agreement or agreements duly entered into.
(5) To the extent permitted by Section 2-104(b) (5) of Maryland General
Corporation Law, notwithstanding any provision of the Maryland General
Corporation Law requiring a greater proportion than a majority of the votes
entitled to be cast in order to take or authorize any action, any such action
may be taken or authorized upon the concurrence of at least a majority of the
aggregate number of votes entitled to be cast thereon.
No holder of any of the shares of any class of the corporation shall be
entitled as of right to subscribe for, purchase, or otherwise acquire any shares
of any class of the corporation which the corporation proposes
2
<PAGE>
to grant for the purchase of shares of any class of the corporation or for the
purchase of any shares, bonds, securities, or obligations of the corporation
which are convertible into or exchangeable for, or which carry any rights, to
subscribe for, purchase, or otherwise acquire shares of any class of the
corporation; and any and all of such shares, bonds, securities, or obligations
of the corporation, whether now or hereafter authorized or created, may be
issued, or may be reissued or transferred if the same have been reacquired and
have treasury status, and any and all of such rights and options may be granted
by the Board of Directors to such persons, firms, corporations, and
associations, and for such lawful consideration, and on such terms, as the Board
of Directors in its discretion may determine, without first offering the same,
or any thereof, to any said holder.
SEVENTH: (1) The number of directors of the corporation, one at the first
meeting, and as specified in the Bylaws thereafter.
(2) The names of the persons who will serve as directors of the
corporation until the first annual meeting of stockholders and until their
successors are elected and qualify are as follows: P. Steven Macado.
(3) The initial Bylaws of the corporation shall be adopted by the initial
directors. Thereafter, the power to adopt, alter, and repeal of the Bylaws of
the corporation shall be vested in the Board of Directors of the corporation.
(4) The corporation shall, to the fullest extent permitted by the Maryland
General Corporation Law, as the same may be amended and supplemented, and,
without limiting the generality of the foregoing, in accordance with Section
2-418 of said Maryland General Corporation Law, indemnify any and all persons
whom it shall have power to indemnify under said law from and against any and
all of the expenses, liabilities or other matters referred to in or covered by
said Maryland General Corporation Law.
EIGHTH: From time to time any of the provisions of these Articles of
Incorporation may be amended, altered or repealed, and other provisions
authorized by the Maryland General Corporation Law at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and any
contract rights at any time conferred upon the stockholders of the corporation
by these Articles of Incorporation are granted subject to the provisions of this
Article.
IN WITNESS WHEREOF, I have adopted and signed these Articles of
Incorporation and do hereby acknowledge that the adoption and signing are my
act.
Dated: March 23, 1994. /s/ Michael C. Macedo
------------------------------------
Michael C. Macedo
3
<PAGE>
ARTICLES OF AMENDMENT
OF
HEALTH QUALITY MANAGEMENT, INC.
HEALTH QUALITY MANAGEMENT, INC., of Montgomery County, Maryland, a
Maryland corporation, hereby certifies to the State Department of Assessments
and Taxation of Maryland that:
The charter of the corporation is hereby amended, as follows:
By striking out paragraph (1) of the SIXTH clause, which reads:
(1) THE TOTAL NUMBER OF SHARES OF STOCK WHICH THE CORPORATION HAS
AUTHORITY TO ISSUE IS ONE HUNDRED (100), ALL OF WHICH HAVE A PAR VALUE OF $0.01
PER SHARE AND ARE ALL DESIGNATED AS COMMON STOCK.
and inserting in lieu thereof:
(1) THE TOTAL NUMBER OF SHARES OF STOCK WHICH THE CORPORATION HAS
AUTHORITY TO ISSUE IS ONE MILLION (1,000,000), ALL OF WHICH HAVE A PAR VALUE OF
$0.01 PER SHARE AND ARE ALL DESIGNATED AS COMMON STOCK.
This amendment of the charter of the corporation has been approved by the
directors and shareholders of the corporation.
We, the undersigned President and Secretary of HEALTH QUALITY MANAGEMENT,
INC., attest under penalties of perjury that the foregoing is a corporate act.
/s/ P. Steven Macedo, Pres. 7/19/95
- -------------------------------- -------
P. Steven Macedo, President Date
/s/ Michael Macedo, Sec 7/19/95
- -------------------------------- -------
Michael Macedo, Secretary Date
<PAGE>
ARTICLES OF AMENDMENT
OF
HEALTH QUALITY MANAGEMENT, INC.
HEALTH QUALITY MANAGEMENT, INC., of Montgomery County, Maryland, a
Maryland corporation, hereby certifies to the State Department of Assessments
and Taxation of Maryland that:
The charter of the corporation is hereby amended, as follows:
By striking out paragraph (4) of the SEVENTH clause and inserting in lieu
thereof:
(4) THE CORPORATION SHALL, TO THE FULLEST EXTENT PERMITTED BY THE MARYLAND
GENERAL CORPORATION LAW, AS THE SAME MAY BE AMENDED AND SUPPLEMENTED, AND,
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, IN ACCORDANCE WITH SECTIONS
2-405.1, 2-405.2 AND 2-418 OF SAID MARYLAND GENERAL CORPORATION LAW, INDEMNIFY
ANY AND ALL PERSONS WHOM IT SHALL HAVE POWER TO INDEMNIFY UNDER SAID LAW FROM
AND AGAINST ANY AND ALL OF THE EXPENSES, LIABILITIES OR OTHER MATTERS REFERRED
TO IN OR COVERED BY SAID MARYLAND GENERAL CORPORATION LAW.
This amendment of the charter of the corporation has been approved by the
directors and shareholders of the corporation.
We, the undersigned President and Secretary of HEALTH QUALITY MANAGEMENT,
INC., attest under penalties of perjury that the foregoing is a corporate act
/s/ P. Steven Macedo, President 9/18/95
- -------------------------------- -------
P. Steven Macedo, President Date
/s/ Michael Macedo, Sec 9/18/95
- -------------------------------- -------
Michael Macedo, Secretary Date
<PAGE>
RECEIVED
97 Jun 17 A8:56
ASSESS & TAX
ARTICLES OF AMENDMENT
OF
HEALTH QUALITY MANAGEMENT, INC
HEALTH QUALITY MANAGEMENT, INC., of Montgomery County, Maryland, a
Maryland corporation, hereby certifies to the State Department of Assessments
and Taxation of Maryland that:
The charter of the corporation is hereby amended as follows:
By striking out the SECOND clause and inserting in lieu thereof:
SECOND: The name of the corporation (hereinafter called the "corporation")
is MEDI-CEN MANAGEMENT, INC.
This amendment of the charter of the corporation has been advised by the
board of directors of the corporation and approved by the shareholders of the
corporation.
We, the undersigned Vice President of Provider Relations and Secretary of
the corporation, attest under penalties of perjury that the foregoing is a
corporate act.
/s/ Bruce A. Kehr MD for HQM 6/10/97
- -------------------------------------------------- -------
Bruce A. Kehr Vice President of Provider Relations Date
/s/ P. Steven Macedo Sec 6/10/97
- -------------------------------------------------- -------
P. Steven Macedo, Secretary Date
3
<PAGE>
================================================================================
STATE OF MARYLAND
543671
STATE DEPARTMENT OF
ASSESSMENTS AND TAXATION
301 West Preston Street Baltimore, Maryland 21201
DATE: JUNE 17, 1997
THIS IS TO ADVISE YOU THAT THE ARTICLES OF AMENDMENT WITH A NAME CHANGE
FOR HEALTH QUALITY MANAGEMENT, INC. CHANGING TO MEDI-CEN MANAGEMENT, INC. WERE
RECEIVED AND APPROVED FOR RECORD ON JUNE 17, 1997 AT 8:56 AM.
FEE PAID: 50.00
[SEAL]
JOSEPH V. STEWART
CHARTER SPECIALIST
AT5-031
================================================================================
<PAGE>
Bylaws of Health Quality Management, Inc.
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates representing shares of stock
for HEALTH QUALITY MANAGEMENT, INC (the "corporation") shall set forth thereon
the statement prescribed by Sections 2-207 and 2-211 of the Maryland General
Corporation Law and by any other applicable provision of law and shall be signed
by the President or the Chairman of the Board, if any, or a Vice-President and
countersigned by the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer and may be sealed with the corporate seal or facsimile of it
or in any other form. The signatures of any such officers may be either manual
or facsimile signatures. In case any such officer who has signed manually or by
facsimile any such certificate ceases to be such officer before the certificate
is issued, it may nevertheless be issued by the corporation with the same effect
as if the officer had not ceased to be such officer as of date of its issue.
No certificate representing shares of stock shall be issued for any share of
stock until such share is fully paid, except as otherwise authorized by the
provisions of Section 2-210 of the Maryland General Corporation Law.
The corporation may issue a new certificate of stock in place of any certificate
theretofore issued by it, alleged to have been lost, stolen, or destroyed, and
the Board of Directors may in its discretion, require the owner of any such
certificate to give bond, with sufficient surety, to the corporation to
indemnify it against any loss or claim that may arise by reason of the issuance
of a new certificate.
Upon compliance with the provisions of Section 2-514 of the Maryland General
Corporation Law, the Board of Directors of the corporation may adopt by
resolution a procedure by which a stockholder of the corporation may certify in
writing to the corporation that any shares registered in the name of the
stockholder are held for the account of a specified person other than the
stockholder.
2. FRACTIONAL SHARE INTEREST OR SCRIP. The corporation shall be obliged to issue
fractional shares of stock.
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3. SHARE TRANSFERS. Upon compliance with provisions restricting the
transferability of shares of stock, if any, transfers of shares of stock of the
corporation shall be made only on the stock transfer books of the corporation by
the record holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the corporation or with a
transfer agent or a registrar, if any, and on surrender of the certificate or
certificates for such shares of stock properly endorsed and the payment of all
taxes due thereon, if any.
4. RECORD DATE FOR STOCKHOLDERS. The Board of Directors may set a record date or
direct that the stock transfer books be closed for a stated period for the
purpose of making any proper determination with respect to stockholders,
including which stockholders are entitled to notice of a meeting, to vote at a
meeting, to receive a dividend, or to be allotted other rights; provided, that,
except as may be otherwise provided herein, any such record date shall be not
more than ninety days before the date on which the action requiring the
determination will be taken, that any such closing of the transfer of books may
not be for a period longer than twenty days, and that, in the case of a meeting
of stockholders, any such record date or any such closing of the transfer books
shall be at least ten days before the date of the meeting. If a record date is
not set, and, if the stock transfer books are not closed, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be the later of either the close of business on the day on
which notice of the meeting is mailed or the thirtieth day before the meeting,
and the record date for determining stockholders entitled to receive payment of
a dividend or an allotment of any rights shall be the close of business on the
day on which the resolution of the Board of Directors declaring the dividend or
allotment of rights is adopted, but any such payment of a dividend or allotment
of rights shall not be made more than sixty days after the date on which the
resolution is adopted, and a meeting of stockholders convened on the date for
which it was called may be adjourned from time to time without further notice to
a date not more than one hundred and twenty days after the original record date.
5. MEANING OF CERTAIN TERMS. As used herein in respect of the right to notice of
a meeting of stockholders or a waiver thereof or to participate or vote thereat
or to consent or dissent in writing in lieu of a meeting, as the case may be,
the term "share of stock" or "shares of stock" or "stockholder" or
"stockholders" refers to an outstanding record of outstanding shares of stock
when the corporation is authorized to issue only one class of shares of stock,
and said reference is also intended to include any outstanding share or shares
of stock and any holder or holders of record of outstanding shares of stock of
any class or series upon which or upon whom the Articles of Incorporation confer
such rights where there are two or more classes or series of shares or upon
which or upon whom the provisions of the Maryland
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<PAGE>
General Corporation Law may confer such Rights or the right of dissent
notwithstanding that the Articles of Incorporation may provide for more than
one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder.
6 STOCKHOLDER MEETINGS.
A. TIME. The annual meeting of stockholders shall be held on the date fixed,
from time to time, by the directors, within the thirty-one day period commencing
with the 1st day of March, for the election of directors and the transaction of
any business within the powers of the corporation. The first annual meeting
shall be at the time specified by the Chairman of the Board of Directors any
time within the first year of operation of the corporation. A special meeting
shall be held on the date fixed by the directors.
B. PLACE. Annual meetings and special meetings shall be held at such place,
either within the State of Maryland or at such other place within the United
States, as the directors may, from time to time, set. Whenever the directors
shall fail to set such place, or, whenever stockholders entitled to call a
special meeting shall call the same, and a place of meeting is not set, the
meeting shall be held at a local hotel in the Washington Metropolitan area to be
determined by the President.
C. CALL. Annual meetings may be called by the directors or the President or by
any officer instructed by the directors or the President to call the meeting.
Except as may be otherwise provided by the provisions of the Maryland General
Corporation Law, special meetings may be called in like manner and shall be
called by the Secretary whenever the holders of shares entitled to at least
eight per cent of all the votes entitled to be cast at such meeting shall make a
duly authorized request that such meeting be called.
D. NOTICE OR ACTUAL CONSTRUCTIVE WAIVER OF NOTICE. Written notice of all
meetings shall be given by the Secretary and shall state the time and place of
the meeting. The notice of an annual meeting shall state that the meeting is
called for the election of directors and for the transaction of other business
which may properly come before the meeting and shall (if any other action which
could be taken at a special meeting is to be taken at such annual meeting)
contain any additional statements required in a notice of a special meeting and
shall include a copy of any requisite statements or provision prescribed by the
provisions of the Maryland General Corporation Law; provided, however, that any
business of the corporation may be transacted at any annual meeting without
being specially noticed unless the provisions of the Maryland General
Corporation
3
<PAGE>
Law provided otherwise. The notice of a special meeting shall in all instances
state the purpose or purposes for which the meeting is called and shall include
a copy of any requisite statements or provisions prescribed by the provisions of
the Maryland General Corporation Law. Written notice of any meeting shall be
given to each stockholder either by mail or personally delivered to him or by
leaving it at his residence or usual place of business not less than ten days
and not more than ninety days before the date of the meeting, unless any
provisions of the Maryland General Corporation Law shall prescribe a different
elapsed period of time, to each stockholder at his address appearing on the
books of the corporation or the address supplied by him for the purpose of
notice. If mailed, notice shall be deemed to be given when deposited in the
United States mail addressed to the stockholder at his address as it appears on
the records of the corporation with postage thereon prepaid. Whenever any notice
of the time, place or purpose of any meeting of stockholders is required to be
given under the provision of the Articles of Incorporation, these Bylaws or of
the provisions of the Maryland General Corporation Law, a waiver thereof in
writing, signed by the stockholder and filed with the records of the meeting,
whether before or after the holding thereof, or his presence in person or by
proxy at the meeting shall be deemed equivalent to the giving of such notice to
such stockholder. The foregoing requirements of notice shall also apply,
whenever the corporation shall have any class of stock which is not entitled to
vote, to holders of stock who are not entitled to vote at the meeting, but who
are entitled to notice thereof and to dissent from any action taken thereat.
E. STATEMENT OF AFFAIRS. The President of the corporation, or, if the Board of
Directors shall determine otherwise, some other executive officer thereof, shall
prepare or cause to be prepared annually a full and correct statement of the
affairs of the corporation, including a balance sheet and a financial statement
of operations for the preceding fiscal year, which shall be submitted at the
Annual Meeting and placed on file within twenty days thereafter at the principal
office of the corporation in the State of Maryland.
F. CONDUCT OF MEETINGS. Meetings of the stockholders shall be presided over by
one of the following officers In the order of seniority and if present and
acting - the Chairman of the Board, the Vice Chairman of the Board, if any, the
President, a Vice-President, or, if none of the foregoing is in office and
present and acting, by a chairman to be chosen by the shareholders. The
Secretary of the corporation, or in his absence, an Assistant Secretary, shall
act as secretary of every meeting, but if neither the Secretary nor an Assistant
Secretary is present the Chairman of the meeting shall appoint a secretary of
the meeting.
G. PROXY REPRESENTATION. Every stockholder may authorize another person or
persons to act for him by proxy in all matters in which a
4
<PAGE>
stockholder is entitled to participate, whether for the purposes of determining
his presence at a meeting, or whether by waiving notice of any meeting, voting
or participating at a meeting, or expressing consent or dissent without a
meeting, or otherwise. Every proxy shall be executed in writing by the
stockholder or by his duly authorized attorney in fact and filed with the
Secretary of the corporation. No proxy shall be valid more than eleven months
from the date of its execution, unless the proxy provides otherwise.
H. INSPECTORS OF ELECTION. The directors, in advance of any meeting, may, but
need not, appoint one or more inspectors to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not, appoint one or more inspectors. In
case any person who may be appointed as inspector fails to appear or act, the
vacancy may be filled by appointment made by the directors in advance of the
meeting or at the meeting by the person in advance of the meeting or at the
meeting by the person presiding thereat. Each inspector, if any, before entering
upon the discharge of his duties, shall take and sign an oath faithfully to
execute the duties of inspector at such meeting with strict impartiality and
according to the best of his ability. The inspectors, if any, shall determine
the number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the result and do such acts
as are proper to conduct the election or vote with fairness to all stockholders.
On request of the person presiding at the meeting or any stockholder, the
inspector or inspectors, if any shall make a report in writing of any challenge,
question or matter determined by him or them and execute a certificate of any
fact found by him or them.
I. QUORUM. Except as may otherwise be required by the provisions of the Maryland
General Corporation Law, the Articles of Incorporation, or these Bylaws, the
presence in the person or by proxy at a meeting of the stockholders entitled to
cast at least a majority of the votes entitled to be cast at the meeting shall
constitute a quorum.
J. VOTING. Each share of stock shall entitle the holder thereof to one vote or
such fraction of a vote as the share may represent except in the election of
directors, at which each said vote may be cast for as many persons as there are
directors to be elected. Except as may otherwise be provided in the provisions
of the Maryland General Corporation Law, the Articles of Incorporation or these
Bylaws, a majority of all the votes cast at a meeting of stockholders at which a
quorum is present shall be sufficient to approve
5
<PAGE>
any matter which may properly come before the meeting. A plurality of all the
votes cast at a meeting of stockholders at which a quorum is present is
sufficient to elect a director.
ARTICLE II
BOARD OF DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and the affairs of the corporation
shall be managed by or under the direction of its Board of Directors. All powers
of the corporation way be exercised by or under the authority of said Board of
Directors. The use of the phrase "entire board" herein refers to the total
number of directors which the corporation would have if there were no vacancies.
2. QUALIFICATIONS AND NUMBER. Each director shall be a natural person of full
age. A director need not be a stockholder, a citizen of the United States, or a
resident of the State of Maryland. The initial Board of Directors shall consist
of one person, which is the number set forth in the Articles of Incorporation.
Thereafter the number of directors shall be three.
3. ELECTION AND TERM. The first board of Directors shall consist of the director
named in the Articles of Incorporation who shall hold office until the first
annual meeting of stockholders or until their successors have been elected and
qualified. At the first annual stockholders meeting the three directors shall be
elected and qualified. Any directorships left vacant at the first annual
shareholders meeting shall be filled at the next annual shareholders meeting,
only for the term remaining for the vacant director. All directors shall be
elected for one year terms. Each director shall hold office until the next
annual meeting of shareholders after the director's term has expired and until
their successors have been elected and qualified. In the interim between annual
meetings of stockholders or of special meetings of stockholders called for the
election of directors, newly created directorships and any vacancies in the
Board of Directors, including vacancies resulting from the removal of directors
by the stockholders which have not been filled by said stockholders, may be
filled by the Board of Directors. Newly created directorships filled by the
Board of Directors shall be by action of a majority of the entire Board of
Directors. All other vacancies to be filled by the Board of Directors may be
filled by a majority of the remaining members of the Board of Directors, whether
or not sufficient to constitute a quorum.
4. MEETINGS
6
<PAGE>
A. TIME. Meetings shall be held at such time as the Board shall set, except that
the first meeting of a newly elected Board shall be held as soon after its
election as the directors may conveniently assemble.
B. PLACE. Meetings shall be held at such place within or without the State of
Maryland as shall be set by the Chairman of Board, if any, by the President, or
by a majority of directors in office.
C. CALL. No call shall be required for regular meetings for which the time and
place have been fixed. Special meetings may be called by or at the direction of
the Chairman of the Board, if any, by the President, or by a majority of the
directors in office.
D. NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required for
regular meetings for which the time and place have been fixed. Written, oral, or
any other mode of notice of the time and place shall be given for special
meetings in sufficient time for the convenient assembly of the directors
thereat. The notice of any meeting need not specify the business to be
transacted or the purpose of the meeting. Whenever any notice of the time,
place, or purpose of any meeting of directors or any committee thereof is
required to be given under the provisions of the Maryland General Corporation
Law or of these Bylaws, a waiver thereof in writing, signed by the director or
committee member entitled to such notice and filed with the records of the
meeting, whether before or after the meeting, or presence at the meeting, shall
be deemed equivalent to the giving of such notice to such director or such
committee member.
B. QUORUM AND ACTION. A majority of the entire Board of Directors shall
constitute a quorum except when a vacancy or vacancies prevents such majority,
whereupon a majority of the directors in office shall constitute a quorum,
provided such majority shall constitute at least one-third of the entire Board
and, in no event, less than two directors provided, that whenever the entire
Board of Directors consists of one director, that one director shall constitute
a quorum. Except as in the Articles of Incorporation and herein otherwise
provided and, except as in the provisions of the Maryland General Corporation
Law otherwise provided, the action of the directors present at a meeting at
which a quorum is present shall be the action of the Board of Directors. Members
of the Board of Directors or of a committee thereof may participate in a meeting
by means of conference telephone or similar communications equipment if all
persons participating in the meeting can hear each other at the same time; and
participation by such means shall constitute presence in person at a meeting.
7
<PAGE>
F. CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if present
and acting, shall preside at all meetings. Otherwise, the President, if present
and acting, or any other director chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS. Directors may only be removed with cause by a
shareholder vote.
6. COMMITTEES. The Board of Directors may appoint from among its members an
Executive Committee and other committees composed of two or more directors, and
may delegate to such committee or committees any of the powers of the Board of
Directors except such powers as may not be delegated under the provisions of the
Maryland General Corporation Law. In the absence of any member of any such
committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a member of the Board of Directors to act in
the place of such absent member.
7. INFORMAL ACTION. Any action required or permitted to be taken at any meeting
of the Board of Directors or of any committee thereof may be taken without a
meeting, if a written consent to such action is signed by all members of the
Board of Directors or any such committee, as the case may be, and such written
consent is filed with the minutes of proceedings of the Board or any such
committee.
ARTICLE III
OFFICERS
The corporation shall have a President, a Secretary, and a Treasurer, and may
have a Chairman of the Board, a Vice-Chairman of the Board and one or more
Vice-Presidents, who shall be elected by the Board of Directors, and may have
such other officers, assistant officers, and agents as the Board of Directors
shall authorize from time to time, each of whom shall be elected or appointed in
the manner prescribed by the Board of Directors. Any two or more officers,
except those of President and Vice-President, may be held by the same person,
but no person shall execute, acknowledge or verify any instrument in more than
one capacity, if such instrument is required by law to be executed, acknowledged
or verified by more than one officer. Unless otherwise provided in the
resolution of election or appointment, each officer shall hold office until the
meeting of the Board of Directors following the next annual meeting of
stockholders and until his successor has been elected or appointed and
qualified.
8
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The officers and agents of the corporation shall have the authority and perform
the duties in the management of the corporation as determined by the resolution
electing or appointing them.
Any officer or agent may be removed by the Board of Directors whenever, in its
judgment, the best interests of the corporation will be served thereby.
ARTICLE IV
PRINCIPAL OFFICE - RESIDENT AGENT - STOCK LEDGER
The address of the initial principal office of the corporation in the State of
Maryland and the name and the address of the initial resident agent of the
corporation in the State of Maryland are set forth in the Articles of
Incorporation.
The corporation shall maintain, at its principal office in the State of Maryland
or at a business office or an agency of the corporation an original or duplicate
stock ledger containing the name address of each stockholder and the number of
shares of each class held by each stockholder. Such stock ledger may be in
written form or any other form capable of being converted into written form
within a reasonable time for visual inspection.
The corporation shall keep at its principal office in the State of Maryland the
original or a certified copy of the Bylaws, including all amendments thereto,
and shall duly file thereat the annual statement of affairs of the corporation.
ARTICLE V
CORPORATE SEAL
The corporate seal shall have inscribed thereon the name of the corporation or
trade name of the corporation and shall be in such form and contain such other
words and/or figures as the Board of Directors shall determine or the law
require.
<PAGE>
ARTICLE VI
FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and shall be subject to
change, by the Board of Directors.
ARTICLE VIII
CONTROL OVER BYLAWS
The power to adopt, alter, amend, and repeal the Bylaws is vested hereafter in
the Shareholders of the Corporation.
I HEREBY CERTIFY that the foregoing is a full, true and correct copy of the
Bylaws of HEALTH QUALITY MANAGEMENT, INC., a Maryland corporation, as in effect
on the date hereof.
WITNESS my hand and the seal of the Corporation.
/s/ P. Steven Macedo, Director
- ----------------------------------------
P. Steven Macedo, Director
Health Quality Management, Inc.
2
Amended and Restated
Bylaws of Medi-Cen Management, Inc.
as of March 11, 1998
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates representing shares of
stock for MEDI-CEN MANAGEMENT, INC. (the "corporation") shall set forth thereon
the statements prescribed by Sections 2-207 and 2-211 of the Maryland General
Corporation Law and by any other applicable provision of law and shall be signed
by the President or the Chairman of the Board, if any, or a Vice-President and
countersigned by the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer and may be sealed with the corporate seal or facsimile of it
or in any other form. The signatures of any such officers may be either manual
or facsimile signatures. In case any such officer who has signed manually or by
facsimile any such certificate ceases to be such officer before the certificate
is issued, it may nevertheless be issued by the corporation with the same effect
as if the officer had not ceased to be such officer as of date of its issue.
No certificate representing shares of stock shall be issued for any share
of stock until such share is fully paid, except as otherwise authorized by the
provisions of Section 2-210 of the Maryland General Corporation Law.
The corporation may issue a new certificate of stock in place of any
certificate theretofore issued by it, alleged to have been lost, stolen, or
destroyed, and the Board of Directors may in its discretion, require the owner
of any such certificate to give bond, with sufficient surety, to the corporation
to indemnify it against any loss or claim that may arise by reason of the
issuance of a new certificate.
Upon compliance with the provisions of Section 2-514 of the Maryland
General Corporation Law, the Board of Directors of the corporation may adopt by
resolution a procedure by which a stockholder of the corporation may certify in
writing to the corporation that any shares registered in the name of the
stockholder are held for the account of a specified person other than the
stockholder.
2. FRACTIONAL SHARE INTERESTS OR SCRIP. The corporation shall be obliged
to issue fractional shares of stock.
3. SHARE TRANSFERS. Upon compliance with provisions restricting the
transferability of shares of stock, if any, transfers of shares of stock of the
corporation shall be made only on the stock transfer books of the corporation by
the record holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the corporation or with a
transfer agent or a registrar, if any, and on surrender of the certificate or
certificates for such shares of stock properly endorsed and the payment of all
taxes due thereon, if any.
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4. RECORD DATE FOR STOCKHOLDERS. The Board of Directors may set a record
date or direct that the stock transfer books be closed for a stated period for
the purpose of making any proper determination with respect to stockholders,
including which stockholders are entitled to notice of a meeting, to vote at a
meeting, to receive a dividend, or to be allotted other rights; provided, that,
except as may be otherwise provided herein, any such record date shall be not
more than ninety days before the date on which the action requiring the
determination will be taken, that any such closing of the transfer of books may
not be for a period longer than twenty days, and that, in the case of a meeting
of stockholders, any such record date or any such closing of the transfer books
shall be at least ten days before the date of the meeting. If a record date is
not set, and, if the stock transfer books are not closed, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be the later of either the close of business on the day on
which notice of the meeting is mailed or the thirtieth day before the meeting,
and the record date for determining stockholders entitled to receive payment of
a dividend or an allotment of any rights shall be the close of business on the
day on which the resolution of the Board of Directors declaring the dividend or
allotment of rights is adopted, but any such payment of a dividend or allotment
of rights shall not be made more than sixty days after the date on which the
resolution is adopted; and a meeting of stockholders convened on the date for
which it was called may be adjourned from time to time without further notice to
a date not more than one hundred and twenty days after the original record date.
5. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share of stock" or "shares of stock" or "stockholder" or
"stockholders" refers to an outstanding record of outstanding shares of stock
when the corporation is authorized to issue only one class of shares of stock,
and said reference is also intended to include any outstanding share or shares
of stock and any holder or holders of record of outstanding shares of stock of
any class or series upon which or upon whom the Articles of Incorporation confer
such rights where there are two or more classes or series of shares or upon
which or upon whom the provisions of the Maryland General Corporation Law may
confer such rights or the right of dissent notwithstanding that the Articles of
Incorporation may provide for more than one class or series of shares of stock,
one or more of which are limited or denied such rights thereunder.
6. STOCKHOLDER MEETINGS.
A. TIME. The annual meeting of stockholders shall be held on the
date fixed, from time to time, by the directors, for the election of
directors and the transaction of any business within the powers of the
corporation. The first annual meeting shall be at the time specified by
the Chairman of the Board of Directors any time within the first year of
operation of the corporation. A special meeting shall be held on the date
fixed by the directors.
B. PLACE. Annual meetings and special meetings shall be held at such
place, either within the State of Maryland or at such other place within
the United States, as the directors may, from time to time, set. Whenever
the directors shall fail to set such place, or, whenever stockholders
entitled to call a special meeting shall call the same, and a place of
meeting is not set, the meeting shall be held at a local hotel in the
Washington Metropolitan area to be determined by the President.
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C. CALL. Annual meetings may be called by the directors or the
President or by any officer instructed by the directors or the President
to call the meeting. Except as may be otherwise provided by the provisions
of the Maryland General Corporation Law, special meetings may be called in
like manner and shall be called by the Secretary whenever the holders of
shares entitled to at least eight per cent of all the votes entitled to be
cast at such meeting shall make a duly authorized request that such
meeting be called.
D. NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER OF NOTICE. Written notice
of all meetings shall be given by the Secretary and shall state the time
and place of the meeting. The notice of an annual meeting shall state that
the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting,
and shall (if any other action which could be taken at a special meeting
is to be taken at such annual meeting) contain any additional statements
required in a notice of a special meeting and shall include a copy of any
requisite statements or provision prescribed by the provisions of the
Maryland General Corporation Law; provided, however, that any business of
the corporation may be transacted at any annual meeting without being
specially noticed unless the provisions of the Maryland General
Corporation Law provided otherwise. The notice of a special meeting shall
in all instances state the purpose or purposes for which the meeting is
called and shall include a copy of any requisite statements or provisions
prescribed by the provisions of the Maryland General Corporation Law.
Written notice of any meeting shall be given to each stockholder either by
mail or personally delivered to him or by leaving it at his residence or
usual place of business not less than ten days and not more than ninety
days before the date of the meeting, unless any provisions of the Maryland
General Corporation Law shall prescribe a different elapsed period of
time, to each stockholder at his address appearing on the books of the
corporation or the address supplied by him for the purpose of notice. If
mailed, notice shall be deemed to be given when deposited in the United
States mail addressed to the stockholder at his address as it appears on
the records of the corporation with postage thereon prepaid. Whenever any
notice of the time, place or purpose of any meeting of stockholders is
required to be given under the provision of the Articles of Incorporation,
these Bylaws or of the provisions of the Maryland General Corporation Law,
a waiver thereof in writing, signed by the stockholder and filed with the
records of the meeting, whether before or after the holding thereof, or
his presence in person or by proxy at the meeting shall be deemed
equivalent to the giving of such notice to such stockholder. The foregoing
requirements of notice shall also apply, whenever the corporation shall
have any class of stock which is not entitled to vote, to holders of stock
who are not entitled to vote at the meeting, but who are entitled to
notice thereof and to dissent from any action taken thereat.
E. STATEMENT OF AFFAIRS. The President of the corporation, or, if
the Board of Directors shall determine otherwise, some other executive
officer thereof, shall prepare or cause to be prepared annually a full and
correct statement of the affairs of the corporation, including a balance
sheet and a financial statement of operations for the preceding fiscal
year, which shall be submitted at the Annual Meeting and placed on file
within twenty days thereafter at the principal office of the corporation
in the State of Maryland.
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F. CONDUCT OF MEETINGS. Meetings of the stockholders shall be
presided over by one of the following officers in the order of seniority
and if present and acting - the Chairman of the Board, the Vice-Chairman
of the Board, if any, the President, a Vice-President, or, if none of the
foregoing is in office and present and acting, by a chairman to be chosen
by the shareholders. The Secretary of the corporation, or in his absence,
an Assistant Secretary, shall act as secretary of every meeting, but if
neither the Secretary nor an Assistant Secretary is present the Chairman
of the meeting shall appoint a secretary of the meeting.
G. PROXY REPRESENTATION. Every stockholder may authorize another
person or persons to act for him by proxy in all matters in which a
stockholder is entitled to participate, whether for the purposes of
determining his presence at a meeting, or whether by waiving notice of any
meeting, voting or participating at a meeting, or expressing consent or
dissent without a meeting, or otherwise. Every proxy shall be executed in
writing by the stockholder or by his duly authorized attorney in fact, and
filed with the Secretary of the corporation. No proxy shall be valid more
than eleven months from the date of its execution, unless the proxy
provides otherwise.
H. INSPECTORS OF ELECTION. The directors, in advance of any meeting,
may, but need not, appoint one or more inspectors to act at the meeting or
any adjournment thereof. If an inspector or inspectors are not appointed,
the person presiding at the meeting may, but need not, appoint one or more
inspectors. In case any person who may be appointed as inspector fails to
appear or act, the vacancy may be filled by appointment made by the
directors in advance of the meeting or at the meeting by the person in
advance of the meeting or at the meeting by the person presiding thereat.
Each inspector, if any, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector
at such meeting with strict impartiality and according to the best of his
ability. The inspectors, if any, shall determine the number of shares
outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum, the validity and effect of proxies,
and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote,
count and tabulate all votes, ballots or consents, determine the result,
and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the person presiding at the
meeting or any stockholder, the inspector or inspectors, if any shall make
a report in writing of any challenge, question or matter determined by him
or them and execute a certificate of any fact found by him or them.
I. QUORUM. Except as may otherwise be required by the provisions of
the Maryland General Corporation Law, the Articles of Incorporation, or
these Bylaws, the presence in the person or by proxy at a meeting of the
stockholders entitled to cast at least a majority of the votes entitled to
be cast at the meeting shall constitute a quorum.
J. VOTING. Each share of stock shall entitle the holder thereof to
one vote or such fraction of a vote as the share may represent except in
the election of directors, at which each said vote may be cast for as many
persons as there are directors to be elected. Except as may otherwise be
provided in the provisions of the Maryland General Corporation Law, the
Articles of Incorporation or these Bylaws, a majority of all the votes
cast at a meeting of stockholders at which a quorum is present shall be
sufficient to approve any matter which
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may properly come before the meeting. A plurality of all the votes cast at
a meeting of stockholders at which a quorum is present is sufficient to
elect a director.
ARTICLE II
BOARD OF DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and the affairs of the
corporation shall be managed by or under the direction of its Board of
Directors. All powers of the corporation may be exercised by or under the
authority of said Board of Directors. The use of the phrase "entire board"
herein refers to the total number of directors which the corporation would have
if there were no vacancies.
2. QUALIFICATIONS AND NUMBER. Each director shall be a natural person of
full age. A director need not be a stockholder, a citizen of the United States,
or a resident of the State of Maryland. The initial Board of Directors shall
consist of one person, which is the number set forth in the Articles of
Incorporation. Thereafter the number of directors shall be three. A majority of
the entire board of directors is authorized at any time, provided such action
does not affect the tenure of any director, to alter the number of directors to
a number less than twelve (12) but more than two, unless there are less than
three stockholders in which case the number of directors may not be less than
the number of stockholders.
3. ELECTION AND TERM. The first board of Directors shall consist of the
director named in the Articles of Incorporation who shall hold office until the
first annual meeting of stockholders or until their successors have been elected
and qualified. At the first annual stockholders meeting the three directors
shall be elected and qualified. Any directorships left vacant at the first
annual shareholders meeting shall be filled at the next annual shareholders
meeting, only for the term remaining for the vacant director. All directors
shall be elected for one year terms. Each director shall hold office until the
next annual meeting of shareholders after the director's term has expired and
until their successors have been elected and qualified. In the interim between
annual meetings of stockholders or of special meetings of stockholders called
for the election of directors, newly created directorships and any vacancies in
the Board of Directors, including vacancies resulting from the removal of
directors by the stockholders which have not been filled by said stockholders,
may be filled by the Board of Directors. Newly created directorships filled by
the Board of Directors shall be by action of a majority of the entire Board of
Directors. All other vacancies to be filled by the Board of Directors may be
filled by a majority of the remaining members of the Board of Directors, whether
or not sufficient to constitute a quorum.
4. MEETINGS.
A. TIME. Meetings shall be held at such time as the Board shall set,
except that the first meeting of a newly elected Board shall be held as
soon after its election as the directors may conveniently assemble.
B. PLACE. Meetings shall be held at such place within or without the
State of Maryland as shall be set by the Chairman of Board, if any, by the
President, or by a majority the directors in office.
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C. CALL. No call shall be required for regular meetings for which
the time and place have been fixed. Special meetings may be called by or
at the direction of the Chairman of the Board, if any, by the President,
or by a majority of the directors in office.
D. NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be
required for regular meetings for which the time and place have been
fixed. Written, oral, or any other mode of notice of the time and place
shall be given for special meetings in sufficient time for the convenient
assembly of the directors thereat. The notice of any meeting need not
specify the business to be transacted or the purpose of the meeting.
Whenever any notice of the time, place, or purpose of any meeting of
directors or any committee thereof is required to be given under the
provisions of the Maryland General Corporation Law or of these Bylaws, a
waiver thereof in writing, signed by the director or committee member
entitled to such notice and filed with the records of the meeting, whether
before or after the meeting, or presence at the meeting, shall be deemed
equivalent to the giving of such notice to such director or such committee
member.
E. QUORUM AND ACTION. A majority of the entire Board of Directors
shall constitute a quorum except when a vacancy or vacancies prevents such
majority, whereupon a majority of the directors in office shall constitute
a quorum, provided such majority shall constitute at least one-third of
the entire Board and, in no event, less than two directors provided, that
whenever the entire Board of Directors consists of one director, that one
director shall constitute a quorum. Except as in the Articles of
Incorporation and herein otherwise provided and, except as in the
provisions of the Maryland General Corporation Law otherwise provided, the
action of the directors present at a meeting at which a quorum is present
shall be the action of the Board of Directors. Members of the Board of
Directors or of a committee thereof may participate in a meeting by means
of conference telephone or similar communications equipment if all persons
participating in the meeting can hear each other at the same time; and
participation by such means shall constitute presence in person at a
meeting.
F. CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
present and acting, shall preside at all meetings. Otherwise, the
President, if present and acting, or any other director chosen by the
Board, shall preside.
5. REMOVAL OF DIRECTORS. Directors may only be removed with cause by a
shareholder vote.
6. COMMITTEES. The Board of Directors may appoint from among its members
an Executive Committee and other committees composed of two or more directors,
and may delegate to such committee or committees any of the powers of the Board
of Directors except such powers as may not be delegated under the provisions of
the Maryland General Corporation Law. In the absence of any member of any such
committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a member of the Board of Directors to act in
the place of such absent member.
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7. INFORMAL ACTION. Any action required or permitted to be taken at any
meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if a written consent to such action is signed by all members
of the Board of Directors or any such committee, as the case may be, and such
written consent is filed with the minutes of proceedings of the Board or any
such committee.
ARTICLE III
OFFICERS
The corporation shall have a President, a Secretary, and a Treasurer, and
may have a Chairman of the Board, a Vice-Chairman of the Board and one or more
Vice-Presidents, who shall be elected by the Board of Directors, and may have
such other officers, assistant officers, and agents as the Board of Directors
shall authorize from time to time, each of whom shall be elected or appointed in
the manner prescribed by the Board of Directors. Any two or more officers,
except those of President and Vice-President, may be held by the same person,
but no person shall execute, acknowledge or verify any instrument in more than
one capacity, if such instrument is required by law to be executed, acknowledged
or verified by more than one officer. Unless otherwise provided in the
resolution of election or appointment, each officer shall hold office until the
meeting of the Board of Directors following the next annual meeting of
stockholders and until his successor has been elected or appointed and
qualified.
The officers and agents of the corporation shall have the authority and
perform the duties in the management of the corporation as determined by the
resolution electing or appointing them.
Any officer or agent may be removed by the Board of Directors whenever, in
its judgment, the best interests of the corporation will be served thereby.
ARTICLE IV
PRINCIPAL OFFICE - RESIDENT AGENT - STOCK LEDGER
The address of the initial principal office of the corporation in the
State of Maryland and the name and the address of the initial resident agent of
the corporation in the State of Maryland are set forth in the Articles of
Incorporation.
The corporation shall maintain, at its principal office in the State of
Maryland or at a business office or an agency of the corporation an original or
duplicate stock ledger containing the name address of each stockholder and the
number of shares of each class held by each stockholder. Such stock ledger may
be in written form or any other form capable of being converted into written
form within a reasonable time for visual inspection.
The corporation shall keep at its principal office in the State of
Maryland the original or a certified copy of the Bylaws, including all
amendments thereto, and shall duly file thereat the annual statement of affairs
of the corporation.
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ARTICLE V
CORPORATE SEAL
The corporate seal shall have inscribed thereon the name of the
corporation or trade name of the corporation and shall be in such form and
contain such other words and/or figures as the Board of Directors shall
determine or the law require.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and shall be subject to
change, by the Board of Directors.
ARTICLE VIII
CONTROL OVER BYLAWS
The power to adopt, alter, amend, and repeal the Bylaws is vested
exclusively in the Board of Directors of the Corporation.
I HEREBY CERTIFY that the foregoing is a full, true and correct copy of
the Bylaws of MEDI-CEN MANAGMENT, INC., a Maryland corporation, as in effect on
the date hereof.
WITNESS my hand and the seal of the Corporation.
Date: March 11, 1998
/s/P. Steven Macedo, M.D.
---------------------------------------------
P. Steven Macedo, M.D., Chairman of the Board
Medi-Cen Management, Inc.
8
MEDI-CEN MANAGEMENT, INC.
1998 STOCK OPTION PLAN
SECTION 1. PURPOSE
The purpose of the Medi-Cen Management, Inc. Stock Option Plan (the
"Plan") is to provide an additional incentive to directors, key employees,
independent contractors, agents and consultants of Medi-Cen Management, Inc.
(the "Company") to aid in attracting and retaining directors, employees,
independent contractors, agents and consultants of outstanding ability, and to
align their interests with those of shareholders.
SECTION 2. DEFINITIONS
Unless the context clearly indicates otherwise, the following terms,
when used in this Plan, shall have the meanings set forth in this Section 2.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986 and the rules
and regulations thereunder, as it or they may be amended from time to time.
(c) "Committee" shall mean the full Board, Compensation Committee of
the Board or such other committee as may be designated by the Board. If less
than the full Board, the Committee shall consist of two or more members of the
Board who are not eligible to participate in the Plan, and who otherwise are
"non-employee directors" under Rule 16b-3.
(d) "Date of Exercise" shall mean the earlier of the date on which
written notice of exercise, together with payment in full, is received at the
office of the Secretary of the Company or the date on which such notice and
payment are mailed to the Secretary of the Company as its principal office by
certified or registered mail.
(e) "Director" shall mean a member of the Board of Directors.
(f) "Employee" shall mean any employee or any officer of the Company or
any of its Subsidiaries, or any other person, who is an independent contractor,
agent or consultant of the Company or any of its Subsidiaries, and excluding any
director of the Company who is not otherwise an employee of the Company. For the
purposes of any provision of this Plan relating to Incentive Stock Options, the
term "Employee" shall be limited to mean any employee (as that term is defined
under Code
<PAGE>
Section 3401(c)) or officer of the Company or any of its Subsidiaries, but not
any person who is merely an independent contractor, agent or consultant of the
Company or any of its subsidiaries.
(g) "Fair Market Value" of the Stock means, for all purposes of the
Plan unless otherwise provided (i) the mean between the high and low sales
prices of the Stock as reported on the National Market System or small cap
Market of the National Association of Securities Dealers, Inc., Automated
Quotation System, or any similar system of automated dissemination of quotations
of securities prices then in common use, if so quoted, or (ii) if not quoted as
described in clause (i), the mean between the high bid and low asked quotations
for the Stock as reported by the National Quotation Bureau Incorporated or such
other source as the Committee shall determine, or (iii) if the Stock is listed
or admitted for trading on any national securities exchange, the mean between
the high and low sales price, or the closing bid price if no sale occurred, of
the Stock on the principal securities exchange on which the Stock is listed. In
the event that the method for determining the Fair Market Value of the Stock
provided for above shall either be not applicable or not be practical, in the
opinion of the Committee, then the Fair Market Value shall be determined by such
other reasonable method as the Committee, in its discretion shall select and
apply.
(h) "Grantee" shall mean an Employee granted a Stock Option.
(i) "Granting Date" shall mean the date on which the Committee
authorizes the issuance of a Stock Option for a specified number of shares of
Stock to a specified Employee.
(j) "Incentive Stock Option" shall mean a Stock Option granted under
the Plan which is properly qualified under the provisions of Section 422 of the
Code.
(k) "Nonstatutory Stock Option" shall mean a Stock Option granted
within the Plan which is not an Incentive Stock Option or otherwise qualified
under similar tax provisions.
(l) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities
and Exchange Commission pursuant to the Securities Exchange Act of 1934, as
amended, or any rule in replacement thereof.
(m) "Stock" shall mean the Common Stock, par value $.01 per share, of
the Company.
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(n) "Stock Option" shall mean an Incentive Stock Option or Nonstatutory
Stock Option granted pursuant to the Plan to purchase shares of Stock.
SECTION 3. SHARES OF STOCK SUBJECT TO THE PLAN
The Company shall reserve 2,000,000 shares of Stock for issuance upon
the exercise of Stock Options granted pursuant to this Plan. Shares delivered
under the Plan may be authorized and unissued shares or issued shares held by
the Company in its treasury. If any Stock Options expire or terminate without
having been exercised, the shares of Stock covered by such Stock Option shall
become available again for the grant of Stock Options hereunder. Similarly, if
any Stock Options are surrendered for cash pursuant to the provisions of Section
7, the shares of Stock covered by such Stock Options shall also become available
again for the grant of Stock Options hereunder. Shares of Stock covered by Stock
Options surrendered for Stock pursuant to Section 7, however, shall not become
available again for the grant of Stock Options hereunder.
SECTION 4. ADMINISTRATION OF THE PLAN
(a) The Plan shall be administered by the Committee. Subject to the
express provisions of the Plan, the Committee shall have authority to interpret
the Plan, to prescribe, amend and rescind rules and regulations relating to it,
to determine the terms and provisions of Stock Options grants, and to make all
other determinations necessary or advisable for the administration of the Plan.
(b) It is intended that the Plan and any transaction hereunder meet all
of the requirements of Rule 16b-3 promulgated by the Securities and Exchange
Commission, as such rule is currently in effect or as hereafter modified or
amended, and all other applicable laws. If any provision of the Plan or any
transaction would disqualify the Plan or such transaction under, or would not
comply with, Rule 16b-3 or other applicable laws, such provision or transaction
shall be construed or deemed amended to conform to Rule 16b-3 or such other
applicable laws or otherwise shall be deemed to be null and void, in each case
to the extent permitted by law and deemed advisable by the Committee.
(c) Any controversy or claim arising out of or related to this Plan
shall be determined unilaterally by and at the sole discretion of the Committee.
SECTION 5. GRANTING OF STOCK OPTIONS
(a) Directors, Key Employees, independent contractors, agents and
consultants to the Company shall be eligible to receive Stock Options
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under the Plan. Only Employees shall be eligible to receive Incentive
Stock Options under the Plan.
(b) The option price of each share of Stock subject to an Incentive
Stock Option shall be at least 100% of the Fair Market Value of a share of the
Stock on the Granting Date.
(c) The option price of each share of Stock to a Nonstatutory Option
shall be 100% of the Fair Market Value of a share of the Stock on the Granting
Date, or such other price either greater than or less than the Fair Market Value
(but in no event less than the par value of the Stock) as the Committee shall
determine appropriate to the purposes of the Plan and to the Company's total
compensation program.
(d) The Committee shall determine and designate from time to time those
persons who are to be granted Stock Options and whether the particular Stock
Options are to be Incentive Stock Options or Nonstatutory Stock Options, and
shall also specify the number of shares covered by and the option price per
share of each Stock Option. Each Stock Option granted under the Plan shall be
clearly identified as to its status as a Nonstatutory Stock Option or an
Incentive Stock Option.
(e) The aggregate Fair Market Value (determined at the time the Stock
Option is granted) of the Stock with respect to which Incentive Stock Options
are exercisable for the first time by any individual during any calendar year
(under all plans of the individual's employer corporation) shall not exceed
$100,000.00.
(f) A Stock Option shall be exercisable during such period or periods
and in such installments as shall be fixed by the Committee at the time the
Stock Option is granted or in any amendment thereto; but each Stock Option shall
expire not later than ten (10) years from the Granting Date.
(g) The Committee shall have the authority to grant both transferable
Stock Options and nontransferable Stock Options, and to amend outstanding
nontransferable Stock Options to price for transferability. Each nontransferable
Stock Option intended to qualify under Rule 16b-3 or otherwise shall provide by
its terms that it is not transferable otherwise than by will or the laws of
descent and distribution or, except in the case of Incentive Stock Options,
pursuant to a "qualified domestic relations order" as defined by the Code, and
is exercisable, during the Grantee's lifetime, only by the Grantee. Each
transferable Stock Option may provide for such limitations on transferability
and exercisability as the Committee may designate at the time a Stock Option is
granted or is otherwise amended to provide for transferability.
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(h) Stock Options may be granted to an Employee or Director who has
previously received Stock Options or other options whether such prior Stock
Options are still outstanding, have previously been exercised or surrendered in
whole or in part, or are canceled in connection with the issuance of new Stock
Options.
(i) Notwithstanding the foregoing, the option price of an Incentive
Stock Option in the case of a Grantee who owns more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any of
its Subsidiaries, will not be less than one hundred ten percent (110%) of the
Fair Market Value of the Stock at the Granting date and in the case of such a
Grantee, the Incentive Stock Option may be exercised no more than five (5) years
after the Granting Date.
SECTION 6. EXERCISE OF STOCK OPTIONS
(a) Except as provided in Section 7, no Incentive Stock Option may be
exercised at any time unless the Grantee has been an Employee at all times
during the period beginning on the Granting Date and ending on the day three (3)
months before the date of such exercise.
(b) The Grantee shall pay the option price in full on the Date of
Exercise of a Stock Option in cash, by check, or by delivery of full shares of
Stock of the Company, duly endorsed for transfer to the Company with signature
guaranteed, or by an combination thereof. Stock will be accepted at its Fair
Market Value on the Date of Exercise.
(c) Subject to the approval of the Committee, or of such person to whom
the Committee may delegate such authority ("its designee"), and subject further
to the applicable regulations of any governmental authority, the Company may
loan to the Grantee a sum equal to an amount which is not in excess of 100% of
the purchase price of the shares of Stock acquired upon exercise of a Stock
Option, such loan to be evidenced by the execution and delivery of a promissory
note. Interest shall be paid on the unpaid balance of the promissory note at
such times and at such rate as shall be determined by the Committee or its
designee. Such promissory note shall be secured by the pledge to the Company of
shares of Stock having an aggregate purchase price on the date of purchase equal
to or greater than the amount of such note. A Grantee shall have, as to such
pledged shares of Stock, all rights of ownership including the right to vote
such shares of Stock and to receive dividends paid on such shares of Stock,
subject to the security interest of the Company. Such shares of Stock shall be
released by the Company from the pledge unless the proportionate amount of the
note secured thereby has been repaid to the Company; provided, however that
shares of Stock subject to a pledge may be used to pay all or part of the
purchase price of any other option
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granted hereunder or under any other stock incentive plan of the Company under
the terms and conditions of this Plan relating to the surrender of shares of
Stock in payment of the exercise price of an option. In such event, that number
of the newly purchased shares of Stock equal to the shares of Stock previously
pledged shall be immediately pledged as substitute security for the pre-existing
debt of the Grantee to the Company, and thereupon shall be subject to the
provisions hereof relating to pledged shares of Stock. All notes executed
hereunder shall be payable at such times and in such amounts and shall contain
such other terms as shall be specified by the Committee or its designee or
stated in the option agreement; provided, however, that such terms shall conform
to requirements contained in any applicable regulations which are issued by any
governmental authority.
SECTION 7. TERMINATION OF EMPLOYMENT
Except as otherwise provided by the Committee at the time an Incentive
Stock Option is granted or any amendment thereto, if a Grantee ceases to be an
Employee then:
(a) if termination of employment is voluntary or involuntary without
cause, the Grantee may exercise each Stock Option held by the Grantee within
three (3) months after such termination (but not after the expiration date of
the Stock Option) to the extent of the number of shares subject to the Stock
Option which are purchasable pursuant to its terms at the date of termination;
(b) if termination is for cause, all Stock Options held by the Grantee
shall be canceled as of the date of termination.
(c) subject to the provisions of Section 7(d), if termination is (i) by
reason of retirement at a time when the Grantee is entitled to the current
receipt of benefits under any retirement plan maintained by the Company, or (ii)
by reason of disability, each Stock Option held by the Grantee may be exercised
by the Grantee at any time (but not after the expiration date of the Stock
Option) (within one (1) year of termination in the case of Incentive Stock
Options) to the extent of the number of shares subject to the Stock Option which
were purchasable pursuant to its terms at the date of termination;
(d) if termination is by reason of the death of the Grantee, or if the
Grantee dies after retirement or disability as referred to in Section 7(c), each
Stock Option held by the Grantee may be exercised by the Grantee's estate, or by
any person who acquires the right to exercise the Stock Option by reason of the
Grantee's death, at any time within a period of three (3) years after death (but
not after the expiration date of the Stock Option) to the extent of the total
number of shares subject
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to the Stock Option which were purchasable pursuant to its terms at the
date of termination; or
(e) if the Grantee should die within three (3) months after voluntary
termination of employment or involuntary termination without cause, as
contemplated in Section 7(a), each Stock Option held by the Grantee may be
exercised by the Grantee's estate, or by any person who acquires the right to
exercise by reason of the Grantee's death, at any time within a period of one
(1) year after death (but not after the expiration date of the Stock Option) to
the extent of the number of shares subject to the Stock Option which were
purchasable pursuant to its terms at the date of termination.
SECTION 8. DIRECTOR PARTICIPATION
Except as otherwise provided by the Committee, at the time the Stock
Option, or any amendment thereto, is granted to a Director.
(a) if the Grantee shall cease to be a Director for reasons other than
death, each Stock Option held by the Grantee may be exercised at any time within
three (3) months of the date that the Grantee ceased to be a Director (but not
after the expiration date of the Stock Option) to the extent of the number of
shares subject to the Stock Option which were purchasable pursuant to its terms
at the date the Grantee ceased being a Director;
(b) if the Grantee shall cease to be a Director by reason of the death
of the Grantee, each Stock Option held by the Grantee may be exercised by the
Grantee's estate, or by any person who acquires the right to exercise the Stock
Option by reason of the Grantee's death, at any time within a period of three
(3) years after death (but not after the expiration date of the Stock Option) to
the extent of the total number of shares subject to the Stock Option which were
purchasable pursuant to its terms at the date the Grantee ceased being a
Director.
SECTION 9. ADJUSTMENTS
In the event of any merger, consolidation, reorganization,
recapitalization, stock dividend, stock split or other change in the corporate
structure or capitalization affecting the Stock, there shall be an appropriate
adjustment made by the Committee in the number and kind of shares that may be
granted in the aggregate and to Grantees under the Plan, the number and kind of
shares subject to each outstanding Stock Option and the option prices.
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SECTION 10. GENERAL PROVISIONS
(a) Each Stock Option shall be evidenced by a written instrument
containing such terms and conditions, not inconsistent with this Plan, as the
Committee shall approve.
(b) The granting of a Stock Option in any year shall not give the
Grantee any right to similar grants in future years. The granting of a Stock
Option in any year shall not give the Grantee any right to be retained in the
employ of the Company or interfere in any way with the right of the Company to
terminate an Employee's employment at any time.
(c) The Company shall have the right to deduct from any payment or
distribution under the Plan any federal, state or local taxes of any kind
required by law to be withheld with respect to such payments or to take such
other action as may be necessary to satisfy all obligations for the payment of
such taxes. In case distributions are made in shares of Stock, the Company shall
have the right to retain the value of sufficient shares of Stock to equal the
amount of tax to be withheld for such distributions or require a recipient to
pay the Company for any such taxes required to be withheld on such terms and
conditions prescribed by the Committee.
(d) No Grantee shall have any of the rights of a shareholder by reason
of a Stock Option until it is exercised.
(e) This Plan shall be construed and enforced in accordance with the
laws of the State of Maryland (without regard to the legislative or judicial
conflict of laws of any state), except to the extent superseded by federal law.
SECTION 11. AMENDMENT AND TERMINATION
(a) The Plan shall terminate on __________, 2008 and no Stock Option
shall be granted hereunder after that date, provided that the Board may
terminate the Plan at any time prior thereto.
(b) The Board may amend the Plan at any time without notice, provided,
however, that the Board may not, without prior approval by the shareholders, (i)
increase the maximum number of shares of Stock for which Stock Options may be
granted, (ii) materially increase the benefits accruing to participants under
the Plan, or (iii) materially modify the requirements as to eligibility for
participation in the Plan.
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(c) No termination or amendment of the Plan may, without the consent of
a Grantee to whom a Stock Option shall theretofore have been granted, adversely
affect the rights of such Grantee under such Stock Option.
SECTION 12. EFFECTIVE DATE AND SHAREHOLDERS' APPROVAL
The Plan shall become effective as of ___________.
9
CMO FRANCHISE CONTRACT
1. PARTIES. MEDI-CEN, CORP. OF AMERICA, a Maryland corporation with a business
address of 5530 Wisconsin Ave., Suite 1248, Chevy Chase, MD 20815, (hereinafter,
"FRANCHISER") and MEDI-CEN, CORP. OF MARYLAND, a Maryland corporation with a
business address of 5530 Wisconsin Ave., Suite 1248, Chevy Chase, MD 20815
(hereinafter, "Contract Management Organization" or "CMO").
2. TERRITORY. FRANCHISER agrees to grant an exclusive franchise for Medical
Contract Management Organization services to CMO in the TERRITORY within the
recognized state boundaries of the State of Maryland. The exclusive franchise
permits the CMO to provide medical contract management services in the
region/territory in accordance with the principles and business plans, and
structure of the FRANCHISER's medical contract management business, and network
of practicing physicians as health care providers. As per paragraph 18, any
portion of the TERRITORY not developed by CMO shall revert to FRANCHISER, and
may be sold to a new franchisee or developed by the FRANCHISER at the
FRANCHISER's option as per paragraphs 27 and 31.
3. CONTRACT MANAGEMENT SERVICES. CMO shall provide practice management services
by contract to APs (Associate Physicians), IPs (Independent Physicians), IMCs
(Independent Medical Contractors) and Insurance Companies, Self Insured Parties,
PPOs and other parties in TERRITORY, which TERRITORY shall be defined as
encompassing the contiguous geographic area defined and identified in this
Agreement, by the FRANCHISER, as the TERRITORY, to the exclusion of any
contiguous or tangential geographic area not specifically defined or identified
by FRANCHISER, as within the scope of the TERRITORY subject to this Franchise
Agreement. The contracts for IP, AP, IMC and GENERAL SERVICES shall be provided
by FRANCHISER and all contracts used must be approved by FRANCHISER. FRANCHISER
may change these contracts from time to time. FRANCHISER shall notify CMO in
writing and send the new contract(s) to CMO, at which time CMO shall use the new
contracts for all new IP, AP or IMC's. All fees noted below for the services
provided by CMO under these contracts are set by and must be approved by
FRANCHISER, and may be changed from time to time by FRANCHISER.
a. IPS. CMO shall provide practice management services by contract to IPs.
An IP is a physician who has his/her own office, overhead and staff. IPs will
receive patient referrals from CMO, but they will also have their own patient
referral base. CMO will provide medical billing, physician quality assessment
and review, marketing to patient groups, marketing to insurance companies for
access to provider contracts, and referrals from APs or other sources. The fee
to CMO from IPs will be 20% of gross collected billings, with a 5% quarterly
rebate to IP based upon achieving quality goals. An IP contract is attached as
Exhibit A. FRANCHISER shall provide CMO with the IP contracts.
b. APS. CMO shall provide practice management services by contract to APs.
APs are physicians who work for a professional corporation, partnership, sole
proprietorship, limited liability company or other self employed type of
organization, that contracts with the CMO for services. CMO will assist the AP
in organizing the type of organization of the APs. APs will work at a facility
setup by CMO, and support staff are provided by the CMO. CMO shall provide APs
with all support staff, supplies, transcription, basic employment benefits,
office space, medical equipment and other types of services. CMO shall charge
AP's a 55% fee, with a 5% quarterly rebate to AP based on achieving quality
goals. At the CMO's option the quarterly may be immediately rebated to any or
all APs and not withheld. An AP contract is attached as Exhibit B. FRANCHISER
shall provide CMO with the AP contracts.
<PAGE>
c. IMC. CMO shall provide business management services by contract to
IMCs. IMCs are non-physicians who supply medically related products or services.
CMO will provide medical billing, quality assessment and review, marketing to
patient groups, marketing to insurance companies for access to provider
contracts and referrals from AP's or other sources. There will be no fee to IMC
for these services. The IMC contract is attached as Exhibit C. FRANCHISER shall
provide CMO with IMC contracts.
d. GENERAL SERVICES. To provide convenience and service for patient
groups, CMO may allow or require IPs or IMCs to sub-license space at a CMO
facility. CMO shall provide a complete set of shared office services to parties
who sub-license space at a CMO facility. The services include clerical support,
utilities, building management, billing, scheduling, and other shared services.
The current fees for these services are set by the FRANCHISER at $125 per square
foot for IPs of CMO and $150 per square foot for IMCs of CMO. The contract for
GENERAL SERVICES is attached as Exhibit D. FRANCHISER shall provide CMO with
GENERAL SERVICES contracts.
4. SITE SELECTION. CMO shall select sites for medical centers in TERRITORY. For
sites selected by CMO outside of TERRITORY, CMO will need express written
permission from FRANCHISER. Sites should be selected so that each site supports
a population of between 100,000 and 200,000 people and will support from 10,000
to 20,000 covered lives. Sites should have high visibility, high traffic count,
adequate parking, and be at reasonable distance from hospitals where APs and IPs
practice.
5. SITE LEASING. CMO shall negotiate leases for each site. CMO typically should
not have ownership of sites, but should encourage leasing sites owned by its
members or related parties. CMO should lease a core center with sufficient space
for between 10-20 APs. APs and IMCs will work in the core center. CMO should
arrange for IPs to lease their own space at or near the center. CMO should lease
sufficient space for sub-licenses (IMCs) including blood testing, radiology,
pharmacy, physical therapy, or other services as may be required. Core center is
estimated to be 15,000 sq. ft. IPs typically will need an additional 35,000 sq.
ft around center. CMO will need to put up a security deposit and build out at
about $45 per sq. ft, and lease furniture, and highly visible signage. All
signage must be expressly approved by FRANCHISER. CMO should arrange for
sub-licensees to pay each sub-licensees own build out expenses.
a. STATE STATUTES AND LOCAL ORDINANCES. CMO should arrange to conform to
the laws of the given State in which the franchise is to be located regarding
the provision of health care and shall ensure that the site complies with local
ordinances and building codes, and obtain the required permits (i.e. health,
sanitation, building, occupancy and use, driveway, utility and sign permits).
b. HIRE AND TRAIN EMPLOYEES. CMO will need to hire personnel to staff the
core center to support the APs, IPs and IMCs that will work at the center.
Employees should have experience working at a medical practice and will need to
perform the job functions described in the MANUAL. CMO agrees to terminate the
employment of any employee at the reasonable request of FRANCHISER.
6. PRE-OPENING PURCHASES. CMO shall make Pre-Opening Purchases for each site to
stock it as appropriate for multi-specialty medical center. Such purchases shall
include items such as (but not limited to): office supplies, medical supplies,
leased office furniture, leased medical furniture for exam and procedure rooms,
durable medical equipment, and other items as a medical office may require.
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7. FRANCHISE FEE. CMO shall pay FRANCHISER a franchise fee comprised of an
initial payment of $50,000 for the license of the FRANCHISER corporation's
trademark, plus an initial fee of $150,000 for FRANCHISER services, plus a
periodic payment equivalent to 1% of the gross collected billings of the CMO, IP
and AP members for each month, to be paid to FRANCHISER on or by the 20th of
each following month in consideration of FRANCHISER'S continuing support for
CMO's services.
a. BANKING. CMO shall arrange for all IP, AP and IMC members to have bank
accounts conveniently located for CMO and FRANCHISER for the deposit of moneys
received under CMO contracts. CMO shall also arrange for the monthly debit on
the 15th of each month for fees due CMO from IPs or APs. FRANCHISER can also
arrange to have the fees due FRANCHISER from CMO electronically debited from
CMO's account on the 20th day of each month.
8. PROMOTIONS AND ADVERTISING. CMO shall be obligated under this Franchise
Agreement to use a minimum of five percent (5% ) of its operating budget for
purposes of advertising and promotion. CMO is permitted to form advertising
cooperatives with other franchisees to pool advertising resources. CMO will be
permitted to adjust the advertising and promotional budget with the prior
express written permission of the FRANCHISER. Any and all promotions and
advertising shall be truthful and in accord with the laws regulating insurance
and medical practice, as well as truth in advertising legislation.
a. MARKETING ASSISTANCE. FRANCHISER shall provide marketing assistance to
CMO including but not limited to: Benefits Testing, Focus Groups, Patient
membership kits, advertising standards and review and approval of all
advertising of CMO. FRANCHISER may provide prepared radio, TV, and newspaper
spots, and may arrange for cooperative advertising dollars from patient groups,
self insured parties and insurance companies. FRANCHISER must provide express
written approval for all CMO advertising to patients. FRANCHISER can withhold
such approval for any reason including non-conformity with the advertising
standards and company image.
b. MARKETING. FRANCHISER shall, at its own expense, meet with and
negotiate with health insurers, self insured organizations, and other potential
patient groups to develop contracts that refer patients to CMO. FRANCHISER shall
use its best efforts to supply patients for CMO facilities, IPs, APs and IMCs.
FRANCHISER will only work to obtain a quota of 10% of the possible covered lives
in a given region or 12,000 covered lives per site whichever is less. FRANCHISER
will have no obligation to continue marketing for a given region or site after
quota is achieved for more lives. However, FRANCHISER will be responsible to
maintain and renew agreements to maintain cover lives quota.
9. AUDIT. FRANCHISER can audit CMO annually or more often as may required by
Federal or State law or Insurance Company requirements at CMO's expense. Such
audit shall be made available to CMO and its Officers, Directors and
Shareholders as shall be required by law. If any error is found in payments made
to FRANCHISER under paragraph 7, CMO shall pay any such underpayments and a 10%
penalty on underpayments.
a. EXECUTIVE COMMITTEE. CMO shall have an Executive Committee of Directors
that shall meet at least every other month and have to the power to review the
Audit and take any other action as may be necessary in the ordinary course of
business, and to implement the terms on this contract. CMO shall permit a
representative of FRANCHISER to attend such meetings, upon request.
10. HQM. CMO must use Health Quality Management, Inc. (hereinafter referred to
as HQM) of 5110 Ridgefield Rd., Suite 212, Bethesda, MD, for all medical billing
and reporting services. HQM shall charge a fee of 8% of gross collected billings
as per the HQM contract (attached hereto as an Exhibit) and shall provide the
services as indicated by the contract between CMO and HQM. The HQM contract is
attached as Exhibit E. HQM is owned by several members of the FRANCHISER's
management including P. Steven Macedo, and Michael Macedo.
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11. SITE DEVELOPMENT. CMO must develop the site(s) selected by CMO. Sites may be
developed prior to opening of centers by signing APs in area with existing
practices. CMO may need to finance lease of APs in the area to encourage
membership. CMO may use the APs existing locations prior to a center opening or
where there is insufficient space at an existing center. CMO should renovate as
appropriate any existing locations of APs that will be used until a center is
available.
12. RECRUITMENT. CMO must recruit IPs, APs, and IMCs. FRANCHISER will train CMO
for 1 day in recruitment and provide materials, including physician recruitment
brochures, AP brochures, HQM brochures, Invitations, and other materials as
FRANCHISER may decide to provide. FRANCHISER shall hold the copyright on and own
all such recruiting and meeting materials. FRANCHISER shall provide the speech
for recruitment. CMO's Directors will provide a list of invitees for potential
recruitment according the specialty guidelines provided by FRANCHISER. CMO must
maintain correct ratios of physician specialty members as provided by FRANCHISER
in the MANUAL. CMO will send invitations to potential recruits. CMO will hold
series of meetings at local hotels with food and refreshments, a typical cost of
such a meeting is about $2,500, which cost shall be paid by CMO. Potential
recruits will fill in an application and an IP or AP contract.
a. RECRUITMENT COMMITTEE. CMO shall appoint a series of Directors of CMO
to run the recruitment committee. The committee shall credential potential IPs
and APs according the credentialling guidelines in the MANUAL. Each member so
credentialled shall have the his/her picture taken by CMO and be sent a standard
plaque as determined by the FRANCHISER.
13. OPENING. CMO must open franchise for business within two years of the
signing of this contract or the FRANCHISER may revoke this contract for cause,
as per paragraph 27.
14. STANDARDS COMPLIANCE. The CMO must comply with the standards and quality
manual (hereinafter referred to as "MANUAL") and criteria contained therein as
established by the FRANCHISER. Franchise can be revoked for cause as per
paragraph 27. FRANCHISER alone reserves the sole discretion to make and effect
modifications to the MANUAL, from time to time, and is under an affirmative
obligation to duly notify the CMO of such changes and modifications to the
MANUAL as will have been made by the FRANCHISER to that time. Once so notified
of changes and modifications, the CMO is obligated to comply with such changes
and modifications to the standards and quality manual. CMO shall maintain the
confidentiality of the MANUAL which is confidential and proprietary and shall
not publish or distribute the MANUAL or any portion publicly. FRANCHISER shall
maintain all copyrights on the MANUAL.
a. QUALITY COMMITTEE. The CMO shall form a quality committee of Directors
including at least 80% licensed physicians to enforce the MANUAL and medical
practice parameters contained therein. The committee must at least annually
submit written recommendations to the FRANCHISER as to any improvements that can
be made or additions to the MANUAL. FRANCHISER may make such changes and act on
such recommendations at its sole discretion. Any and all such changes become the
property of the FRANCHISER.
b. REGULATORY COMPLIANCE. FRANCHISER will provide CMO with information
necessary for the parties to comply with any laws or regulations applicable to
the services to be provided under this Agreement, including the Employee
Retirement Income Security Act ("ERISA"), Medicare, the Maryland Insurance Code,
the insurance codes and regulations of the particular state in which the CMO
will be conducting business, the Fair Debt Collections Act and the regulations
promulgated under those acts. CMO's compliance with any such laws and
regulations shall be the sole responsibility of CMO, which shall comply with all
such laws and regulations. CMO will obtain and maintain any licenses or
regulatory approvals necessary for it to perform its services under this
Agreement.
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c. REGULATORY COSTS AND FEES. In the event that CMO, the FRANCHISER, the
arrangement established by this Agreements, or any payments for claims for
health services or fees to CMO are subjected to any form of governmental or
regulatory charges, including any premium taxes, insolvency fund fees, guarantee
fund fees, licensing fees or any similar charges, such charges shall be the sole
responsibility of CMO, and CMO shall hold harmless and indemnify the FRANCHISER
from the payment of any such charges.
15. TRADE IDENTIFIERS AND MEMBERSHIP MATERIALS. FRANCHISER agrees to license the
use of its proprietary trademarks, tradenames, service marks, logos, and other
commercial images and identifiers to the CMO, as necessary for commercial and
promotional purposes. As well, any physician or patient membership materials,
including membership kits, newsletters, physician and membership lists,
physician materials, insurance carrier materials, marketing materials, and other
written materials in paper, magnetic, optical or any other media which are
proprietary to the FRANCHISER, but necessary to the CMO, will be provided to the
CMO with permissive use restricted to defined commercial and promotional use in
connection with the promotion and operation of the CMO.
a. TRADEMARKS AND SERVICE MARKS. The licensing of FRANCHISER trademarks
and service marks is subject to the terms of any licensing agreement between CMO
and FRANCHISER, including the timely payment of any required licensing fees
and/or royalties thereunder. The CMO must use the trademarks and service marks
of the FRANCHISER in the course of the promotion of CMO's business and in the
conduct of business operations, including the administration of health care and
medical services. The CMO must properly employ the trademarks, tradenames,
service marks, logos, and other commercial images and identifiers, so as not to
invalidate the trademark and/or service mark of the FRANCHISER. Trademarks and
service marks must always be employed in commerce whenever the goods or services
of the FRANCHISER are produced, sold, shipped, or promoted for sale in commerce.
Trademarks and service marks must always be employed as proper nouns or
pronouns, and may not be used as verbs, adjectives or adverbs. Wherever a
trademark or service mark appears, it must be accompanied by the proper trade
designation of the "R" in a circle, if a registered trademark, or a superscript
"TM" or "SM" if registration as a trademark or service mark is pending. The CMO
will be provided with specific guidelines for the proper use and protection of
any trademarks, tradenames, service marks, logos, and other commercial images
and identifiers proprietary to the FRANCHISER, and shall receive proper notice
of any changes made to those guidelines during the course of the license term.
Specific guidelines for the use in commerce of trademarks, service marks,
tradenames, logos, and other trade identifiers will be provided to the CMO in
the MANUAL.
b. COPYRIGHTS AND TRADE SECRETS. The FRANCHISER's materials for CMO
development and the materials for the patient membership kit, newsletters,
physician and membership lists, physician materials, insurance carrier
materials, marketing materials, and other written materials will be provided to
the CMO for restricted use in the business development of the CMO and the
promotion of the CMO and health care and medical services to the patient
membership. These materials are proprietary and confidential to the FRANCHISER
and are subject to protection under the law as copyright and trade secrets. The
use and reproduction of these materials is strictly limited by the express
written permission of the FRANCHISER, and any unauthorized use or reproduction
of these materials is strictly prohibited by law. The CMO will be provided
specific written guidelines in the MANUAL for the use and reproduction of any
materials provided by the FRANCHISER in connection with the Franchise Agreement
between the FRANCHISER and the CMO.
16. RESTRICTIONS ON SERVICES OFFERED. CMO may only offered services as provided
for in this contract, its Exhibits and the MANUAL. CMO shall not offer any other
services or products without express written permission of FRANCHISER.
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17. CUSTOMER SERVICE. Customer service guidelines may be set down in MANUAL.
FRANCHISER may conduct periodic customer surveys to verify customer service
goals are being met. FRANCHISER may request termination of particular IP(s),
AP(s) or site(s) if there are excessive malpractice claims or patient
dissatisfaction, as determined by FRANCHISER. The CMO is under an affirmative
obligation to promptly notify the FRANCHISER of any and all medical malpractice
claims involving CMO and/or physicians under the CMO. CMO is also under an
affirmative obligation to notify the FRANCHISER of customer service and consumer
complaints, incidences of patient dissatisfaction, and other claims, as well as
any remedial steps taken toward resolution of complaints and patient
dissatisfaction. CMO and FRANCHISER will also implement practice policy
regarding the recording and reporting of patient dissatisfaction and consumer
complaints and the resolution of such incidences, including dispute resolution
policy and guidelines to be followed by CMO. The CMO must notify the FRANCHISER
of any such claims, complaints or problems within 15 business days of the date
that the CMO is first notified or made aware of the claims, complaints or
problems. If CMO is not able to solve the excessive malpractice claims problems
or persistent customer service problems within one year of notification under
this paragraph, a franchise can be revoked for cause as per paragraph 27.
18. TERRITORIAL DEVELOPMENT. CMO must uses its best efforts to develop the
TERRITORY assigned to CMO as per paragraph 2. CMO must recruit 100 doctors as
IPs or APs within two years. FRANCHISER may notify CMO in writing to develop a
portion of the TERRITORY CMO has not developed. Upon written notification CMO
must develop that portion of the TERRITORY within two years. If can not provide
a full service network of IPs and APs suitable of supporting 10% of the
potential covered lives in that portion of the TERRITORY within 2 year of
notification, FRANCHISER can revoke that portion of the TERRITORY from paragraph
2, with cause for not developing, as per paragraph 27.
19. AP SUPPORT. Ongoing purchases are required to support APs in suitable manner
for local practice conditions. A majority of the APs at a given site may notify
FRANCHISER with a specific list of problems that the APs are not being supported
in a suitable manner. FRANCHISER may than notify of the problems and CMO shall
be given 60 days to cure the problem(s). If the CMO does not cure the problems
and 2/3 of the APs at the site approve, the FRANCHISER may revoke the franchise
for that site as per paragraph 27, and the site may be purchased or re-sold as
per paragraph 31.
20. APPEARANCE AND IMAGE. CMO must maintain each site with appropriate
maintenance as may be specified in the MANUAL. The CMO should remodel each site
appropriate the maintain the image and appearance at least every 10 years,
including paint and carpeting as may be specified in the MANUAL. Each site
should have an appearance and image appropriate for a given region, comparable
to other physician offices in that region.
21. LIABILITY COVERAGE. CMO must maintain adequate public liability,
malpractice, and stop loss insurance coverage, as appropriate for a given
contract, including, but not limited to the following insurance coverage:
a. Business Property Insurance on a replacement cost basis;
b. Electronic Data Processing Coverage, including electronic and magnetic
media coverage;
c. Public Liability Insurance coverage with minimum limits of not less
than $1,000,000;
d. Workers Compensation Coverage on all employees.
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e. Corporate Medical Malpractice coverage with minimum limits of
$3,000,000 per incident/$5,000,000 aggregate total (or limits to be
determined by the payors).
f. Corporate Stop Loss coverage for risk assumed in excess of the
Physician Quality withold.
g. Individual Physician's Medical Malpractice coverage with minimum limits
of not less than $1,000,000 per incident/$3,000,000 aggregate total (or
limits to be determined by the payors).
h. Property, Casualty and Workers compensation by physician, wherever
possible.
i. Liability coverage for Corporate Officers and Directors.
22. INDEMNIFICATION AND INSURANCE. The CMO shall indemnify the FRANCHISER from
any and all lawsuits and the fullest extent permitted by State or Federal Law.
The FRANCHISER shall be named as an insured party under the CMO's liability and
insurance coverage.
23. CMO DIRECTORS' PARTICIPATION. The Directors of the CMO must personally
participate in recruitment of IPs and APs by inviting potential recruits, and
attending recruitment meetings described in paragraph 12 as reasonable,
necessary and appropriate. Any Director who does not personally participate
shall be considered to be in default. FRANCHISER can request that such
defaulting Director not be nominated for re-election by CMO to its shareholders.
The Directors of the CMO shall include at least 80 % licensed physicians at all
times.
a. ROTATING DIRECTORSHIPS. CMO shall provide that it will re-elect
approximately one third of its Directors each year to a three year term. This
shall facilitate the stability of the CMO. FRANCHISER shall make available to
CMO, at CMO's option Directors who are experienced in CMO operation to serve on
CMO's board. CMO must make stock in CMO available to said Directors at the same
price as generally offered to other parties.
b. INDEMNIFICATION. CMO shall indemnify its Directors and Officers to
fullest extent as permitted under CMO's State or Federal Law.
c. OWNERSHIP. CMO shall make available to all IPs and APs on a regular
basis, as allowed by Federal and State law ownership in CMO. CMO will attempt as
is reasonably possible to limit ownership only to IP or AP physicians or first
degree relatives who will be or are IPs or APs, and avoid selling ownership to
IMC's or non-physicians.
24. RECORDS. FRANCHISER will maintain records on all of the IPs, APs, and IMCs,
including applications and contracts for CMO. FRANCHISER will send contracts on
request to interested IPs, APs and IMCs at CMO's request. FRANCHISER may provide
copies of said applications, and/or abstracts of information from applications
and/or contracts as may be required by Insurance Companies, self health insured
parties, and other patient referral sources to fulfill FRANCHISER's obligations
in paragraph 8b. In the event of termination of this contract both parties are
entitled to copies of the records.
a. PATIENT RECORDS. CMO will maintain patient records as may be required
to provide services under this contract. All patient records are confidential
information and may not be revealed to other parties without the patient's
consent. CMO will use the patient application form provided by FRANCHISER so
that patient records may be made available to all CMO physicians, MEDI-CEN
physicians and FRANCHISER's franchisees physicians. In the event of termination
under this contract both FRANCHISER and CMO may both retain copies of patient
records.
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25. TERM OF AGREEMENT. This Franchise Agreement shall be in full force and
effect for a term of twenty (20) years from the date of execution by the
parties.
26. RENEWAL. The CMO and the FRANCHISER may mutually agree to provide for the
option of a renewal of the Franchise Agreement at the end of the initial period
of twenty (20) years. The FRANCHISER provides for an optional renewal term of
five (5) years at a renewal cost to the CMO of $200,000. Subsequent renewal
options may be exercised with the mutual agreement of the parties for the same
terms and renewal cost of $200,000, per five (5) year renewal.
27. CANCELLATION FOR CAUSE. The franchise can be fully or partially terminated
for cause as outlined in this agreement. The procedure for termination shall be
as follows:
A. ARBITRATION. Disputes between he parties shall be resolved by
arbitration. In the event any dispute relating to this agreement arises between
CMO and FRANCHISER, the parties shall meet and confer in good faith in an
attempt to resolve the dispute. If the dispute is not resolved within 30 days
after the date the parties first met to discuss it, and a party wishes to
further pursue the dispute, the party shall refer the dispute to arbitration on
an expedited basis by the American Arbitration Association. In no event may the
arbitration be initiated more than one year after the date a party first gave
written notice to the other party regarding the existence of the dispute. The
arbitration shall be held in Rockville, Maryland under the commercial
arbitration rules of the American Arbitration Association. The arbitrators shall
have no power to award any punitive or exemplary damages or to ignore the terms
of this contract and shall be bound by controlling Maryland and federal law. In
the event that arbitration fails to resolve a dispute between the parties, after
arbitration has been fully concluded, either party may seek a judicial review of
the matter submitted to arbitration.
B. REMEDIES. In the event of a material breach of this contract as
determined by an arbitrator:
(i) A party in breach of this contract, as determined by an
arbitrator, shall cure such breach within 30 days of an arbitrator's
decision without the need for any action by the other party.
(ii) The parties agree that a breach or default will cause
irreparable and continuing harm to the other party, for which there is not
adequate remedy at law. The party not in breach of the contract shall be
entitled to temporary or permanent inductive relief, and to judgment for
damages caused by the breach, and any other legal or equitable remedies
provided by applicable law or at equity, provide the contract to arbitrate
is first complied with.
C. TERMINATION. If either party is in material and substantial default or
breach by the other party as determined by the arbitrator then the franchise
rights may be fully or partially terminated as provided for in this agreement.
Such termination shall be effective 30 days after written notice specifying the
default, as determined by an arbitrator has been given to the defaulting party,
unless the default has been cured before the end of the 30 day period.
28. ASSIGNMENT. The CMO may only assign, transfer or sell this contract with
express written permission from the FRANCHISER. The FRANCHISER may freely assign
or transfer this contract at its discretion. The contract shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and such assigns as are authorized in writing by the parties.
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29. TRANSFER. While CMO may not transfer contract without FRANCHISER approval,
CMO may be a public company and have freely tradable stock. If will not be
considered a transfer when the ownership of CMO changes due to trades in its
common stock on a public market.
30. POST TERMINATION. Upon termination of the franchise relationship between
FRANCHISER and CMO, the CMO may not compete with the FRANCHISER or any
franchisee thereof within the TERRITORY for a period of three (3) years
following termination of the franchise relationship. The CMO may not compete
with the FRANCHISER or any other franchisee thereof by engaging in the subject
business of the franchise relationship within a radius of twenty (20) miles of
any center previously operated by the CMO under the franchise relationship.
Following termination of the franchise relationship, the CMO must return
any and all literature and confidential records, and must maintain the
confidentiality of all records, information and trade secrets which may be
construed as proprietary including the MANUAL to the FRANCHISER. Upon
termination, CMO must cease any and all use of tradenames, trademarks, service
marks, logos, corporate identifiers, any promotional and advertising copy in any
medium, and any and all proprietary materials of the FRANCHISER protected under
copyright and other laws as intellectual property, and CMO must desist from any
further or future use of said tradenames, trademarks, service marks, logos,
corporate identifiers, any promotional and advertising copy in any medium, and
any and all proprietary materials of the FRANCHISER protected under copyright
and other laws as intellectual property.
31. RIGHTS OF APPRAISAL. In the event of non-renewal or termination of a
franchise or a portion of a franchise, FRANCHISER may have the CMO assets
independently appraised and may purchase or resell the franchise or portion of
the franchise to a new purchaser, at the sole discretion of the FRANCHISER. If
CMO and FRANCHISER can not agree on an independent appraiser then an arbitrator
pursuant to 27a may determine the proper appraisal.
32. RIGHT OF FIRST REFUSAL. If any party tries to purchase CMO or a substantial
portion of CMO, the FRANCHISER shall have right of first refusal. CMO must
submit the proposed sale and the CMO's buyer's information to FRANCHISER. Within
30 days FRANCHISER may match the offer or find an alternative buyer to match the
offer. If the FRANCHISER or FRANCHISER's buyer does not match the offer in 30
days the CMO may sell the business or portion to CMO's buyer. Whether or not
FRANCHISER's offer matches or exceeds another proposed offer, if disputed by the
parties, shall be subject to arbitration, as provided in paragraph 27 of this
Agreement.
33. ENTIRE AGREEMENT. This is the entire agreement between the parties and no
other oral or written representations or agreements have been made between the
parties. This agreement cannot be amended or changed except by writing consented
to and signed by both parties and attached hereto.
A. NOTICES. All notices required or permitted under this contract shall be
in writing and shall be deemed given when delivered in person or when sent via
registered or certified U.S. Mail, return receipt requested, via courier, or via
facsimile transmission to the addresses and parties set forth herein, or to such
other address of which any party hereto may from time to time have been notified
by the other in compliance with the notice provisions within this contract.
B. SEVERABILITY. If any provision of this contract is held or deemed to be
invalid , unenforceable, void or voidable to any extent when applied to any
person, party, or circumstance, then that provision may be severed and the
remaining provisions of the contract and the enforcement of such provisions to
other parties, persons or circumstances, shall not be affected thereby. Each
provision of this contract shall be enforced to the fullest extent allowed by
law.
C. RELATIONSHIP. The relationship between the parties is solely one of
independent contractors and nothing in this contract shall be construed or
deemed to create any other relationship between the parties, including one of
employment, agency, joint venture, or fee splitting arrangements.
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34. CHOICE OF FORUM. If any dispute under this contract to be pursued in a court
of law, the choice of forum shall be the Federal District Court of Maryland.
35. GOVERNING LAW. This contract shall be governed by and construed in
accordance with the laws of the State of Maryland, except that the Conflicts of
Laws Rules shall not apply.
36. EFFECTIVE DATE. The Effective date of this Agreement shall be the date of
execution, or the date of approval by the CMO's Board of Directors, whichever
occurs later.
SIGNATURES
Executed this 3rd day of June, 1995.
/s/ P.S.F. Macedo, Director
- ----------------------------------------------------------
For: FRANCHISER
/s/ Jonathan Musher, VP
- ----------------------------------------------------------
For: CMO
10
CMO FRANCHISE CONTRACT
1. PARTIES. MEDI-CEN, CORP. OF AMERICA, a Maryland corporation with a business
address of 5530 Wisconsin Ave., Suite 1045, Chevy Chase, MD 20815 (hereinafter,
"FRANCHISOR"), and MEDI-CEN, CORP. OF VIRGINIA, a Virginia corporation with a
business address of 5530 Wisconsin Ave., Suite 1045, Chevy Chase, MD 20815
(hereinafter, "Contract Management Organization" or "CMO").
2. TERRITORY. FRANCHISOR agrees to grant an exclusive franchise for Medical
Contract Management Organization services to CMO in the TERRITORY within the
recognized state boundaries of VIRGINIA. The exclusive franchise permits the CMO
to provide medical contract management services in the region/territory in
accordance with the principles and business plans, and structure of the
FRANCHISOR's medical contract management business, and network of practicing
physicians as health care providers. As per paragraph 18, any portion of the
TERRITORY not developed by CMO shall revert to FRANCHISOR, and may be sold to a
new franchisee or developed by the FRANCHISOR at the FRANCHISOR's option as per
paragraphs 27 and 31.
3. CONTRACT MANAGEMENT SERVICES. CMO shall provide practice management services
by contract to APs (Associate Physicians), IPs (Independent Physicians), IMCs
(Independent Medical Contractors) and Insurance Companies, Self Insured Parties,
PPOs and other parties in TERRITORY, which TERRITORY shall be defined as
encompassing the contiguous geographic area defined and identified in this
Agreement, by the FRANCHISOR, as the TERRITORY, to the exclusion of any
contiguous or tangential geographic area not specifically defined or identified
by FRANCHISOR, as within the scope of the TERRITORY subject to this Franchise
Agreement. The contracts for IP, AP, IMC and GENERAL SERVICES shall be provided
by FRANCHISOR and all contracts used must be approved by FRANCHISOR. FRANCHISOR
may change these contracts from time to time. FRANCHISOR shall notify CMO in
writing and send the new contract(s) to CMO, at which time CMO shall use the new
contracts for all new IP, AP or IMC's. All fees noted below for the services
provided by CMO under these contracts are set by and must be approved by
FRANCHISOR, and may be changed from time to time by FRANCHISOR.
a. IPS. CMO shall provide practice management services by contract to IPs.
An IP is a physician who has his/her own office, overhead and staff. IPs will
receive patient referrals from CMO, but they will also have their own patient
referral base. CMO will provide medical billing, physician quality assessment
and review, marketing to patient groups, marketing to insurance companies for
access to provider contracts, and referrals from APs or other sources. The fee
to CMO from IPs will be 20% of gross collected billings, with a 5% quarterly
rebate to IP based upon achieving quality goals. An IP contract is attached as
Exhibit A. FRANCHISOR shall provide CMO with the IP contracts.
b. APS. CMO shall provide practice management services by contract to APs.
APs are physicians who work for a professional corporation, partnership, sole
proprietorship, limited liability company or other self employed type of
organization, that contracts with the CMO for services. CMO will assist the AP
in organizing the type of organization of the APs. APs will work at a facility
setup by CMO, and support staff are provided by the CMO. CMO shall provide APs
with all support staff, supplies, transcription, basic employment benefits,
office space, medical equipment and other types of services. CMO shall charge
AP's a 55% fee, with a 5% quarterly rebate to AP based on achieving quality
goals. At the CMO's option the quarterly may be immediately rebated to any or
all APs and not withheld. An AP contract is attached as Exhibit B. FRANCHISOR
shall provide CMO with the AP contracts.
c. IMC. CMO shall provide business management services by contract to
IMCs. IMCs are non-physicians who supply medically related products or services.
CMO will provide medical billing, quality assessment and review, marketing to
patient groups, marketing to insurance companies for access to provider
contracts and referrals from APs or other sources. There will be no fee to IMC
for these services. The IMC contract is attached as Exhibit C. FRANCHISOR shall
provide CMO with IMC contracts.
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d. GENERAL SERVICES. To provide convenience and service for patient
groups, CMO may allow or require IPs or IMCs to sub-license space at a CMO
facility. CMO shall provide a complete set of shared office services to parties
who sub-license space at a CMO facility. The services include clerical support,
utilities, building management, billing, scheduling, and other shared services.
The current fees for these services are set by the FRANCHISOR at $125 per square
foot for IPs of CMO and $150 per square foot for IMCs of CMO. The contract for
GENERAL SERVICES is attached as Exhibit D. FRANCHISOR shall provide CMO with
GENERAL SERVICES contracts.
4. SITE SELECTION. CMO shall select sites for medical centers in TERRITORY. For
sites selected by CMO outside of TERRITORY, CMO will need express written
permission from FRANCHISOR. Sites should be selected so that each site supports
a population of between 100,000 and 200,000 people and will support from 10,000
to 20,000 covered lives. Sites should have high visibility, high traffic count,
adequate parking, and be at reasonable distance from hospitals where APs and IPs
practice.
5. SITE LEASING. CMO shall negotiate leases for each site. CMO typically should
not have ownership of sites, but should encourage leasing sites owned by its
members or related parties. CMO should lease a core center with sufficient space
for between 10-20 APs. APs and IMCs will work in the core center. CMO should
arrange for IPs to lease their own space at or near the center. CMO should lease
sufficient space for sub-licenses (IMCs) including blood testing, radiology,
pharmacy, physical therapy, or other services as may be required. Core center is
estimated to be 15,000 sq. ft. IPs typically will need an additional 35,000 sq.
ft around center. CMO will need to put up a security deposit and build out at
about $45 per sq. ft, and lease furniture, and highly visible signage. All
signage must be expressly approved by FRANCHISOR. CMO should arrange for
sub-licensees to pay each sub-licensees own build out expenses.
a. STATE STATUTES AND LOCAL ORDINANCES. CMO should arrange to conform to
the laws of the given State in which the franchise is to be located regarding
the provision of health care and shall ensure that the site complies with local
ordinances and building codes, and obtain the required permits (i.e. health,
sanitation, building, occupancy and use, driveway, utility and sign permits).
b. HIRE AND TRAIN EMPLOYEES. CMO will need to hire personnel to staff the
core center to support the APs, IPs and IMCs that will work at the center.
Employees should have experience working at a medical practice and will need to
perform the job functions described in the MANUAL. CMO agrees to terminate the
employment of any employee at the reasonable request of FRANCHISOR.
6. PRE-OPENING PURCHASES. CMO shall make Pre-Opening Purchases for each site to
stock it as appropriate for multi-specialty medical center. Such purchases shall
include items such as (but not limited to): office supplies, medical supplies,
leased office furniture, leased medical furniture for exam and procedure rooms,
durable medical equipment, and other items as a medical office may require.
7. FRANCHISE FEE. CMO shall pay FRANCHISOR a franchise fee comprised of an
initial payment of $50,000 for the license of the FRANCHISOR corporation's
trademark, plus an initial fee of $150,000 for FRANCHISOR services, plus a
periodic payment equivalent to 1% of the gross collected billings of the CMO, IP
and AP members for each month, to be paid to FRANCHISOR on or by the 20th of
each following month in consideration of FRANCHISOR'S continuing support for
CMO's services.
a. BANKING. CMO shall arrange for all IP, AP and IMC members to have bank
accounts conveniently located for CMO and FRANCHISOR for the deposit of moneys
received under CMO contracts. CMO shall also arrange for the monthly debit on
the 15th of each month for fees due CMO from IPs or APs. FRANCHISOR can also
arrange to have the fees due FRANCHISOR from CMO electronically debited from
CMO's account on the 20th day of each month.
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8. PROMOTIONS AND ADVERTISING. CMO shall be obligated under this Franchise
Agreement to use a minimum of five percent (5%) of its operating budget for
purposes of advertising and promotion. CMO is permitted to form advertising
cooperatives with other franchisees to pool advertising resources. CMO will be
permitted to adjust the advertising and promotional budget with the prior
express written permission of the FRANCHISOR. Any and all promotions and
advertising shall be truthful and in accord with the laws regulating insurance
and medical practice, as well as truth in advertising legislation.
a. MARKETING ASSISTANCE. FRANCHISOR shall provide marketing assistance to
CMO including but not limited to: Benefits Testing, Focus Groups, Patient
membership kits, advertising standards and review and approval of all
advertising of CMO. FRANCHISOR may provide prepared radio, TV, and newspaper
spots, and may arrange for cooperative advertising dollars from patient groups,
self insured parties and insurance companies. FRANCHISOR must provide express
written approval for all CMO advertising to patients. FRANCHISOR can withhold
such approval for any reason including non-conformity with the advertising
standards and company image.
b. MARKETING. FRANCHISOR shall, at its own expense, meet with and
negotiate with health insurers, self insured organizations, and other potential
patient groups to develop contracts that refer patients to CMO. FRANCHISOR shall
use its best efforts to supply patients for CMO facilities, IPs, APs and IMCs.
FRANCHISOR will only work to obtain a quota of 10% of the possible covered lives
in a given region or 12,000 covered lives per site whichever is less. FRANCHISOR
will have no obligation to continue marketing for a given region or site after
quota is achieved for more lives. However, FRANCHISOR will be responsible to
maintain and renew agreements to maintain cover lives quota.
9. AUDIT. FRANCHISOR can audit CMO annually or more often as may required by
Federal or State law or Insurance Company requirements at CMO's expense. Such
audit shall be made available to CMO and its Officers, Directors and
Shareholders as shall be required by law. If any error is found in payments made
to FRANCHISOR under paragraph 7, CMO shall pay any such underpayments and a 10%
penalty on underpayments.
a. EXECUTIVE COMMITTEE. CMO shall have an Executive Committee of Directors
that shall meet at least every other month and have to the power to review the
Audit and take any other action as may be necessary in the ordinary course of
business, and to implement the terms on this contract. CMO shall permit a
representative of FRANCHISOR to attend such meetings, upon request.
10. HQM. CMO must use Health Quality Management, Inc. (hereinafter referred to
as HQM) of 5110 Ridgefield Rd., Suite 212, Bethesda, MD, for all medical billing
and reporting services. HQM shall charge a fee of 8% of gross collected billings
as per the HQM contract (attached hereto as an Exhibit) and shall provide the
services as indicated by the contract between CMO and HQM. The HQM contract is
attached as Exhibit E. HQM is owned by several members of the FRANCHISOR's
management including P. Steven Macedo, and Michael Macedo.
11. SITE DEVELOPMENT. CMO must develop the site(s) selected by CMO. Sites may be
developed prior to opening of centers by signing APs in area with existing
practices. CMO may need to finance lease of APs in the area to encourage
membership. CMO may use the APs existing locations prior to a center opening or
where there is insufficient space at an existing center. CMO should renovate as
appropriate any existing locations of APs that will be used until a center is
available.
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12. RECRUITMENT. CMO must recruit IPs, APs, and IMCs. FRANCHISOR will train CMO
for 1 day in recruitment and provide materials, including physician recruitment
brochures, AP brochures, HQM brochures, Invitations, and other materials as
FRANCHISOR may decide to provide. FRANCHISOR shall hold the copyright on and own
all such recruiting and meeting materials. FRANCHISOR shall provide the speech
for recruitment. CMO's Directors will provide a list of invitees for potential
recruitment according the specialty guidelines provided by FRANCHISOR. CMO must
maintain correct ratios of physician specialty members as provided by FRANCHISOR
in the MANUAL. CMO will send invitations to potential recruits. CMO will hold
series of meetings at local hotels with food and refreshments, a typical cost of
such a meeting is about $2,500, which cost shall be paid by CMO. Potential
recruits will fill in an application and an IP or AP contract.
a. RECRUITMENT COMMITTEE. CMO shall appoint a series of Directors of CMO
to run the recruitment committee. The committee shall credential potential IPs
and APs according the credentialling guidelines in the MANUAL. Each member so
credentialled shall have the his/her picture taken by CMO and be sent a standard
plaque as determined by the FRANCHISOR.
13. OPENING. CMO must open franchise for business within two years of the
signing of this contract or the FRANCHISOR may revoke this contract for cause,
as per paragraph 27.
14. STANDARDS COMPLIANCE. The CMO must comply with the standards and quality
manual (hereinafter referred to as "MANUAL") and criteria contained therein as
established by the FRANCHISOR. Franchise can be revoked for cause as per
paragraph 27. FRANCHISOR alone reserves the sole discretion to make and effect
modifications to the MANUAL, from time to time, and is under an affirmative
obligation to duly notify the CMO of such changes and modifications to the
MANUAL as will have been made by the FRANCHISOR to that time. Once so notified
of changes and modifications, the CMO is obligated to comply with such changes
and modifications to the standards and quality manual. CMO shall maintain the
confidentiality of the MANUAL which is confidential and proprietary and shall
not publish or distribute the MANUAL or any portion publicly. FRANCHISOR shall
maintain all copyrights on the MANUAL.
a. QUALITY COMMITTEE. The CMO shall form a quality committee of Directors
including at least 80% licensed physicians to enforce the MANUAL and medical
practice parameters contained therein. The committee must at least annually
submit written recommendations to the FRANCHISOR as to any improvements that can
be made or additions to the MANUAL. FRANCHISOR may make such changes and act on
such recommendations at its sole discretion. Any and all such changes become the
property of the FRANCHISOR.
b. REGULATORY COMPLIANCE. FRANCHISOR will provide CMO with information
necessary for the parties to comply with any laws or regulations applicable to
the services to be provided under this Agreement, including the Employee
Retirement Income Security Act ("ERISA"), Medicare, the Maryland Insurance Code,
the insurance codes and regulations of the particular state in which the CMO
will be conducting business, the Fair Debt Collections Act and the regulations
promulgated under those acts. CMO's compliance with any such laws and
regulations shall be the sole responsibility of CMO, which shall comply with all
such laws and regulations. CMO will obtain and maintain any licenses or
regulatory approvals necessary for it to perform its services under this
Agreement.
c. REGULATORY COSTS AND FEES. In the event that CMO, the FRANCHISOR, the
arrangement established by this Agreements, or any payments for claims for
health services or fees to CMO are subjected to any form of governmental or
regulatory charges, including any premium taxes, insolvency fund fees, guarantee
fund fees, licensing fees or any similar charges, such charges shall be the sole
responsibility of CMO, and CMO shall hold harmless and indemnify the FRANCHISOR
from the payment of any such charges.
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15. TRADE IDENTIFIERS AND MEMBERSHIP MATERIALS. FRANCHISOR agrees to license the
use of its proprietary trademarks, tradenames, service marks, logos, and other
commercial images and identifiers to the CMO, as necessary for commercial and
promotional purposes. As well, any physician or patient membership materials,
including membership kits, newsletters, physician and membership lists,
physician materials, insurance carrier materials, marketing materials, and other
written materials in paper, magnetic, optical or any other media which are
proprietary to the FRANCHISOR, but necessary to the CMO, will be provided to the
CMO with permissive use restricted to defined commercial and promotional use in
connection with the promotion and operation of the CMO.
a. TRADEMARKS AND SERVICE MARKS. The licensing of FRANCHISOR trademarks
and service marks is subject to the terms of any licensing agreement between CMO
and FRANCHISOR, including the timely payment of any required licensing fees
and/or royalties thereunder. The CMO must use the trademarks and service marks
of the FRANCHISOR in the course of the promotion of CMO's business and in the
conduct of business operations, including the administration of health care and
medical services. The CMO must properly employ the trademarks, tradenames,
service marks, logos, and other commercial images and identifiers, so as not to
invalidate the trademark and/or service mark of the FRANCHISOR. Trademarks and
service marks must always be employed in commerce whenever the goods or services
of the FRANCHISOR are produced, sold, shipped, or promoted for sale in commerce.
Trademarks and service marks must always be employed as proper nouns or
pronouns, and may not be used as verbs, adjectives or adverbs. Wherever a
trademark or service mark appears, it must be accompanied by the proper trade
designation of the "R" in a circle, if a registered trademark, or a superscript
"TM" or "SM" if registration as a trademark or service mark is pending. The CMO
will be provided with specific guidelines for the proper use and protection of
any trademarks, tradenames, service marks, logos, and other commercial images
and identifiers proprietary to the FRANCHISOR, and shall receive proper notice
of any changes made to those guidelines during the course of the license term.
Specific guidelines for the use in commerce of trademarks, service marks,
tradenames, logos, and other trade identifiers will be provided to the CMO in
the MANUAL.
b. COPYRIGHTS AND TRADE SECRETS. The FRANCHISOR's materials for CMO
development and the materials for the patient membership kit, newsletters,
physician and membership lists, physician materials, insurance carrier
materials, marketing materials, and other written materials will be provided to
the CMO for restricted use in the business development of the CMO and the
promotion of the CMO and health care and medical services to the patient
membership. These materials are proprietary and confidential to the FRANCHISOR
and are subject to protection under the law as copyright and trade secrets. The
use and reproduction of these materials is strictly limited by the express
written permission of the FRANCHISOR, and any unauthorized use or reproduction
of these materials is strictly prohibited by law. The CMO will be provided
specific written guidelines in the MANUAL for the use and reproduction of any
materials provided by the FRANCHISOR in connection with the Franchise Agreement
between the FRANCHISOR and the CMO.
16. RESTRICTIONS ON SERVICES OFFERED. CMO may only offered services as provided
for in this contract, its Exhibits and the MANUAL. CMO shall not offer any other
services or products without express written permission of FRANCHISOR.
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17. CUSTOMER SERVICE. Customer service guidelines may be set down in MANUAL.
FRANCHISOR may conduct periodic customer surveys to verify customer service
goals are being met. FRANCHISOR may request termination of particular IP(s),
AP(s) or site(s) if there are excessive malpractice claims or patient
dissatisfaction, as determined by FRANCHISOR. The CMO is under an affirmative
obligation to promptly notify the FRANCHISOR of any and all medical malpractice
claims involving CMO and/or physicians under the CMO. CMO is also under an
affirmative obligation to notify the FRANCHISOR of customer service and consumer
complaints, incidences of patient dissatisfaction, and other claims, as well as
any remedial steps taken toward resolution of complaints and patient
dissatisfaction. CMO and FRANCHISOR will also implement practice policy
regarding the recording and reporting of patient dissatisfaction and consumer
complaints and the resolution of such incidences, including dispute resolution
policy and guidelines to be followed by CMO. The CMO must notify the FRANCHISOR
of any such claims, complaints or problems within 15 business days of the date
that the CMO is first notified or made aware of the claims, complaints or
problems. If CMO is not able to solve the excessive malpractice claims problems
or persistent customer service problems within one year of notification under
this paragraph, a franchise can be revoked for cause as per paragraph 27.
18. TERRITORIAL DEVELOPMENT. CMO must uses its best efforts to develop the
TERRITORY assigned to CMO as per paragraph 2. CMO must recruit 100 doctors as
IPs or APs within two years. FRANCHISOR may notify CMO in writing to develop a
portion of the TERRITORY CMO has not developed. Upon written notification CMO
must develop that portion of the TERRITORY within two years. If can not provide
a full service network of IPs and APs suitable of supporting 10% of the
potential covered lives in that portion of the TERRITORY within 2 year of
notification, FRANCHISOR can revoke that portion of the TERRITORY from paragraph
2, with cause for not developing, as per paragraph 27.
19. AP SUPPORT. Ongoing purchases are required to support APs in suitable manner
for local practice conditions. A majority of the APs at a given site may notify
FRANCHISOR with a specific list of problems that the APs are not being supported
in a suitable manner. FRANCHISOR may than notify of the problems and CMO shall
be given 60 days to cure the problem(s). If the CMO does not cure the problems
and 2/3 of the APs at the site approve, the FRANCHISOR may revoke the franchise
for that site as per paragraph 27, and the site may be purchased or re-sold as
per paragraph 31.
20. APPEARANCE AND IMAGE. CMO must maintain each site with appropriate
maintenance as may be specified in the MANUAL. The CMO should remodel each site
appropriate the maintain the image and appearance at least every 10 years,
including paint and carpeting as may be specified in the MANUAL. Each site
should have an appearance and image appropriate for a given region, comparable
to other physician offices in that region.
21. LIABILITY COVERAGE. CMO must maintain adequate public liability,
malpractice, and stop loss insurance coverage, as appropriate for a given
contract, including, but not limited to the following insurance coverage:
a. Business Property Insurance on a replacement cost basis;
b. Electronic Data Processing Coverage, including electronic and magnetic
media coverage;
c. Public Liability Insurance coverage with minimum limits of not less
than $1,000,000;
d. Workers Compensation Coverage on all employees.
e. Corporate Medical Malpractice coverage with minimum limits of
$3,000,000 per incident/$5,000,000 aggregate total (or limits to be
determined by the payors).
f. Corporate Stop Loss coverage for risk assumed in excess of the
Physician Quality withold.
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g. Individual Physician's Medical Malpractice coverage with minimum limits
of not less than $1,000,000 per incident/$3,000,000 aggregate total (or
limits to be determined by the payors).
h. Property, Casualty and Workers compensation by physician, wherever
possible.
i. Liability coverage for Corporate Officers and Directors.
22. INDEMNIFICATION AND INSURANCE. The CMO shall indemnify the FRANCHISOR from
any and all lawsuits and the fullest extent permitted by State or Federal Law.
The FRANCHISOR shall be named as an insured party under the CMO's liability and
insurance coverage.
23. CMO DIRECTORS' PARTICIPATION. The Directors of the CMO must personally
participate in recruitment of IPs and APs by inviting potential recruits, and
attending recruitment meetings described in paragraph 12 as reasonable,
necessary and appropriate. Any Director who does not personally participate
shall be considered to be in default. FRANCHISOR can request that such
defaulting Director not be nominated for re-election by CMO to its shareholders.
The Directors of the CMO shall include at least 80% licensed physicians at all
times.
a. ROTATING DIRECTORSHIPS. CMO shall provide that it will re-elect
approximately one third of its Directors each year to a three year term. This
shall facilitate the stability of the CMO. FRANCHISOR shall make available to
CMO, at CMO's option Directors who are experienced in CMO operation to serve on
CMO's board. CMO must make stock in CMO available to said Directors at the same
price as generally offered to other parties.
b. INDEMNIFICATION. CMO shall indemnify its Directors and Officers to
fullest extent as permitted under CMO's State or Federal Law.
c. OWNERSHIP. CMO shall make available to all IPs and APs on a regular
basis, as allowed by Federal and State law ownership in CMO. CMO will attempt as
is reasonably possible to limit ownership only to IP or AP physicians or first
degree relatives who will be or are IPs or APs, and avoid selling ownership to
IMC's or non-physicians.
24. RECORDS. FRANCHISOR will maintain records on all of the IPs, APs, and IMCs,
including applications and contracts for CMO. FRANCHISOR will send contracts on
request to interested IPs, APs and IMCs at CMO's request. FRANCHISOR may provide
copies of said applications, and/or abstracts of information from applications
and/or contracts as may be required by Insurance Companies, self health insured
parties, and other patient referral sources to fulfill FRANCHISOR's obligations
in paragraph 8b. In the event of termination of this contract both parties are
entitled to copies of the records.
a. PATIENT RECORDS. CMO will maintain patient records as may be required
to provide services under this contract. All patient records are confidential
information and may not be revealed to other parties without the patient's
consent. CMO will use the patient application form provided by FRANCHISOR so
that patient records may be made available to all CMO physicians, MEDI-CEN
physicians and FRANCHISOR's franchisees physicians. In the event of termination
under this contract both FRANCHISOR and CMO may both retain copies of patient
records.
25. TERM OF AGREEMENT. This Franchise Agreement shall be in full force and
effect for a term of twenty (20) years from the date of execution by the
parties.
26. RENEWAL. The CMO and the FRANCHISOR may mutually agree to provide for the
option of a renewal of the Franchise Agreement at the end of the initial period
of twenty (20) years. The FRANCHISOR provides for an optional renewal term of
five (5) years at a renewal cost to the CMO of $200,000. Subsequent renewal
options may be exercised with the mutual agreement of the parties for the same
terms and renewal cost of $200,000, per five (5) year renewal.
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27. CANCELLATION FOR CAUSE. The franchise can be fully or partially terminated
for cause as outlined in this agreement. The procedure for termination shall be
as follows:
A. ARBITRATION. Disputes between he parties shall be resolved by
arbitration. In the event any dispute relating to this agreement arises between
CMO and FRANCHISOR, the parties shall meet and confer in good faith in an
attempt to resolve the dispute. If the dispute is not resolved within 30 days
after the date the parties first met to discuss it, and a party wishes to
further pursue the dispute, the party shall refer the dispute to arbitration on
an expedited basis by the American Arbitration Association. In no event may the
arbitration be initiated more than one year after the date a party first gave
written notice to the other party regarding the existence of the dispute. The
arbitration shall be held in Rockville, Maryland under the commercial
arbitration rules of the American Arbitration Association. The arbitrators shall
have no power to award any punitive or exemplary damages or to ignore the terms
of this contract and shall be bound by controlling Maryland and federal law. In
the event that arbitration fails to resolve a dispute between the parties, after
arbitration has been fully concluded, either party may seek a judicial review of
the matter submitted to arbitration.
B. REMEDIES. In the event of a material breach of this contract as
determined by an arbitrator:
(i) A party in breach of this contract, as determined by an
arbitrator, shall cure such breach within 30 days of an
arbitrator's decision without the need for any action by the
other party.
(ii) The parties agree that a breach or default will cause
irreparable and continuing harm to the other party, for which
there is not adequate remedy at law. The party not in breach
of the contract shall be entitled to temporary or permanent
inductive relief, and to judgment for damages caused by the
breach, and any other legal or equitable remedies provided by
applicable law or at equity, provide the contract to arbitrate
is first complied with.
C. TERMINATION. If either party is in material and substantial default or
breach by the other party as determined by the arbitrator then the franchise
rights may be fully or partially terminated as provided for in this agreement.
Such termination shall be effective 30 days after written notice specifying the
default, as determined by an arbitrator has been given to the defaulting party,
unless the default has been cured before the end of the 30 day period.
28. ASSIGNMENT. The CMO may only assign, transfer or sell this contract with
express written permission from the FRANCHISOR. The FRANCHISOR may freely assign
or transfer this contract at its discretion. The contract shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and such assigns as are authorized in writing by the parties.
29. TRANSFER. While CMO may not transfer contract without FRANCHISOR approval,
CMO may be a public company and have freely tradable stock. If will not be
considered a transfer when the ownership of CMO changes due to trades in its
common stock on a public market.
30. POST TERMINATION. Upon termination of the franchise relationship between
FRANCHISOR and CMO, the CMO may not compete with the FRANCHISOR or any
franchisee thereof within the TERRITORY for a period of three (3) years
following termination of the franchise relationship. The CMO may not compete
with the FRANCHISOR or any other franchisee thereof by engaging in the subject
business of the franchise relationship within a radius of twenty (20) miles of
any center previously operated by the CMO under the franchise relationship.
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Following termination of the franchise relationship, the CMO must return
any and all literature and confidential records, and must maintain the
confidentiality of all records, information and trade secrets which may be
construed as proprietary including the MANUAL to the FRANCHISOR. Upon
termination, CMO must cease any and all use of tradenames, trademarks, service
marks, logos, corporate identifiers, any promotional and advertising copy in any
medium, and any and all proprietary materials of the FRANCHISOR protected under
copyright and other laws as intellectual property, and CMO must desist from any
further or future use of said tradenames, trademarks, service marks, logos,
corporate identifiers, any promotional and advertising copy in any medium, and
any and all proprietary materials of the FRANCHISOR protected under copyright
and other laws as intellectual property.
31. RIGHTS OF APPRAISAL. In the event of non-renewal or termination of a
franchise or a portion of a franchise, FRANCHISOR may have the CMO assets
independently appraised and may purchase or resell the franchise or portion of
the franchise to a new purchaser, at the sole discretion of the FRANCHISOR. If
CMO and FRANCHISOR can not agree on an independent appraiser then an arbitrator
pursuant to 27a may determine the proper appraisal.
32. RIGHT OF FIRST REFUSAL. If any party tries to purchase CMO or a substantial
portion of CMO, the FRANCHISOR shall have right of first refusal. CMO must
submit the proposed sale and the CMO's buyer's information to FRANCHISOR. Within
30 days FRANCHISOR may match the offer or find an alternative buyer to match the
offer. If the FRANCHISOR or FRANCHISOR's buyer does not match the offer in 30
days the CMO may sell the business or portion to CMO's buyer. Whether or not
FRANCHISOR's offer matches or exceeds another proposed offer, if disputed by the
parties, shall be subject to arbitration, as provided in paragraph 27 of this
Agreement.
33. ENTIRE AGREEMENT. This is the entire agreement between the parties and no
other oral or written representations or agreements have been made between the
parties. This agreement cannot be amended or changed except by writing consented
to and signed by both parties and attached hereto.
A. NOTICES. All notices required or permitted under this contract shall be
in writing and shall be deemed given when delivered in person or when sent via
registered or certified U.S. Mail, return receipt requested, via courier, or via
facsimile transmission to the addresses and parties set forth herein, or to such
other address of which any party hereto may from time to time have been notified
by the other in compliance with the notice provisions within this contract.
B. SEVERABILITY. If any provision of this contract is held or deemed to be
invalid, unenforceable, void or voidable to any extent when applied to any
person, party, or circumstance, then that provision may be severed and the
remaining provisions of the contract and the enforcement of such provisions to
other parties, persons or circumstances, shall not be affected thereby. Each
provision of this contract shall be enforced to the fullest extent allowed by
law.
C. RELATIONSHIP. The relationship between the parties is solely one of
independent contractors and nothing in this contract shall be construed or
deemed to create any other relationship between the parties, including one of
employment, agency, joint venture, or fee splitting arrangements.
34. CHOICE OF FORUM. If any dispute under this contract to be pursued in a court
of law, the choice of forum shall be the Federal District Court of Maryland.
35. GOVERNING LAW. This contract shall be governed by and construed in
accordance with the laws of the State of Maryland, except that the Conflicts of
Laws Rules shall not apply.
36. EFFECTIVE DATE. The Effective date of this Agreement shall be the date of
execution, or the date of approval by the CMO's Board of Directors, whichever
occurs later.
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SIGNATURES
Executed this 20th day of February, 1996.
/s/ Bruce Kehr Exec V.P. for Medi-Cen of America
- ----------------------------------------------------------
For: FRANCHISOR
/s/ [ILLEGIBLE]
- -----------------------------------------------------------
For: CMO
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MANAGEMENT AGREEMENT
THIS AGREEMENT is made this 1st day of January, 1998, by and between
MEDI-CEN MANAGEMENT, Inc., a Maryland corporation, having its principal place of
business at 5530 Wisconsin Avenue, Suite 1248, Chevy Chase, Maryland (the
"Management Company"), and WASHINGTON NEUROLOGY ASSOCIATES, L.L.P., a Maryland
limited liability partnership, having its principal place of business at 5530
Wisconsin Avenue, Suite 1248, Chevy Chase, Maryland 20815 (the "Partnership").
WHEREAS, the Partnership has been formed under the laws of the State of
Maryland to render medical and related services to patients of the Partnership;
WHEREAS, the Partnership desires to operate a medical practice at 5530
Wisconsin Avenue, Suite 1248, Chevy Chase, Maryland, and at 6188 Oxon Hill Road,
Oxon Hill, Maryland, and/or at other locations (the "Practice") and to obtain
certain management and consulting services for the Practice from the Management
Company; and
WHEREAS, the Management Company is ready, willing, and able to provide
such management and consulting services to the Partnership in connection with
the Practice.
<PAGE>
NOW THEREFORE, in consideration of the mutual premises and covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Representations and Warranties.
1.1. Representations and Warranties of the Management Company. The
Management Company hereby represents and warrants to the Partnership that at all
times during the term of this Agreement, the Management Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Maryland.
1.2. Representations and Warranties of the Partnership The Partnership
hereby represents and warrants to the Management Company that at all times
during the term of this Agreement:
(a) The Partnership is a limited liability partnership organized,
validly existing and in good standing under the laws of the State of
Maryland and is duly licensed and qualified under all applicable laws and
regulations to engage in the practice of medicine and related services in
the State of Maryland.
(b) Each of the professionals employed or engaged by the Partnership
to render services at the Practice is duly licensed, certified, or
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registered, as applicable, to render the services for which he or she has
been employed or engaged by the Partnership.
(c) The Partnership will establish and enforce procedures to ensure
that proper and complete medical records are maintained regarding all
patients of the practice as required by applicable law and by the rules and
regulations of any third party payors with which the Partnership may
contract or affiliate. To the extent permitted by law, the Partnership
shall provide access to the Management Company to such books and records of
the Partnership as may be necessary to carry out the terms, conditions, and
purposes of this Agreement.
2. General Responsibilities of the Management Company. The Management
Company shall have responsibility for those certain management and consulting
services described below, exclusive of any medical, professional and ethical
aspects of the Practice. The Management Company shall be the exclusive provider
to the Partnership of such management and consulting services. The Partnership
agrees that is shall not obtain any management or consulting services from any
source other than the Management Company, except with the prior written consent
of the Management Company.
2.1. Management Services. The Management Company shall provide, or
arrange for the provision of, management and administrative services for the
Practice, including but not limited to the following:
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(i) business planning, including recommending capital, operating
and cash flow budgets;
(ii) financial management, including causing annual financial
statements to be prepared for the Partnership and providing to the
Partnership the data necessary for the Partnership to prepare and file
its tax returns and make any other necessary governmental filings;
(iii) bookkeeping, accounting, data processing and other computer
based information services;
(iv) maintenance of medical records;
(v) administering or causing to be administered, on behalf and in
the name of the Partnership, any welfare, benefit or insurance plan or
arrangement of the Partnership;
(vi) human resources management, including recruitment of all
personnel, training of all nonphysician personnel, and the management
of all non-clinical staff;
(vii) billing and collection, accounts receivable and accounts
payable processing, on behalf and in the name of the Partnership, in
addition to billing and collection services set forth under the
Billing Agent Agreement attached hereto as Exhibit A;
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(viii) utilization, cost and quality management systems;
(ix) managed care contracting services, including:
(a) evaluating, negotiating and administering, on behalf and
in the name of the Partnership, agreements with employers,
multi-employer welfare trusts, third party administrators and
other third parties, including third party payors, managed care
entities, institutional health care providers and vendors;
(b) developing and marketing bundled health services;
(c) developing fee schedules and setting charges for
risk-sharing payor contracts;
(d) developing risk-sharing arrangements for payor
contracts;
(e) developing clinical protocols and pathways;
(f) credentialing support services consisting of application
processing and information verification;
(g) receiving and allocating payments from payors in
accordance with payor contracts and the rules, regulations and
policies approved by the Management Company;
(h) administering risk pools, withhold funds and
incentive/bonus arrangements;
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(i) data analysis, including tracking and reporting to the
Partnership on a regular basis the performance of the Partnership
and its physician employees under payor contracts;
(j) risk assumption modeling;
(k) processing prior approval requirements and verifying
member eligibility;
(l) implementing utilization management and quality
assurance procedures, and procedures for determining medical
necessity and compliance with applicable clinical guidelines; and
(m) implementing patient grievance procedures.
Such managed care contracting services shall be performed by Manager
with respect to payor contracts to the extent applicable to such contracts. The
parties recognize that the Management Company's ability to perform any of the
foregoing functions may be limited by the nature and quality of information
provided by, and the systems of, payors. In such cases, the Management Company
will use its best efforts to perform such functions within such limitations.
(x) using best efforts, on behalf and in the name of the Partnership,
to obtain malpractice and other agreed upon insurance coverages;
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(xi) advertising, marketing and promotional activities;
(xii) arranging for necessary legal services except with respect to
any legal dispute between the Partnership and the Management Company;
(xiii) performing credentialing support services such as application
processing and information verification; and
(xiv) centralized group purchasing, including, at the request of the
Partnership, negotiating and arranging for the Partnership to purchase
medical and non-medical inventory and supplies and other goods and
services, on behalf and in the name of the Partnership, which the
Management Company deems to be necessary for the efficient operation of the
Practice.
2.2. Staff. Subject to the requirements of applicable federal and state
law, the Management Company shall, on the terms and conditions specified in this
Agreement, employ or engage and make available to the Practice, on a
non-exclusive basis, sufficient non-Physician professional and administrative
staff (hereinafter referred to collectively as "Staff"; Staff members who are
licensed, registered or certified by the state to perform professional services
are hereinafter referred to collectively as "Professional Staff") as may be
reasonably necessary to operate the Practice in an efficient manner and meet the
patient care needs of the Practice in a timely manner, during the hours of
operation of the Practice by the Partnership. All Staff assigned by the
Management Company to the Practice shall be subject to the Partnership's
clinical supervision and approval, which approval shall not be unreasonably
withheld. The hiring, firing, disciplining, and determination of compensation
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and benefits of such Staff in connection with services provided to or on behalf
of the Practice shall be within the sole discretion of the Management Company;
provided, however, that the Management Company shall, at the Partnership's
written request, remove from the Practice any Staff member who does not perform
to the reasonable satisfaction of the Partnership.
2.3 Consulting Services. The Management Company shall:
(i) Identify and investigate potential sites for the establishment of
medical malls by the Partnership;
(ii) Identify individual physicians for employment by the Partnership;
(iii) Identify physician practices for acquisition by the Partnership;
(iv) Where possible, manage practices identified for acquisition by
the Partnership prior to their acquisition;
(v) Prepare financial projections for new locations and acquisition
targets;
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(vi) Perform financial analyses on proposed new locations and the
business of acquisition targets;
(vii) Assist in the determination of the mix of specialties to be
available at each medical mall;
(viii) Perform market analyses and needs assessments to assist in the
determination of appropriate mall locations and services to be offered
therein; and
(ix)Provide consulting services on an as needed basis with respect to
each medical mall established or acquired by the Partnership for a period
of up to nine (9) months following establishment or acquisition.
2.4 Deposit of Net Practice Revenues. To the extent permitted by law,
and subject to paragraph 2.4.1 herein, during the term of this Agreement, all
Net Practice Revenues, as defined herein, shall be deposited directly into a
bank account at a bank mutually agreed upon by the parties (the "Bank"), from
which the Management Company shall have the sole right to make withdrawals (the
"Account"). The Management Company shall maintain its accounting records in such
a way as to clearly segregate Net Practice Revenues from other funds of the
Management Company. The Partnership hereby appoints the Management Company as
its true and lawful attorney-in-fact to deposit in the Account all Net Practice
Revenues collected and to make withdrawals from the Account. The Partnership and
the Management Company hereby agree to execute from time to time such documents
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and instructions as shall be required by the Bank and mutually agreed upon to
effectuate the foregoing provisions and to extend or amend such documents and
instructions with respect to payment for the Management Services during any
extended term of this Agreement.
For purposes of this Agreement, "Net Practice Revenues" shall mean all
revenue, calculated on a cash basis (after taking into account adjustments for
refunds and set-offs), collected by or on behalf of the Practice, the
Partnership or their respective employees as a result of professional medical
services personally furnished to patients and other fees or income generated by
such persons in their capacity as members of the Professional Staff (but
excluding any revenues, fees or income generated by or on behalf of any
Professional Staff Members as a result of or in connection with activities of
such Professional Staff member in which Partnership or the other Professional
Staff members, as a group, would have no financial interest under the terms of
their Physician Employment Agreements with the Partnership, as amended from time
to time, and that are not billed, collected or otherwise administered through
the Partnership or the Practice), whether rendered in an inpatient or outpatient
setting and whether rendered to health maintenance organization, preferred
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provider organization, Medicare, Medicaid or other patients, including, but not
limited to, payments received under any capitation arrangement. The term "Net
Practice Revenues" shall include any ancillary services revenues provided at the
Practice offices.
2.4.1 With respect to Medicare and Medicaid services provided by the
Partnership and its Professional Staff and with respect to other services for
which payments cannot be assigned to the Management Company under applicable law
or payor contracts, the Management Company shall bill or collect for such
services as agent for the Partnership pursuant to the Billing Agent Agreement
attached hereto as Exhibit A (the "Billing Agent Agreement"). With respect to
funds deposited in the Practice Account, as defined in the Billing Agent
Agreement, the Partnership shall, effective as of the date hereof, direct
Account Bank, as defined in the Billing Agent Agreement, in writing to transfer
all amounts in the Practice Account at the end of each business day of the
Account Bank to an account designated by the Management Company (the "Manager's
Account"). The Partnership agrees that it will not take any action that
interferes with the transfer of funds from the Practice Account to the Manager's
Account as provided in the Billing Agent Agreement nor will the Partnership or
its agents remove, withdraw or authorize the removal or withdrawal of any funds
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from the Practice Account for any purpose except to accomplish the transfer of
funds provided pursuant to the Billing Agent Agreement.
2.4.2 The Partnership shall, and shall cause its Professional Staff to,
promptly endorse and deliver to Manager all payments, notes, checks, money
orders, insurance proceeds, remittances and other evidences of indebtedness or
payment received by the Partnership or its Professional Staff, with respect to
all accounts, contract rights, instruments, documents, or other rights to
payment form time to time arising from the rendering of medical services by the
Partnership and its Professional Staff otherwise relating to the business of the
Partnership, together with any guarantees thereof or securities therefor which
are generated during the term of this Agreement.
2.4.3 The Partnership and its Professional Staff hereby authorize the
Management Company to initiate legal proceedings in the name of the Partnership
to collect any accounts and monies owed to the Partnership and its Professional
Staff as creditors under any contract or in connection with the rendering of any
service hereunder, and to contest adjustments and denials by governmental
agencies (or their fiscal intermediaries) as third-party payors. All adjustments
made for uncollectible or doubtful accounts, charity care, professional
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courtesies and other activities that do not generate a collectible fee shall be
determined by the Management Company in its reasonable judgment for purposes of
financial reporting.
2.5 Non-Operational Expenses. The Management Company shall be solely
responsible for the payment of all Management Company Expenses, defined as those
expenses that are not expressly specified as Operational or Practice Expenses,
as those terms are defined herein. The Management Company shall pay all
Management Company Expenses as they fall due; provided, however, that the
Management Company may contest in good faith any claimed Management Company
Expenses as to which there is any dispute regarding the nature, existence or
validity of such claimed Management Company Expenses.
2.6 Further Obligations of the Management Company. The Management
Company shall cause all work required to be performed pursuant to the terms of
this Agreement to be done in a good and professional manner.
3. Responsibilities of the Partnership
3.1. Professional Services. During the term of this Agreement, the
Partnership shall be solely responsible for all aspects of the medical,
diagnostic, therapeutic and related professional services delivered by the
Practice and for the selection, training, professional direction, supervision
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and employment or engagement of all physicians. The hiring, firing,
credentialing, disciplining, and determination of compensation and benefits of
such physicians shall be within the sole discretion of the Partnership.
3.2. Time Commitment. The Partnership shall conduct the Practice
fifty-two (52) weeks per year, according to a schedule mutually determined by
the Management Company and the Partnership. The Partnership shall provide
physicians in adequate numbers to meet all of the needs, including emergency
needs, of patients of the Practice in a timely and responsive manner.
3.3. Quality of Service. The Partnership shall establish and enforce
procedures to assure the appropriateness, necessity, consistency, quality, cost
effectiveness and efficacy of all professional services provided to patients of
the Practice. The Partnership shall require each of its physicians, and the
Management Company shall require each member of its Professional Staff, to
participate in and cooperate with any utilization management, quality assurance,
risk management, patient care assessment, continuous quality improvement,
accreditation or other similar program or study to review the performance of the
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physicians and such Professional Staff as may be required by the Partnership,
governmental agencies, professional review organizations, accrediting bodies, or
third party payors or health care entities with which the Partnership may
contract or affiliate.
3.4. Billing and Collection.
(a) The Partnership, or the Partnership's authorized billing agent,
shall bill to and collect from patients, third party payors and others for
all services rendered by the Partnership or any physician or member of the
Professional Staff in connection with the Practice. The Partnership hereby
appoints the Management Company as its agent and attorney-in-fact for
purposes of billing and collecting, in the Partnership's name and on the
Partnership's behalf, for all such professional services rendered in
connection with the Practice, in accordance with this Agreement and with
the Billing Agent Agreement attached hereto as Exhibit A. Subject to the
Billing Agent Agreement, the Management Company shall issue bills for all
such services within thirty (30) days after such services are rendered, and
the Management Company shall use its best, good faith and diligent efforts
to collect for all such services as promptly as may be reasonably
practicable.
(b) The Partnership shall provide written notice to the Management
Company at least thirty (30) days in advance of any proposed change in its
charges. If the Management Company objects in writing to any such proposed
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revised charge the Partnership shall consult with the Management regarding
the appropriate level of such charge before said charge shall go into
effect.
3.5 Practice Expenses. The Partnership shall be solely responsible for
the payment of all Practice Expenses, as defined herein. The Partnership shall
pay all Practice Expenses as they fall due; provided, however, that the
Partnership may contest in good faith any claimed Practice Expenses as to which
there is any dispute regarding the nature, existence or validity of such claimed
Practice Expenses.
As used in this Agreement, "Practice Expenses" shall mean (a) any
federal, state or local income taxes of the Practice; (b) any salaries,
benefits, or other direct costs with respect to the Professional Staff,
including without limitation, workers' compensation, retirement plan
contributions, health, disability and life insurance premiums, payroll taxes or
compensation paid or payable to physician independent contractors (or other
independent contractors who provide medical services to patients); (c) physician
licensure fees, board certification fees, hospital staff privilege dues, and
costs of membership in professional associations for Professional Staff members;
(d) costs of continuing professional education for Professional Staff members;
(e) insurance premiums for policies of malpractice insurance for the Practice
and Professional Staff members; deductibles under such policies of malpractice
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insurance; any and all costs and expenses incurred with respect to claims under
such policies of malpractice insurance; liability judgments assessed against the
Practice or Professional Staff members in excess of policy limits; and (f)
direct personal expenses of Professional Staff members of a kind that the
Practice has historically charged to its Professional Staff, e.g., cellular
phone expenses, paging system expenses.
3.6 Further Obligations of the Partnership In order for the Management
Company to perform its duties as described herein, the Partnership shall:
(i) Provide full information regarding its requirements for expansion
and acquisition;
(ii) Designate a representative who shall be fully acquainted with the
Partnership's plans and has authority to render decisions promptly and
furnish information expeditiously; and
(iii) In the event that the Partnership becomes aware of any problems
in any sites or with any acquisition targets, give prompt written notice
thereof to the Management Company.
4. Financial Terms.
(a) Payment of Operational Expenses. The Management Company shall pay,
on behalf and in the name of the Partnership, all Operational Expenses, as
defined herein, as they fall due, out of Net Practice Revenues; provided,
however, that the Management Company may, in the name of and on behalf of the
Partnership, contest in good faith any claimed Operational Expenses as to which
there is any dispute regarding the nature, existence or validity of such claimed
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Operational Expenses. For purposes of this Agreement, "Operational Expenses"
shall mean the operating and non-operating expenses incurred by the Management
Company in performing its duties hereunder, including, but not limited to: (a)
salaries, benefits, and other direct costs (including, without limitation,
professional liability insurance) of all Staff of the Partnership (but not
including Professional Staff); (b) obligations under leases or subleases for
space and equipment used by the Practice; (c) personal property and intangible
taxes assessed against assets used by the Clinic; (d) charitable contributions
budgeted and approved by the Management Company and the Partnership; (e)
depreciation and amortization; (f) interest expenses; (g) costs and expenses
incurred in recruiting physicians and other Practice personnel; (h) utility
expenses relating to the medical office space, and all other costs relating to
the medical office space, including without limitation, costs of repair,
maintenance, telephone, electric, gas and water utility expenses, general
liability insurance, security, worker's compensation for Management Company
employees, normal janitorial services, refuse disposal, and medical and office
supplies, including pharmaceuticals; (i) actual costs incurred with respect to
billing and collecting; (j) premiums for malpractice and other agreed upon
insurance coverage; and (k) obligations of the Partnership under contracts,
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including without limitation, that certain contract by and between the
Partnership and Medi-Cen Corporation of Maryland, Inc., dated March 24, 1997,
and any contracts by and between the Partnership and Health Quality Management,
Inc.
(b) Compensation to Management Company. As compensation for services
rendered under this Agreement, the Partnership shall pay to the Management
Company sixty percent (60%) of the Revenue Margin, as defined herein, per
calendar year (the "Management Fee"). The Partnership shall retain the remaining
Revenue Margin. Notwithstanding any other provision of this Agreement, the
Management Fee shall in no event be less than Five Hundred Thousand Dollars
($500,000) per annum (the "Management Fee Floor"), nor exceed a per annum amount
equal to the sum of (1) the product of the number of new Medical Malls
established during the then current year of this Agreement and Five Hundred
Thousand Dollars ($500,000) (the "Management Fee Cap"), and (2) the product of
the number of existing Medical Malls maintained during the then current year of
this Agreement and One Million Dollars ($1,000,000). At such time that Net
Practice Revenues reach $__________, and upon each $____________ increase in Net
Practice Revenues thereafter, the parties shall have the right to renegotiate
the Management Fee, the Management Fee Floor, and the Management Fee Cap to
appropriately reflect the fair market value of management and consulting
services provided by Manager. In the event that the Management Cap is reached in
any year of this Agreement, the Management Company shall remit to the
Partnership any remaining Revenue Margin. In the event that the Management Fee
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Floor is not reached in any year of this Agreement, the Partnership shall pay to
the Management Company the shortfall. For purposes of this Agreement, "Revenue
Margin" shall mean the amount equal to Net Practice Revenues less all
Operational Expenses.
(c) Draws. Following the end of each month, the Management Company
shall estimate such month's Net Clinic Revenues by multiplying a Historical
Collection Percentage, as defined herein, by such month's gross production. For
purposes of this Agreement, the "Historical Collection Percentage" shall be
determined by averaging the collection percentages for the immediately preceding
six (6) months. Operational Expenses for such month shall then be subtracted
from such estimated Net Clinic Revenues for such month, resulting in an
estimated Revenue Margin, as defined herein. The Management Company shall remit
to the Partnership forty percent (40%) of such estimated Revenue Margin by the
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fifteenth (15th) day of the following month and shall retain any remaining
amounts as a draw on its Management Fee.
(d) Reconciliation. Within ninety (90) days after the end of each
calendar quarter, the Management Company will reconcile the amounts retained by
the Management Company as draws under subsection (c) above with the actual Net
Clinic Revenues attributable to the gross production for such quarter, and shall
determine the actual Revenue Margin. In the event that the amounts retained by
the Management Company as draws under subsection (c) above are less than sixty
percent (60%) of the actual Revenue Margin for such quarter, the Partnership
shall pay to the Management Company the shortfall. In the event that the draws
paid under subsection (c) above are in excess of sixty percent (60%) of the
actual Revenue Margin for such quarter, the Management Company shall remit to
the Partnership the overdraft.
(e) Fair Market Value of Services Rendered. The Management Fee has been
determined by the parties to equal the fair market value of the consulting,
administrative and management services furnished by the Management Company
hereunder, without taking into account the proximity of the Premises to any
source of referrals, or the volume or value of any referrals of business from
the Management Company (or its affiliates) to the Partnership, or from the
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Partnership to the Management Company (or its affiliates), that is reimbursed
under any governmental or private health care payment or insurance program.
(f) Arm's Length Transaction. The Management Fee paid by the
Partnership to the Management Company hereunder has been determined by the
parties through good-faith and arm's length bargaining, and consistent with
industry practices. No amount paid hereunder is intended to be, nor shall it be
construed to be, an inducement or payment for referral of, or recommending
referral of, patients by the Partnership to the Management Company (or its
affiliates) or by the Management Company (or its affiliates) to the Partnership.
In addition, the Management Fee charged hereunder does not include any discount,
rebate, kickback, or other reduction in charge, and the Management Fee charged
hereunder is not intended to be, nor shall it be construed to be, an inducement
or payment for referral, or recommendation of referral, of patients by the
Partnership to the Management Company (or its affiliates) or by the Management
Company (or its affiliates) to the Partnership.
5. Regulatory Matters.
(a) The Partnership's physicians and the Professional Staff shall at
all times be free, in their sole discretion, to exercise their
professional/medical judgment on behalf of patients of the Partnership. No
provision of this Agreement is intended, nor shall it be construed, to permit
the Management Company to affect or influence the professional/medical judgment
of any member of the Partnership's Professional Staff. To the extent that any
act or service required or permitted of the Management Company by any provision
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of this Agreement may be construed or deemed to constitute the practice of
medicine, the ownership or control of a medical practice, or the operation of a
medical or health care facility, said provision of this Agreement shall be void
ab initio and the performance of said act or service by the Management Company
shall be deemed waived by the Partnership.
(b) The parties agree to cooperate with one another in the fulfillment
of their respective obligations under this Agreement, and to comply with the
requirements of law and with all ordinances, statutes, regulations, directives,
orders, or other lawful enactments or pronouncements of any federal, state,
municipal, local or other lawful authority applicable to the Practice, and of
any insurance company insuring the Premises or the parties against liability for
accident or injury in or upon the Premises.
6. Insurance.
6.1. General Comprehensive Liability Insurance. During the term of this
Agreement, the Management Company shall obtain and maintain at its own expense a
comprehensive general liability insurance policy and such other insurance as may
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be required, in such amounts, with such coverages and with such companies as the
Management Company may reasonably determine.
6.2. Equipment Insurance. The Management Company shall cause to be
carried and maintained insurance against all risks of physical loss or damage to
the Equipment in an amount not less than the original purchase price or the
replacement cost with like kind and quality at the time of loss, with such
companies and as the Management Company shall reasonably determine.
6.3. Malpractice Insurance. During the term of this Agreement, the
Management Company shall use its best efforts to obtain and maintain, at the
Partnership's expense, professional liability insurance covering the
Partnership, the physicians and each Professional Staff member, with limits of
$1 million per occurrence and $3 million in the aggregate. In the event the
Partnership has a "claims made" form of insurance in effect at any time during
the term of this Agreement, the Management Company shall obtain full "tail"
coverage to cover any event that may have occurred during the term of this
Agreement. The Partnership shall provide to the Management Company any
information with respect to the Partnership or the Physicians necessary for the
Management Company to secure such professional liability insurance.
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7. Indemnification. Except to the extent paid from the proceeds of
available insurance, each party (and its affiliates) agrees to indemnify and
hold the other party (and its affiliates) harmless against any loss, cost, suit,
claim, action, cause of action, damage, obligation, contract, demand, liability,
judgment, verdict, settlement or expense (including reasonable attorney's and
other consultancy fees and court costs) arising out of any act or omission of
the indemnifying party, its employees, agents or affiliates that occurs in
connection with this Agreement.
8. Non-Solicitation. The Partnership agrees, and shall cause its
employees to agree, not to solicit the employment of, or to employ, any employee
of the Management Company or its affiliates, including but not limited to any
member of the Staff provided by the Management Company to the Partnership
hereunder, during the term of this Agreement, and for a period of one (1) year
from the date of termination or expiration of this Agreement.
9. Non-Compete. During the term of this Agreement, the Partnership and
each of the physicians employed or engaged by the Partnership shall not, without
the express written consent of the Management Company, directly or indirectly,
in whole or in part, own, manage, operate, join, control, participate in the
ownership, management, operation or control of, contract with, be employed by,
or be connected with in any manner, any business engaged in the same or similar
25
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activities engaged in by the Management Company or the Partnership, or that
directly or indirectly competes with the Management Company or the Partnership.
If any part of paragraph 8 or 9 of this Agreement should be determined
by a court of competent jurisdiction to be unreasonable in nature, duration,
geographic area, or scope, then this Agreement is intended to and shall extend
only for such period of time, in such area and with respect to such activity, as
is determined by said court to be reasonable.
10. Disclosure of Information. The Partnership recognizes and
acknowledges that all records, files, reports, protocols, policies, manuals,
data bases, processes, procedures, computer systems, materials and other
documents used by the Management Company (or its affiliates) in rendering
services hereunder, or relating to the operations of the Management Company (or
its affiliates), belong to and shall remain the property of the Management
Company , and constitute proprietary information and trade secrets that are
valuable, special, and unique assets of the Management Company's business. The
Partnership shall not, and shall assure that each of its physicians shall not,
during or after the term of this Agreement, disclose any proprietary information
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or trade secrets of the Management Company (or its affiliates) to any other
firm, person, corporation, association, or other entity for any reason or
purpose whatsoever, without the written consent of or its respective affiliate.
11. Enforcement. The Partnership agrees that the covenants set forth in
paragraphs 8, 9 and 10 are reasonable in nature, duration and geographical
scope. The Partnership further acknowledges that any violation of those
covenants will cause the Management Company irreparable damage, which a monetary
award would be inadequate to remedy, and that a court or arbitrator of competent
jurisdiction may, in addition to monetary awards, enjoin any breach of and
enforce such covenants by temporary restraining order, and preliminary and
permanent injunctive relief. If a court or arbitrator of competent jurisdiction
determines that any of the covenants in paragraphs 8, 9 and 10 is unreasonable
in nature, duration or geographic scope, then the Partnership agrees that such
court or arbitrator shall reform such covenant so that such covenant is
enforceable to the maximum extent permitted by law for a covenant of that
nature, and such court shall enforce the covenant to that extent.
12. Effective Date; Term and Termination.
(a) This Agreement shall be effective January 1, 1998, provided that
the Management Company has completed a successful Initial Public Offering (a
"Successful IPO"), as defined herein, by such date, or upon such later date that
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the Management Company completes a Successful IPO (the "Effective Date"). For
purposes of this Agreement, a "Successful IPO" shall mean ________________. .The
term of this Agreement shall be for thirty (30) years commencing on the date
first written above, unless sooner terminated as set forth herein, and shall
automatically renew for successive five (5) years terms unless either party
gives the other at least ninety (90) days prior written notice of its intention
not to renew prior to the expiration of the then current term.
(b) Either party may terminate this Agreement immediately upon the
occurrence of any of the following events with regard to the other party: (i)
the making of a general assignment for the benefit of creditors; (ii) the filing
of a voluntary petition or the commencement of any proceeding by either party
for any relief under any bankruptcy or insolvency laws, or any laws relating to
the relief of debtors, readjustment of indebtedness, reorganization, composition
or extension; (iii) the filing of any involuntary petition or the commencement
of any proceeding by or against either party for any relief under any bankruptcy
or insolvency laws, or any laws relating to the relief of debtors, readjustment
of indebtedness, reorganization, composition or extension, which such petition
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or proceeding is not dismissed within ninety (90) days of the date on which it
is filed or commenced; or (iv) suspension of the transaction of the usual
business of either party for a period in excess of thirty (30) days.
(c) The Management Company may terminate this Agreement immediately
upon written notice to the Partnership of any breach of the Partnership Interest
Transfer Restriction Agreement between the Partnership and the partners of the
Partnership.
(d) The Management Company may terminate this Agreement immediately
upon written notice to the Partnership of any breach of paragraph 9 of this
Agreement.
(e) The Management Company may terminate this Agreement at any time,
with or without cause, by giving the Partnership ninety (90) days' prior written
notice; provided, however, that if this Agreement is terminated pursuant to this
paragraph, the parties may not enter into a substantially similar management
agreement within __ days of such termination.
(f) The Partnership may terminate this Agreement upon one year's prior
written notice to the Management Company in the event of a material breach by
the Management Company of any material term or condition hereof, if such breach
is not cured to the reasonable satisfaction of the Partnership within one year
after the Partnership has given notice thereof to the Management Company.
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(g) Upon termination or expiration of this Agreement by either party,
the Partnership shall pay the Management Company any amounts owed to the
Management Company under paragraph 4 hereof as of the date of termination or
expiration.
(h) Upon termination or expiration of this Agreement, the Partnership
shall return to the Management Company any and all property of Management
Company that may be in the Partnership's possession or under the Partnership's
control.
13. Arbitration.
Any disputes arising under this Agreement or any breach of this
Agreement, shall be determined by arbitration in accordance with the rules of
the American Arbitration Association ("Association"), then in effect, by a
single arbitrator selected by mutual agreement of the parties or, if the parties
are unable to agree on an arbitrator, by the Association; provided that this
paragraph shall not restrict the right of either party to institute a legal
proceeding to enable such party to obtain temporary injunctive relief during the
pendency of any such arbitration. A determination of the dispute by the
arbitrator shall be final and binding on the parties to the extent permitted by
law. The cost of the arbitration, other than attorneys or other consultancy
fees, shall be borne equally by the parties.
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14. Status of Parties. In the performance of the work, duties and
obligations under this Agreement, it is mutually understood and agreed that each
party is at all times acting and performing as an independent contractor with
respect to the other and that no relationship of Partnership, joint venture or
employment is created by this Agreement.
15. Force Majeure. Neither party shall be deemed to be in default of
this Agreement if prevented from performing any obligation hereunder for any
reason beyond its control, including but not limited to, Acts of God, war, civil
commotion, fire, flood or casualty, labor difficulties, shortages of or
inability to obtain labor, materials or equipment, governmental regulations or
restrictions, or unusually severe weather. In any such case, the parties agree
to negotiate in good faith with the goal of preserving this Agreement and the
respective rights and obligations of the parties hereunder, to the extent
reasonably practicable. It is agreed that financial inability shall not be a
matter beyond a party's reasonable control.
16. Notices. Any notices to be given hereunder by either party to the
other shall be deemed to be received by the intended recipient (a) when
delivered personally, (b) the day following delivery to a nationally recognized
overnight courier service with proof of delivery, or (c) three (3) days after
mailing by certified mail, postage prepaid with return receipt requested, in
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each case addressed to the parties at the addresses set forth below or at any
other address designated by the parties in writing:
If to the Management Company:
Medi-Cen Management, Inc.
5530 Wisconsin Avenue, Suite 1248
Chevy Chase, Maryland 20815
Attention: Harrison Jett
If to the Partnership:
Washington Neurology Associates, L.L.P.
5530 Wisconsin Avenue, Suite 1248
Chevy Chase, Maryland 20815
17. Entire Agreement. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the subject matter of this Agreement. This Agreement may not be changed
orally, and may only be amended by an agreement in writing signed by both
parties.
18. No Rights in Third Parties. This Agreement is not intended to, nor
shall it be construed to, create any rights in any third parties, including,
without limitation, in any Physicians employed or engaged by the Partnership in
connection with the Practice.
19. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Maryland.
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20. Severability. If any provision of this Agreement shall be held by a
court of competent jurisdiction to be contrary to law, that provision will be
enforced to the maximum extent permissible, and the remaining provisions of this
Agreement will remain in full force and effect, unless to do so would result in
either party not receiving the benefit of its bargain.
21. Waiver. The failure of a party to insist upon strict adherence to
any term of this Agreement on any occasion shall not be considered a waiver or
deprive that party of the right thereafter to that term or any other term of
this Agreement.
22. Rights Unaffected. No amendment, supplement or termination of this
Agreement shall affect or impair any rights or obligations that shall have
theretofore matured hereunder.
23. Interpretation of Syntax. All references made and pronouns used
herein shall be construed in the singular or plural, and in such gender, as the
sense and circumstances require.
24. Successors. This Agreement shall be binding upon and shall inure to
the benefit of the parties, their respective heirs, executors, administrators
and assigns.
25. Further Actions. Each of the parties agrees that it shall hereafter
execute and deliver such further instruments and do such further acts and things
as may be required or useful to carry out the intent and purpose of this
Agreement and as are not inconsistent with the terms hereof.
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26. Assignability. The Partnership may not assign this Agreement except
with the prior written approval of Management Company. Management Company may
assign this Agreement after written notice to the Partnership.
IN WITNESS WHEREOF, and intending to be legally bound, the parties
hereto affix their signatures below and execute this Agreement under seal.
WASHINGTON NEUROLOGY ASSOCIATES, L.L.P.
By: __________________________ Date: _______________________
MEDI-CEN MANAGEMENT, INC.
By: __________________________ Date: _______________________
34
MANAGEMENT AGREEMENT
THIS AGREEMENT is made this 1st day of January, 1998, by and between
MEDI-CEN MANAGEMENT, Inc., a Maryland corporation, having its principal place of
business at 5530 Wisconsin Avenue, Suite 1248, Chevy Chase, Maryland (the
"Management Company"), and YATER MEDICAL GROUP, P.C., a District of Columbia
professional corporation, having its principal place of business at 1780
Massachusetts Avenue, N.W., Washington, D.C. (the "P.C.").
WHEREAS, the P.C. has been formed under the District of Columbia
Professional Corporation Act to render medical and related services to patients
of the P.C.;
WHEREAS, the P.C. desires to operate a medical practice at 1780
Massachusetts Avenue, N.W., Washington, D.C., and/or at other locations (the
"Practice") and to obtain certain management and consulting services for the
Practice from the Management Company; and
WHEREAS, the Management Company is ready, willing, and able to provide
such management and consulting services to the P.C. in connection with the
Practice.
NOW THEREFORE, in consideration of the mutual premises and covenants
contained herein and other good and valuable consideration, the receipt and
<PAGE>
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Representations and Warranties.
1.1 Representations and Warranties of the Management Company. The
Management Company hereby represents and warrants to the P.C. that at all times
during the term of this Agreement, the Management Company is a corporation duly
organized, validly existing and in good standing under the laws of the District
of Columbia.
1.2 Representations and Warranties of the P.C. The P.C. hereby
represents and warrants to the Management Company that at all times during the
term of this Agreement:
(a) The P.C. is a professional corporation organized, validly existing
and in good standing under the laws of the District of Columbia and is duly
licensed and qualified under all applicable laws and regulations to engage
in the practice of medicine and related services in the District of
Columbia.
(b) Each of the professionals employed or engaged by the P.C. to
render services at the Practice is duly licensed, certified, or registered,
as applicable, to render the services for which he or she has been employed
or engaged by the P.C.
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(c) The P.C. will establish and enforce procedures to ensure that
proper and complete medical records are maintained regarding all patients
of the practice as required by applicable law and by the rules and
regulations of any third party payors with which the P.C. may contract or
affiliate. To the extent permitted by law, the P.C. shall provide access to
the Management Company to such books and records of the P.C. as may be
necessary to carry out the terms, conditions, and purposes of this
Agreement. 2. General Responsibilities of the Management Company. The
Management Company shall have responsibility for those certain management
and consulting services described below, exclusive of any medical,
professional and ethical aspects of the Practice. The Management Company
shall be the exclusive provider to the P.C. of such management and
consulting services. The P.C. agrees that it shall not obtain any
management or consulting services from any source other than the Management
Company, except with the prior written consent of the Management Company.
2.1 Management Services. The Management Company shall provide, or
arrange for the provision of, management and administrative services for the
Practice, including but not limited to the following:
(i) business planning, including recommending capital, operating and
cash flow budgets;
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(ii) financial management, including causing annual financial
statements to be prepared for the P.C. and providing to the P.C. the data
necessary for the P.C. to prepare and file its tax returns and make any other
necessary governmental filings;
(iii) bookkeeping, accounting, data processing and other computer based
information services;
(iv) maintenance of medical records;
(v) administering or causing to be administered, on behalf and in the
name of the P.C., any welfare, benefit or insurance plan or arrangement of the
P.C.;
(vi) human resources management, including recruitment of all
personnel, training of all nonphysician personnel, and the management of all
non-clinical staff;
(vii) billing and collection, accounts receivable and accounts payable
processing, on behalf and in the name of the P.C., in addition to billing and
collection services set forth under the Billing Agent Agreement attached hereto
as Exhibit A;
(viii) utilization, cost and quality management systems;
(ix) managed care contracting services, including:
(a) evaluating, negotiating and administering, on behalf and in the
name of the P.C., agreements with employers, multi-employer welfare trusts,
third party administrators and other third parties, including third party
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payors, managed care entities, institutional health care providers and
vendors;
(b) developing and marketing bundled health services;
(c) developing fee schedules and setting charges for risk-sharing
payor contracts;
(d) developing risk-sharing arrangements for payor contracts;
(e) developing clinical protocols and pathways;
(f) credentialing support services consisting of application
processing and information verification;
(g) receiving and allocating payments from payors in accordance with
payor contracts and the rules, regulations and policies approved by the
Management Company;
(h) administering risk pools, withhold funds and incentive/bonus
arrangements;
(i) data analysis, including tracking and reporting to the P.C. on a
regular basis the performance of the P.C. and its physician employees under
payor contracts;
(j) risk assumption modeling;
(k) processing prior approval requirements and verifying member
eligibility;
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(l) implementing utilization management and quality assurance
procedures, and procedures for determining medical necessity and compliance
with applicable clinical guidelines; and
(m) implementing patient grievance procedures.
Such managed care contracting services shall be performed by Manager
with respect to payor contracts to the extent applicable to such contracts. The
parties recognize that the Management Company's ability to perform any of the
foregoing functions may be limited by the nature and quality of information
provided by, and the systems of, payors. In such cases, the Management Company
will use its best efforts to perform such functions within such limitations.
(x) using best efforts, on behalf and in the name of the P.C., to
obtain malpractice and other agreed upon insurance coverages;
(xi) advertising, marketing and promotional activities;
(xii) arranging for necessary legal services except with respect to
any legal dispute between the P.C. and the Management Company;
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(xiii) performing credentialing support services such as application
processing and information verification; and
(xiv) centralized group purchasing, including, at the request of the
P.C., negotiating and arranging for the P.C. to purchase medical and
non-medical inventory and supplies and other goods and services, on behalf
and in the name of the P.C., which the Management Company deems to be
necessary for the efficient operation of the Practice.
2.2 Staff. Subject to the requirements of applicable federal and state
law, the Management Company shall, on the terms and conditions specified in this
Agreement, employ or engage and make available to the Practice, on a
non-exclusive basis, sufficient non-Physician professional and administrative
staff (hereinafter referred to collectively as "Staff"; Staff members who are
licensed, registered or certified by the state to perform professional services
are hereinafter referred to collectively as "Professional Staff") as may be
reasonably necessary to operate the Practice in an efficient manner and meet the
patient care needs of the Practice in a timely manner, during the hours of
operation of the Practice by the P.C. All Staff assigned by the Management
Company to the Practice shall be subject to the P.C.'s clinical supervision and
approval, which approval shall not be unreasonably withheld. The hiring, firing,
disciplining, and determination of compensation and benefits of such Staff in
connection with services provided to or on behalf of the Practice shall be
within the sole discretion of the Management Company; provided, however, that
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the Management Company shall, at the P.C.'s written request, remove from the
Practice any Staff member who does not perform to the reasonable satisfaction of
the P.C.
2.3 Consulting Services. The Management Company shall:
(i) Identify and investigate potential sites for the establishment of
medical malls by the P.C.;
(ii) Identify individual physicians for employment by the P.C.;
(iii) Identify physician practices for acquisition by the P.C.;
(iv) Where possible, manage practices identified for acquisition by
the P.C. prior to their acquisition;
(v) Prepare financial projections for new locations and acquisition
targets;
(vi) Perform financial analyses on proposed new locations and the
business of acquisition targets;
(vii) Assist in the determination of the mix of specialties to be
available at each medical mall;
(viii) Perform market analyses and needs assessments to assist in the
determination of appropriate mall locations and services to be offered
therein; and
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(ix)Provide consulting services on an as needed basis with respect to
each medical mall established or acquired by the P.C. for a period of up to
nine (9) months following establishment or acquisition.
2.4 Deposit of Net Practice Revenues. To the extent permitted by law,
and subject to paragraph 2.4.1 herein, during the term of this Agreement, all
Net Practice Revenues, as defined herein, shall be deposited directly into a
bank account at a bank mutually agreed upon by the parties (the "Bank"), from
which the Management Company shall have the sole right to make withdrawals (the
"Account"). The Management Company shall maintain its accounting records in such
a way as to clearly segregate Net Practice Revenues from other funds of the
Management Company. The P.C. hereby appoints the Management Company as its true
and lawful attorney-in-fact to deposit in the Account all Net Practice Revenues
collected and to make withdrawals from the Account. The P.C. and the Management
Company hereby agree to execute from time to time such documents and
instructions as shall be required by the Bank and mutually agreed upon to
effectuate the foregoing provisions and to extend or amend such documents and
instructions with respect to payment for the Management Services during any
extended term of this Agreement.
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For purposes of this Agreement, "Net Practice Revenues" shall mean all
revenue, calculated on a cash basis (after taking into account adjustments for
refunds and set-offs), collected by or on behalf of the Practice, the P.C. or
their respective employees as a result of professional medical services
personally furnished to patients and other fees or income generated by such
persons in their capacity as members of the Professional Staff (but excluding
any revenues, fees or income generated by or on behalf of any Professional Staff
Members as a result of or in connection with activities of such Professional
Staff member in which Partnership or the other Professional Staff members, as a
group, would have no financial interest under the terms of their Physician
Employment Agreements with the P.C., as amended from time to time, and that are
not billed, collected or otherwise administered through the P.C. or the
Practice), whether rendered in an inpatient or outpatient setting and whether
rendered to health maintenance organization, preferred provider organization,
Medicare, Medicaid or other patients, including, but not limited to, payments
received under any capitation arrangement. The term "Net Practice Revenues"
shall include any ancillary services revenues provided at the Practice offices.
2.4.1 With respect to Medicare and Medicaid services provided by the
P.C. and its Professional Staff and with respect to other services for which
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<PAGE>
payments cannot be assigned to the Management Company under applicable law or
payor contracts, the Management Company shall bill or collect for such services
as agent for the P.C. pursuant to the Billing Agent Agreement attached hereto as
Exhibit A (the "Billing Agent Agreement"). With respect to funds deposited in
the Practice Account, as defined in the Billing Agent Agreement, the P.C. shall,
effective as of the date hereof, direct Account Bank, as defined in the Billing
Agent Agreement, in writing to transfer all amounts in the Practice Account at
the end of each business day of the Account Bank to an account designated by the
Management Company (the "Manager's Account"). The P.C. agrees that it will not
take any action that interferes with the transfer of funds from the Practice
Account to the Manager's Account as provided in the Billing Agent Agreement nor
will the P.C. or its agents remove, withdraw or authorize the removal or
withdrawal of any funds from the Practice Account for any purpose except to
accomplish the transfer of funds provided pursuant to the Billing Agent
Agreement.
2.4.2 The P.C. shall, and shall cause its Professional Staff to,
promptly endorse and deliver to Manager all payments, notes, checks, money
orders, insurance proceeds, remittances and other evidences of indebtedness or
payment received by the P.C. or its Professional Staff, with respect to all
accounts, contract rights, instruments, documents, or other rights to payment
from time to time arising from the rendering of medical services by the P.C. and
11
<PAGE>
its Professional Staff otherwise relating to the business of the P.C., together
with any guarantees thereof or securities therefor which are generated during
the term of this Agreement.
2.4.3 The P.C. and its Professional Staff hereby authorize the
Management Company to initiate legal proceedings in the name of the P.C. to
collect any accounts and monies owed to the P.C. and its Professional Staff as
creditors under any contract or in connection with the rendering of any service
hereunder, and to contest adjustments and denials by governmental agencies (or
their fiscal intermediaries) as third-party payors. All adjustments made for
uncollectible or doubtful accounts, charity care, professional courtesies and
other activities that do not generate a collectible fee shall be determined by
the Management Company in its reasonable judgment for purposes of financial
reporting.
2.5 Non-Operational Expenses. The Management Company shall be solely
responsible for the payment of all Management Company Expenses, defined as those
expenses that are not expressly specified as Operational or Practice Expenses,
as those terms are defined herein. The Management Company shall pay all
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<PAGE>
Management Company Expenses as they fall due; provided, however, that the
Management Company may contest in good faith any claimed Management Company
Expenses as to which there is any dispute regarding the nature, existence or
validity of such claimed Management Company Expenses.
2.6 Further Obligations of the Management Company. The Management
Company shall cause all work required to be performed pursuant to the terms of
this Agreement to be done in a good and professional manner.
3. Responsibilities of the P.C.
3.1 Professional Services. During the term of this Agreement, the P.C.
shall be solely responsible for all aspects of the medical, diagnostic,
therapeutic and related professional services delivered by the Practice and for
the selection, training, professional direction, supervision and employment or
engagement of all physicians. The hiring, firing, credentialing, disciplining,
and determination of compensation and benefits of such physicians shall be
within the sole discretion of the P.C.
3.2 Time Commitment. The P.C. shall conduct the Practice fifty-two (52)
weeks per year, according to a schedule mutually determined by the Management
Company and the P.C. The P.C. shall provide physicians in adequate numbers to
meet all of the needs, including emergency needs, of patients of the Practice in
a timely and responsive manner.
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3.3 Quality of Service. The P.C. shall establish and enforce procedures
to assure the appropriateness, necessity, consistency, quality, cost
effectiveness and efficacy of all professional services provided to patients of
the Practice. The P.C. shall require each of its physicians, and the Management
Company shall require each member of its Professional Staff, to participate in
and cooperate with any utilization management, quality assurance, risk
management, patient care assessment, continuous quality improvement,
accreditation or other similar program or study to review the performance of the
physicians and such Professional Staff as may be required by the P.C.,
governmental agencies, professional review organizations, accrediting bodies, or
third party payors or health care entities with which the P.C. may contract or
affiliate.
3.4 Billing and Collection.
(a) The P.C., or the P.C.'s authorized billing agent, shall bill to
and collect from patients, third party payors and others for all services
rendered by the P.C. or any physician or member of the Professional Staff
in connection with the Practice. The P.C. hereby appoints the Management
Company as its agent and attorney-in-fact for purposes of billing and
collecting, in the P.C.'s name and on the P.C.'s behalf, for all such
professional services rendered in connection with the Practice, in
accordance with this Agreement and with the Billing Agent Agreement
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<PAGE>
attached hereto as Exhibit A. Subject to the Billing Agent Agreement, the
Management Company shall issue bills for all such services within thirty
(30) days after such services are rendered, and the Management Company
shall use its best, good faith and diligent efforts to collect for all such
services as promptly as may be reasonably practicable.
(b) The P.C. shall provide written notice to the Management Company at
least thirty (30) days in advance of any proposed change in its charges. If
the Management Company objects in writing to any such proposed revised
charge the P.C. shall consult with the Management Company regarding the
appropriate level of such charge before said charge shall go into effect.
3.5 Practice Expenses. The P.C. shall be solely responsible for the
payment of all Practice Expenses, as defined herein. The P.C. shall pay all
Practice Expenses as they fall due; provided, however, that the P.C. may contest
in good faith any claimed Practice Expenses as to which there is any dispute
regarding the nature, existence or validity of such claimed Practice Expenses.
As used in this Agreement, "Practice Expenses" shall mean (a) any
federal, state or local income taxes of the Practice; (b) any salaries,
benefits, or other direct costs with respect to the Professional Staff,
including without limitation, workers' compensation, retirement plan
contributions, health, disability and life insurance premiums, payroll taxes or
15
<PAGE>
compensation paid or payable to physician independent contractors (or other
independent contractors who provide medical services to patients); (c) physician
licensure fees, board certification fees, hospital staff privilege dues, and
costs of membership in professional associations for Professional Staff members;
(d) costs of continuing professional education for Professional Staff members;
(e) insurance premiums for policies of malpractice insurance for the Practice
and Professional Staff members; deductibles under such policies of malpractice
insurance; any and all costs and expenses incurred with respect to claims under
such policies of malpractice insurance; liability judgments assessed against the
Practice or Professional Staff members in excess of policy limits; and (f)
direct personal expenses of Professional Staff members of a kind that the
Practice has historically charged to its Professional Staff, e.g., cellular
phone expenses, paging system expenses.
3.6 Further Obligations of the P.C. In order for the Management Company
to perform its duties as described herein, the P.C. shall:
(i) Provide full information regarding its requirements for expansion
and acquisition;
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<PAGE>
(ii) Designate a representative who shall be fully acquainted with the
P.C.'s plans and has authority to render decisions promptly and furnish
information expeditiously; and
(iii) In the event that the P.C. becomes aware of any problems in any
sites or with any acquisition targets, give prompt written notice thereof
to the Management Company.
4. Financial Terms.
(a) Payment of Operational Expenses. The Management Company shall pay,
on behalf and in the name of the P.C., all Operational Expenses, as defined
herein, as they fall due, out of Net Practice Revenues; provided, however, that
the Management Company may, in the name of and on behalf of the P.C., contest in
good faith any claimed Operational Expenses as to which there is any dispute
regarding the nature, existence or validity of such claimed Operational
Expenses.
For purposes of this Agreement, "Operational Expenses" shall mean the
operating and non-operating expenses incurred by the Management Company in
performing its duties hereunder, including, but not limited to: (a) salaries,
benefits, and other direct costs (including, without limitation, professional
liability insurance) of all Staff of the P.C. (but not including Professional
Staff); (b) obligations under leases or subleases for space and equipment used
by the Practice; (c) personal property and intangible taxes assessed against
assets used by the Clinic; (d) charitable contributions budgeted and approved by
the Management Company and the P.C.; (e) depreciation and amortization; (f)
interest expenses; (g) costs and expenses incurred in recruiting physicians and
other Practice personnel; (h) utility expenses relating to the medical office
space, and all other costs relating to the medical office space, including
without limitation, costs of repair, maintenance, telephone, electric, gas and
17
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water utility expenses, general liability insurance, security, worker's
compensation for Management Company employees, normal janitorial services,
refuse disposal, and medical and office supplies, including pharmaceuticals; (i)
actual costs incurred with respect to billing and collecting; (j) premiums for
malpractice and other agreed upon insurance coverage; and (k) obligations of the
P.C. under contracts, including without limitation, that certain contract by and
between the P.C. and Medi-Cen Corporation of Maryland, Inc., dated January 17,
1997, and any contracts by and between the P.C. and Health Quality Management,
Inc.
(b) Compensation to Management Company. As compensation for services
rendered under this Agreement, the P.C. shall pay to the Management Company
sixty percent (60%) of the Revenue Margin, as defined herein, per calendar year
(the "Management Fee"). The P.C. shall retain the remaining Revenue Margin.
Notwithstanding any other provision of this Agreement, the Management Fee shall
in no event be less than Five Hundred Thousand Dollars ($500,000) per annum (the
"Management Fee Floor"), nor exceed a per annum amount equal to the sum of (1)
the product of the number of new Medical Malls established during the then
current year of this Agreement and Five Hundred Thousand Dollars ($500,000) (the
"Management Fee Cap"), and (2) the product of the number of existing Medical
Malls maintained during the then current year of this Agreement and One Million
Dollars ($1,000,000). At such time that Net Practice Revenues reach $__________,
and upon each $____________ increase in Net Practice Revenues thereafter, the
parties shall have the right to renegotiate the Management Fee, the Management
Fee Floor, and the Management Fee Cap to appropriately reflect the fair market
value of management and consulting services provided by Manager. In the event
that the Management Cap is reached in any year of this Agreement, the Management
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Company shall remit to the P.C. any remaining Revenue Margin. In the event that
the Management Fee Floor is not reached in any year of this Agreement, the P.C.
shall pay to the Management Company the shortfall. For purposes of this
Agreement, "Revenue Margin" shall mean the amount equal to Net Practice Revenues
less all Operational Expenses.
(c) Draws. Following the end of each month, the Management Company
shall estimate such month's Net Clinic Revenues by multiplying a Historical
Collection Percentage, as defined herein, by such month's gross production. For
purposes of this Agreement, the "Historical Collection Percentage" shall be
determined by averaging the collection percentages for the immediately preceding
six (6) months. Operational Expenses for such month shall then be subtracted
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<PAGE>
from such estimated Net Clinic Revenues for such month, resulting in an
estimated Revenue Margin, as defined herein. The Management Company shall remit
to the P.C. forty percent (40%) of such estimated Revenue Margin by the
fifteenth (15th) day of the following month and shall retain any remaining
amounts as a draw on its Management Fee.
(d) Reconciliation. Within ninety (90) days after the end of each
calendar quarter, the Management Company will reconcile the amounts retained by
the Management Company as draws under subsection (c) above with the actual Net
Clinic Revenues attributable to the gross production for such quarter, and shall
determine the actual Revenue Margin. In the event that the amounts retained by
the Management Company as draws under subsection (c) above are less than sixty
percent (60%) of the actual Revenue Margin for such quarter, the P.C. shall pay
to the Management Company the shortfall. In the event that the draws paid under
subsection (c) above are in excess of sixty percent (60%) of the actual Revenue
Margin for such quarter, the Management Company shall remit to the P.C. the
overdraft.
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(e) Fair Market Value of Services Rendered. The Management Fee has been
determined by the parties to equal the fair market value of the consulting,
administrative and management services furnished by the Management Company
hereunder, without taking into account the proximity of the Premises to any
source of referrals, or the volume or value of any referrals of business from
the Management Company (or its affiliates) to the P.C., or from the P.C. to the
Management Company (or its affiliates), that is reimbursed under any
governmental or private health care payment or insurance program.
(f) Arm's Length Transaction. The Management Fee paid by the P.C. to
the Management Company hereunder has been determined by the parties through
good-faith and arm's length bargaining, and consistent with industry practices.
No amount paid hereunder is intended to be, nor shall it be construed to be, an
inducement or payment for referral of, or recommending referral of, patients by
the P.C. to the Management Company (or its affiliates) or by the Management
Company (or its affiliates) to the P.C. In addition, the Management Fee charged
hereunder does not include any discount, rebate, kickback, or other reduction in
charge, and the Management Fee charged hereunder is not intended to be, nor
shall it be construed to be, an inducement or payment for referral, or
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recommendation of referral, of patients by the P.C. to the Management Company
(or its affiliates) or by the Management Company (or its affiliates) to the P.C.
5. Regulatory Matters.
(a) The P.C.'s physicians and the Professional Staff shall at all times
be free, in their sole discretion, to exercise their professional/medical
judgment on behalf of patients of the P.C. No provision of this Agreement is
intended, nor shall it be construed, to permit the Management Company to affect
or influence the professional/medical judgment of any member of the P.C.'s
Professional Staff. To the extent that any act or service required or permitted
of the Management Company by any provision of this Agreement may be construed or
deemed to constitute the practice of medicine, the ownership or control of a
medical practice, or the operation of a medical or health care facility, said
provision of this Agreement shall be void ab initio and the performance of said
act or service by the Management Company shall be deemed waived by the P.C.
(b) The parties agree to cooperate with one another in the fulfillment
of their respective obligations under this Agreement, and to comply with the
requirements of law and with all ordinances, statutes, regulations, directives,
orders, or other lawful enactments or pronouncements of any federal, state,
municipal, local or other lawful authority applicable to the Practice, and of
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<PAGE>
any insurance company insuring the Premises or the parties against liability for
accident or injury in or upon the Premises. 6. Insurance.
6.1 General Comprehensive Liability Insurance. During the term of this
Agreement, the Management Company shall obtain and maintain at its own expense a
comprehensive general liability insurance policy and such other insurance as may
be required, in such amounts, with such coverages and with such companies as the
Management Company may reasonably determine.
6.2 Equipment Insurance. The Management Company shall cause to be
carried and maintained insurance against all risks of physical loss or damage to
the Equipment in an amount not less than the original purchase price or the
replacement cost with like kind and quality at the time of loss, with such
companies and as the Management Company shall reasonably determine.
6.3 Malpractice Insurance. During the term of this Agreement, the
Management Company shall use its best efforts to obtain and maintain, at the
P.C.'s expense, professional liability insurance covering the P.C., the
physicians and each Professional Staff member, with limits of $1 million per
occurrence and $3 million in the aggregate. In the event the P.C. has a "claims
made" form of insurance in effect at any time during the term of this Agreement,
the Management Company shall obtain full "tail" coverage to cover any event that
may have occurred during the term of this Agreement. The P.C. shall provide to
the Management Company any information with respect to the P.C. or the
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Physicians necessary for the Management Company to secure such professional
liability insurance.
7. Indemnification. Except to the extent paid from the proceeds of
available insurance, each party (and its affiliates) agrees to indemnify and
hold the other party (and its affiliates) harmless against any loss, cost, suit,
claim, action, cause of action, damage, obligation, contract, demand, liability,
judgment, verdict, settlement or expense (including reasonable attorney's and
other consultancy fees and court costs) arising out of any act or omission of
the indemnifying party, its employees, agents or affiliates that occurs in
connection with this Agreement.
8. Non-Solicitation. The P.C. agrees, and shall cause its employees to
agree, not to solicit the employment of, or to employ, any employee of the
Management Company or its affiliates, including but not limited to any member of
the Staff provided by the Management Company to the P.C. hereunder, during the
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term of this Agreement, and for a period of one (1) year from the date of
termination or expiration of this Agreement.
9. Non-Compete. During the term of this Agreement, the P.C. and each of
the physicians employed or engaged by the P.C. shall not, without the express
written consent of the Management Company, directly or indirectly, in whole or
in part, own, manage, operate, join, control, participate in the ownership,
management, operation or control of, contract with, be employed by, or be
connected with in any manner, any business engaged in the same or similar
activities engaged in by the Management Company or the P.C., or that directly or
indirectly competes with the Management Company or the P.C.
If any part of paragraph 8 or 9 of this Agreement should be determined
by a court of competent jurisdiction to be unreasonable in nature, duration,
geographic area, or scope, then this Agreement is intended to and shall extend
only for such period of time, in such area and with respect to such activity, as
is determined by said court to be reasonable.
10. Disclosure of Information. The P.C. recognizes and acknowledges
that all records, files, reports, protocols, policies, manuals, data bases,
processes, procedures, computer systems, materials and other documents used by
the Management Company (or its affiliates) in rendering services hereunder, or
relating to the operations of the Management Company (or its affiliates), belong
to and shall remain the property of the Management Company, and constitute
proprietary information and trade secrets that are valuable, special, and unique
assets of the Management Company's business. The P.C. shall not, and shall
assure that each of its physicians shall not, during or after the term of this
Agreement, disclose any proprietary information or trade secrets of the
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Management Company (or its affiliates) to any other firm, person, corporation,
association, or other entity for any reason or purpose whatsoever, without the
written consent of the Management Company or its respective affiliate.
11. Enforcement. The P.C. agrees that the covenants set forth in
paragraphs 8, 9 and 10 are reasonable in nature, duration and geographical
scope. The P.C. further acknowledges that any violation of those covenants will
cause the Management Company irreparable damage, which a monetary award would be
inadequate to remedy, and that a court or arbitrator of competent jurisdiction
may, in addition to monetary awards, enjoin any breach of and enforce such
covenants by temporary restraining order, and preliminary and permanent
injunctive relief. If a court or arbitrator of competent jurisdiction determines
that any of the covenants in paragraphs 8, 9 and 10 is unreasonable in nature,
duration or geographic scope, then the P.C. agrees that such court or arbitrator
shall reform such covenant so that such covenant is enforceable to the maximum
26
<PAGE>
extent permitted by law for a covenant of that nature, and such court shall
enforce the covenant to that extent.
12. P.C. Covenants. (a) The P.C. agrees that, at all times during the
term of this Agreement, the P.C. shall cause its stockholder and directors to
fix the number of directors of the P.C. at three (3) and to elect the Management
Company Nominee to fill at least one (1) position on the P.C.'s Board of
Directors. For purposes of this subparagraph, "Management Company Nominee" shall
mean a licensed physician designated in writing by the Management Company to the
P.C., from time to time.
13. Effective Date; Term and Termination.
(a) This Agreement shall be effective January 1, 1998, provided that
the Management Company has completed a successful Initial Public Offering (a
"Successful IPO"), as defined herein, by such date, or upon such later date that
the Management Company completes a Successful IPO (the "Effective Date"). For
purposes of this Agreement, a "Successful IPO" shall mean ________________. The
term of this Agreement shall be for thirty (30) years commencing on the date
first written above, unless sooner terminated as set forth herein, and shall
27
<PAGE>
automatically renew for successive five (5) years terms unless either party
gives the other at least ninety (90) days prior written notice of its intention
not to renew prior to the expiration of the then current term.
(b) Either party may terminate this Agreement immediately upon the
occurrence of any of the following events with regard to the other party: (i)
the making of a general assignment for the benefit of creditors; (ii) the filing
of a voluntary petition or the commencement of any proceeding by either party
for any relief under any bankruptcy or insolvency laws, or any laws relating to
the relief of debtors, readjustment of indebtedness, reorganization, composition
or extension; (iii) the filing of any involuntary petition or the commencement
of any proceeding by or against either party for any relief under any bankruptcy
or insolvency laws, or any laws relating to the relief of debtors, readjustment
of indebtedness, reorganization, composition or extension, which such petition
or proceeding is not dismissed within ninety (90) days of the date on which it
is filed or commenced; or (iv) suspension of the transaction of the usual
business of either party for a period in excess of thirty (30) days.
(c) The Management Company may terminate this Agreement immediately
upon written notice to the P.C. of any breach of the Stock Transfer Restriction
Agreement between the P.C. and the stockholders of the P.C.
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(d) The Management Company may terminate this Agreement immediately
upon written notice to the P.C. of any breach of paragraph 9 of this Agreement.
(e) The Management Company may terminate this Agreement at any time,
with or without cause, by giving the P.C. ninety (90) days' prior written
notice; provided, however, that if this Agreement is terminated pursuant to this
paragraph, the parties may not enter into a substantially similar management
agreement within __ days of such termination.
(f) The P.C. may terminate this Agreement upon one year's prior written
notice to the Management Company in the event of a material breach by the
Management Company of any material term or condition hereof, if such breach is
not cured to the reasonable satisfaction of the P.C. within one year after the
P.C. has given notice thereof to the Management Company.
(g) Upon termination or expiration of this Agreement by either party,
the P.C. shall pay the Management Company any amounts owed to the Management
Company under paragraph 4 hereof as of the date of termination or expiration.
(h) Upon termination or expiration of this Agreement, the P.C. shall
return to the Management Company any and all property of Management Company that
may be in the P.C.'s possession or under the P.C.'s control.
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14. Arbitration.
Any disputes arising under this Agreement or any breach of this
Agreement, shall be determined by arbitration in accordance with the rules of
the American Arbitration Association ("Association"), then in effect, by a
single arbitrator selected by mutual agreement of the parties or, if the parties
are unable to agree on an arbitrator, by the Association; provided that this
paragraph shall not restrict the right of either party to institute a legal
proceeding to enable such party to obtain temporary injunctive relief during the
pendency of any such arbitration. A determination of the dispute by the
arbitrator shall be final and binding on the parties to the extent permitted by
law. The cost of the arbitration, other than attorneys or other consultancy
fees, shall be borne equally by the parties.
15. Status of Parties. In the performance of the work, duties and
obligations under this Agreement, it is mutually understood and agreed that each
party is at all times acting and performing as an independent contractor with
respect to the other and that no relationship of partnership, joint venture or
employment is created by this Agreement.
16. Force Majeure. Neither party shall be deemed to be in default of
this Agreement if prevented from performing any obligation hereunder for any
reason beyond its control, including but not limited to, Acts of God, war, civil
commotion, fire, flood or casualty, labor difficulties, shortages of or
inability to obtain labor, materials or equipment, governmental regulations or
30
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restrictions, or unusually severe weather. In any such case, the parties agree
to negotiate in good faith with the goal of preserving this Agreement and the
respective rights and obligations of the parties hereunder, to the extent
reasonably practicable. It is agreed that financial inability shall not be a
matter beyond a party's reasonable control.
17. Notices. Any notices to be given hereunder by either party to the
other shall be deemed to be received by the intended recipient (a) when
delivered personally, (b) the day following delivery to a nationally recognized
overnight courier service with proof of delivery, or (c) three (3) days after
mailing by certified mail, postage prepaid with return receipt requested, in
each case addressed to the parties at the addresses set forth below or at any
other address designated by the parties in writing:
If to the Management Company:
Medi-Cen Management, Inc.
5530 Wisconsin Avenue, Suite 1248
Chevy Chase, Maryland 20815
Attention: Harrison Jett
If to the P.C.:
Yater Medical Group, P.C.
1780 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1999
Attention: P. Steven Macedo, M.D.
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18. Entire Agreement. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the subject matter of this Agreement. This Agreement may not be changed
orally, and may only be amended by an agreement in writing signed by both
parties.
19. No Rights in Third Parties. This Agreement is not intended to, nor
shall it be construed to, create any rights in any third parties, including,
without limitation, in any Physicians employed or engaged by the P.C. in
connection with the Practice.
20. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Maryland.
21. Severability. If any provision of this Agreement shall be held by a
court of competent jurisdiction to be contrary to law, that provision will be
enforced to the maximum extent permissible, and the remaining provisions of this
Agreement will remain in full force and effect, unless to do so would result in
either party not receiving the benefit of its bargain.
22. Waiver. The failure of a party to insist upon strict adherence to
any term of this Agreement on any occasion shall not be considered a waiver or
deprive that party of the right thereafter to that term or any other term of
this Agreement.
23. Rights Unaffected. No amendment, supplement or termination of this
Agreement shall affect or impair any rights or obligations that shall have
theretofore matured hereunder.
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24. Interpretation of Syntax. All references made and pronouns used
herein shall be construed in the singular or plural, and in such gender, as the
sense and circumstances require.
25. Successors. This Agreement shall be binding upon and shall inure to
the benefit of the parties, their respective heirs, executors, administrators
and assigns.
26. Further Actions. Each of the parties agrees that it shall hereafter
execute and deliver such further instruments and do such further acts and things
as may be required or useful to carry out the intent and purpose of this
Agreement and as are not inconsistent with the terms hereof.
27. Assignability. The P.C. may not assign this Agreement except with
the prior written approval of Management Company. Management Company may assign
this Agreement after written notice to the P.C.
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IN WITNESS WHEREOF, and intending to be legally bound, the parties
hereto affix their signatures below and execute this Agreement under seal. YATER
MEDICAL GROUP, P.C.
By: _____________________________ Date: __________________________
MEDI-CEN MANAGEMENT, INC.
By: _____________________________ Date: __________________________
34
STOCK TRANSFER RESTRICTION AGREEMENT
AMONG
YATER MEDICAL GROUP, P.C.,
a District of Columbia Profession Corporation
MEDI-CEN MANAGEMENT, INC.,
a Maryland Corporation
P. STEVEN MACEDO, M.D.,
AND
ILENE S. MACEDO, M.D.
December 31, 1997
<PAGE>
STOCK TRANSFER RESTRICTION AGREEMENT
THIS AGREEMENT made as of the 31 day of Dec. 1997, by and among Yater
Medical Group, P.C., a District of Columbia professional corporation (the
"Corporation"), Medi-Cen Management, Inc. a Maryland corporation ("MMI"), P.
Steven Macedo, M.D. and Ilene S. Macedo, M.D. (individually, the "Stockholder"
and together the "Stockholders").
W I T N E S S E T H:
WHEREAS, the Stockholders collectively are the holder of 4000 shares of
issued and outstanding $1.00 par value common stock of the Corporation,
constituting all of the issued and outstanding common stock of the Corporation;
WHEREAS, the Corporation and the Stockholders believe that it is in the
best interest of the Corporation to restrict the transferability of the stock in
the Corporation; and
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties covenant and agree as follows:
1. Restrictions On Shares. Except as otherwise provided herein, the
Stockholders shall not sell, assign, transfer, gift, pledge, hypothecate,
encumber or otherwise dispose of, whether voluntarily, involuntarily, by
operation of law or otherwise, any shares of the stock of the Corporation which
the
<PAGE>
Stockholders now own or may hereafter acquire (the "Stock"). In addition, the
Stockholders shall not cause the Corporation to authorize, approve or declare
any dividend or other distribution with respect to the Stock.
2. Automatic Transfer of Shares in Certain Events.
(a) By execution of this Agreement, each Stockholder hereby agrees
that all of the shares of Stock of the Corporation held by the Stockholders
(or any heir, executor, administrator, personal representative, estate,
testamentary beneficiary, donee, trustee in bankruptcy, successor or
assignee of the Stockholders) shall be transferred, or deemed transferred,
to the Designated Transferee (defined below) without further action by the
Stockholders upon the occurrence any of the following events (each a
"Transfer Event"):
(i) the date of death of the last Stockholder to die;
(ii) the date the last of all of the Stockholders is determined
by a court of competent jurisdiction to be incompetent, or permanently
disabled so as to be unable to render any professional services on
behalf of the Corporation;
(iii) the date the last of all of the Stockholders becomes
disqualified under applicable law to be a shareholder of the
corporation;
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(iv) the date upon which any of the shares of Stock held by the
Stockholders are transferred or attempted to be transferred
voluntarily, involuntarily by operation of law or otherwise to any
person; or
(v) the date of filing any petition for or other document causing
or intended to cause a judicial, administrative, voluntary or
involuntary dissolution of the Corporation.
(b) Transfer of Stock. Upon the occurrence of a Transfer Event with
respect to the Stockholders, subject to the terms set forth below, all of
the Stock of the Corporation held by the Stockholders or their successors
and assigns shall be immediately transferred, or deemed transferred, to the
Designated Transferee without further action by the Stockholders:
(i) The purchase price for the Stock transferred to the
Designated Transferee pursuant to this Section 2 shall be the stated
par value of the Stock.
(ii) Payment of the purchase price for the Stock shall be made to
the Stockholders in cash or by certified or cashiers check. The time
for payment of the purchase price for the Stock hereunder shall be at
10:00 a.m. on the first business day following receipt by the
Designated Transferee of notice of such Transfer Event (provided,
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<PAGE>
however, that in the absence of such notice, the Designated Transferee
shall upon becoming aware of any such Transfer Event promptly notify
the Stockholders, the Corporation and of such Transfer Event and
tender to the Stockholders the purchase price for the Stock). The
Designated Transferee shall tender the purchase price at the principal
office of the Corporation.
(iii) Notwithstanding anything to the contrary herein, upon the
occurrence of a Transfer Event, the Stock will be immediately
transferred, or deemed transferred, to the Designated Transferee
effective upon the date of such Transfer Event irrespective of the
date of payment for such Stock.
(c) Definition. For purposes of this Agreement, "Designated
Transferee" shall mean an individual, designated by MMI, and otherwise
meeting the qualifications for ownership of the Corporations shares.
(d) Deposit and Custody of Stock. Upon release of the Certificate from
George Mason Bank the parties agree that MMI shall hold stock certificate
no. 5 (the "Certificate") of the Corporation, evidencing 4000 shares of the
Stock of the Corporation, duly endorsed in blank, for the benefit of the
Designated Transferee. Upon the occurrence of a Transfer Event, MMI shall
endorse the Certificate in the name of the Designated Transferee and
release the Certificate to the Clerk of the
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<PAGE>
Corporation for cancellation by the Clerk, registration of the shares
represented thereby in the name of the Designated Transferee on the books
of the Corporation, and issuance of a new certificate in the name of the
Designated Transferee.
(e) Deliveries by Designated Transferee. Notwithstanding anything
herein to the contrary, release by MMI of a Certificate to the Clerk of the
Corporation shall be contingent on MMI's prior or concurrent receipt of:
(i) a stock transfer power executed by the Stockholder covering
the Stock transferred to the Designated Transferee;
(ii) issuance by the Corporation of a new stock certificate
evidencing the Designated Transferee's ownership of the Stock in the
Corporation; and
(iii) a copy of this Agreement duly executed by the Designated
Transferee substituting the Designated Transferee for the Stockholders
hereunder.
3. Other Matters.
(a) Upon the occurrence of a Transfer Event, the Stockholders shall be
disqualified as stockholders of the Corporation, and shall immediately
resign, as President and/or as any other officer of the Corporation.
(b) After occurrence of a Transfer Event, the Stockholder, and any
person who acquires the Stock, other than
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<PAGE>
the Designated Transferee, shall neither have nor exercise any right or
privilege as a stockholder of the Corporation, including any right to
receive any unallocated or undistributed dividend.
4. Restrictions on Certificates. Upon the execution of this Agreement, the
Stockholders shall surrender their certificates representing shares of the Stock
subject to this Agreement to the Corporation for the purpose of placing notice
of the restrictions on transfer occasioned by this Agreement substantially as
follows:
IN ADDITION, THE OWNERSHIP AND TRANSFER OF THESE SHARES AND THE RIGHTS AND
OBLIGATIONS OF SHAREHOLDERS ARE SUBJECT TO THE LIMITATIONS OF THE DISTRICT
OF COLUMBIA PROFESSIONAL CORPORATION ACT. THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO THE TERMS OF A STOCK TRANSFER RESTRICTION
AGREEMENT (A COPY OF WHICH IS ON FILE WITH THE CORPORATION AND AVAILABLE
WITHOUT CHARGE), AND NO TRANSFER OF THE SHARES REPRESENTED HEREBY OR OF
SHARES ISSUED IN EXCHANGE THEREFOR SHALL BE VALID OR EFFECTIVE UNTIL THE
TERMS AND CONDITIONS OF SUCH AGREEMENT SHALL HAVE BEEN FULFILLED.
After such notice has been placed on such certificate, it shall be returned
to the Stockholder. All Stock which is subject to this Agreement and which is
issued to the Stockholders after the date of this Agreement shall bear the same
notice.
5. Subordination. Notwithstanding any other provision of this Agreement,
this Agreement and any and all rights created
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<PAGE>
hereunder shall be subordinate to the rights of Allegiance Bank, N.A. (the
"Bank") under that certain Commercial Pledge and Security Agreement dated
January 17, 1997, by and between Yater Medical Group, P.C. as Borrower, Pedro S.
Buarque de Macedo and Ilene S. Buarque de Macedo as Grantor, and the Bank as
Lender.
6. Notices. All notices, requests, consents and other communications
hereunder shall be in writing, shall be addressed to the receiving party's
address set forth below or to such other address as a party may designate by
notice hereunder, and shall be either (i) delivered by hand, (ii) telexed,
telecopied or made by facsimile transmission, (iii) sent by overnight courier,
or (iv) sent by certified or registered mail, return receipt requested, postage
prepaid.
If to the Corporation: Yater Medical Group, P.C.
1780 Massachusetts Avenue, N.W.
Washington, D.C. 20036
If to the Stockholders: P. Steven Macedo, M.D.
Ilene S. Macedo, M.D.
6305 Mountain Branch Court
Bethesda, Maryland 20815
If to MMI: Medi-Cen Management, Inc.
5110 Ridgefield Road
Bethesda, Maryland 20816
All notices, requests, consents and other communications hereunder shall be
deemed to have been given either (i) if by
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<PAGE>
hand, at the time of the delivery thereof to the receiving party at the address
of such party set forth above, (ii) if telexed, telecopied or made by facsimile
transmission, at the time that receipt thereof has been acknowledged by
electronic confirmation or otherwise, (iii) if sent by overnight courier, on the
next day following the day such mailing is made (or in the case that such
mailing is made on Saturday, on the immediately following Monday), or (iv) if
sent by certified or registered mail, on the 3rd day following the time of such
mailing thereof to such address (or in the case that such 3rd day is a Sunday,
on the immediately following Monday).
7. Successors. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto, and their authorized successors or assigns. The
rights of any party hereunder may not be assigned without the consent of the
remaining parties hereto.
8. Additional Stockholders. Each holder of any of the capital stock of the
Corporation or any rights to acquire capital stock of the Corporation, including
any holder of any warrant, option or other security convertible into or
exchangeable for capital stock of the Corporation, shall execute a counterpart
of this Agreement acknowledging that the restrictions contained herein shall
apply to such stock or rights to acquire stock in the Corporation.
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<PAGE>
9. Third Party Beneficiary. The parties hereto acknowledge that the
Designated Transferee, if and when he or she becomes a Designated Transferee,
shall have standing to enforce the provisions of this Agreement.
10. Governing Law. This Agreement, the rights and obligations hereunder,
and any claims or disputes relating thereto, shall be governed by and construed
in accordance with the laws of the District of Columbia.
11. Complete Agreement. All understandings and agreements heretofore had
between the parties hereto with respect to the transactions contemplated hereby
are merged into this Agreement, and this Agreement reflects all the
understandings of the parties with respect to such transactions.
12. Captions. The section titles or captions in this Agreement are for
convenience of reference only. They shall not be considered to be a part of this
Agreement, and they in no way define, limit, extend or describe the scope or
intent of any provision hereof.
13. Modification. This Agreement cannot be modified, extended or amended
except by written agreement signed by all of the parties hereto.
14. Arbitration. Any dispute regarding the meaning and interpretation of
this Agreement shall be submitted to arbitration. The parties hereto agree that
all disputes arising
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<PAGE>
under this Agreement shall be settled by arbitration in accordance with the
rules of the American Arbitration Association in the District of Columbia (the
"Association"), then in effect, before a single arbitrator chosen by mutual
agreement of the parties or, if the parties are unable to agree on an
arbitrator, by the Association. A determination of the dispute by the arbitrator
shall be final and binding on the parties to the extent provided by law. The
cost of the arbitration, other than attorney's and consultancy fees, shall be
borne equally by the parties.
15. Confidentiality. The existence and the terms and conditions of this
Agreement are confidential and shall not be disclosed to any third party by any
party to this Agreement without the prior written consent of all other parties
to this Agreement.
16. Counterparts. This Agreement may be executed in two or more
counterparts and each counterpart, when so executed and delivered shall
constitute a complete and original instrument, and it shall not be necessary
when making proof of this Agreement or any counterpart thereto to produce or
account for any other counterparts.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as a sealed
instrument on the date first written above.
Yater Medical Group, P.C.
By: /s/ P. Steven Macedo 12/31/97
----------------------------------
P. Steven Macedo, President
Medi-Cen Management, Inc.
By: /s/ Mickey Macedo 12/31/97
----------------------------------
Mickey Macedo, CEO
By: /s/ P. Steven Macedo 12/31/97
----------------------------------
P. Steven Macedo, M.D.,
Individually
By: /s/ Ilene S. Macedo, M.D.12/31/97
----------------------------------
Ilene S. Macedo, M.D.
Individually
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PARTNERSHIP INTEREST TRANSFER RESTRICTION AGREEMENT
AMONG
WASHINGTON NEUROLOGY ASSOCIATES, L.L.P.,
a Maryland Limited Liability Partnership,
MEDI-CEN MANAGEMENT, INC.,
a Maryland Corporation
P. STEVEN MACEDO, M.D.,
AND
ILENE S. MACEDO, M.D.
December 31, 1997
<PAGE>
PARTNERSHIP INTEREST TRANSFER RESTRICTION AGREEMENT
THIS AGREEMENT made as of the 31st day of December 1997, by and among
Washington Neurology Associates, L.L.P., a Maryland limited liability
partnership (the "Partnership"), Medi-Cen Management, Inc. a Maryland
corporation ("MMI"), P. Steven Macedo, M.D. and Ilene S. Macedo, M.D.
(individually, the "Partner" and together the "Partners").
W I T N E S S E T H:
WHEREAS, each Partner owns a fifty percent (50%) interest in the
Partnership;
WHEREAS, the Partnership and the Partners believe that it is in the best
interest of the Partnership to restrict the transferability of the interests in
the Partnership.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties covenant and agree as follows:
1. Restrictions On Partnership) Interests. Except as otherwise provided
herein, the Partners shall not sell, assign, transfer, gift, pledge,
hypothecate, encumber or otherwise dispose of, whether voluntarily,
involuntarily, by operation of law or otherwise, any partnership interests of
the Partnership which the Partners now own or may hereafter acquire (the
"Partnership Interests").
<PAGE>
2. Automatic Transfer of Partnership Interests in Certain Events.
(a) By execution of this Agreement, each Partner hereby agrees that
each Partner's Partnership Interest (or the Partnership Interest of either
Partner's heir, executor, administrator, personal representative, estate,
testamentary beneficiary, donee, trustee in bankruptcy, successor or
assignee of the Partners) shall be transferred, or deemed transferred, to
the Designated Transferee (defined below) without further action by the
Partners upon the occurrence any of the following events (each a "Transfer
Event"):
(i) the date of death of a Partner;
(ii) the date a Partner is determined by a court of competent
jurisdiction to be incompetent, or permanently disabled so as to be
unable to render any professional services on behalf of the
Partnership;
(iii) the date a Partner becomes disqualified under applicable
law to be a partner of the Partnership;
(iv) the date upon which any of the Partnership Interests held by
the Partners are transferred or attempted to be transferred
voluntarily, involuntarily by operation of law or otherwise to any
person; or
(v) the date of filing any petition for or other document causing
or intended to cause a judicial,
2
<PAGE>
administrative, voluntary or involuntary dissolution of the
Partnership.
(b) Transfer of Partnership Interests. Upon the occurrence of a
Transfer Event with respect to the Partners, subject to the terms set forth
below, the Partnership Interest held by such Partner or his or her
successors and assigns shall be immediately transferred, or deemed
transferred, to the Designated Transferee without further action by the
Partner:
(i) The purchase price for the Partnership Interest transferred
to the Designated Transferee pursuant to this Section 2 shall be fair
market value as is determined by the mutual agreement of the affected
parties.
(ii) Payment of the purchase price for the Partnership Interest
shall be made to the Partner in cash or by certified or cashiers
check. The time for payment of the purchase price for the Partnership
Interest hereunder shall be at 10:00 a.m. on the first business day
following receipt by the Designated Transferee of notice of such
Transfer Event (provided, however, that in the absence of such notice,
the Designated Transferee shall upon becoming aware of any such
Transfer Event promptly notify the Partners and the Partnership of
such Transfer Event and tender to the Partner the purchase price for
the Partnership Interest). The Designated Transferee shall
3
<PAGE>
tender the purchase price at the principal office of the Partnership.
(iii) Notwithstanding anything to the contrary herein, upon the
occurrence of a Transfer Event, the Partnership Interest will be
immediately transferred, or deemed transferred, to the Designated
Transferee effective upon the date of such Transfer Event irrespective
of the date of payment for such Partnership Interest.
(c) Definition. For purposes of this Agreement, "Designated
Transferee" shall mean an individual, designated by MMI, and otherwise
meeting the qualifications for ownership of the Partnership Interest.
3. Other Matters. After occurrence of a Transfer Event, the Partner, and
any person who acquires the Partnership Interest, other than the Designated
Transferee, shall neither have nor exercise any right or privilege as a Partner
of the Partnership, including any right to receive any unallocated or
undistributed income.
4. Amendment of Partnership Agreement. This Agreement amends the terms of
the Amended and Restated Certificate of Limited Liability Partnership of
Washington Neurology Associates, L.L.P., Washington Neurology Associates Limited
Liability Partnership Agreement dated March 21, 1997, and filed March 27, 1997.
Accordingly, Partners warrant that they will
4
<PAGE>
file a Second Amended and Restated Certificate of Limited Liability Partnership
within sixty (60) days of the date of this Agreement limiting the
transferability of their Partnership Interests in accordance with this
Agreement.
5. Notices. All notices, requests, consents and other communications
hereunder shall be in writing, shall be addressed to the receiving party's
address set forth below or to such other address as a party may designate by
notice hereunder, and shall be either (i) delivered by hand, (ii) telexed,
telecopied or made by facsimile transmission, (iii) sent by overnight courier,
or (iv) sent by certified or registered mail, return receipt requested, postage
prepaid.
If to the Partnership:
Washington Neurological Associates, L.L.P.
5530 Wisconsin Avenue
Suite 1248
Chevy Chase, Maryland 20815
If to the Partners:
P. Steven Macedo, M.D.
Ilene S. Macedo, M.D.
6305 Mountain Branch Court
Bethesda, Maryland 20815
If to MMI:
Medi-Cen Management, Inc.
5110 Ridgefield Road
Bethesda, Maryland 20816
All notices, requests, consents and other communications hereunder shall be
deemed to have been given either (i) if by hand, at the time of the delivery
thereof to the receiving party
5
<PAGE>
at the address of such party set forth above, (ii) if telexed, telecopied or
made by facsimile transmission, at the time that receipt thereof has been
acknowledged by electronic confirmation or otherwise, (iii) if sent by overnight
courier, on the next day following the day such mailing is made (or in the case
that such mailing is made on Saturday, on the immediately following Monday), or
(iv) if sent by certified or registered mail, on the 3rd day following the time
of such mailing thereof to such address (or in the case that such 3rd day is a
Sunday, on the immediately following Monday).
6. Successors. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto, and their authorized successors or assigns. The
rights of any party hereunder may not be assigned without the consent of the
remaining parties hereto.
7. Third Party Beneficiary. The parties hereto acknowledge that the
Designated Transferee, if and when he or she becomes a Designated Transferee,
shall have standing to enforce the provisions of this Agreement.
8. Governinq Law. This Agreement, the rights and obligations hereunder, and
any claims or disputes relating thereto, shall be governed by and construed in
accordance with the laws of the State of Maryland.
6
<PAGE>
9. Complete Aqreement. All understandings and agreements heretofore had
between the parties hereto with respect to the transactions contemplated hereby
are merged into this Agreement, and this Agreement reflects all the
understandings of the parties with respect to such transactions.
10. Captions. The section titles or captions in this Agreement are for
convenience of reference only. They shall not be considered to be a part of this
Agreement, and they in no way define, limit, extend or describe the scope or
intent of any provision hereof.
11. Modification. This Agreement cannot be modified, extended or amended
except by written agreement signed by all of the parties hereto.
12. Arbitration. Any dispute regarding the meaning and interpretation of
this Agreement shall be submitted to arbitration. The parties hereto agree that
all disputes arising under this Agreement shall be settled by arbitration in
accordance with the rules of the American Arbitration Association in the State
of Maryland (the "Association"), then in effect, before a single arbitrator
chosen by mutual agreement of the parties or, if the parties are unable to agree
on an arbitrator, by the Association. A determination of the dispute by the
arbitrator shall be final and binding on the parties to the extent provided by
law. The cost of the arbitration, other
7
<PAGE>
than attorney's and consultancy fees, shall be borne equally by the parties.
13. Confidentiality. The existence and the terms and conditions of this
Agreement are confidential and shall not be disclosed to any third party by any
party to this Agreement without the prior written consent of all other parties
to this Agreement.
14. Counterparts. This Agreement may be executed in two or more
counterparts and each counterpart, when so executed and delivered shall
constitute a complete and original instrument, and it shall not be necessary
when making proof of this Agreement or any counterpart thereto to produce or
account for any other counterparts.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agree-
ment as a sealed instrument on the date first written above.
Washington Neurology Associates, L.L.P.
By: /s/ P. Steven Macedo, Partner 12/31/97
---------------------------------------
P. Steven Macedo, Partner
By: /s/ Ilene S. Macedo, Partner 12/31/97
---------------------------------------
Ilene S. Macedo, Partner
Medi-Cen Management, Inc.
By: /s/ Mickey Macedo, CEO 12/31/97
---------------------------------------
Mickey Macedo, CEO
By: /s/ P. Steven Macedo, M.D. 12/31/97
---------------------------------------
P. Steven Macedo, M.D.,
Individually
By: /s/ Ilene S. Macedo, M.D.12/31/97
---------------------------------------
Ilene S. Macedo, M.D.
Individually
9
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made this 11th day of March, 1997, is by and between
MEDI-CEN MANAGEMENT, INC., a Maryland corporation ("Employer") and P. STEVEN
MACEDO, M.D. ("Employee").
INTRODUCTORY STATEMENT
Employer is engaged in the business of providing medical practice
management and related services. Employee has agreed to be employed by Employer
and Employer has agreed to employ Employee pursuant to the terms and conditions
hereinafter set forth. The parties hereto acknowledge and agree that it would be
in the best interest of all parties to clearly define both the responsibilities
of Employee as well as set out the compensation and other benefits which will
accrue to Employee.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained the parties hereto do agree as follows:
1. Employment. Employer hereby employs, engages and hires Employee as
Chairman of the Board and Secretary of Employer to render such services as are
typically required of the Chairman of the Board and Secretary of a for profit
corporation and such other services as may be required from time to time.
Employee hereby accepts and agrees to such hiring, engagement and employment
subject to the general supervision and pursuant to the orders, advice and
directions of the Board of Directors of Employer.
2. Best Efforts of Employee. Employee hereby agrees that at all times
he will faithfully, industriously and to the best of his ability, experience and
talents perform all duties that may be required of him pursuant to the expressed
and implicit terms hereof. Such duties shall be rendered at such times and
places as Employer in good faith shall require. Employee agrees that at no time
while this Agreement is in effect will Employee speak of, refer to, or comment
on Employer's businesses in any way that tends, either directly or indirectly,
to detract from or diminish the good reputation of Employer's businesses in the
community, the successful and effective conduct of Employer's businesses, or the
good will of Employer's businesses. Violation of any provision of this section
shall be deemed a material breach of this Agreement.
<PAGE>
3. Term. The term of this Agreement shall be for a period of two (2)
years commencing as of the date hereof and terminating on the second (2nd)
anniversary of the date hereof, subject, however, to prior termination as
hereinafter provided.
4. Compensation of Employee.
a. Base Compensation. For all services rendered by Employee under this
Agreement, Employer shall pay Employee the amount determined by the Board
of Directors.
b. Stock Option Plan. It is anticipated that there will be a 4.132 for
1 stock split of the Company's Common Stock. Employee shall be granted
options to purchase 900,000 post split shares of the Company's Common Stock
from the Stock Option Plan of Employer to be established at a price equal
to the Initial Public Offering ("IPO") price per share of the Company's
Common Stock. All Options granted pursuant to this Section 4.b shall vest
upon issuance. Options to purchase 450,000 shares shall be exercisable on
or after the date of the IPO and the remaining 450,000 options shall be
exercisable on or after January 1, 1999, provided the IPO has occurred.
Subject to the immediately preceding sentence, the options will be
exercisable for a period of ten (10) years from the date of grant.
5. Recommendations for Improving Operations. Employee shall make
available to Employer all information of which Employee shall have any knowledge
and shall make all suggestions and recommendations that will give mutual benefit
to Employer and himself.
6. Termination.
a. This Agreement shall be terminated immediately upon the occurrence
of one of the following conditions or events: (i) in the event Employee
conducts himself in an unprofessional, unethical, immoral or fraudulent
manner, or should the Employee's conduct discredit Employer or be
detrimental to the reputation, character and standing of Employer; (ii)
conviction of any crime of moral turpitude or of any crime punishable as a
felony; or (iii) the death of Employee.
b. In accordance with Section 2-413 of Maryland's General Corporation
Law, Employer's Board of Directors may remove Employee and terminate this
Agreement at any time if, in the
2
<PAGE>
Board's judgment, the best interests of Employer will be served thereby.
c. Employer may terminate this Agreement at any time, for any reason
whatsoever, upon thirty (30) days written notice to Employee.
7. Return of Documents. Upon termination of employment, whether such
termination be voluntary or involuntary, Employee shall deliver to Employer all
records, lists, receipts, contracts and other documents that belong to Employer,
as well as all other property that belongs to Employee.
8. Waiver. No evidence of any waiver of any provision of this Agreement
shall be offered or received in evidence at any proceeding, arbitration or
litigation between the parties hereto arising out of or affecting this
Agreement, or the rights or obligations of the parties hereunder, unless such
waiver is in writing and is duly executed by the party to be charged therewith,
and the parties further agree that the provisions of this section may not be
waived except as herein set forth.
9. Severability. All agreements and covenants contained herein are
severable, and in the event any of them, with the exception of those contained
in Sections 1 and 4 hereof, shall be held to be invalid by any competent court,
this Agreement shall be interpreted as if such invalid agreements or covenants
were not contained herein.
10. Notices. Any notices to be given hereunder by either party to the
other may be effected by personal delivery, in writing or by mail, registered or
certified, postage prepaid with return receipt requested. Mailed notices shall
be addressed to the parties at the addressees set forth below, but each party
may change its address by written notice in accordance with this Section.
Notices delivered personally shall be deemed communicated as of the actual
receipt; mailed notices shall be deemed communicated as of three (3) days after
mailing.
If to Employee:
P. Steven Macedo, M.D.
6305 Mountain Branch Court
Bethesda, Maryland 20817
3
<PAGE>
If to Employer:
Medi-Cen Management, Inc.
5110 Ridgefield Road, Suite 212
Bethesda, Maryland 20814
11. Choice of Law. It is the intention of the parties hereto that this
Agreement and the performance hereunder and all suits and special proceedings
hereunder be construed in accordance with and under and pursuant to the laws of
the State of Maryland, and that in any action, special proceedings or other
proceedings that may be brought arising out of, in connection with, or by reason
of this Agreement, the laws of the State of Maryland shall be applicable and
shall govern to the exclusion of the law of any other forum, without regard to
the jurisdiction in which any action or special proceeding may be instituted.
12. Attorneys' Fees. In any action at law or equity to enforce any of
the provisions or rights under this Agreement, the unsuccessful party to such
litigation, as determined by the court in any final judgment or decree, shall
pay the successful party or parties all costs, expenses and reasonable
attorneys' fees incurred therein by such party or parties (including without
limitation such costs, expenses and fees on any appeal or in connection with any
bankruptcy proceedings), and if the successful party recovers judgment in any
such action or proceeding, such costs, expenses and attorneys' fees shall be
included in and as a part of such judgment.
13. Entire Agreement. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the employment of Employee by Employer and contains all of the covenants and
agreements between the parties with respect to such employment. Each party to
this Agreement acknowledges that no representations, inducements or agreements,
oral or otherwise, have been made by any party, or anyone acting on behalf of
any party, which are not embodied herein, and no other agreement, statement or
promise not contained in this agreement shall be valid or binding. Any
modification of this Agreement will be effected only if it is in writing signed
by the party to be charged.
14. Counterparts. Separate copies of this Agreement may be signed by
the parties hereto, with the same effect as though all of the parties had signed
one copy of this Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands and seals
the date first above written.
WITNESS: EMPLOYER:
MEDI-CEN MANAGEMENT, INC.
By:/s/ Harrison G. Jett (SEAL)
- ------------------------- ----------------------------
Name: Harrison G. Jett
--------------------------
Title:CFO
-------------------------
WITNESS: EMPLOYEE:
/s/ P. Steven Macedo, M.D.(SEAL)
- ------------------------- -------------------------
P. Steven Macedo, M.D.
5
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made this 11th day of March, 1997, is by and between
MEDI-CEN MANAGEMENT, INC., a Maryland corporation ("Employer") and MICHAEL
MACEDO ("Employee").
INTRODUCTORY STATEMENT
Employer is engaged in the business of providing medical practice
management and related services. Employee has agreed to be employed by Employer
and Employer has agreed to employ Employee pursuant to the terms and conditions
hereinafter set forth. The parties hereto acknowledge and agree that it would be
in the best interest of all parties to clearly define both the responsibilities
of Employee as well as set out the compensation and other benefits which will
accrue to Employee.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained the parties hereto do agree as follows:
1. Employment. Employer hereby employs, engages and hires Employee as
Chief Executive Officer of Employer to render such services as are typically
required of the Chief Executive Officer of a for profit corporation and such
other services as may be required from time to time. Employee hereby accepts and
agrees to such hiring, engagement and employment subject to the general
supervision and pursuant to the orders, advice and directions of the Board of
Directors of Employer.
2. Best Efforts of Employee. Employee hereby agrees that at all times
he will faithfully, industriously and to the best of his ability, experience and
talents perform all duties that may be required of him pursuant to the expressed
and implicit terms hereof. Such duties shall be rendered at such times and
places as Employer in good faith shall require. Employee agrees that at no time
while this Agreement is in effect will Employee speak of, refer to, or comment
on Employer's businesses in any way that tends, either directly or indirectly,
to detract from or diminish the good reputation of Employer's businesses in the
community, the successful and effective conduct of Employer's businesses, or the
good will of Employer's businesses. Violation of any provision of this section
shall be deemed a material breach of this Agreement.
<PAGE>
3. Term. The term of this Agreement shall be for a period of two (2)
years commencing as of the date hereof and terminating on the second (2nd)
anniversary of the date hereof, subject, however, to prior termination as
hereinafter provided.
4. Compensation of Employee.
a. Base Compensation. For all services rendered by Employee under this
Agreement, Employer shall pay Employee the amount determined by the Board
of Directors.
b. Stock Option Plan. It is anticipated that there will be a 4.132 for
1 stock split of the Company's Common Stock. Employee shall be granted
options to purchase 900,000 post split shares of the Company's Common Stock
from the Stock Option Plan of Employer to be established at a price equal
to the Initial Public Offering ("IPO") price per share of the Company's
Common Stock. All Options granted pursuant to this Section 4.b shall vest
upon issuance. Options to purchase 450,000 shares shall be exercisable on
or after the date of the IPO and the remaining 450,000 options shall be
exercisable on or after January 1, 1999, provided the IPO has occurred.
Subject to the immediately preceding sentence, the options will be
exercisable for a period of ten (10) years from the date of grant.
5. Recommendations for Improving Operations. Employee shall make
available to Employer all information of which Employee shall have any knowledge
and shall make all suggestions and recommendations that will give mutual benefit
to Employer and himself.
6. Termination.
a. This Agreement shall be terminated immediately upon the occurrence
of one of the following conditions or events: (i) in the event Employee
conducts himself in an unprofessional, unethical, immoral or fraudulent
manner, or should the Employee's conduct discredit Employer or be
detrimental to the reputation, character and standing of Employer; (ii)
conviction of any crime of moral turpitude or of any crime punishable as a
felony; or (iii) the death of Employee.
b. In accordance with Section 2-413 of Maryland's General Corporation
Law, Employer's Board of Directors may remove Employee and terminate this
Agreement at any time if, in the
2
<PAGE>
Board's judgment, the best interests of Employer will be served thereby.
c. Employer may terminate this Agreement at any time, for any reason
whatsoever, upon thirty (30) days written notice to Employee.
7. Return of Documents. Upon termination of employment, whether such
termination be voluntary or involuntary, Employee shall deliver to Employer all
records, lists, receipts, contracts and other documents that belong to Employer,
as well as all other property that belongs to Employee.
8. Waiver. No evidence of any waiver of any provision of this Agreement
shall be offered or received in evidence at any proceeding, arbitration or
litigation between the parties hereto arising out of or affecting this
Agreement, or the rights or obligations of the parties hereunder, unless such
waiver is in writing and is duly executed by the party to be charged therewith,
and the parties further agree that the provisions of this section may not be
waived except as herein set forth.
9. Severability. All agreements and covenants contained herein are
severable, and in the event any of them, with the exception of those contained
in Sections 1 and 4 hereof, shall be held to be invalid by any competent court,
this Agreement shall be interpreted as if such invalid agreements or covenants
were not contained herein.
10. Notices. Any notices to be given hereunder by either party to the
other may be effected by personal delivery, in writing or by mail, registered or
certified, postage prepaid with return receipt requested. Mailed notices shall
be addressed to the parties at the addressees set forth below, but each party
may change its address by written notice in accordance with this Section.
Notices delivered personally shall be deemed communicated as of the actual
receipt; mailed notices shall be deemed communicated as of three (3) days after
mailing.
If to Employee:
Michael Macedo
6576 Kenwood Forest Lane
Chevy Chase, Maryland 20815
3
<PAGE>
If to Employer:
Medi-Cen Management, Inc.
5110 Ridgefield Road, Suite 212
Bethesda, Maryland 20814
11. Choice of Law. It is the intention of the parties hereto that this
Agreement and the performance hereunder and all suits and special proceedings
hereunder be construed in accordance with and under and pursuant to the laws of
the State of Maryland, and that in any action, special proceedings or other
proceedings that may be brought arising out of, in connection with, or by reason
of this Agreement, the laws of the State of Maryland shall be applicable and
shall govern to the exclusion of the law of any other forum, without regard to
the jurisdiction in which any action or special proceeding may be instituted.
12. Attorneys' Fees. In any action at law or equity to enforce any of
the provisions or rights under this Agreement, the unsuccessful party to such
litigation, as determined by the court in any final judgment or decree, shall
pay the successful party or parties all costs, expenses and reasonable
attorneys' fees incurred therein by such party or parties (including without
limitation such costs, expenses and fees on any appeal or in connection with any
bankruptcy proceedings), and if the successful party recovers judgment in any
such action or proceeding, such costs, expenses and attorneys' fees shall be
included in and as a part of such judgment.
13. Entire Agreement. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the employment of Employee by Employer and contains all of the covenants and
agreements between the parties with respect to such employment. Each party to
this Agreement acknowledges that no representations, inducements or agreements,
oral or otherwise, have been made by any party, or anyone acting on behalf of
any party, which are not embodied herein, and no other agreement, statement or
promise not contained in this agreement shall be valid or binding. Any
modification of this Agreement will be effected only if it is in writing signed
by the party to be charged.
14. Counterparts. Separate copies of this Agreement may be
signed by the parties hereto, with the same effect as though all of
the parties had signed one copy of this Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands and seals
the date first above written.
WITNESS: EMPLOYER:
MEDI-CEN MANAGEMENT, INC.
By:/s/ Harrison G. Jett (SEAL)
- ------------------------- ----------------------------
Name: Harrison G. Jett
--------------------------
Title: CFO
-------------------------
WITNESS: EMPLOYEE:
/s/ Michael Macedo (SEAL)
- ------------------------- -------------------------
P. Steven Macedo, M.D.
5
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made this 11th day of March, 1998, by YATER MEDICAL
GROUP, P.C. ("Employer") and P. STEVEN MACEDO, M.D. ("Employee").
INTRODUCTORY STATEMENT
Employer is engaged in the business of providing medical services and
is affiliated with certain other medical groups (referred to herein as
"Affiliates") including, but not limited to Medi-Cen Physician Services, L.L.P.
Employee is a physician duly licensed to practice medicine in the State of
Maryland. Employer has agreed to employ Employee and Employee desires to accept
employment pursuant to the terms and conditions hereinafter set forth. The
parties hereto acknowledge and agree that it would be in the best interest of
all parties to clearly define both the responsibilities of Employee as well as
set out the compensation and other benefits which will accrue to Employee.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained the parties hereto do agree as follows:
1. Employment. Employer hereby employs, engages and hires Employee as a
physician to render medical services for Employer and Affiliates. Employee
hereby accepts and agrees to such hiring, engagement and employment subject to
the general supervision and pursuant to the orders, advice and directions of
Employer, subject to Employee's professional judgment. Employee shall perform
such duties as determined by Employer. Employer shall have the power to
determine the assignment of patients to Employee, and Employee shall perform
services for the patients assigned to him/her. Employer shall operate and
maintain facilities, and shall provide at its cost equipment, drugs and supplies
suitable to Employee's position and adequate for the performance of his/her
duties. Further, Employer shall supply and pay for nurses, technicians, and
other personnel reasonably needed by Employee in connection with his/her
employment under this Agreement.
2. Best Efforts of Employee. Employee hereby agrees that at all times
he/she will faithfully, industriously and to the best of his/her ability,
experience and talents perform all duties that may
<PAGE>
be required of him/her pursuant to the expressed and implicit terms hereof. Such
duties shall be rendered at such place or places as Employer in good faith shall
require. Employee agrees that at no time while this Agreement is in effect will
Employee speak of, refer to, or comment on Employer's businesses in any way that
tends, either directly or indirectly, to detract from or diminish the good
reputation of Employer's businesses in the community, the successful and
effective conduct of Employer's businesses, or the good will of Employer's
businesses. Violation of any provision of this section shall be deemed a
material breach of this Agreement.
3. Term. The term of this Agreement shall be for a period of five (5)
years commencing as of January 1, 1998 and terminating on December 31, 2002,
subject, however, to prior termination as hereinafter provided. Unless
terminated by either party in accordance with the terms hereinbelow set forth,
this Agreement shall automatically and continually renew itself at expiration
for one (1) year terms upon the same terms and conditions set forth herein.
4. Hours of Employment. Employee shall work for Employer on a full time
basis. Hours of employment shall be determined by Employer within reasonable
standards of the profession.
5. Compensation of Employee.
a. Compensation. For all services rendered by Employee under this
Agreement, Employer shall pay Employee an amount equal to twenty-five
thousand Dollars ($25,000.00) per month. Such amount shall be due and
payable by Employer on the last day of each calendar month for amounts
received for the preceding calendar month; provided, however, such
compensation shall not be considered delinquent if paid within five (5)
days of the date due. All payments shall be subject to the deductions of
payroll taxes and similar assessments as required by law.
b. Fringe Benefits. Employee will be entitled to all of the ancillary
benefits available to full-time employees of Employer. In addition,
Employee shall be entitled to designate additional fringe benefits so long
as the aggregate value of all fringe benefits to which Employee is entitled
does not exceed the sum of Sixty thousand Dollars ($60,000.00).
2
<PAGE>
6. Other Employment. Employee shall devote all of his/her time,
attention, knowledge and skills solely to the business and interest of Employer
and Employer shall be entitled to all the benefits thereof arising from or
incidental to all services and advice of Employee during the hours set forth in
Section 4. Employee agrees that he/she shall not serve as a partner, officer,
director, stockholder, advisor, employee or in any other capacity in any other
business similar to Employer's business, or any similar type of business during
the term of this Agreement. The expenditure of reasonable amounts of time for
teaching, lecturing, radio and television appearances or attending meetings in
the professional field, shall not be deemed a breach of this Agreement, provided
that Employer determines that the rendering of such services does not interfere
with the services required to be rendered to Employer hereunder.
7. Recommendations for Improving Operations. Employee shall make
available to Employer all information of which Employee shall have any knowledge
and shall make all suggestions and recommendations that will give mutual benefit
to Employer and himself/herself.
8. Trade Secrets.
a. Employee expressly acknowledges and agrees that Employee will be
given access to and become familiar with business methods, trade secrets,
and other proprietary information developed at Employer's expense (the
"Trade Secrets"), which are valuable, unique, and essential to the
performance of Employee's duties hereunder, as well as being essential to
the overall continued success and business goodwill of Employer. Employee
expressly acknowledges and agrees that the Trade Secrets are proprietary
and confidential and if any of the Trade Secrets were imparted to or became
known by any persons, including Employee engaging in a business in any way
competitive with that of Employer's, such would result in hardship, loss,
irreparable injury and damage to Employer, the measurement of which would
be difficult, if not impossible, to determine. Accordingly, Employee
expressly agrees that Employer has a legitimate interest in protecting the
Trade Secrets and its business from such hardship, loss, irreparable injury
and damage, that the following covenant is a reasonable means by which to
accomplish that purpose, and that violation of any of the protective
covenants contained herein shall constitute a breach of trust and is
grounds for immediate dismissal and for
3
<PAGE>
appropriate legal action for damages, enforcement and/or injunction.
b. Employee acknowledges that the Trade Secrets give Employer an
advantage over its competitors, and that the same is not available to or
known by Employer's competitors or the general public. Employee further
acknowledges that Employer has devoted substantial time, money, and effort
in the development of the Trade Secrets and in maintaining the proprietary
and confidential nature thereof. Employee further acknowledges Employee's
position with Employer is one of the highest trust and confidence by reason
of Employee's knowledge of, access to, and contact with the Trade Secrets.
Employee agrees to use Employee's best efforts and exercise of utmost
diligence to protect and safeguard the Trade Secrets. Employee covenants
that, during the term of this Agreement regardless of which party
terminates this Agreement and whether such termination is for cause,
Employee will not disclose, disseminate or distribute to another, nor
induce any other person to disclose, disseminate or distribute, any Trade
Secrets of Employer, directly or indirectly, either for Employee's own
benefit or for the benefit of another, nor will Employee use or cause to be
used any Trade Secrets in any way except as is required in the course of
Employee's employment with Employer. Employee acknowledges and covenants
that all Trade Secrets relating to the business of Employer shall remain
the exclusive property of Employer, shall not be copied or otherwise
reproduced in whole or in part, and shall not be removed from the premises
of Employer, under any circumstances whatsoever without the prior written
consent of Employer.
9. Trade Secrets after Termination of Employment. All the terms of
Section 8 shall remain in full force and effect for a period of two (2) years
after the termination of Employee's employment.
10. Injunctive Relief. In addition to the remedies cited herein,
Employer shall be entitled to injunctive relief against Employee from the
violation of the terms of Sections 8, 9 and 13 of this Agreement.
11. Termination.
a. This Agreement shall be terminated immediately upon the occurrence
of one of the following conditions or events: (i) revocation or
cancellation of Employee's right to practice medicine
4
<PAGE>
in the State of Maryland; (ii) the placing or imposing of any restrictions
or limitations, by any governmental authority having jurisdiction over
Employee, upon him/her so that he/she cannot engage in the professional
service for which he/she was employed; (iii) in the event Employee shall
fail or refuse to faithfully or diligently perform the provisions of this
Agreement or the usual customary duties of his/her employment; (iv) in the
event Employee conducts himself/herself in an unprofessional, unethical,
immoral or fraudulent manner, or should the Employee's conduct discredit
Employer or be detrimental to the reputation, character and standing of
Employer; (iv) conviction of any crime of moral turpitude or of any crime
punishable as a felony; (v) Employee becomes ineligible for insurance
coverage against claims for professional liability; or (vi) the death or
permanent disability of Employee.
b. This Agreement may be terminated by either party on the fifth (5th)
anniversary of this Agreement or on any anniversary date thereafter, by
giving notice of termination to the other party not later than ninety (90)
days prior to such anniversary date, and this Agreement shall terminate on
such anniversary date.
c. Notwithstanding anything contained herein to the contrary, Employer
shall not be required to make any payments after the date of termination of
this Agreement.
12. Insurance. Throughout the term of this Agreement, Employer shall
maintain continuously in effect professional malpractice insurance, which shall
include Employee as a named insured in such amounts, with such carrier and on
such terms as shall be determined by Employer in its sole discretion. Employee
hereby agrees to cooperate with Employer in the application process and to
complete, within five (5) days of receipt from Employer, any and all forms
required by the insurance carrier selected by Employer. In the event Employee
leaves the employment of Employer, Employee shall either (i) purchase an
Extension of Coverage endorsement ("tail") in an amount not less than One
Million Dollars ($1,000,000.00) per occurrence and Three Million Dollars
($3,000,000.00) in the aggregate, within ten (10) days of written notice of
discontinuance, or (ii) Employee shall continue to maintain professional
liability insurance and provide Medi-Cen proof annually of such coverage;
provided, however, that when Employee retires, he/she shall purchase the tail in
such amounts as stated above.
5
<PAGE>
13. Restrictive Covenants.
a. Employer and Employee acknowledge and agree that Employee's
services are of a special and unusual character which have a unique value
to Employer, the loss of which cannot be adequately compensated by damages
in an action at law. Further, Employer and Employee acknowledge and agree
that Employee's employment entails substantial personal contacts with
patients of Employer and as a result, it is likely that such patients would
follow Employee in the event Employee ceased to be employed by Employer.
Because of the unique value to Employer of the services for which Employer
has contracted hereunder, the nature of Employee's personal contact with
patients of Employer, and because of the confidential information to be
obtained by Employee, all as aforementioned, and in consideration of
employment by Employer, Employee covenants and agrees that for a period of
three years after Employee ceases to be employed by Employer for any reason
whatsoever, Employee shall not, without the prior consent of Employer,
directly or indirectly:
(1) Offer to render any medical services or solicit the rendition
of any such services to any patients of Employer with whom Employee
had direct or indirect contact and/or to whom Employee rendered any
medical services at any time during the two (2) year period
immediately preceding such cessation of Employee's employment with
Employer to or for the benefit or account of Employee or to or for the
benefit or account of any other person or entity.
(2) Solicit for employment or employ, directly or indirectly, any
employee of Employer, nor shall Employee urge, directly or indirectly,
any patients to discontinue, in whole or in part, business with
Employer.
b. In addition to any other provisions of this Agreement, the
provisions of this Section shall also apply to Employee during the term of
this Agreement.
c. Upon termination of Employee's employment hereunder for any reason
whatsoever, Employee agrees that he/she will not, within a five (5) mile
radius of Employer's places of business, for a period of three (3) years
from and after such termination of employment, directly or indirectly,
engage or agree to engage in, whether as owner, director, employee,
consultant, agent or otherwise, the operation of a provider of medical
services or
6
<PAGE>
render medical services to or for the benefit of any other person
or entity to any extent whatsoever.
d. The provisions of Sections 13.a(1), 13.a(2), 13.b and 13.c of this
Agreement are cumulative. Compliance with Sections 13.a(1), 13.a(2), 13.b
and 13.c of this Agreement is a condition precedent to Employer's
obligation to make any payments of any nature to Employee, whether under
this Agreement or otherwise. Nothing in this Agreement shall be construed
as prohibiting Employer from pursuing any remedies available to it at law
or in equity for a breach or threatened breach of Sections 8, 9 and 13 of
this Agreement.
e. The parties hereto agree that if any court of competent
jurisdiction shall determine that the period or geographical area covered
herein, or any other term or provision of this Agreement, is unreasonable,
the said term, geographical area or provision shall not be deemed to be
null and void but shall be reformed to impose the maximum enforceable
period, geographical area, term or other provisions as the case may be.
f. Employee has carefully considered the nature and extent of the
restrictions upon him/her and the rights and remedies conferred upon
Employer under this Section 13, and hereby acknowledges and agrees that the
same are reasonable in time and territory, are designed to eliminate
competition which otherwise would be unfair to Employer, would not operate
as a bar to the Employer's sole means of support, do not stifle the
abilities of Employee, and are fully required to protect the legitimate
interests of Employer.
14. Extension of Limitation Period. The parties acknowledge that if
Employee violates any of the protective covenants hereunder and Employer brings
legal action for injunctive or other relief hereunder, Employer shall, as a
result of the time involved in obtaining the relief, be deprived of the benefit
of the full Limitation Period of these protective covenants. Accordingly, the
Limitation Period shall be deemed to have the full duration of the period stated
therein, computed from the date relief is granted, but reduced by the time
between the period when the restriction began to run at the termination of
Employee's employment hereunder and the date of the first violation of the
covenant by Employee.
7
<PAGE>
15. Patients and Records.
a. Patients. All patients with whom Employee deals and to whom
Employee provides services are, and shall be treated as, patients of
Employer. Subject to the patient's right to select his/her own physician,
these patients shall remain patients of Employer after termination of this
Agreement.
b. Records and Files. All case records, charts and personal files
concerning patients of Employer shall belong to and remain the property of
Employer. On termination of his/her employment, Employee shall not be
entitled to keep or reproduce Employer's records or charts related to any
patient unless the patient shall specifically request that his/her records
be transmitted to Employee. Employee shall bear the reasonable costs of
reproducing such records.
16. Billing and Collecting Professional Fees. Employer shall bill and
collect all professional fees attributed to professional medical services
rendered by Employee pursuant to this Agreement, and to the extent allowable by
law and the policies, procedures, and requirements of any third-party payor
involved, Employer shall bill in Employer's name. Employee shall cooperate fully
with Employer in all activities necessary to collect such fees, including
permitting Employer or any agent of Employer to bill, collect and deposit any
and all payments and remuneration payable to Employee for services rendered on
behalf of Employer and as agent in circumstances where Employer is unable to
bill in its own name. To evidence such agreement, Employee agrees to execute an
Appointment of Agent for Negotiation and Withdrawal of Funds, substantially in
the form attached hereto as Exhibit A, upon Employer's request. The power of
attorney set forth in the Appointment of Agent for Negotiation and Withdrawal of
Funds shall be limited to NationsBank, N.A., George Mason Bank, The First
National Bank of Maryland, or such other banking institutions with which
Employer maintains a banking relationship. Employee shall remit to Employer
immediately all money received by Employee from any third party, including
without limitation patients and third party payors, for professional medical
services which are rendered by Employee pursuant to this Agreement.
17. Associate Physician Membership Agreement. Employee acknowledges
that Employer shall enter into an Associate Physician
8
<PAGE>
Membership Agreement with Medi-Cen, Corp. of Maryland and Medi-Cen, Corp.of
Virginia, both dated January 17, 1997, including exhibits and addenda thereof
(copies attached hereto and made a part hereof as Exhibit B) (the "AP
Agreements"). Employee hereby agrees to be bound by and perform his/her duties
in a manner consistent with the terms and provisions of the AP Agreements as
they may apply to Employee as an Associate Physician.
18. Agreements Outside of Agreement. Except as provided in the AP
Agreements, to which Employee has agreed to be bound, this Agreement contains
the complete agreement concerning the employment arrangement between the parties
and shall, as of the effective date hereof, supersede all other agreements
between the parties. The parties stipulate that neither of them has made any
representation with respect to the subject matter of this Agreement or any
representation including the execution and delivery hereof, except such
representations as are specifically set forth herein and each of the parties
hereto acknowledges that he/she or it has relied on their own judgment in
entering into this Agreement. The parties hereto further acknowledge that any
payments or representations that may have heretofore been made by either of them
to the other are of no effect and that neither of them has relied thereon in
connection with his/her or its dealings with the other.
19. Representations and Warranties. Employee represents and warrants
that (a) as of the date of this Agreement and at all time while this Agreement
is in effect he/she is duly licensed and certified to perform the duties of a
physician in the State of Maryland; (b) he/she has the complete and unrestricted
right to enter into this Agreement; (c) he/she has disclosed to Employer all
facts and circumstances that might adversely affect his/her ability to perform
his/her duties under this Agreement; and (d) this Agreement and the performance
by Employee of his/her obligations herein will not be in violation or breach of
any other agreement or commitment previously entered into by or binding upon the
Employee.
20. Modification of Contract. No waiver or modification of this
Agreement or of any covenant, condition, or limitation herein contained shall be
valid unless in writing and duly executed by the party to be charged therewith
and no evidence of any waiver or modification shall be offered or received in
evidence at any proceeding, arbitration or litigation between the parties hereto
arising out of or affecting this Agreement, or the rights or obligations of the
parties hereunder, unless such waiver or modification is in writing, duly
executed as aforesaid, and the
9
<PAGE>
parties further agree that the provisions of this section may not be waived
except as herein set forth.
21. Severability. All agreements and covenants contained herein are
severable, and in the event any of them, with the exception of those contained
in Sections 1 and 5 hereof, shall be held to be invalid by any competent court,
this Agreement shall be interpreted as if such invalid agreements or covenants
were not contained herein. Notwithstanding the foregoing, the parties hereto
agree that to the extent that any provision or portion of Section 13 of this
Agreement shall be held, found or deemed to be unreasonable, unlawful or
unenforceable by a court of competent jurisdiction, then any such provision or
portion thereof shall be deemed to be modified to the extent necessary in order
that any such provision or portion thereof shall be legally enforceable to the
fullest extent permitted by applicable law; and the parties hereto do further
agree that any court of competent jurisdiction shall and the parties hereto do
hereby expressly authorize, request and empower any court of competent
jurisdiction to enforce any such provision or portion thereof or to modify any
such provision or portion thereof in order that any such provision or portion
thereof shall be enforced by such court to the fullest extent permitted by
applicable law.
22. Notices. Any notices to be given hereunder by either party to the
other may be effected by personal delivery, in writing or by mail, registered or
certified, postage prepaid with return receipt requested. Mailed notices shall
be addressed to the parties at the addressees set forth below, but each party
may change its address by written notice in accordance with this Section.
Notices delivered personally shall be deemed communicated as of the actual
receipt; mailed notices shall be deemed communicated as of three (3) days after
mailing.
If to Employee:
P. Steven Macedo, M.D.
6305 Mountain Branch Court
Bethesda, Maryland 20817
If to Employer:
Yater Medical Group, P.C.
1780 Massachusetts Avenue, N.W.
Washington, D.C. 20036
10
<PAGE>
23. Choice of Law. It is the intention of the parties hereto that this
Agreement and the performance hereunder and all suits and special proceedings
hereunder be construed in accordance with and under and pursuant to the laws of
the State of Maryland, and that in any action, special proceedings or other
proceedings that may be brought arising out of, in connection with, or by reason
of this Agreement, the laws of the State of Maryland shall be applicable and
shall govern to the exclusion of the law of any other forum, without regard to
the jurisdiction in which any action or special proceeding may be instituted.
24. Attorneys' Fees. In any action at law or equity to enforce any of
the provisions or rights under this Agreement, the unsuccessful party to such
litigation, as determined by the court in any final judgment or decree, shall
pay the successful party or parties all costs, expenses and reasonable
attorneys' fees incurred therein by such party or parties (including without
limitation such costs, expenses and fees on any appeal or in connection with any
bankruptcy proceedings), and if the successful party recovers judgment in any
such action or proceeding, such costs, expenses and attorneys' fees shall be
included in and as a part of such judgment.
25. Entire Agreement. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the employment of Employee by Employer and contains all of the covenants and
agreements between the parties with respect to such employment. Each party to
this Agreement acknowledges that no representations, inducements or agreements,
oral or otherwise, have been made by any party, or anyone acting on behalf of
any party, which are not embodied herein, and no other agreement, statement or
promise not contained in this agreement shall be valid or binding. Any
modification of this Agreement will be effected only if it is in writing signed
by the party to be charged.
26. Change in Law. In the event any legislative, judicial or regulatory
change or determination of any government body, department, or agency of the
Federal government or the State of Maryland or the District of Columbia has or
would have a material adverse impact on any provisions of this Agreement, the
Employer and the Employee agree to negotiate a restructuring of the Agreement to
bring it in compliance with the law.
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IN WITNESS WHEREOF, the parties hereto have set their hands and seals
the date first above written.
WITNESS: EMPLOYER:
YATER MEDICAL GROUP, P.C.,
/s/ Jerry W. Clever By:/s/ Ilene S. Macedo, MD (SEAL)
- ------------------------- ----------------------------
Name: Ilene S. Macedo, MD
--------------------------
Title:Vice President and Secretary
-------------------------
WITNESS: EMPLOYEE:
/s/ Harrison Jett /s/ P. Steven Macedo, M.D.(SEAL)
- ------------------------- -------------------------
P. Steven Macedo, M.D.
CONSULTANT AGREEMENT
THIS CONSULTANT AGREEMENT (the "Agreement"), dated the 20th day of January,
1997 is by and between YATER MEDICAL GROUP, P.C., a District of Columbia
professional corporation ("Yater"), and MICHAEL MACEDO (hereinafter referred to
as "Consultant").
W I T N E S S E T H:
WHEREAS, Yater is engaged in the business of providing medical services;
and
WHEREAS, Yater desires to engage the services of Consultant for the purpose
of assisting it in business development; and
WHEREAS, Consultant agrees to provide such services to Yater upon the terms
and conditions herein set forth.
NOW, THEREFORE, WITNESSETH, for and in consideration of the sum of Ten
Dollars ($10.00), and for other good and valuable consideration including but
not limited to the mutual promises, covenants, and agreements of the parties
hereinbelow set forth, Yater and Consultant agree as follows:
1. ENGAGEMENT. Yater hereby engages Consultant to do and perform the work
covered by this Agreement and Consultant hereby accepts the engagement from
Yater.
2. COMPENSATION OF CONSULTANT. Yater shall be obligated to pay Consultant
for the work performed under this Agreement a consultant fee of Twelve Thousand
Five Hundred Dollars ($12,500.00) upon execution of this Agreement plus One
Hundred Thousand Dollars ($100,000.00) per year thereafter, during the term of
the Agreement. Such consultant fee shall be payable as follows:
a. Twelve Thousand Five Hundred Dollars ($12,500.00) shall be paid to
Consultant simultaneously upon execution of this Agreement.
b. During the term of this Agreement, Yater shall pay to Consultant
monthly installments of Twelve Thousand Five Hundred
1
<PAGE>
Dollars ($12,500.00) on the last day of each calendar month commencing
January 31, 1997. Such payments shall be deemed timely paid if made by the
fifth (5th) day of the next succeeding month.
3. CONSULTANT'S RESPONSIBILITIES. Consultant agrees to develop and
implement a business development plan for Yater. Yater agrees to cooperate with
Consultant in connection with the development and implementation of such plan.
4. TERM. The term of this Agreement shall be for five (5) years commencing
on the date of execution of this Agreement.
5. RELATIONSHIP OF PARTIES. The parties to this contract intend that the
relation between them created by this Agreement is that of owner-independent
contractor. Consultant shall not be or be deemed to be the employee, agent or
servant of Yater. Yater is interested only in the results obtained under this
Agreement; the manner and means of conducting the work are under the general
control of Consultant. None of the benefits provided by Yater to its employees,
including but not limited to compensation insurance and unemployment insurance
are available from Yater to Consultant. Consultant will be solely and entirely
responsible for his acts during the performance of this Agreement. Consultant
shall have sole control of the manner and means of performing his
responsibilities under this Agreement, and he shall complete same according to
his own means and methods of work.
6. TIME DEVOTED TO CONSULTANT'S DUTIES. In the performance of the services
contemplated hereby, Consultant shall devote such hours and time as is necessary
to adequately perform and fulfill the spirit and purpose of this Agreement.
7. MISCELLANEOUS.
a. All covenants, stipulations, promises, agreements and provisions in
this Agreement shall apply to, bind and be obligatory upon the parties
hereto, their heirs, executors, administrators, personal representatives,
successors and assigns, or any of them, whether so expressed or not.
b. This Agreement shall be construed in accordance with the laws of
the State of Maryland, entirely independent of the forum where it may come
up for construction or enforcement.
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<PAGE>
c. No modification or waiver of any of the terms of this Agreement
shall be valid unless expressed in writing and executed with the same
formality as this Agreement. The failure of either party to insist on
strict performance of any of the provisions of this Agreement shall not be
construed as a waiver of any subsequent breach or default of the same or a
similar nature.
d. In the event that any provision of this Agreement should be held to
be invalid or unenforceable, the invalid provision shall be construed in
all respects as though it were omitted, and the same shall not in any way
affect any other provisions herein, all of which shall continue in full
force and effect.
e. This Agreement constitutes the entire understanding of the parties.
There are no representations, warranties, promises, covenants or
undertakings other than those expressly set forth herein.
IN WITNESS WHEREOF, the parties have set their hands and seals.
WITNESS: YATER:
YATER MEDICAL GROUP, P.C.
_________________________ By:__________________________(SEAL)
Name:________________________
Title:_______________________
WITNESS: CONSULTANT:
_________________________ _____________________________(SEAL)
Michael Macedo
3
<PAGE>
SECOND AMENDMENT TO CONSULTING CONTRACT
THIS SECOND AMENDMENT TO CONSULTING CONTRACT (this "Amendment") dated this
___ day of __________, 1998 is by and between YATER MEDICAL GROUP, P.C.
("Yater") and MICHAEL MACEDO ("Consultant")
Introductory Statement
The parties hereto entered into that certain Consultant Agreement dated
January__, 1997 ("Consultant Agreement") and that certain Amendment to
Consultant Agreement Dated July 8, 1998 (the "Amendment") (the Consultant
Agreement as amended by the Amendment are hereinafter collectively referred to
as the "Original Agreement"), pursuant to which Consultant agreed to render
certain services to Yater. The parties wish to amend the Original Agreement to
provide for fringe benefits for Consultant.
NOW, THEREFORE, WITNESSETH, for and in consideration of the the mutual
covenants contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties do hereby
agree as follows:
1. The following paragraph 2.d. is hereby added to the Original Agreement:
d. Consultant will be entitled to all of the ancillary benefits
available to full-time employees of Yater. In addition, Consultant shall be
entitled to designate additional fringe benefits so long as the aggregate
value of all fringe benefits to which Consultant is entitled does not
exceed the sum of Sixty thousand Dollars ($60,000.00).
2. Full Force and Effect. Except as provided herein, the Original Agreement
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
1
<PAGE>
WITNESS: YATER:
YATER MEDICAL GROUP, P.C.
By:/s/ P. Steven Macedo, MD (SEAL)
- ------------------------- ----------------------------
Name: P. Steven Macedo, MD
--------------------------
Title: President
-------------------------
WITNESS: CONSULTANT:
/s/ Michael Macedo (SEAL)
- ------------------------- -------------------------
Michael Macedo
2
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made this 11th day of March, 1998, is by and between
MEDI-CEN MANAGEMENT, INC., a Maryland corporation ("Employer") and FRANCIS J.
CRONIN ("Employee").
INTRODUCTORY STATEMENT
Employer is engaged in the business of providing medical practice
management and related services. Employee has agreed to be employed by Employer
and Employer has agreed to employ Employee pursuant to the terms and conditions
hereinafter set forth. The parties hereto acknowledge and agree that it would be
in the best interest of all parties to clearly define both the responsibilities
of Employee as well as set out the compensation and other benefits which will
accrue to Employee.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
the parties hereto do agree as follows:
1. Employment. Employer hereby employs, engages and hires Employee as
President of Employer to render such services as are typically required of the
President of a for profit corporation and such other services as may be required
from time to time, including, but not limited to, the following:
a. operating Employer in a manner that will increase Shareholder
value;
b. operating Employer in a manner that will maximize earnings;
c. accompanying the "Road Show" for the Initial Public Offering of
Employer's stock currently scheduled for the end of March, 1998;
d. interacting with hospitals to establish affiliations;
e. interacting with potential medical groups to explore acquisition
possibilities;
f. negotiating with HMO's and PPO's for group provider contracts;
g. overseeing stockholder relations;
h. making presentations to major investment groups; i. serving as
spokesman for Employer; and
j. performing such other duties as shall be assigned by the Board of
Directors from time to time.
1
<PAGE>
Employee hereby accepts and agrees to such hiring, engagement and employment
subject to the general supervision and pursuant to the orders, advice and
directions of the Board of Directors and Chief Executive Officer of Employer.
2. Best Efforts of Employee. Employee hereby agrees that at all times he
will faithfully, industriously and to the best of his ability, experience and
talents perform all duties that may be required of him pursuant to the expressed
and implicit terms hereof. Such duties shall be rendered at such times and
places as Employer in good faith shall require. Employee agrees that at no time
while this Agreement is in effect will Employee speak of, refer to, or comment
on Employer's businesses in any way that tends, either directly or indirectly,
to detract from or diminish the good reputation of Employer's businesses in the
community, the successful and effective conduct of Employer's businesses, or the
good will of Employer's businesses. Violation of any provision of this section
shall be deemed a material breach of this Agreement.
3. Term. The term of this Agreement shall be for a period of one (1) year
commencing as of the date hereof and shall be renewable in the discretion of
Employer's Board of Directors, subject, however, to prior termination as
hereinafter provided.
4. Compensation of Employee.
a. Compensation. Employee shall not be entitled to Compensation prior
to the date of the IPO. From and after the date of the IPO for all services
rendered by Employee during the term of this Agreement, Employer shall pay
Employee an amount equal to Two Hundred Fifty Thousand Dollars
($250,000.00) per annum in equal monthly installments on such dates as
Employer customarily pays its employees. The amount of Employee's
Compensation hereunder shall be reviewed periodically and shall be
increased based on the market price of Employer's stock.
b. Fringe Benefits. Employer shall provide to Employee all of the
ancillary benefits available to Employer's other executives. In addition,
Employer agrees to pay an additional Five Hundred Dollars ($500.00) per
month to enable Employee to obtain disability, life, dental and health
insurance and provide for a car allowance in excess of amounts currently
provided by Employer to its other executives.
2
<PAGE>
c. Stock Options. All options to purchase stock of Employer in
Employee's possession which have not already vested shall vest on the date
which is forty-five (45) days after the IPO date.
5. Recommendations for Improving Operations. Employee shall make available
to Employer all information of which Employee shall have any knowledge and shall
make all suggestions and recommendations that will give mutual benefit to
Employer and himself.
6. Trade Secrets.
a. Employee expressly acknowledges and agrees that Employee will be
given access to and become familiar with business methods, trade secrets,
and other proprietary information developed at Employer's expense (the
"Trade Secrets"), which are valuable, unique, and essential to the
performance of Employee's duties hereunder, as well as being essential to
the overall continued success and business goodwill of Employer. Employee
expressly acknowledges and agrees that the Trade Secrets are proprietary
and confidential and if any of the Trade Secrets were imparted to or became
known by any persons, including Employee engaging in a business in any way
competitive with that of Employer's, such would result in hardship, loss,
irreparable injury and damage to Employer, the measurement of which would
be difficult, if not impossible, to determine. Accordingly, Employee
expressly agrees that Employer has a legitimate interest in protecting the
Trade Secrets and its business from such hardship, loss, irreparable injury
and damage, that the following covenant is a reasonable means by which to
accomplish that purpose, and that violation of any of the protective
covenants contained herein shall constitute a breach of trust and is
grounds for immediate dismissal and for appropriate legal action for
damages, enforcement and/or injunction.
b. Employee acknowledges that the Trade Secrets give Employer an
advantage over its competitors, and that the same is not available to or
known by Employer's competitors or the general public. Employee further
acknowledges that Employer has devoted substantial time, money, and effort
in the development of the Trade Secrets and in maintaining the proprietary
and confidential nature thereof. Employee further acknowledges Employee's
position with Employer is one of the highest trust and confidence by reason
of
3
<PAGE>
Employee's knowledge of, access to, and contact with the Trade Secrets.
Employee agrees to use Employee's best efforts and exercise of utmost
diligence to protect and safeguard the Trade Secrets. Employee covenants
that, during the term of this Agreement regardless of which party
terminates this Agreement and whether such termination is for cause,
Employee will not disclose, disseminate or distribute to another, nor
induce any other person to disclose, disseminate or distribute, any Trade
Secrets of Employer, directly or indirectly, either for Employee's own
benefit or for the benefit of another, nor will Employee use or cause to be
used any Trade Secrets in any way except as is required in the course of
Employee's employment with Employer. Employee acknowledges and covenants
that all Trade Secrets relating to the business of Employer shall remain
the exclusive property of Employer, shall not be copied or otherwise
reproduced in whole or in part, and shall not be removed from the premises
of Employer, under any circumstances whatsoever without the prior written
consent of Employer.
7. Trade Secrets after Termination of Employment. All the terms of Section
6 shall remain in full force and effect for a period of two (2) years after the
termination of Employee's employment.
8. Injunctive Relief. In addition to the remedies cited herein, Employer
shall be entitled to injunctive relief against Employee from the violation of
the terms of Sections 6, 7, and 10 of this Agreement.
9. Termination.
a. This Agreement shall be terminated immediately upon the occurrence
of one of the following conditions or events: (i) in the event Employee
conducts himself in an immoral or fraudulent manner, or should the
Employee's conduct discredit Employer or be detrimental to the reputation,
character and standing of Employer; (ii) conviction of any crime of moral
turpitude or of any crime punishable as a felony; or (iii) the death of
Employee.
b. In accordance with Section 2-413 of Maryland's General Corporation
Law, Employer's Board of Directors may remove Employee and terminate this
Agreement at any time if, in the Board's judgment, the best interests of
Employer will be served thereby. In the event this Agreement is terminated
by Employer, Employee shall be entitled to receive compensation through the
date
4
<PAGE>
of termination. In addition, in the event Employee is terminated for any
reason whatsoever, other than for cause pursuant to Section 9.a, then
Employee shall be entitled to continue to receive compensation and
benefits, as set forth in Section 4 hereof for a period of two (2) months
after termination as severance.
c. Employee may terminate this Agreement at any time, for any reason
whatsoever, upon sixty (60) days written notice to Employer.
10. Restrictive Covenants.
a. Because of the unique value to Employer of the services for which
Employer has contracted hereunder, the nature of Employee's personal
contact with clients and potential clients of Employer, and because of the
confidential information to be obtained by Employee, all as aforementioned,
and in consideration of employment by Employer, Employee covenants and
agrees:
(1) that at no time during the term of this Agreement or for a
period of two (2) years immediately following the termination, for any
reason, of his employment hereunder, will he engage directly or
indirectly, either personally or as an employee, associate, partner,
manager, agent, or otherwise, or by means of any corporation or other
device, in a business similar to Employer's within a ten (10) mile
area of Employer's place of business or any of Employer's clients'
places of business.
(2) that during the term of this Agreement, Employee shall not be
employed by, perform services for or receive compensation of any kind
for services rendered after the date hereof from any person or entity
other than Employer or any affiliates of Employer, it being the intent
of the parties that Employer shall have the sole and exclusive right
to the benefit of Employee's services; and
(3) that for a period of two (2) years after Employee ceases to
be employed by Employer for any reason whatsoever, Employee shall not,
without the prior consent of Employer, directly or indirectly, solicit
for employment or employ, directly or indirectly, any employee of
Employer.
b. Nothing in this Agreement shall be construed as prohibiting
Employer from pursuing any remedies available to it at
5
<PAGE>
law or in equity for a breach or threatened breach of Sections 6, 7, and 10
of this Agreement.
c. The parties hereto agree that if any court of competent
jurisdiction shall determine that the period, or any other term or
provision of this Agreement, is unreasonable, the said term, or provision
shall not be deemed to be null and void but shall be reformed to impose the
maximum enforceable period, term or other provisions as the case may be.
d. Notwithstanding anything contained in this Section 10 to the
contrary, (i) prior to the IPO date, Employee shall be permitted to
conclude business dealings in which he is currently involved and (ii)
during and after the term of this Agreement, Employee may continue his
activities with the American Academy of Medical Administrators, the
American Hospital Association, the American College of Health Care
Executive and other non-profit organizations which do not compete with
Employer.
11. Extension of Limitation Period. The parties acknowledge that if
Employee violates any of the protective covenants hereunder and Employer brings
legal action for injunctive or other relief hereunder, Employer shall, as a
result of the time involved in obtaining the relief, be deprived of the benefit
of the full Limitation Period of these protective covenants. Accordingly, the
Limitation Period shall be deemed to have the full duration of the period stated
therein, computed from the date relief is granted, but reduced by the time
between the period when the restriction began to run at the termination of
Employee's employment hereunder and the date of the first violation of the
covenant by Employee.
12. Vacation, Leave and Personal. Employee shall be entitled to vacation,
sick and personal leave in accordance with the general policies of Employer
regarding such leave with respect to executives.
13. Lock-Up Agreement. Employee agrees to execute a Lock-Up Agreement
("Lock-Up Agreement") in the event of an IPO in the form provided by the
underwriter of such public offering, provided that such Lock-Up Agreement shall
be substantially the same form executed by all officers, directors and principal
stockholders of Employer. In the event Employee shall fail to execute such
Lock-Up Agreement, within five (5) days after request for same by Employer,
Employee does hereby appoint any officer of the Company as his attorney-in-fact
to execute such agreement on his behalf. The
6
<PAGE>
power of attorney granted herein shall be irrevocable and coupled with an
interest.
14. Indemnification. Employer's charter provides that to the fullest extent
permitted by the Maryland General Corporation Law, Employer shall indemnify any
and all persons whom it shall have power to indemnify under the Maryland General
Corporation Law, in accordance with Sections 2-405.1, 2-405.2 and 2-418 thereof,
from and against any and all of the expenses, liabilities or other matters
referred to in or covered by said Maryland General Corporation Law. Pursuant to
Section 2-418 of Maryland's General Corporation Law, Employer may not indemnify
a person made a party to a proceeding if: (a) an act or omission of the person
was material to the matter giving rise to the proceeding and (i) was committed
in bad faith or (ii) was the result of active and deliberate dishonesty; or (b)
the person actually received an improper personal benefit in money, property, or
services; (c) the person had reasonable cause to believe that the act or
omission was unlawful, in the case of a criminal proceeding: (d) the person
shall have been adjudged to be liable to Employer in a proceeding by or in the
right of the Employer; (e) the person is adjudged to be liable on the basis that
personal benefit was improperly received in any proceeding charging improper
personal benefit to the person, whether or not involving action in the person's
official capacity; or (f) indemnification has not been authorized for a specific
proceeding after determination has been made, in the manner set forth in Section
2-418(e), that indemnification of the person is permissible in the circumstances
because the person has met the required standard of conduct. Employer agrees to
indemnify Employee to the fullest extent permitted by Maryland law and
Employer's charter.
15. Return of Documents. Upon termination of employment, whether such
termination be voluntary or involuntary, Employee shall deliver to Employer all
records, lists, receipts, contracts and other documents that belong to Employer,
as well as all other property that belongs to Employee.
16. Waiver. No evidence of any waiver of any provision of this Agreement
shall be offered or received in evidence at any proceeding, arbitration or
litigation between the parties hereto arising out of or affecting this
Agreement, or the rights or obligations of the parties hereunder, unless such
waiver is in writing and is duly executed by the party to be charged therewith,
7
<PAGE>
and the parties further agree that the provisions of this section may not be
waived except as herein set forth.
17. Severability. All agreements and covenants contained herein are
severable, and in the event any of them, with the exception of those contained
in Sections 1 and 4 hereof, shall be held to be invalid by any competent court,
this Agreement shall be interpreted as if such invalid agreements or covenants
were not contained herein. Notwithstanding the foregoing, the parties hereto
agree that to the extent that any provision or portion of Section 10 of this
Agreement shall be held, found or deemed to be unreasonable, unlawful or
unenforceable by a court of competent jurisdiction, then any such provision or
portion thereof shall be deemed to be modified to the extent necessary in order
that any such provision or portion thereof shall be legally enforceable to the
fullest extent permitted by applicable law; and the parties hereto do further
agree that any court of competent jurisdiction shall and the parties hereto do
hereby expressly authorize, request and empower any court of competent
jurisdiction to enforce any such provision or portion thereof or to modify any
such provision or portion thereof in order that any such provision or portion
thereof shall be enforced by such court to the fullest extent permitted by
applicable law.
18. Notices. Any notices to be given hereunder by either party to the other
may be effected by personal delivery, in writing or by mail, registered or
certified, postage prepaid with return receipt requested. Mailed notices shall
be addressed to the parties at the addressees set forth below, but each party
may change its address by written notice in accordance with this Section.
Notices delivered personally shall be deemed communicated as of the actual
receipt; mailed notices shall be deemed communicated as of three (3) days after
mailing.
If to Employee:
Francis J. Cronin
P.O. Box 257
Sea Girt, New Jersey 08750
If to Employer:
Medi-Cen Management, Inc.
5110 Ridgefield Road, Suite 212
Bethesda, Maryland 20814
8
<PAGE>
19. Choice of Law. It is the intention of the parties hereto that this
Agreement and the performance hereunder and all suits and special proceedings
hereunder be construed in accordance with and under and pursuant to the laws of
the State of Maryland, and that in any action, special proceedings or other
proceedings that may be brought arising out of, in connection with, or by reason
of this Agreement, the laws of the State of Maryland shall be applicable and
shall govern to the exclusion of the law of any other forum, without regard to
the jurisdiction in which any action or special proceeding may be instituted.
20. Attorneys' Fees. In any action at law or equity to enforce any of the
provisions or rights under this Agreement, the unsuccessful party to such
litigation, as determined by the court in any final judgment or decree, shall
pay the successful party or parties all costs, expenses and reasonable
attorneys' fees incurred therein by such party or parties (including without
limitation such costs, expenses and fees on any appeal or in connection with any
bankruptcy proceedings), and if the successful party recovers judgment in any
such action or proceeding, such costs, expenses and attorneys' fees shall be
included in and as a part of such judgment.
21. Entire Agreement. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the employment of Employee by Employer and contains all of the covenants and
agreements between the parties with respect to such employment. Each party to
this Agreement acknowledges that no representations, inducements or agreements,
oral or otherwise, have been made by any party, or anyone acting on behalf of
any party, which are not embodied herein, and no other agreement, statement or
promise not contained in this agreement shall be valid or binding. Any
modification of this Agreement will be effected only if it is in writing signed
by the party to be charged.
22. Termination of Prior Agreements. Employee acknowledges and agrees that
upon execution of this Agreement, any and all existing agreements between
Employee and Employer, Medi-Cen, Corp. of America or any affiliates of Medi-Cen,
Corp. of America shall be deemed automatically terminated.
23. Counterparts. Separate copies of this Agreement may be signed by the
parties hereto, with the same effect as though all of the parties had signed one
copy of this Agreement.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands and seals the
date first above written.
WITNESS: EMPLOYER:
MEDI-CEN MANAGEMENT, INC.
By:/s/ Michael Macedo (SEAL)
- ------------------------- ----------------------------
Name: Michael Macedo
--------------------------
Title:Chief Executive Officer
-------------------------
WITNESS: EMPLOYEE:
/s/ Francis J. Cronin (SEAL)
- ------------------------- -------------------------
Francis J. Cronin
10
[Letterhead of Michael Carlos Buarque De Macedo]
February 14, 1997
YATER MEDICAL GROUP, P.C.
1780 Massachusetts Avenue, N.W.
Washington, D.C. 20036
Re: Agreement for Legal Services
Dear Sirs/Madams:
This is to confirm our understanding regarding the provision of legal
services by our firm to YATER MEDICAL GROUP, P.C. ("YATER"). In consideration
for YATER's payment of one-third of the salary of Tatiana Daniels Macedo, Esq.,
an attorney employed by this firm, payable in equal installments twice per
month, plus approved expenses, our firm will provide YATER with legal consultant
services consisting of up to one-third of Ms. Macedo's time performing legal
work for this firm. This agreement is terminable by either party with two (2)
weeks prior written notice.
Very truly yours,
Michael Carlos Buarque de Macedo
By: /s/ Mickey Macedo
----------------------------
Mickey Macedo
Agreed and accepted by:
YATER MEDICAL GROUP, P.C.
By: /s/ P. Steven Macedo, M.D.
--------------------------
P. Steven Macedo, M.D.
President
<PAGE>
[Letterhead of Michael Carlos Buarque De Macedo]
February 14, 1997
HEALTH QUALITY MANAGEMENT, INC.
5110 Ridgefield Road, Suite 212
Bethesda, Maryland 20814
Re: Agreement for Legal Services
Dear Sirs:
This is to confirm our understanding regarding the provision of legal
services by our firm to HEALTH QUALITY MANAGEMENT, INC. ("HQM"). In
consideration for HQM's payment of one-third of the salary of Tatiana Daniels
Macedo, Esq., an attorney employed by this firm, payable in equal installments
twice per month, plus approved expenses, our firm will provide HQM with legal
consultant services consisting of up to one-third of Ms. Macedo's time
performing legal work for this firm. This agreement is terminable by either
party with two (2) weeks prior written notice.
Very truly yours,
Michael Carlos Buarque de Macedo
By: /s/ Mickey Macedo
----------------------------
Mickey Macedo
Agreed and accepted by:
HEALTH QUALITY MANAGEMENT, INC.
By: /s/ Harrison G. Jett
------------------------------
<PAGE>
[Letterhead of Michael Carlos Buarque De Macedo]
February 19, 1997
Michael Carlos Buarque de Macedo
Attorneys at Law
5301 Wisconsin Avenue, N.W., Suite 620
Washington, D.C. 20015
Re: Clarification of Agreements for Legal Services
Dear Mr. Macedo:
This is to clarify and confirm that the agreement by each of the
undersigneds to pay one-third of the salary of Tatiana Daniels Macedo, Esq., an
attorney employed by your law firm, in exchange for legal consultant services by
your firm, is retroactive to January 1, 1997, the commencement date of the
employment agreement between your firm and Ms. Macedo.
Very truly yours,
HEALTH QUALITY MANAGEMENT, INC.
By: /s/ Harrison G. Jett
-----------------------------------------
Harrison G. Jett,
Chief Financial Officer
MEDI-CEN, CORP. OF MARYLAND
By: /s/ Jerry W. Clever
-----------------------------------------
Jerry W. Clever, D.S.W.
Vice President of Clinical Affairs
By: /s/ Gregory Winston
-----------------------------------------
Gregory Winston
Vice President of Operations
YATER MEDICAL GROUP, P.C.
By: /s/ P. Steven Macedo
-----------------------------------------
P. Steven Macedo, M.D.,
President
<PAGE>
[Letterhead of Michael Carlos Buarque De Macedo]
February 14, 1997
MEDI-CEN, CORP. OF MARYLAND
5530 Wisconsin Avenue, Suite 1248
Chevy Chase, Maryland 20815
Re: Agreement for Legal Services
Dear Sirs:
This is to confirm our understanding regarding the provision of legal
services by our firm to MEDI-CEN, CORP. OF MARYLAND ("MEDI-CEN"). In
consideration for MEDI-CEN's payment of one-third of the salary of Tatiana
Daniels Macedo, Esq., an attorney employed by this firm, payable in equal
installments twice per month, plus approved expenses, our firm will provide
MEDI-CEN with legal consultant services consisting of up to one-third of Ms.
Macedo's time performing legal work for this firm. This agreement is terminable
by either party with two (2) weeks prior written notice.
Very truly yours,
Michael Carlos Buarque de Macedo
By: /s/ Mickey Macedo
----------------------------
Mickey Macedo
Agreed and accepted by:
MEDI-CEN, CORP. OF MARYLAND
By:
----------------------------------
Jerry W. Clever, D.S.W.
Vice President of Clinical Affairs
----------------------------------
Gregory Winston
Vice President of Operations
<PAGE>
[Letterhead of Michael Carlos Buarque De Macedo]
February 14, 1997
YATER MEDICAL GROUP, P.C.
1780 Massachusetts Avenue, N.W.
Washington, D.C. 20036
Re: Agreement for Legal Services
Dear Sirs/Madams:
This is to confirm our understanding regarding the provision of legal
services by our firm to YATER MEDICAL GROUP, P.C. ("YATER"). In consideration
for YATER's payment of one-third of the salary of Tatiana Daniels Macedo, Esq.,
an attorney employed by this firm, payable in equal installments twice per
month, plus approved expenses, our firm will provide YATER with legal consultant
services consisting of up to one-third of Ms. Macedo's time performing legal
work for this firm. This agreement is terminable by either party with two (2)
weeks prior written notice.
Very truly yours,
Michael Carlos Buarque de Macedo
By: ____________________________
Mickey Macedo
Agreed and accepted by:
YATER MEDICAL GROUP, P.C.
By: _________________________
P. Steven Macedo, M.D.
President
EXECUTIVE OFFICER CONTRACT
- - 1. HEALTH QUALITY MANAGEMENT, INC., of 5110 Ridgefield Road, Suite 212,
Bethesda, Maryland 20816 (hereinafter referred to as CORPORATION), and Harrison
Jett, of 1720 Highland Rd., Fredericksburg, VA, 22401 hereinafter referred to as
CHIEF FINANCIAL OFFICER), agree to the following contract, to commence when this
Contract has been signed by both parties. Upon the commencement of this
Contract, the terms hereof shall supersede any and all prior Contracts between
CORPORATION and CHIEF FINANCIAL OFFICER.
- - 2. CORPORATION agrees to compensate CHIEF FINANCIAL OFFICER a BASE PAY of One
hundred seventy five thousand dollars ($175,000) per year. The BASE PAY shall be
paid Sixty nine percent (69%) in cash and Thirty one percent (31%) in stock of
the corporation at the rate of ten dollars ($10.00) per share of common stock of
the CORPORATION prior to the IPO. After the IPO the BASE PAY shall be fully
payable in cash.
- - 3. BASE PAY will be paid a series of monthly PAYMENTs. Prior to the IPO, each
PAYMENT shall be in the amount of Ten thousand sixty two dollars and forty nine
cents ($10,062.49) per month (cash PAYMENT) and Five hundred sixty nine (569)
shares per month (stock PAYMENT). After the IPO, each PAYMENT shall be in the
amount of Fourteen thousand five hundred eighty three dollars and thirty three
cents ($14,583.33). Each PAYMENT will be made within 5 days of the last day of
each month. Prior to the IPO, however, in no event shall the total amount of
cash PAYMENTS made exceed 15% of Health Quality Management stock sold pursuant
to the current registered offering after the effective date of this contract.
- - 4. The CHIEF FINANCIAL OFFICER shall receive a BONUS in the form of stock
options, each GROUP of which will permit CHIEF FINANCIAL OFFICER to purchase two
thousand (2,000) shares of CORPORATION's common stock at a price of ten dollars
($10.00) per share. CORPORATION shall issue CHIEF FINANCIAL OFFICER a total
maximum of options for eight thousand (8,000) share of stock in CORPORATION, a
total of four (4) GROUPS. Each GROUP shall vest the first time the CORPORATION
achieves each one of the following goals:
(1) Implementation of the billing and management of Yator/Medi-Cen
clinic in Dupont circle,
(2) Billing of a minimum of 10,000 multispecialty capitated lives,
(3) Purchase of a medical office building in Rockville,
(4) The first time total gross collections billed by CORPORATION
received in a calendar month exceeds one million dollars
($1,000,000.00),
The stock options cannot be exercised until the shares have been held for a
period of two (2) years from the date of issue and registered for sale. The
options shall expire ten (10) years
<PAGE>
after the date of this Contract. In the event this Contract is terminated, CHIEF
FINANCIAL OFFICER shall retain his right to hold the stock options earned as of
the termination date.
- - 5. CHIEF FINANCIAL OFFICER agrees to work to the best of his ability as a
CHIEF FINANCIAL OFFICER of the CORPORATION and shall perform certain specific
duties for the CORPORATION as are customary of a CHIEF FINANCIAL OFFICER and
such duties and functions as are reasonably requested from time to time by
either the Board of Directors or the CEO of the CORPORATION. This obligation is
personal in nature and may not be delegated by the CHIEF FINANCIAL OFFICER.
- - 6. COVENANTS NOT TO COMPETE. CHIEF FINANCIAL OFFICER agrees that at no time
during the term of this Agreement or for a period of two (2) years immediately
following the termination, for any cause, of his employment hereunder, will he
engage directly or indirectly, either personally or as an employee, associate,
partner, manager, agent, or otherwise, or by means of any corporate or other
device, in a business similar to CORPORATION 's within a ten (10) mile area of
CORPORATION 's place of business or any of CORPORATION's client's place of
business. If any court of competent jurisdiction shall determine that the period
or geographical area covered herein, or any other term or provision of this
Agreement, is unreasonable, the said term, geographical area or provision shall
not be deemed to be null and void but shall be reformed to impose the maximum
enforceable period, geographical area, term or other provisions as the case may
be.
EXTENSION OF LIMITATION PERIOD. The parties acknowledge that if CHIEF
FINANCIAL OFFICER violates any of the protective covenants hereunder and
CORPORATION brings legal action for injunctive or other relief hereunder,
CORPORATION shall, as a result of the time involved in obtaining the relief, be
deprived of the benefit of the full Limitation Period of these protective
covenants. Accordingly, the Limitation Period shall be deemed to have the full
duration of the period stated therein, computed from the date relief is granted,
but reduced by the time between the period when the restriction began to run at
the termination of CHIEF FINANCIAL OFFICER 's employment hereunder and the date
of the first violation of the covenant by CHIEF FINANCIAL OFFICER.
- - 7. Either party may terminate this Contract for any reason with thirty (30)
days written notice to the other party. In the event of termination, CHIEF
FINANCIAL OFFICER must leave all records at the office of CORPORATION, and both
parties agree that the records, contact and resource lists, and any work product
generated by, for or on behalf of CORPORATION are particularly confidential,
valuable and proprietary to CORPORATION. If the CORPORATION terminates this
agreement without cause after the IPO the CHIEF FINANCIAL OFFICER shall continue
to receive his BASE PAY for one year after termination. All the terms of
Sections 6 and 8 shall remain in full force and effect for a period of two (2)
years after the termination of CHIEF FINANCIAL OFFICER's employment.
- 8. a. CHIEF FINANCIAL OFFICER expressly acknowledges and agrees that CHIEF
FINANCIAL OFFICER will be given access to and become familiar with business
methods,
<PAGE>
trade secrets, and other proprietary information developed at CORPORATION's
expense (the "TRADE SECRETS"), which are valuable, unique, and essential to the
performance of CHIEF FINANCIAL OFFICER 's duties hereunder, as well as being
essential to the overall continued success and business goodwill of CORPORATION.
CHIEF FINANCIAL OFFICER expressly acknowledges and agrees that the TRADE SECRETS
are proprietary and confidential and if any of the TRADE SECRETS were imparted
to or became known by any persons, including CHIEF FINANCIAL OFFICER engaging in
a business in any way competitive with that of CORPORATION 's, such would result
in hardship, loss, irreparable injury and damage to CORPORATION, the measurement
of which would be difficult, if not impossible, to determine. Accordingly, CHIEF
FINANCIAL OFFICER expressly agrees that CORPORATION has a legitimate interest in
protecting the TRADE SECRETS and its business from such hardship, loss,
irreparable injury and damage, that the following covenant is a reasonable means
by which to accomplish that purpose, and that violation of any of the protective
covenants contained herein shall constitute a breach of trust and is grounds for
immediate dismissal and for appropriate legal action for damages, enforcement
and/or injunction.
a. CHIEF FINANCIAL OFFICER acknowledges that the TRADE SECRETS give
CORPORATION an advantage over its competitors, and that the same is not
available to or known by CORPORATION's competitors or the general public. CHIEF
FINANCIAL OFFICER further acknowledges that CORPORATION has devoted substantial
time, money, and effort in the development of the Trade Secrets and in
maintaining the proprietary and confidential nature thereof. CHIEF FINANCIAL
OFFICER further acknowledges CHIEF FINANCIAL OFFICER 's position with
CORPORATION is one of the highest trust and confidence by reason of CHIEF
FINANCIAL OFFICER 's knowledge of, access to, and contact with the Trade
Secrets. CHIEF FINANCIAL OFFICER agrees to use CHIEF FINANCIAL OFFICER 's best
efforts and exercise of utmost diligence to protect and safeguard the TRADE
SECRETS. CHIEF FINANCIAL OFFICER covenants that, during the term of this
Agreement regardless of which party terminates this Agreement and whether such
termination is for cause, CHIEF FINANCIAL OFFICER will not disclose, disseminate
or distribute to another, nor induce any other person to disclose, disseminate
or distribute, any TRADE SECRETS of CORPORATION, directly or indirectly, either
for CHIEF FINANCIAL OFFICER 's own benefit or for the benefit of another, nor
will CHIEF FINANCIAL OFFICER use or cause to be used any TRADE SECRETS in any
way except as is required in the course of CHIEF FINANCIAL OFFICER 's employment
with CORPORATION. CHIEF FINANCIAL OFFICER acknowledges and covenants that all
TRADE SECRETS relating to the business of CORPORATION shall remain the exclusive
property of CORPORATION, shall not be copied or otherwise reproduced in whole or
in part, and shall not be removed from the premises of CORPORATION, under any
circumstances whatsoever without the prior written consent of CORPORATION. All
the terms of Section 8 shall remain in full force and effect for a period of two
(2) years after the termination of CHIEF FINANCIAL OFFICER's employment.
- - 9. The IPO for the purposes of this contract shall be defined as the day the
CORPORATION lists its stock on a national stock exchange for public trading as
defined by 13(a) or 15(d) of the Securities Act of 1934, as amended, with a firm
commitment underwriter.
<PAGE>
a. After the IPO the CORPORATION shall purchase life insurance for the
CHIEF FINANCIAL OFFICER in the amount of three times his annual salary.
- - 10. UNIT(S) or SHARES of stock in CORPORATION cannot be sold unless they are
registered under the Securities Act of 1933, as amended (the "ACT") (and the
securities laws of the state of residence, if applicable) or an exemption from
such registration is available. No UNITS or SHARES will be sold, assigned, or
otherwise transferred unless a registration statement under the ACT (and the
securities laws of the state of residence, if applicable) with respect thereto
is in effect, or the CORPORATION has received a written opinion of counsel
satisfactory to the CORPORATION that, after an investigation of the relevant
facts, which shall be recited in such opinion, such counsel is of the opinion
that such sale, assignment, or transfer does not involve a transaction requiring
registration thereof under the ACT (and the securities laws of the state of
residence, if applicable) governing resale's of securities acquired from an
issuer thereof.
- - 11. All notices required or permitted under this Contract shall be in writing
and shall be deemed given when delivered in person or when sent via registered
or certified U.S. Mail, return receipt requested, or via facsimile transmission
followed by mail to the addresses and parties set forth above, or to such other
address of which any party hereto may from time to time have been notified by
the other in compliance with the notice provisions hereof.
- - 12. This is the entire agreement between the parties and no other oral or
written representations have been made. This Contract cannot be amended except
by a writing, signed by both parties. This Contract shall not have binding
effect unless and until signed by both parties. This Contract may be signed and
executed in counterpart. The Contract is governed by Maryland law. Each party
shall notify the other party in writing of any address or name change. In
addition to the remedies cited herein, CORPORATION shall be entitled to
injunctive relief against CHIEF FINANCIAL OFFICER from the violation of the
terms of Sections 6 and 8 of this Agreement. Each provision of this Contract
shall be enforced to the fullest extent allowed by law. If any part of this
Contract is deemed invalid, unenforceable, void, or voidable under the governing
law, then that part may be severed and the remainder left to stand as if the
part was not present.
SIGNATURES
The following signatures signify consent and agreement to the foregoing CHIEF
FINANCIAL OFFICER CONTRACT consisting of 12 Paragraphs between HEALTH QUALITY
MANAGEMENT, INC. and Harrison Jett.
/s/ [ILLEGIBLE] 8-5-96
- ----------------------------------------------------- --------
CHIEF FINANCIAL OFFICER - Date
/s/ [ILLEGIBLE} 8-5-96
- ----------------------------------------------------- --------
For the CORPORATION - HEALTH QUALITY MANAGEMENT, INC. Date
<PAGE>
Stock Option Certificate
This stock option certificate provides that ____________________________ is the
registered holder of an option to purchase ____________ shares of common stock
in HEALTH QUALITY MANAGMENT, INC., incorporated under the laws of the State of
Maryland in 1994, for a price of ten dollars ($10.00) per share.
This option may only be exercised two years after the date of this option.
This option must be exercised within 10 years of the commencement date of the
employment contract, after time which this option will expire. To exercise this
option send this option with a check to "HEALTH QUALITY MANAGEMENT, INC." for
ten dollars ($10.00) per share to be purchased to HEALTH QUALITY MANAGEMENT,
INC., 5110 Ridgefield Rd, Suite 212, Bethesda, MD, 20815.
The security evidenced by this certificate has not been registered under the
Securities and Exchange Act of 1933, or any applicable state law, and no
interest therein may be sold, distributed, assigned, offered, pledged, or
otherwise transferred unless (a) there is an effective registration statement
under such Act and applicable state securities laws covering any such
transaction involving said securities, or (b) this corporation receives an
opinion of legal counsel for the holder of these securities (concurred in by
legal counsel for this corporation) stating that such transaction is exempt from
registration, or this corporation otherwise satisfies itself that that such
transaction is exempt from registration.
Unless this Option has been executed by manual signature, this Option shall not
be entitled to any benefit, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this Option to be duly executed under
its corporate seal.
Dated: 08/05/96
HEALTH QUALITY MANAGEMENT, INC.
By:
---------------------------------
Chief Executive Officer
Attest:
----------------------------------
Secretary
<PAGE>
AMENDMENT TO
EXECUTIVE OFFICER CONTRACT
- - 1. HEALTH QUALITY MANAGEMENT, INC., of 5110 Ridgefield Road, Suite 212,
Bethesda, Maryland 20816 (hereinafter referred to as CORPORATION), and Harrison
Jett, of 1720 Highland Rd., Fredericksburg, VA 22401 (hereinafter referred to as
CHIEF FINANCIAL OFFICER), agree to the following amendment to the EXECUTIVE
OFFICER CONTRACT between CORPORATION and CHIEF FINANCIAL OFFICER, dated August
5, 1996 (hereinafter referred to as EXECUTIVE OFFICER CONTRACT), to commence
when this Amendment has been signed by both parties. This Amendment shall
supersede the EXECUTIVE OFFICER CONTRACT, to the extent that their terms
conflict.
- - 2. After CORPORATION begins processing the billings for the Yater Medical
Group, P.C., prior to the IPO as defined in paragraph 9 of the EXECUTIVE OFFICER
CONTRACT, the cash portion of the BASE PAY which CORPORATION shall pay EXECUTIVE
OFFICER monthly shall be the greater of :
(a) five thousand, thirty-one dollars and twenty-five cents ($5,031.25);
or
(b) 15% of the CORPORATION's stock sold pursuant to the current
registered offering after the effective date of the EXECUTIVE
OFFICER CONTRACT, up to an average of ten thousand, sixty-two
dollars and fifty cents ($10,062.50) per month from the date of the
EXECUTIVE OFFICER CONTRACT.
SIGNATURES
The following signatures signify consent and agreement to the foregoing
AMENDMENT TO EXECUTIVE OFFICER CONTRACT consisting of 2 Paragraphs between
HEALTH QUALITY MANAGEMENT, INC. and Harrison Jett.
/s/ Harrison Jett 10-24-96
- ----------------------------------------------------- --------
CHIEF FINANCIAL OFFICER - Harrison Jett Date
/s/ [ILLEGIBLE], CEO 10-24-96
- ----------------------------------------------------- --------
For the CORPORATION - HEALTH QUALITY MANAGEMENT, INC. Date
1
<PAGE>
AMENDMENT TO
EXECUTIVE OFFICER CONTRACT
- - 1. HEALTH QUALITY MANAGEMENT, INC., of 5110 Ridgefield Road, Suite 212,
Bethesda, Maryland 20816 (hereinafter referred to as CORPORATION), and Harrison
Jett, of 1401 North Taft Street, #113, Arlington, 22201 (hereinafter referred to
as CHIEF FINANCIAL OFFICER), agree to the following amendment to the EXECUTIVE
OFFICER CONTRACT between CORPORATION and CHIEF FINANCIAL OFFICER, dated August
5, 1996 (hereinafter referred to as EXECUTIVE OFFICER CONTRACT), to commence
when this Amendment has been signed by both parties. This Amendment shall
supersede the EXECUTIVE OFFICER CONTRACT, to the extent that their terms
conflict.
- - 2. Paragraph 2 of the EXECUTIVE OFFICER CONTRACT is hereby amended to replace
"Five hundred sixty nine (569) shares per month (stock PAYMENT)" with "Four
hundred fifty two (452) per month (stock PAYMENT)".
- - 3. Paragraph 4 of the EXECUTIVE OFFICER CONTRACT is hereby amended to replace:
"The stock options cannot be exercised until the shares have been held for
a period of two years from the date of issue and registered for sale. The
options shall expire ten (10) years after the date of this Contract."
with:
"The stock options cannot be exercised until the shares have been held for
a period of two (2) years from the date of the options. The options shall
expire five (5) years after the date of the options."
SIGNATURES
The following signatures signify consent and agreement to the foregoing
AMENDMENT TO EXECUTIVE OFFICER CONTRACT consisting of 3 Paragraphs between
HEALTH QUALITY MANAGEMENT, INC. and Harrison Jett.
/s/ Harrison Jett 12-20-96
- ----------------------------------------------------- --------
CHIEF FINANCIAL OFFICER - Harrison Jett Date
/s/ [ILLEGIBLE], CEO 12-20-96
- ----------------------------------------------------- --------
For the CORPORATION - HEALTH QUALITY MANAGEMENT, INC. Date
<PAGE>
ADDENDUM T0 EXECUTIVE OFFICER CONTRACT
THIS ADDENDUM T0 EXECUTIVE OFFICER CONTRACT, made this 30th day of
December, 1997, is by and between MEDI-CEN MANAGEMENT, INC. (formerly known as
Health Quality Management, Inc.) ("Corporation") and HARRISON G. JETT
("Employee").
INTRODUCTORY STATEMENT
Pursuant to the Executive Officer Contract dated August 5, 1996 between
Employee and Corporation, as amended (the "Employment Agreement"), Employee
agreed to render certain services to the Corporation. The parties wish to
clarify and amend the terms of the Employment Agreement as set forth herein.
NOW, THEREFORE, WITNESSETH, for and in consideration of the sum of Ten
Dollars ($10.00), the receipt of which is hereby acknowledged and the mutual
covenants contained herein, the parties do hereby agree to amend the Employment
Agreement as follows:
1. Lock-Up Agreement. The parties agree to execute a lockup agreement
("Lockup Agreement") in the event Corporation elects to make an Initial Public
Offering ("IPO") at any time within two (2) years of the date of this Addendum
in the form provided by the Underwriter of such IPO, provided that such Lockup
Agreement shall be substantially the same form executed by all officers,
directors and principal stockholders of Corporation. In the event Employee shall
fail to execute such Lockup Agreement within five (5) days after request for
same by Corporation, Employee does hereby appoint any officer of Corporation as
the attorney-in-fact to execute such agreement on its behalf. The power of
attorney granted herein shall be irrevocable and coupled with an interest.
2. Compensation of Employee. Pursuant to Section 4 of the Employment
Agreement, Corporation has granted eight thousand (8,000) Stock Options to
Employee. As of the date hereof, two thousand (2,000) of the Stock Options have
vested. The remainder of the Stock Options shall vest in accordance with the
terms of the Employment Agreement. The options are intended by Corporation and
Employee to be exercisable at an exercise price that equals or is greater than
the fair market value of the common stock of Corporation at the time of the
grant. The exercise price of Ten Dollars ($10.00) per share was determined by
the Board of Directors of Corporation based upon a variety of factors that it
deemed to be relevant in making such a determination. If it is determined at a
later date that in fact the exercise price is less than the fair market value of
the common stock at the time of the grant, then the exercise price shall be
adjusted as of the date of the grant of the options to a price that equals the
fair market value of the common stock as of the date of the grant.
3. Full Force and Effect. Except as provided herein, the Employment
Agreement shall remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands and seals the
date first above written.
WITNESS: EMPLOYER:
MEDI-CEN MANAGEMENT, INC,. a
Maryland corporation
/s/ [Illegible] By: /s/ [Illegible] (SEAL) 12/31/97
- ------------------------- ------------------------------------
12-30-97
Name: [Illegible]
Title: CEO
WITNESS: EMPLOYEE:
/s/ [Illegible] 12-30-97 /s/ Harrison G. Jett 12-30-97 (SEAL)
- ------------------------- ----------------------------------------
Harrison G. Jett
2
CONSULTANT CONTRACT
- - 1. HEALTH QUALITY MANAGEMENT, INC., of 5110 Ridgefield Road, Suite 212,
Bethesda, Maryland 20816 (hereinafter referred to as CORPORATION), and Francis
J. Cronin, of 1903 Ballycor Drive, Vienna, Virginia 22182 (hereinafter referred
to as CONSULTANT), agree to the following contract, to commence when this
Contract has been signed by both parties. Upon the commencement of this
Contract, the terms hereof shall supersede any and all prior Contracts between
CORPORATION and CONSULTANT.
- - 2. Upon the commencement of this Contract, CORPORATION shall compensate
CONSULTANT in the form of stock options permitting CONSULTANT to purchase eight
thousand (8,000) shares of common stock of CORPORATION at a price of ten dollars
($10.00) per share for consultant services performed during the period of
January 1, 1996 through December 31, 1996. For the period of January 1, 1997
through December 31, 1997, CORPORATION shall compensate CONSULTANT, for each
hour worked, with stock options to purchase ten (10) shares of common stock at a
price of twenty dollars ($20.00) per share. CONSULTANT shall submit time logs
each month to CORPORATION, detailing the number of hours worked and the nature
of the duties performed. The stock options cannot be exercised until a period of
two (2) years from the date of the options. The options shall expire five (5)
years after the date of the options. In the event this Contract is terminated,
CONSULTANT shall retain his right to hold the stock options earned as of the
termination date. CORPORATION and CONSULTANT hereby waive any and all
compensation rights and obligations which may have arisen to date or in the
future under any and all prior Contracts between CORPORATION and CONSULTANT, and
release and discharge each other from any and all past, present, and future
rights, obligations and claims relating thereto.
- - 3. CONSULTANT shall be provided office support to assist in the work to be
performed under this Consultant Contract by employees of Medi-Cen, Corp. of
Maryland and the law firm of Michael Carlos Buarque de Macedo working at 5301
Wisconsin Avenue, Suite 620, Washington, D.C. 20015.
- - 4. CORPORATION shall reimburse CONSULTANT for necessary and reasonable
expenses incurred during the course of the work to be performed under this
Consultant Contract. Any expense greater than two hundred dollars ($200.00) must
be pre-approved in writing by a Vice President of CORPORATION.
- - 5. CONSULTANT agrees to work to the best of his ability as a consultant of the
CORPORATION and shall perform certain specific duties as mutually agreed upon by
CONSULTANT and CORPORATION, including but not limited to the following:
attending Board Meetings as needed; developing and maintaining non-exclusive
contracts with insurance carriers; maintaining business development contacts
with local insurance carriers with whom relationships are being developed;
developing private label insurance product; and working with employee(s) in
charge of credentialling. This obligation is personal in nature and may not be
delegated by CONSULTANT.
<PAGE>
- - 6. The term of this Contract shall be from January 1, 1996 through December
31, 1997, unless terminated earlier pursuant to Paragraph 7 below.
- - 7. Either party may terminate this Contract for any reason at any time. In the
event of termination, CONSULTANT must leave all records at the office of
CORPORATION, and both parties agree that the records, contact and resource
lists, and any work product generated by, for or on behalf of CORPORATION are
particularly confidential, valuable and proprietary to CORPORATION.
- - 8. This Contract does not contain a Paragraph 8.
- - 9. This Contract does not contain a Paragraph 9.
- - 10. UNIT(S) or SHARES of stock in CORPORATION cannot be sold unless they are
registered under the Securities Act of 1933, as amended (the "ACT") (and the
securities laws of the state of residence, if applicable) or an exemption from
such registration is available. No UNITS or SHARES will be sold, assigned, or
otherwise transferred unless a registration statement under the ACT (and the
securities laws of the state of residence, if applicable) with respect thereto
is in effect, or the CORPORATION has received a written opinion of counsel
satisfactory to the CORPORATION that, after an investigation of the relevant
facts, which shall be recited in such opinion, such counsel is of the opinion
that such sale, assignment, or transfer does not involve a transaction requiring
registration thereof under the ACT (and the securities laws of the state of
residence, if applicable) governing resales of securities acquired from an
issuer thereof.
- - 11. All notices required or permitted under this Contract shall be in writing
and shall be deemed given when delivered in person or when sent via registered
or certified U.S. Mail, return receipt requested, or via facsimile transmission
to the addresses and parties set forth above, or to such other address of which
any party hereto may from time to time have been notified by the other in
compliance with the notice provisions hereof.
- - 12. This is the entire agreement between the parties and no other oral or
written representations have been made. This Contract cannot be amended except
by a writing, signed by both parties. This Contract shall not have binding
effect unless and until signed by both parties. This Contract may be signed and
executed in counterpart. The Contract is governed by Maryland law. Each party
shall notify the other party in writing of any address or name change. Each
provision of this Contract shall be enforced to the fullest extent allowed by
law. If any part of this Contract is deemed invalid, unenforceable, void, or
voidable under the governing law, then that part may be severed and the
remainder left to stand as if the part was not present.
<PAGE>
SIGNATURES
The following signatures signify consent and agreement to the foregoing
CONSULTANT CONTRACT consisting of 12 Paragraphs between HEALTH QUALITY
MANAGEMENT, INC. and Francis J. Cronin.
/s/ Francis J. Cronin 4/9/97
- ----------------------------------------------------- --------
CONSULTANT - Francis J. Cronin Date
4/9/97
- ----------------------------------------------------- --------
For the CORPORATION - HEALTH QUALITY MANAGEMENT, INC. Date
<PAGE>
Stock Option Certificate
This stock option certificate provides that Francis J. Cronin is the registered
holder of an option to purchase eight thousand (8,000) shares of common stock in
HEALTH QUALITY MANAGMENT, INC., incorporated under the laws of the State of
Maryland in 1994, for a price of ten dollars ($10.00) per share.
This option may be exercised only after two (2) years from the date of this
option.
This option must be exercised within five (5) years of the date of this option,
after which time this option will expire. To exercise this option send this
option with a check to "HEALTH QUALITY MANAGEMENT, INC." for ten dollars
($10.00) per share to be purchased to HEALTH QUALITY MANAGEMENT, INC., 5110
Ridgefield Rd, Suite 212, Bethesda, MD, 20815.
The security evidenced by this certificate has not been registered under the
Securities and Exchange Act of 1933, or any applicable state law, and no
interest therein may be sold, distributed, assigned, offered, pledged, or
otherwise transferred unless (a) there is an effective registration statement
under such Act and applicable state securities laws covering any such
transaction involving said securities, or (b) this corporation receives an
opinion of legal counsel for the holder of these securities (concurred in by
legal counsel for this corporation) stating that such transaction is exempt from
registration, or this corporation otherwise satisfies itself that that such
transaction is exempt from registration.
Unless this Option has been executed by manual signature, this Option shall not
be entitled to any benefit, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this Option to be duly executed under
its corporate seal.
Dated:
-------------
HEALTH QUALITY MANAGEMENT, INC.
By:
---------------------------------
Chief Executive Officer
Attest:
-----------------------------
Secretary
<PAGE>
ADDENDUM TO CONSULTING CONTRACT
THIS ADDENDUM TO CONSULTING CONTRACT (this "Addendum") dated this 30th
day of December, 1997 is by and between MEDI-CEN MANAGEMENT, INC. (formerly
known as Health Quality Management, Inc.)("Corporation") and FRANCIS J. CRONIN
("Employee")
Introductory Statement
Pursuant to the Consulting Contract dated April 9, 1997 between
Employee and Corporation (the "Employment Agreement"), Employee agreed to render
certain services to the Corporation. The parties wish to clarify and amend the
terms of the Employment Agreement as set forth herein.
NOW, THEREFORE, WITNESSETH, for and in consideration of the sum of Ten
Dollars ($10.00) the receipt of which is hereby acknowledged and the mutual
covenants contained herein, the parties do hereby agreed to amend the Employment
Agreement as follows:
1. Lock-Up Agreement. The parties agree to execute a lockup agreement
(Lockup Agreement) in the event the Company elects to make an Initial Public
Offering (IPO) at any time within two (2) years of the date of this Addendum in
the form provided by the underwriter of such public offering, provided that such
lock-up agreement shall be substantially the same form executed by all officers,
directors and principal stockholders of the Corporation. In the event Employee
shall fail to execute such Lockup Agreement, within five (5) days after request
for same by Corporation, Employee does hereby appoint any officer of the Company
as the attorney-in-fact to execution such agreement on its behalf. The power of
attorney granted herein shall be irrevocable and coupled with an interest.
2. Stock Options. Pursuant to Section 2 of the Employment Agreement,
Corporation granted to Employee options to purchase 8,000 shares of Common Stock
of Corporation at a price of Ten Dollars ($10.00) per share for services
performed in 1996. In addition, The parties intended that as of the date of the
Employment Agreement, Corporation granted options to purchase 5,000 shares of
common stock of Corporation which would vest and be exercisable at a price of
Twenty Dollars ($20.00) per share in
1
<PAGE>
accordance with the terms of the Employment Agreement. During the 1997 calendar
year, Employee has worked 359 hours in 1997 and accordingly options to purchase
an additional 3,590 shares of stock of Corporation have vested. The parties
hereto agree that all options granted pursuant to the terms of the Employment
Agreement which have not vested by December 31, 1997 shall lapse as of such
date. The options are intended by Corporation and Employee to be exercisable at
an exercise price that equals or is greater than the fair market value of the
common stock of Corporation at the time of grant. The exercise price was
determined by the Board of Directors of Corporation based upon a variety of
factors that it deemed to be relevant in making such a determination. If it is
determined at a later date that in fact the exercise price is less than the fair
market value of the common stock at the time of the grant, then the exercise
price shall be adjusted as of the date of grant of the options to a price that
equals the fair market value of the common stock as of the date of grant.
3. Employee. Employee and Corporation desire to clarify that Employee
is an employee of Corporation and not an independent contractor.
4. Full Force and Effect. Except as provided herein, the Employment
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum as
of the date first above written.
WITNESS: MEDI-CEN MANAGEMENT, INC.
___________________________ By:________________________________
Name:______________________________
Title:_____________________________
- -------------------------- -----------------------------------
Francis J. Cronin
2
BILLING AGENT AGREEMENT
(Medicare/Medicaid)
This Agreement is made as of the 11th day of March, 1998 (the "Effective
Date") by and between MEDI-CEN MANAGEMENT, INC., a Maryland corporation having
its principal place of business at 5530 Wisconsin Avenue, Suite 1248, Chevy
Chase, Maryland ("Billing Agent") and WASHINGTON NEUROLOGY ASSOCIATES, L.L.P., a
Maryland limited liability partnership, having its principal place of operation
at 5530 Wisconsin Avenue; Suite 1248, Chevy Chase, Maryland 20815 (the
"Partnership").
WHEREAS, the Partnership requires billing and collection services for
Medicare/Medicaid services provided by its employed physicians ("Physician
Employees") and employed nonphysician licensed practitioners who practice in an
extended role and generate professional charges for their services ("Physician
Extenders") and,
WHEREAS, Billing Agent provides billing and collection services to
physicians and physician group practices.
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, the parties hereby agree as follows:
A. Obligations of Billing Agent.
1. Billing Agent shall bill and collect for Medicare and Medicaid
services provided by the Partnership and its Physician Employees and
Physician Extenders as agent for the Partnership. Claims for such
services shall be prepared in the name and under the provider numbers
of the Partnership. The Partnership hereby irrevocably appoints
Billing Agent as its agent and attorney-in-fact to bill and collect
payments for such services. All of the payments with respect to such
services shall be made by check (or electronic funds transfer) payable
to the Partnership and shall be deposited into a bank account of the
practice of the Partnership (the "Practice Account") with a bank
mutually agreed upon by the parties and whose deposits are insured by
the FDIC (the "Account Bank"). Withdrawals from such Practice Account
by Billing Agent shall require the joint signatures of an authorized
agent of the Partnership and an authorized agent of Billing Agent.
2. The Partnership and its Physician Employees and Physician Extenders
hereby authorize Billing Agent to initiate legal proceedings in the
name of the Partnership to collect any accounts and monies owed to the
Partnership or its Physician Employees or Physician Extenders to
enforce the rights of the Partnership and its Physician Employees and
Physician Extenders as creditors under any contract or in connection
with the rendering of any service hereunder, and to contest
adjustments and denials by Medicare or Medicaid (or their carriers or
fiscal intermediaries).
<PAGE>
B. Compensation to the Partnership; Billing Agent Fees. On a bi-weekly basis
during the term of this Agreement, the Partnership shall pay Billing Agent
a Billing Agent Fee equal to the actual direct cost to the Billing Agent of
billing and collecting Medicare and Medicaid claims on behalf of the
Partnership during said two week period. For claims submitted during the
immediately preceding two week period, the Billing Agent shall be paid by
the Partnership not more than ten (10) days after the end of such two week
period.
C. Term.
1. Term of Agreement. This Agreement shall commence on the date hereof
and shall expire on the thirtieth (30th) anniversary of the date
hereof unless sooner terminated pursuant to the terms of this
Agreement.
2. Extended Term. Unless sooner terminated as provided for in this
Agreement, the term of this Agreement shall be automatically extended
for additional terms of five (5) years each, unless either the
Partnership or Billing Agent delivers to the other, not less than six
(6) months prior to the expiration of the initial or extended term, as
applicable, written notice of such party's intention not to extend the
term of this Agreement.
3. Termination By Partnership. The Partnership may terminate this
Agreement upon ninety (90) days' prior written notice to Billing Agent
in the event of a material breach by Billing Agent of any material
term or condition hereof, if such breach is not cured within that
ninety (90) day notice period; provided that a majority of the owners
of the Partnership affirmatively vote in favor of terminating this
Agreement.
4. Termination By Billing Agent - Partnership Breach. Billing Agent may
terminate this Agreement upon ninety (90) days' prior written notice
to the Partnership in the event of a material breach by the
Partnership of any material term or condition hereof, if such breach
is not cured within that ninety (90) day notice period.
5. Mutual Termination Rights. Either party may terminate this Agreement
immediately if the other party: (i) makes a general assignment for the
benefit of creditors; (ii) files a voluntary petition or the
commencement of any proceeding for any relief under any bankruptcy or
insolvency laws, or any laws relating to the relief of debtors,
readjustment or indebtedness, reorganization, composition or
extension; (iii) files any involuntary petition with or the
commencement of any proceeding by or against such party for any relief
under any bankruptcy or insolvency laws, or any laws relating to the
relief of debtors, readjustment of indebtedness, reorganization, or
composition, which petition or proceeding is not dismissed within
ninety (90) days of the date on which it is filed or commenced; or
(iv) suspends the transaction of the usual business of such party for
a period in excess of thirty (30) days. In addition to the foregoing
bases for termination, this Agreement shall automatically terminate in
the event the Management Agreement between the parties dated as of the
date hereof shall terminate.
2
<PAGE>
6. Termination Upon Legal Prohibition of Relationship. If, in the opinion
(the "Opinion") of nationally recognized health care counsel jointly
selected by the parties, it is determined that it is more likely than
not that applicable legislation, regulations, rules or procedures
(collectively referred to herein as a "Law") in effect or to become
effective as of a date certain, or if Billing Agent or the Partnership
receives notice (the "Notice") of an actual or threatened decision,
finding or action by any governmental or private agency or court
(collectively referred to herein as an "Action"), which Law or Action,
if or when implemented, would have the effect of subjecting either
party to civil or criminal prosecution under state and/or federal
laws, or other material adverse proceeding on the basis of their
participation herein, then Billing Agent or the Partnership shall
provide such Opinion or Notice to the other party. The parties shall
attempt in good faith to amend this Agreement to the minimum extent
necessary in order to comply with such Law or to avoid the Action, as
applicable, and shall utilize mutually agreed upon joint legal counsel
to the extent practicable. If, within ninety (90) days of providing
written notice of such Opinion or such Notice to the other party, the
parties hereto acting in good faith are unable to mutually agree upon
and make amendments or alterations to this Agreement to meet the
requirements in question, or alternatively, the parties mutually
determine in good faith that compliance with such requirements is
impossible or unfeasible, then this Agreement shall be terminated
without penalty, charge or continuing liability upon the earlier of
the following: the date which is one hundred and eighty (180) days
subsequent to the date upon which any party gives written notice to
the other party, or the effective date upon which the Law or Action
prohibits the relationship of the parties pursuant to this Agreement.
7. Obligations After Termination. Except as otherwise provided herein or
in any amendment hereto, following the effective date of termination
of this Agreement, both Billing Agent and the Partnership shall
cooperate in the final reconciliation of fees owed hereunder, which
shall be calculated by Billing Agent no less than six (6) months after
termination of this Agreement. In addition, upon termination of this
Agreement, Billing Agent shall turn over to the Partnership on
diskette or in such other format as the Partnership shall request, all
of the Partnership's data, records and information in Billing Agent's
possession, and, at the Partnership's option, either (a) immediately
cease billing and collection services hereunder, or (b) continue to
use best efforts to collect for services billed prior to the date of
termination of this Agreement.
D. Reasonable Compensation. The fees paid and payable hereunder by the
Partnership to Billing Agent have been determined by the parties through
good-faith and arm's length bargaining. No amount paid hereunder is
intended to be, nor shall be construed as, an inducement or payment for
referral of or recommending referral of, patients by the Partnership to
Billing Agent (or its affiliates) or by Billing Agent (or its affiliates)
to the Partnership. In addition, the fees charged hereunder do not include
any discount, rebate, kickback or other reduction in charge, and the fees
charged hereunder are not intended to be, nor shall they be construed as,
an inducement or payment for referral, or recommendation of referral, of
patients by the Partnership to Billing Agent (or its affiliates) or by
Billing Agent (or its affiliates) to the Partnership. The sole purpose of
the payments to Billing Agent hereunder is to pay fair market value for
services actually rendered by Billing Agent to the Partnership hereunder.
3
<PAGE>
E. Confidential Information. This Agreement and its terms shall be
confidential, and at no time during or after the termination of this
Agreement, except as may be otherwise required by law shall, the
Partnership, its employees, independent contractors, or owners disclose,
communicate or divulge to, or use for the direct or indirect benefit of any
person, firm, association or company any information regarding the terms
and conditions of this Agreement, business methods, business policies,
procedures, techniques, or trade secrets, or other knowledge or processes
of or developed by the Billing Agent, or any other confidential information
relating to or dealing with the business operations or activities of the
Billing Agent, made known to the Partnership, its employees or its
shareholders or learned or acquired by the Partnership, its employees or
owners during the term of this Agreement, (collectively, "Company
Information"), except as may be expressly authorized by the Billing Agent
or any successor to it. Immediately upon the termination of this Agreement,
the Partnership and/or the applicable shareholder, employee or independent
contractor, or other key employee or independent contractor shall deliver
to the Billing Agent all documents, computer disks or other forms of
recorded information, including all copies thereof, containing Company
Information.
F. Entire Agreement. This Agreement constitutes the entire understanding
relating to the subject matter hereof between the parties.
G. Amendment. This Agreement shall not be modified or amended except by a
written document executed by both parties to this Agreement.
H. Access of the Government to Records. To the extent that the provisions of
Section 1861(c)(1)(I) of the Social Security Act [42 U.S.C.
ss.1395x(c)(l)(I)] are applicable to this Agreement, the parties agree to
make available, upon the written request of the Secretary of the Department
of Health and Human Services or upon the request of the Comptroller
General, or any of their duly authorized representatives, this Agreement,
and other books, records and documents that are necessary to certify the
nature and extent of costs incurred by them for services furnished under
this Agreement. The obligations hereunder shall extend for four (4) years
after furnishing of such services. The parties shall notify each other of
any such request for records.
I. Governing Law. This agreement shall be subject to and governed by the laws
of the State of Maryland.
J. Notice. Any notice or other communication required by this Agreement to be
in writing shall be deemed to have been received by the person or entity to
whom it is addressed two (2) business days after it is deposited in the
United States mail, postage prepaid, and addressed as follows:
Billing Agent: Medi-Cen Management, Inc.
5530 Wisconsin Avenue, Suite 1248
Chevy Chase, MD 20815
Attention: Harrison Jett
4
<PAGE>
The Partnership: Washington Neurology Associates, L.L.P.
5530 Wisconsin Avenue, Suite 1248
Chevy Chase, MD 20815
K. Severability; Reformation. In case any one or more of the provisions or
parts of a provision contained in this Agreement shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other
provision or part of a provision of this Agreement; and this Agreement
shall, to the fullest extent lawful, be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of a provision, had
never been contained herein, and such provision or part reformed so that it
would be valid, legal and enforceable to the maximum extent possible.
Without limiting the foregoing, if any provision (or part of provision)
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
fullest extent compatible with then existing applicable law.
L. Assignment. Except as otherwise provided in this paragraph, this Agreement
is not transferable or assignable by either party without the prior written
consent of the other party; provided that Billing Agent may assign its
rights and obligations under the Agreement to any entity that controls, is
controlled by, or is under common control with Billing Agent, or is a
successor to Billing Agent by merger, consolidation, reorganization or sale
of all or substantially all of its assets.
IN WITNESS WHEREOF, the parties have caused this agreement to be signed by
a duly authorized person the day and year first above written.
MEDI-CEN MANAGEMENT, INC.
/s/ Harrison Jett
-----------------------------------
By: CFO
-----------------------------------
WASHINGTON NEUROLOGY ASSOCIATES,
L.L.P.
/s/ P. Steven Macedo
-----------------------------------
By: President
-----------------------------------
5
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") dated this 11th day of
March, 1998 and effective January 22, 1998 is by and between YATER MEDICAL
GROUP, P.C. ("Purchaser") and MICHAEL MACEDO ("Seller").
Explanatory Statement
Purchaser has agreed to acquire from Seller, and Seller has agreed to sell
to Purchaser, one hundred fifty (150) shares of Common Stock of Medi-Cen
Management, Inc. ("MMI") on a weekly basis at a price of $30.00 per share upon
the terms and conditions provided herein.
NOW, THEREFORE, in consideration of the Explanatory Statement, which shall
constitute a substantive part of this Agreement, and the mutual covenants,
promises, agreements, representations and warranties hereinafter set forth.
Purchaser and Seller do hereby covenant, promise, agree, represent and warrant
as follows:
1. Purchase of Shares.
a. Commencing on January 22, 1998 and continuing on every Friday
thereafter until the effective date of the Initial Public Offering of stock
of MMI, Seller shall sell to Purchaser one hundred fifty (150) shares of
Common Stock of MMI at a price of $30.00 per share for an aggregate weekly
purchase price of Four Thousand Five Hundred Dollars ($4,500.00).
b. Garcia Financial Group shall be entitled to a five percent (5%)
commission upon the consummation of each sale of stock by Seller to
Purchaser.
c. The weekly purchase price shall be paid by Purchaser as follows:
1. Four Thousand Two Hundred Seventy-Five Dollars ($4,275.00)
shall be paid by check from Purchaser to Seller; and
2. Two Hundred Twenty-Five Dollars ($225.00) shall be paid by
Purchaser to Garcia Financial Group, representing the commission due
from Seller as a result of such sale.
1
<PAGE>
2. Representations and Warranties of Seller. Seller represents and warrants
to Purchaser that Seller is the sole and exclusive record and beneficial owner
of the shares of stock of MMI being sold hereunder. Seller possesses and holds
marketable title to such shares, and owns such shares free and clear of any and
all security interests, agreements, restrictions, claims, liens, pledges and
encumbrances of any nature or kind, except those previously disclosed to
Purchaser. Seller has the absolute and unconditional right to sell, assign,
transfer and deliver such shares to Purchaser in accordance with the terms of
this Agreement.
3. Representations and Warranties of Purchaser. Purchaser represents and
warrants to Seller as follows:
a. Purchaser is and all times during the term of this Agreement will
be, a corporation duly organized, validly existing and in good standing
under the laws of the District of Columbia.
b. Purchaser has the power and authority to execute, seal and deliver
this Agreement, to consummate the transactions hereby contemplated and to
take all other actions required to be taken by it pursuant to the
provisions hereof. This Agreement is valid and binding upon Purchaser in
accordance with its terms.
c. The shares of stock of MMI being acquired by Purchaser pursuant to
this Agreement are being acquired by Purchaser for investment for its own
account and not with a view to, or for the offer for sale or for the sale
in connection with, any distribution thereof. Purchaser covenants and
agrees that Purchaser shall not sell, assign or otherwise transfer the
shares other than in transactions which are not in violation of the
Securities Act of 1933 and applicable State's Securities Laws. Each stock
certificate of MMI representing the shares shall bear a restrictive stock
legend indicating that such shares shall not be sold in the absence of
compliance with applicable Securities Laws.
4. Adjustments for Changes of Number of Shares of MMI Common Stock. The
number of shares of Common Stock of MMI subject to this Agreement shall be
appropriately adjusted in the event of a stock dividend, stock split or other
increase or decrease in the number of issued and outstanding shares of Common
Stock of MMI resulting
2
<PAGE>
from subdivision of consolidation of the Common Stock of MMI or other capital
adjustment effected without receipt of consideration by MMI. The $30.00 per
share purchase price for Common Stock of MMI shall also be correspondingly
adjusted so that the aggregate purchase price due upon any weekly purchase of
stock from Seller shall remain Four Thousand Five Hundred Dollars ($4,500.00).
5. Miscellaneous.
a. Each of the parties hereto, at no cost to the cooperating party,
will execute, acknowledge and deliver, or cause to be executed,
acknowledged and delivered from time to time, such additional instruments
and documents as may be reasonably requested by the other party in order to
consummate, effectuate, confirm or ratify the sale of stock contemplated by
this Agreement.
b. This Agreement shall be governed by, construed and enforced in all
respects in accordance with the laws of the State of Maryland.
c. This Agreement contains the full, complete and entire understanding
between the parties hereto. This Agreement may be amended only by an
instrument in writing executed, sealed and delivered by Seller and
Purchaser.
d. This Agreement may be executed simultaneously or in counterparts,
each of which shall be deemed to be an original, but both of which shall
constitute one in the same instrument.
d. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective legal representatives, successors
and assigns.
IN WITNESS WHEREOF, the parties have executed, sealed and delivered this
Agreement the day and year first above written.
WITNESS: PURCHASER:
YATER MEDICAL GROUP, P.C.
By: /s/P. Steven Macedo, MD (SEAL)
- -------------------------- --------------------------
Name: P. Steven Macedo
------------------------
Title: President
-----------------------
3
<PAGE>
SELLER:
/s/ Michael Macedo
- ---------------------------- -----------------------------(SEAL)
Michael Macedo
4
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") dated this 11th day of
March, 1998 and effective January 22, 1998 is by and between YATER MEDICAL
GROUP, P.C. ("Purchaser") and P. STEVEN MACEDO ("Seller").
Explanatory Statement
Purchaser has agreed to acquire from Seller, and Seller has agreed to sell
to Purchaser, one hundred fifty (150) shares of Common Stock of Medi-Cen
Management, Inc. ("MMI") on a weekly basis at a price of $30.00 per share upon
the terms and conditions provided herein.
NOW, THEREFORE, in consideration of the Explanatory Statement, which shall
constitute a substantive part of this Agreement, and the mutual covenants,
promises, agreements, representations and warranties hereinafter set forth.
Purchaser and Seller do hereby covenant, promise, agree, represent and warrant
as follows:
1. Purchase of Shares.
a. Commencing on January 22, 1998 and continuing on every Friday
thereafter until the effective date of the Initial Public Offering of stock
of MMI, Seller shall sell to Purchaser one hundred fifty (150) shares of
Common Stock of MMI at a price of $30.00 per share for an aggregate weekly
purchase price of Four Thousand Five Hundred Dollars ($4,500.00).
b. Garcia Financial Group shall be entitled to a five percent (5%)
commission upon the consummation of each sale of stock by Seller to
Purchaser.
c. The weekly purchase price shall be paid by Purchaser as follows:
1. Four Thousand Two Hundred Seventy-Five Dollars ($4,275.00)
shall be paid by check from Purchaser to Seller; and
2. Two Hundred Twenty-Five Dollars ($225.00) shall be paid by
Purchaser to Garcia Financial Group, representing the commission due
from Seller as a result of such sale.
1
<PAGE>
2. Representations and Warranties of Seller. Seller represents and warrants
to Purchaser that Seller is the sole and exclusive record and beneficial owner
of the shares of stock of MMI being sold hereunder. Seller possesses and holds
marketable title to such shares, and owns such shares free and clear of any and
all security interests, agreements, restrictions, claims, liens, pledges and
encumbrances of any nature or kind, except those previously disclosed to
Purchaser. Seller has the absolute and unconditional right to sell, assign,
transfer and deliver such shares to Purchaser in accordance with the terms of
this Agreement.
3. Representations and Warranties of Purchaser. Purchaser represents and
warrants to Seller as follows:
a. Purchaser is and all times during the term of this Agreement will
be, a corporation duly organized, validly existing and in good standing
under the laws of the District of Columbia.
b. Purchaser has the power and authority to execute, seal and deliver
this Agreement, to consummate the transactions hereby contemplated and to
take all other actions required to be taken by it pursuant to the
provisions hereof. This Agreement is valid and binding upon Purchaser in
accordance with its terms.
c. The shares of stock of MMI being acquired by Purchaser pursuant to
this Agreement are being acquired by Purchaser for investment for its own
account and not with a view to, or for the offer for sale or for the sale
in connection with, any distribution thereof. Purchaser covenants and
agrees that Purchaser shall not sell, assign or otherwise transfer the
shares other than in transactions which are not in violation of the
Securities Act of 1933 and applicable State's Securities Laws. Each stock
certificate of MMI representing the shares shall bear a restrictive stock
legend indicating that such shares shall not be sold in the absence of
compliance with applicable Securities Laws.
4. Adjustments for Changes of Number of Shares of MMI Common Stock. The
number of shares of Common Stock of MMI subject to this Agreement shall be
appropriately adjusted in the event of a stock dividend, stock split or other
increase or decrease in the number of issued and outstanding shares of Common
Stock of MMI resulting
2
<PAGE>
from subdivision of consolidation of the Common Stock of MMI or other capital
adjustment effected without receipt of consideration by MMI. The $30.00 per
share purchase price for Common Stock of MMI shall also be correspondingly
adjusted so that the aggregate purchase price due upon any weekly purchase of
stock from Seller shall remain Four Thousand Five Hundred Dollars ($4,500.00).
5. Miscellaneous.
a. Each of the parties hereto, at no cost to the cooperating party,
will execute, acknowledge and deliver, or cause to be executed,
acknowledged and delivered from time to time, such additional instruments
and documents as may be reasonably requested by the other party in order to
consummate, effectuate, confirm or ratify the sale of stock contemplated by
this Agreement.
b. This Agreement shall be governed by, construed and enforced in all
respects in accordance with the laws of the State of Maryland.
c. This Agreement contains the full, complete and entire understanding
between the parties hereto. This Agreement may be amended only by an
instrument in writing executed, sealed and delivered by Seller and
Purchaser.
d. This Agreement may be executed simultaneously or in counterparts,
each of which shall be deemed to be an original, but both of which shall
constitute one in the same instrument.
d. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective legal representatives, successors
and assigns.
IN WITNESS WHEREOF, the parties have executed, sealed and delivered this
Agreement the day and year first above written.
WITNESS: PURCHASER:
YATER MEDICAL GROUP, P.C.
By: /s/ Ilene S. Macedo (SEAL)
- -------------------------- --------------------------
Name: Ilene S. Macedo
------------------------
Title:Vice President and Secretary
-----------------------
3
<PAGE>
SELLER:
/s/ P. Steven Macedo
- ---------------------------- -----------------------------(SEAL)
P. Steven Macedo
4
BILLING AGENT AGREEMENT
(Medicare/Medicaid)
This Agreement is made as of the 11th day of March, 1998 (the "Effective
Date") by and between MEDI-CEN MANAGEMENT, INC., a Maryland corporation having
its principal place of business at 5530 Wisconsin Avenue, Suite 1248, Chevy
Chase, Maryland ("Billing Agent") and YATER MEDICAL GROUP, P.C., a District of
Columbia professional corporation, having its principal place of operation at
1780 Massachusetts Avenue, N.W., Washington, D.C. (the "P.C.").
WHEREAS, the P.C. requires billing and collection services for
Medicare/Medicaid services provided by its employed physicians ("Physician
Employees") and employed nonphysician licensed practitioners who practice in an
extended role and generate professional charges for their services ("Physician
Extenders") and,
WHEREAS, Billing Agent provides billing and collection services to
physicians and physician group practices.
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, the parties hereby agree as follows:
A. Obligations of Billing Agent.
1. Billing Agent shall bill and collect for Medicare and Medicaid
services provided by the P.C. and its Physician Employees and
Physician Extenders as agent for the P.C. Claims for such services
shall be prepared in the name and under the provider numbers of the
P.C. The P.C. hereby irrevocably appoints Billing Agent as its agent
and attorney-in-fact to bill and collect payments for such services.
All of the payments with respect to such services shall be made by
check (or electronic funds transfer) payable to the P.C. and shall be
deposited into a bank account of the practice of the P.C. (the
"Practice Account") with a bank mutually agreed upon by the parties
and whose deposits are insured by the FDIC (the "Account Bank").
Withdrawals from such Practice Account by Billing Agent shall require
the joint signatures of an authorized agent of the P.C. and an
authorized agent of Billing Agent.
2. The P.C. and its Physician Employees and Physician Extenders hereby
authorize Billing Agent to initiate legal proceedings in the name of
the P.C. to collect any accounts and monies owed to the P.C. or its
Physician Employees or Physician Extenders to enforce the rights of
the P.C. and its Physician Employees and Physician Extenders as
creditors under any contract or in connection with the rendering of
any service hereunder, and to contest adjustments and denials by
Medicare or Medicaid (or their carriers or fiscal intermediaries).
<PAGE>
B. Compensation to the P.C.; Billing Agent Fees. On a bi-weekly basis during
the term of this Agreement, the P.C. shall pay Billing Agent a Billing
Agent Fee equal to the actual direct cost to the Billing Agent of billing
and collecting Medicare and Medicaid claims on behalf of the P.C. during
said two week period. For claims submitted during the immediately preceding
two week period, the Billing Agent shall be paid by the P.C. not more than
ten (10) days after the end of such two week period.
C. Term.
1. Term of Agreement. This Agreement shall commence on the date hereof
and shall expire on the thirtieth (30th) anniversary of the date
hereof unless sooner terminated pursuant to the terms of this
Agreement.
2. Extended Term. Unless sooner terminated as provided for in this
Agreement, the term of this Agreement shall be automatically extended
for additional terms of five (5) years each, unless either the P.C. or
Billing Agent delivers to the other, not less than six (6) months
prior to the expiration of the initial or extended term, as
applicable, written notice of such party's intention not to extend the
term of this Agreement.
3. Termination By P.C. The P.C. may terminate this Agreement upon ninety
(90) days' prior written notice to Billing Agent in the event of a
material breach by Billing Agent of any material term or condition
hereof, if such breach is not cured within that ninety (90) day notice
period; provided that a majority of the owners of the P.C.
affirmatively vote in favor of terminating this Agreement.
4. Termination By Billing Agent - P.C. Breach. Billing Agent may
terminate this Agreement upon ninety (90) days' prior written notice
to the P.C. in the event of a material breach by the P.C. of any
material term or condition hereof, if such breach is not cured within
that ninety (90) day notice period.
5. Mutual Termination Rights. Either party may terminate this Agreement
immediately if the other party: (i) makes a general assignment for the
benefit of creditors; (ii) files a voluntary petition or the
commencement of any proceeding for any relief under any bankruptcy or
insolvency laws, or any laws relating to the relief of debtors,
readjustment or indebtedness, reorganization, composition or
extension; (iii) files any involuntary petition with or the
commencement of any proceeding by or against such party for any relief
under any bankruptcy or insolvency laws, or any laws relating to the
relief of debtors, readjustment of indebtedness, reorganization, or
composition, which petition or proceeding is not dismissed within
ninety (90) days of the date on which it is filed or commenced; or
(iv) suspends the transaction of the usual business of such party for
a period in excess of thirty (30) days. In addition to the foregoing
bases for termination, this Agreement shall automatically terminate in
the event the Management Agreement between the parties dated as of the
date hereof shall terminate.
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6. Termination Upon Legal Prohibition of Relationship. If, in the opinion
(the "Opinion") of nationally recognized health care counsel jointly
selected by the parties, it is determined that it is more likely than
not that applicable legislation, regulations, rules or procedures
(collectively referred to herein as a "Law") in effect or to become
effective as of a date certain, or if Billing Agent or the P.C.
receives notice (the "Notice") of an actual or threatened decision,
finding or action by any governmental or private agency or court
(collectively referred to herein as an "Action"), which Law or Action,
if or when implemented, would have the effect of subjecting either
party to civil or criminal prosecution under state and/or federal
laws, or other material adverse proceeding on the basis of their
participation herein, then Billing Agent or the P.C. shall provide
such Opinion or Notice to the other party. The parties shall attempt
in good faith to amend this Agreement to the minimum extent necessary
in order to comply with such Law or to avoid the Action, as
applicable, and shall utilize mutually agreed upon joint legal counsel
to the extent practicable. If, within ninety (90) days of providing
written notice of such Opinion or such Notice to the other party, the
parties hereto acting in good faith are unable to mutually agree upon
and make amendments or alterations to this Agreement to meet the
requirements in question, or alternatively, the parties mutually
determine in good faith that compliance with such requirements is
impossible or unfeasible, then this Agreement shall be terminated
without penalty, charge or continuing liability upon the earlier of
the following: the date which is one hundred and eighty (180) days
subsequent to the date upon which any party gives written notice to
the other party, or the effective date upon which the Law or Action
prohibits the relationship of the parties pursuant to this Agreement.
7. Obligations After Termination. Except as otherwise provided herein or
in any amendment hereto, following the effective date of termination
of this Agreement, both Billing Agent and the P.C. shall cooperate in
the final reconciliation of fees owed hereunder, which shall be
calculated by Billing Agent no less than six (6) months after
termination of this Agreement. In addition, upon termination of this
Agreement, Billing Agent shall turn over to the P.C. on diskette or in
such other format as the P.C. shall request, all of the P.C.'s data,
records and information in Billing Agent's possession, and, at the
P.C.'s option, either (a) immediately cease billing and collection
services hereunder, or (b) continue to use best efforts to collect for
services billed prior to the date of termination of this Agreement.
D. Reasonable Compensation. The fees paid and payable hereunder by the P.C. to
Billing Agent have been determined by the parties through good-faith and
arm's length bargaining. No amount paid hereunder is intended to be, nor
shall be construed as, an inducement or payment for referral of or
recommending referral of, patients by the P.C. to Billing Agent (or its
affiliates) or by Billing Agent (or its affiliates) to the P.C. In
addition, the fees charged hereunder do not include any discount, rebate,
kickback or other reduction in charge, and the fees charged hereunder are
not intended to be, nor shall they be construed as, an inducement or
payment for referral, or recommendation of referral, of patients by the
P.C. to Billing Agent (or its affiliates) or by Billing Agent (or its
affiliates) to the P.C. The sole purpose of the payments to Billing Agent
hereunder is to pay fair market value for services actually rendered by
Billing Agent to the P.C. hereunder.
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E. Confidential Information. This Agreement and its terms shall be
confidential, and at no time during or after the termination of this
Agreement, except as may be otherwise required by law shall, the P.C., its
employees, independent contractors, or owners disclose, communicate or
divulge to, or use for the direct or indirect benefit of any person, firm,
association or company any information regarding the terms and conditions
of this Agreement, business methods, business policies, procedures,
techniques, or trade secrets, or other knowledge or processes of or
developed by the Billing Agent, or any other confidential information
relating to or dealing with the business operations or activities of the
Billing Agent, made known to the P.C., its employees or its shareholders or
learned or acquired by the P.C., its employees or owners during the term of
this Agreement, (collectively, "Company Information"), except as may be
expressly authorized by the Billing Agent or any successor to it.
Immediately upon the termination of this Agreement, the P.C. and/or the
applicable shareholder, employee or independent contractor, or other key
employee or independent contractor shall deliver to the Billing Agent all
documents, computer disks or other forms of recorded information, including
all copies thereof, containing Company Information.
F. Entire Agreement. This Agreement constitutes the entire understanding
relating to the subject matter hereof between the parties.
G. Amendment. This Agreement shall not be modified or amended except by a
written document executed by both parties to this Agreement.
H. Access of the Government to Records. To the extent that the provisions of
Section 1861(c)(1)(I) of the Social Security Act [42 U.S.C.
ss.1395x(c)(l)(I)] are applicable to this Agreement, the parties agree to
make available, upon the written request of the Secretary of the Department
of Health and Human Services or upon the request of the Comptroller
General, or any of their duly authorized representatives, this Agreement,
and other books, records and documents that are necessary to certify the
nature and extent of costs incurred by them for services furnished under
this Agreement. The obligations hereunder shall extend for four (4) years
after furnishing of such services. The parties shall notify each other of
any such request for records.
I. Governing Law. This agreement shall be subject to and governed by the laws
of the State of Maryland.
J. Notice. Any notice or other communication required by this Agreement to be
in writing shall be deemed to have been received by the person or entity to
whom it is addressed two (2) business days after it is deposited in the
United States mail, postage prepaid, and addressed as follows:
Billing Agent: Medi-Cen Management, Inc.
5530 Wisconsin Avenue, Suite 1248
Chevy Chase, MD 20815
Attention: Harrison Jett
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The P.C.: Yater Medical Group, P.C.
1780 Massachusetts Avenue, N.W.
Washington, D.C. 20036-1999
Attention: P. Steven Macedo, M.D.
K. Severability; Reformation. In case any one or more of the provisions or
parts of a provision contained in this Agreement shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other
provision or part of a provision of this Agreement; and this Agreement
shall, to the fullest extent lawful, be reformed and construed as if such
invalid or illegal or unenforceable provision, or part of a provision, had
never been contained herein, and such provision or part reformed so that it
would be valid, legal and enforceable to the maximum extent possible.
Without limiting the foregoing, if any provision (or part of provision)
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
fullest extent compatible with then existing applicable law.
L. Assignment. Except as otherwise provided in this paragraph, this Agreement
is not transferable or assignable by either party without the prior written
consent of the other party; provided that Billing Agent may assign its
rights and obligations under the Agreement to any entity that controls, is
controlled by, or is under common control with Billing Agent, or is a
successor to Billing Agent by merger, consolidation, reorganization or sale
of all or substantially all of its assets.
IN WITNESS WHEREOF, the parties have caused this agreement to be signed by
a duly authorized person the day and year first above written.
MEDI-CEN MANAGEMENT, INC.
By: /s/ Harrison Jett
-------------------------------
Its: CFO
YATER MEDICAL GROUP, P.C.
By: /s/ P. Steven Macedo, MD
------------------------------
Its: President
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The Board of Directors
Medi-Cen Management, Inc. and Affiliates:
We consent to the use of our reports included herein and to the reference to our
firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
/s/ KPMG Peat Marwick LLP
McLean, Virginia
March 16, 1998
