<PAGE>
As filed with the Securities and Exchange Commission on July 26, 1999
Registration No. 333-79271
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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NOVAMED EYECARE, INC.
(Exact name of registrant as specified in its charter)
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Delaware 8741 36-4116193
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code No.)
organization)
980 North Michigan Avenue, Suite 1620, Chicago, Illinois 60611, (312) 664-4100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------
STEPHEN J. WINJUM
Chairman of the Board, President and Chief Executive Officer
980 North Michigan Avenue, Suite 1620, Chicago, Illinois 60611, (312) 664-4100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
STEVEN V. NAPOLITANO, ESQ. THOMAS J. MURPHY, ESQ.
JEFFREY R. PATT, ESQ. TIMOTHY R.M. BRYANT, ESQ.
Katten Muchin & Zavis McDermott, Will & Emery
525 West Monroe Street, Suite 1600 227 West Monroe Street, Suite 4400
Chicago, Illinois 60661 Chicago, Illinois 60606
(312) 902-5200 -------------- (312) 372-2000
Approximate date of commencement of 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, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering: [_] .
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_] .
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_] .
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_] .
CALCULATION OF REGISTRATION FEE
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<TABLE>
<S> <C> <C> <C> <C>
Proposed maximum
Proposed maximum aggregate Amount of
Title of each class of Amount to offering price offering price registration
securities to be registered be registered(1) per share (2) (2) fee (3)
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Common Stock, $0.01 par value (4)..... 8,202,916 $13.00 $106,637,908 $29,646
</TABLE>
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(1) 1,069,945 of these shares represent an option granted to the underwriters
to purchase shares from NovaMed to cover over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) of Regulation C under the Securities Act of 1933, as
amended.
(3) $29,500 was paid on May 25, 1999 upon the filing of the Registration
Statement on Form S-1, No. 333-79271 and the balance of $146 was paid on
July 2, 1999 upon the filing of Amendment No. 1 to the Registration
Statement.
(4) Includes the associated rights to purchase series E junior participating
preferred stock, $.01 par value, of NovaMed Eyecare, Inc. The rights will
be initially attached to, and trade with, the common stock. The value
attributable to these rights will be reflected in the price of the common
stock.
--------------
The Registrant hereby amends this Registration Statement on the 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 the Registration Statement
shall become effective on the date as the Commission, acting pursuant to
Section 8(a), determines.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities,and we are not soliciting an offer to buy +
+these securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
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Preliminary Prospectus
July 26, 1999
7,132,971 Shares of Common Stock
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NovaMed Eyecare, Inc.: The Offering:
. We are offering
We are an eye care 5,000,000 shares.
services company Existing stockholders
focused on laser vision are offering
correction. We own and 2,132,971 shares.
operate 10 eye surgery
and laser centers and
operate two laser
vision correction
centers in five U.S.
regional markets, where
we are affiliated with
83 eye care
professionals.
. This is a firm
commitment
underwriting.
. The underwriters have
an option to purchase
up to an additional
1,069,945 shares from
us to cover over-
allotments.
Proposed Nasdaq National Market Symbol:
NOVA
. This is our initial
public offering and
no market currently
exists for our common
stock. We anticipate
the price range to be
between $11.00 and
$13.00 per share.
. Closing:
, 1999.
-------------------------------------------
<TABLE>
<CAPTION>
Per Share Total
------------------------------------------------------------
<S> <C> <C>
Public offering price $ $
Underwriting fees
Proceeds to us
Proceeds to our selling stockholders
------------------------------------------------------------
</TABLE>
Investing in our common stock involves risks described in "Risk Factors,"
beginning on page 6.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
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Donaldson, Lufkin & Jenrette
Hambrecht & Quist
William Blair & Company
DLJdirect Inc.
<PAGE>
[Photo of Daniel S. Durrie, M.D. [Daniel S. Durrie, M.D., our
performing surgery on Stephen J. National Director of Refractive
Winjum] Surgery, performing a laser vision
correction procedure on Stephen J.
Winjum, our Chairman of the Board,
President and Chief Executive
Officer]
[NovaMed Eyecare, Inc. Logo]
[One of our 10 eye surgery and laser [Photo of Brodersen-Williams eye care
centers, located adjacent to one of clinic]
our affiliated eye care clinics in
the Chicago, Illinois metropolitan
area]
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 6
Company History and Acquisitions.... 14
Use of Proceeds..................... 16
Dividend Policy..................... 16
Capitalization...................... 17
Dilution............................ 18
Selected Consolidated Financial
Data............................... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 20
Business............................ 30
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Government Regulation............... 44
Management.......................... 49
Certain Transactions................ 56
Selling Stockholders................ 58
Principal Stockholders.............. 59
Description of Securities........... 61
Shares Eligible for Future Sale..... 65
Underwriting........................ 67
Legal Matters....................... 69
Experts............................. 69
Where You Can Find More Information. 69
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
----------------
NovaMed EyecareSM is our service mark. This prospectus also includes service
marks, registered service marks and trademarks of other companies.
i
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information from this document and does not
contain all of the information that you should consider before investing in our
common stock. To understand the risks involved in your investment decision, you
should carefully read the entire prospectus and the documents to which we refer
you.
Unless otherwise indicated, all share amounts and financial information
presented in this prospectus:
. give effect to the conversion of our convertible preferred stock into our
common stock, which will occur automatically upon completion of this
offering
. give effect to the issuance of 1,010,412 shares of common stock upon the
exchange of $9.7 million of our subordinated exchangeable promissory
notes, based upon an assumed initial public offering price of $12.00 per
share
. assume the underwriters' over-allotment option is not exercised
We are an eye care services company focused on laser vision correction. We
operate in the following metropolitan regions: Chicago, Illinois; Kansas City,
Missouri; Louisville, Kentucky; St. Louis, Missouri; and Richmond, Virginia.
Our revenue has grown at a compound annual rate of 100.5% from $15.9 million
in 1996, our first full year of operation, to $63.7 million in 1998. We became
profitable in 1997 and from 1997 to 1998 our net income increased from $105,000
to $1.7 million.
In 1998, the number of laser vision correction procedures performed by our
affiliated eye care professionals more than tripled to 5,083 as compared to the
prior year. Through the six months ended June 30, 1999, the number of
procedures more than doubled from the prior year period to 5,150, which exceeds
the number performed during all of 1998.
We own and operate:
. 10 eye surgery and laser centers where our affiliated eye care
professionals perform laser vision correction and other eye-related
surgical procedures
. an eye-only research organization with an emphasis on laser vision
correction that provides clinical and other research services to eye care
device, product and pharmaceutical manufacturers
. an optical services division that sells eye care products and accessories
to eye care professionals, including corrective lenses and eyeglasses
produced by our three wholesale optical laboratories, and eyeglass frames
and contact lenses purchased from manufacturers by our optical products
purchasing organization
We also operate under service agreements two laser vision correction centers
where our affiliated eye care professionals perform laser vision correction
surgery.
Generally, we enter into long-term business relationships, or affiliations,
with eye care professionals by:
. acquiring their non-medical assets including equipment, leasehold
interests and working capital
. hiring their non-medical personnel
. assuming their office leases
. entering into long-term service agreements with their professional
entities
Under these service agreements, we provide business, administrative and
financial services to our affiliated eye care professionals and their optical
retail outlets in exchange for a management fee.
To date, we have affiliated with 83 eye care professionals. Our affiliated
eye care professionals provide a wide range of eye care services to patients
including laser vision correction surgery, basic eye examinations and the
diagnosis and treatment of complex eye conditions. Our affiliated eye care
professionals currently practice in 45 eye care clinics which are leased and
staffed by us. In addition, our affiliated eye care professionals operate 28
optical retail outlets, each of which is located within one of our affiliated
eye care clinics, where they sell eyeglasses, contact lenses and other optical
products and accessories to patient-consumers.
1
<PAGE>
Based on data collected by the Vision Council of America, total U.S. eye
care spending in 1998 approximated $55 billion. Of this amount, $38.4 billion
was spent on health care costs associated with eye and vision conditions and
$16.3 billion was spent on eyewear.
The Vision Council of America estimates that in 1997, 161 million people,
representing approximately 60% of the U.S. population, required eyeglasses or
contact lenses to correct refractive vision conditions which result from the
improper curvature of the cornea. The three most common refractive conditions
are:
. myopia, commonly referred to as nearsightedness
. hyperopia, commonly referred to as farsightedness
. astigmatism
A number of surgical procedures have been developed as alternative means of
correcting nearsightedness, farsightedness and astigmatism. The popularity of
vision correction surgery has recently increased, primarily as a result of the
1996 introduction of the Laser In-Situ Keratomileusis, or LASIK, procedure. In
the LASIK procedure, an ophthalmologist uses an automated microsurgical
instrument to peel back a thin layer of corneal tissue which remains hinged to
the eye. A number of laser pulses are then applied to the exposed cornea to
improve the patient's vision by flattening the cornea, in the case of
nearsighted patients, and steepening the cornea, in the case of farsighted
patients.
Spectrum Consulting estimates that in 1998, eye care professionals performed
approximately 450,000 laser vision correction surgery procedures in the U.S.,
representing an increase of 97.4% over the number of procedures performed in
1997. Spectrum Consulting also forecasts that eye care professionals will
perform approximately 950,000 and 1.4 million laser vision correction
procedures in the U.S. in 1999 and 2000, respectively. Despite this rapid
growth, the number of vision correction surgery patients in 1998 represented
less than 0.2% of the 161 million people with refractive vision conditions in
the U.S.
In order to pursue this market opportunity, we have focused on building
regional clusters of eye surgery and laser centers and affiliated eye care
professionals. We build our regional clusters by entering into service
agreements with leading ophthalmologists and optometrists in a manner which
achieves a hub and spoke configuration of affiliated eye care professionals
around our eye surgery and laser centers.
Our goal is to become the leading laser vision correction services and
facilities company in each of our existing and future regional markets. We
intend to achieve this goal by continuing to establish contractual affiliations
with leading eye care professionals and by implementing a growth strategy which
includes the following specific components:
. continuing to expand our presence in existing regional markets
. selectively targeting and entering new regional markets
. providing patient-consumer directed marketing support to our regional
clusters of affiliated eye care professionals
. capitalizing on and expanding our eye-only research organization
. developing and implementing additional business, administrative and
financial services to assist our affiliated eye care professionals in
enhancing their laser vision correction procedure growth
Our principal offices are located at 980 North Michigan Avenue, Suite 1620,
Chicago, Illinois 60611. Our telephone number is (312) 664-4100. Our website
address is www.novamed.com.
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by us... 5,000,000 shares
Common stock offered by the
selling stockholders........ 2,132,971 shares
Common stock to be
outstanding after the
offering, excluding up to
6,298,288 additional shares
reserved for issuance
pursuant to our 1996 stock
incentive plan and our 1999
stock purchase plan......... 24,821,655 shares
Use of proceeds.............. We intend to use the proceeds of this offering
to repay all of our bank and subordinated
exchangeable debt outstanding following this
offering, for working capital and to pursue our
laser vision correction strategy through new
affiliations, acquisitions and expansion in our
existing and future markets. We will not receive
any proceeds from the shares sold by the selling
stockholders.
Proposed Nasdaq National NOVA
Market symbol...............
Risk Factors................. See "Risk Factors," beginning on page 6 for a
discussion of factors you should carefully
consider before deciding to buy our common
stock.
</TABLE>
3
<PAGE>
Summary Consolidated Financial Data
You should read the following summary consolidated financial data together
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and our consolidated financial statements and related notes
included in this prospectus.
The pro forma earnings per common share data exclude the effect of the
accretion of our Series C and Series D convertible preferred stock. The holders
of these preferred shares have the right to tender their stock for redemption
in 2004 and 2005. Generally accepted accounting principles require us to
increase the value of these preferred shares to their fair market value as
their fair market value increases, a principle known as accretion. These
preferred shares will automatically convert into common stock upon completion
of this offering. This conversion will eliminate the redemption rights and the
necessity for further accretion. We will record the final charge for accretion
upon the completion of this offering.
The pro forma earnings per common share and the pro forma balance sheet data
give effect to:
. the conversion of our convertible preferred stock into shares of our common
stock, which will occur automatically upon the completion of this offering
. the issuance of 1,010,412 shares of our common stock, assuming an initial
public offering price of $12.00 per share, upon the exchange of our
subordinated exchangeable promissory notes and the elimination of the
interest expense related to these notes
. with respect to the pro forma balance sheet data only, we will record the
discount to the initial public offering price in connection with the exchange
of the subordinated exchangeable promissory notes as additional interest
expense, net of tax benefit, of approximately $2.0 million. This net amount
is reflected here as a decrease in retained earnings.
The pro forma as adjusted balance sheet data also give effect to the sale of
5,000,000 shares of common stock by us at an assumed initial public offering
price of $12.00 per share and the application of the net proceeds from this
offering as discussed in "Use of Proceeds."
See Note 8 to our consolidated financial statements included in this
prospectus for details concerning the timing of the retirement of our
outstanding subordinated exchangeable promissory notes.
<TABLE>
<CAPTION>
Six months
Years ended December ended
31, June 30,
------------------------ ----------------
1996 1997 1998 1998 1999
(In thousands, except per share data
and selected operating data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenue....................... $15,850 $42,408 $63,729 $27,285 $44,862
Operating expenses................ 16,679 40,387 58,986 25,559 41,881
------- ------- ------- ------- -------
Income (loss) from operations..... (829) 2,021 4,743 1,726 2,981
Other expense..................... 83 1,710 1,373 571 1,040
------- ------- ------- ------- -------
Income (loss) before income taxes. (912) 311 3,370 1,155 1,941
Provision for income taxes........ -- 206 1,664 570 869
------- ------- ------- ------- -------
Net income (loss)................. $ (912) $ 105 $ 1,706 $ 585 $ 1,072
Less--Accretion of Series C and
Series D convertible preferred
stock............................ -- -- (739) (169) (3,476)
------- ------- ------- ------- -------
Income (loss) available to Series
A and Series B convertible
preferred stock and common stock. $ (912) $ 105 $ 967 $ 416 $(2,404)
======= ======= ======= ======= =======
Earnings (loss) per common share:
Basic............................ $ -- $ 0.01 $ 0.07 $ 0.03 $ (0.17)
======= ======= ======= ======= =======
Diluted.......................... $ (0.08) $ 0.01 $ 0.06 $ 0.03 $ (0.17)
======= ======= ======= ======= =======
Weighted average common shares
outstanding:
Basic............................ -- 2,178 2,751 2,751 2,471
======= ======= ======= ======= =======
Diluted.......................... 11,358 17,237 16,003 16,223 14,374
======= ======= ======= ======= =======
Pro Forma Data:
Earnings per common share--
diluted......................... $ 0.10 $ 0.06
======= =======
Weighted average common shares
outstanding--diluted............ 21,143 22,297
======= =======
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Six months
ended
Years ended December 31, June 30,
----------------------------- -----------
1996 1997 1998 1998 1999
<S> <C> <C> <C> <C> <C>
Selected Operating Data:
Eye surgery and laser centers....... 6 10 10 10 10
Affiliated eye care clinics......... 13 25 45 27 44
Optical retail outlets.............. 7 10 27 9 27
Procedures:
Laser vision correction............ -- 1,676 5,083 1,851 5,150
Cataract........................... 5,308 12,308 15,904 6,766 8,262
Other eye surgery and laser center
procedures........................ 1,337 7,445 9,837 4,285 6,064
Employees........................... 184 524 744 547 889
<CAPTION>
As of June 30, 1999
-----------------------------
Actual Pro Forma As Adjusted
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........... $ 864 $ 864 $ 37,654
Total assets........................ 71,613 72,043 108,393
Long term debt, excluding current
portion............................ 27,964 18,264 14
Series C and Series D convertible
preferred stock.................... 19,906 -- --
Total stockholders' equity.......... 14,223 44,259 99,859
</TABLE>
5
<PAGE>
RISK FACTORS
You should carefully consider the following factors and other information
contained in this prospectus before purchasing any of our common stock.
Risks Relating to Our Business
Our failure to grow, or to manage our growth, could reduce our ability to
continue to achieve or sustain profitability
Our growth strategy is focused on our existing and future regional markets
and involves:
. affiliating with additional eye care professionals through long-term
service agreements
. establishing or acquiring additional eye surgery and laser centers
. assisting our affiliated eye care professionals in opening new eye care
clinics and in offering a broader range of services and products
Pursuing new eye surgery and laser centers and affiliations with eye care
professionals presents us with a variety of challenges. We may not experience
an increase in surgical procedures at our existing eye surgery and laser
centers or management fees from our affiliated eye care professionals. We may
not be able to achieve the economies of scale and patient base, or provide the
business, administrative and financial services, required to sustain
profitability in our existing and future eye surgery and laser centers or in
the clinics of our affiliated eye care professionals.
If we are unable to successfully implement our growth strategy or manage our
growth effectively, our business, financial condition and results of
operations, including our ability to achieve and sustain profitability, could
be adversely affected.
Our limited operating history and our dependence on laser vision correction
and other refractive surgical procedures make it difficult to predict our
future results of operations
There is limited financial data upon which you can evaluate our future
results of operations and our growth prospects. This evaluation should take
into account the risks and difficulties frequently encountered by companies
early in their development, particularly companies in new and rapidly evolving
markets, including the laser vision correction market. We may not be able to
successfully address these risks and uncertainties, in which case, our recent
results and growth rate may not be indicative of our future results of
operations and growth rate.
If eye care professionals and the general population do not broadly accept
laser vision correction and other refractive surgical procedures as
alternatives to eyeglasses and contact lenses, a significant source of our
historical and future revenue and earnings growth will be limited
Our profitability and growth will depend upon broad acceptance by eye care
professionals and the general population of laser vision correction and other
refractive surgical procedures in the United States. Eye care professionals and
the general population might not broadly accept laser vision correction surgery
because of:
. the cost of the procedure that, to date, has been paid directly by
patients
. concerns about the safety and effectiveness of laser vision correction,
which are partially attributable to some reports of:
--an increase in the light scattering properties of the cornea during
healing
--undesirable visual sensations produced by bright lights
--decreases in contrast sensitivity
--unintended over- or under-corrections
--decline in corrective effect
--disorders of corneal healing, corneal scars and corneal ulcers
--induced astigmatism
. lack of sufficient long-term follow-up data
. adverse patient reactions or negative publicity involving patient
outcomes
. availability of alternative methods for correcting vision conditions
6
<PAGE>
If eye care professionals and the general population do not widely accept
laser vision correction and other refractive surgical procedures, a significant
source of our historical and future revenue and earnings growth will be
limited.
We may not compete effectively with other eye care services companies that
have more resources and experience than us
Competitors with substantially greater financial, technical, managerial,
marketing and other resources and experience may compete more effectively than
us. We and our affiliated eye care professionals compete with other businesses,
including other eye surgery and laser center companies, hospitals, individual
ophthalmologists and optometrists, other surgery and laser centers, eye care
clinics and providers of retail optical products. Our wholesale optical
laboratories and optical products purchasing organization also face competition
on national, regional and local levels. Companies in other health care industry
segments, including managers of hospital-based medical specialties or large
group medical practices, may become competitors in providing surgery and laser
centers as well as competitive eye care related services. Competition for
retaining the services of highly qualified ophthalmologists and optometrists
and medical, technical and managerial personnel is significant, and we may not
be able to help our affiliated eye care professionals identify, hire, train,
retain and affiliate with these types of individuals in the future.
If we find it necessary to reduce prices in response to competition, we could
experience reductions in profitability and revenue growth
The market for providing laser vision correction and other refractive
surgery procedures is becoming increasingly competitive. Several eye care
companies feature these services as a component of their activities. As laser
vision correction and other refractive surgery becomes more prevalent, we
expect a greater number of independent ophthalmologists to develop laser vision
correction and other refractive surgery practices.
In the event our competitors offer laser vision correction or other
refractive surgery services at lower prices than we and our affiliated eye care
professionals do, we may have to lower the prices we charge. If we lower
prices, we could experience reductions in our profitability and revenue growth.
Rapid technological advances may reduce our sources of revenue and our
profitability
Adoption of new technologies that may be comparable or superior to the
excimer laser could reduce the amount of the management fees we receive from
affiliated professional entities and facility fees we receive from eye care
professionals who use our eye surgery and laser centers. Reduction of these
sources of revenue could decrease our profitability. In this case, we might
have to expend significant capital resources to deploy new technology and
related equipment to remain competitive. Our inability to provide access to new
and improving technology could deter eye care professionals from affiliating
with us or from using our eye surgery and laser centers.
Our failure to maintain or establish profitable affiliations with a sufficient
number of eye care professionals could limit our profitability and revenue
growth
Our success depends upon our ability to establish affiliations with eye care
professionals in our existing and future markets. We may not be able to enter
into contractual arrangements with ophthalmologists or optometrists on
satisfactory terms, and these affiliations may not be profitable for us. In
addition, if vision correction technology becomes available to ophthalmologists
that is less expensive than the medical equipment currently required for laser
vision correction, eye care professionals might have less interest in our
services and our eye surgery and laser centers. If we fail to establish or
maintain profitable affiliations with a sufficient number of qualified
ophthalmologists and optometrists, we could experience reductions in our
profitability and revenue growth.
7
<PAGE>
Loss of the services of ophthalmologists or optometrists could impair our
sources of revenue and our ability to grow our business
Our success depends, in part, on the services of the ophthalmologists and
optometrists with whom we affiliate. Our inability to attract and retain eye
care professionals could limit our sources of revenue, our ability to grow our
business and our ability to expand our research operations. Generally, our
affiliated ophthalmologists enter into five year employment agreements with our
affiliated professional entities. These agreements generally contain non-
compete and non-solicitation covenants and often require the ophthalmologist to
pay liquidated damages that are generally in excess of $500,000 in the event
that he or she quits prior to the end of the initial term. Our affiliated
optometrists enter into employment contracts with our affiliated professional
entities which also contain non-compete and non-solicitation covenants. The
non-compete and non-solicitation covenants generally preclude the
ophthalmologist or optometrist from competing with his or her employer within a
specified geographic range, or soliciting the employer's patients or employees,
during the employment term and for a one-year period following termination. The
damages provisions and restrictive covenants may not effectively deter
affiliated eye care professionals from quitting if they elect to pay the
liquidated damages or establish a practice outside the geographic scope of the
noncompete covenant.
To date, neither we nor our affiliated professional entities have sought
judicial enforcement of any of these restrictive covenants. The enforceability
of restrictive covenants of these types will depend upon a variety of equitable
factors, including public policy concerns regarding broad restrictions that
might limit the availability of medical care. If a court deems the scope or
duration of the restrictive covenants or liquidated damages provisions
excessive, they may not be enforceable.
Loss of the services of key management personnel could adversely affect our
business
Our success depends, in part, on the services of key management personnel,
including Stephen J. Winjum, our Chairman of the Board, President and Chief
Executive Officer; Ronald G. Eidell, our Executive Vice President and Chief
Financial Officer; and E. Michele Vickery, our Executive Vice President of
Operations. Each of these officers has entered into an employment agreement
with us. The terms of these employment agreements, including their non-
competition, non-solicitation and confidentiality covenants, are described
under the caption "Management--Employment Agreements". We do not know of any
reason why we might be likely to lose the services of any of these officers.
However, in light of the role that each of these officers has played in our
growth to date, if we lost the services of any of these officers, we believe
that our business could be adversely affected.
The nature of our business could subject us to potential malpractice, product
liability and other claims
The provision of eye care services entails the potentially significant risk
of physical injury to patients and an inherent risk of potential malpractice,
product liability and other similar claims. Our insurance may not be adequate
to satisfy claims or protect us or our affiliated eye care professionals and
this coverage may not continue to be available at acceptable costs. A partially
or completely uninsured claim against us could reduce our earnings and working
capital.
Lack of adequate financing could limit our growth
Successful implementation of our growth strategy will require continued
access to capital. If we do not have sufficient cash resources, our growth
could be limited unless we are able to obtain capital through additional equity
or debt financings. We intend to finance future acquisitions, affiliations and
our other strategic initiatives by using a combination of cash, debt and
capital stock. However, if our stock does not maintain sufficient value, or is
not deemed to be an acceptable form of consideration, we may be required to use
more of our cash resources or obtain other financing. Capital may not be
available to us for acquisitions, affiliations or other needs. Further, if
financing is available, it may not be on terms that are favorable to us or
sufficient for our needs.
8
<PAGE>
Year 2000 compliance issues may expose us to liability, interrupt our ability
to conduct business or impair our cash flow if they cause delayed payments on
our accounts receivable
The year 2000 issue relates to computer programs that have time-sensitive
hardware and software unable to recognize or to interpret dates beyond the
year 1999. This could result in a system failure or miscalculations causing
disruptions of operations, including a temporary inability to process
transactions, bill and collect fees or engage in other business activities.
We have undertaken, but have not yet completed, an assessment of our state
of readiness and the potential impact of any year 2000 risks. We have designed
our efforts to assess the year 2000 readiness of our significant third party
payors, physical facility systems, product and equipment manufacturers and
suppliers to determine whether we are vulnerable to the failure of these
parties to remediate their own year 2000 issues. We expect to complete the
assessment phase of our physical facility systems during the third quarter of
1999, with any necessary remedial action planned during the fourth quarter of
1999. To date, we have spent immaterial amounts to address year 2000 concerns.
However:
. our assessment that we will not incur material year 2000 compliance costs
may prove inaccurate
. substantial year 2000 compliance expenditures may result from future
affiliations or acquisitions
. precautions that we have taken to protect our business from, or minimize
the impact of, the year 2000 issue may not adequately address this issue
. the systems of other companies, on which our operations rely, including
third party payors, may not adequately address the year 2000 issue
Although not applicable to laser vision correction and other refractive
procedures, the patients of our eye surgery and laser centers and affiliated
eye care professionals pay a portion of the charges for eye care services with
Medicare or third party payor reimbursements. Some private insurance companies
also provide partial or full coverage for elective procedures. In the event
Medicare or private insurance companies have difficulty processing and paying
claims because of year 2000 issues, this could cause our accounts receivable
to increase, which could impair our cash flow from operations, causing us to
increase our bank borrowings to compensate for the reduction in cash flow and
resulting in higher interest expense.
If a change in events or circumstances causes us to write-off a large portion
of intangible assets, our total assets would be reduced significantly and we
could incur a substantial charge to earnings
Our assets include substantial intangible assets in the form of service
agreements with our affiliated eye care professionals and goodwill. At June
30, 1999, intangible assets represented approximately 37.0% of pro forma as
adjusted total assets and 40.5% of pro forma as adjusted stockholders' equity.
The intangible asset value represents the excess of cost over the fair value
of the separately identifiable net assets acquired in connection with rights
we receive under our service agreements. The value of these assets may not be
realized. We regularly evaluate whether events and circumstances have occurred
that indicate all or a portion of the carrying amount of the asset may no
longer be recoverable, in which case an additional charge to earnings may
become necessary. If, during our evaluation, we determine that the
undiscounted cash flow from a surgery and laser center or an affiliated
practice is not sufficient to recover the unamortized intangible asset, we
will reduce the unamortized balance to its realizable amount and incur a
corresponding charge to earnings. To date, we have not written off a
significant portion of unamortized intangible assets attributable to service
agreements or goodwill. If, in the future, we determine that our unamortized
intangible assets have suffered an impairment which requires us to write off a
large portion of unamortized intangible assets due to a change in events or
circumstances, this write off would significantly reduce our total assets and
we could incur a substantial charge to earnings.
9
<PAGE>
Risks Relating to Our Industry
Changes in government regulation and supervision or proposed health care
reforms could impair our sources of revenue and limit our ability to grow our
business
We are subject to extensive government regulation and supervision,
including:
. Federal and State:
--anti-kickback statutes
--self-referral laws
--civil false claims acts
. State:
--corporate practice of medicine restrictions
--fee-splitting laws
--facility license requirements and certificates of need
. Food and Drug Administration regulation of medical devices, including
laser vision correction and other refractive surgery equipment, and
pharmaceuticals and related clinical trials
. Federal Trade Commission guidelines for marketing and promoting laser
vision correction and other refractive surgery procedures
Many of these laws and regulations are subject to varying interpretations,
and courts and regulatory authorities generally have provided little
clarification. Moreover, state and local laws and interpretations vary from
jurisdiction to jurisdiction. As a result, we may not always be able to
accurately predict interpretations of applicable law, and Federal and state
authorities could challenge some of our activities. If any of our activities
are challenged, we may have to divert substantial time, attention and resources
from running our business to defend our activities against these challenges,
regardless of their merit. If we do not successfully defend these challenges,
we may face a variety of adverse consequences, including:
. our affiliated eye care professionals terminating their service
agreements or having these agreements rendered unenforceable
. third party payors terminating their agreements with our affiliated eye
care professionals
. our affiliated eye care professionals losing their eligibility to
participate in Medicare or losing other contracting privileges
.in some instances, civil or criminal fines
Any of these consequences could reduce our revenue growth.
The regulatory environment in which we and our affiliated eye care
professionals operate may change significantly in the future. Numerous
legislative proposals have been introduced in Congress and in various state
legislatures over the past several years that could cause major reforms of the
U.S. health care system. In response to new or revised laws, regulations or
interpretations, we could be required to:
. revise the structure of our relationships with our affiliated eye care
professionals or the structure of our management fees
. incur substantial legal fees, fines or other costs
. curtail our business activities
Any of these results could impair our sources of revenue and our profitability
and limit our ability to grow our business.
Shortages in supplies of lasers and other surgery-related products and
equipment may impair our ability to provide our affiliated eye care
professionals with necessary equipment
There are a limited number of manufacturers of laser vision correction and
refractive surgery-related products and equipment. These products and equipment
may not be available in the quantities or time frames we require. Any shortages
in our supplies of these products may limit our affiliated eye care
professionals' ability to sustain or increase their volume of laser vision
correction and other refractive surgeries and our ability to open or operate
eye surgery and laser centers. This could adversely affect our relationships
with our affiliated eye care professionals and result in a reduction of our
revenue from management fees and in the utilization levels at our eye surgery
and laser centers.
10
<PAGE>
Litigation in the medical device industry may impair our ability to provide
our affiliated eye care professionals with necessary equipment
The medical device industry, including the eye-related laser equipment
sector, has experienced substantial litigation in the U.S. regarding patents
and proprietary rights. Any future litigation that relates to equipment we use
at our eye surgery and laser centers may impair our ability to provide access
to this equipment. Our inability to provide our affiliated eye care
professionals with access to this equipment would impair their ability to
sustain or increase their volume of laser vision correction or other refractive
surgery procedures. This could adversely affect our relationships with our
affiliated eye care professionals and result in a reduction of our revenue from
management fees and in the utilization levels at our eye surgery and laser
centers.
Medicare and private third-party payor cost containment efforts and reductions
in reimbursement rates could reduce our revenue and our cash flow
We estimate that for the year ended December 31, 1998, government sponsored
health care programs, directly or indirectly, accounted for approximately 49%
of our total revenue. This includes management fee revenue from affiliated eye
care professionals who receive payments from these programs, as well as
facility fees we receive directly for eye care professionals' use of our eye
surgery and laser centers. This revenue does not include amounts derived from
laser vision correction, which is an elective procedure that patient-consumers
pay for out-of-pocket.
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 to negotiate reduced payment schedules with health
care providers. These trends may result in a reduction from historical levels
in per patient revenue received by our eye surgery and laser centers and
affiliated eye care professionals. Changes in Medicare payment rates have
reduced payments to ophthalmologists and optometrists. Private insurance
payments also could be affected to the extent that these insurance companies
use payment methodologies based on Medicare rates.
Reductions in payments to our eye surgery and laser centers and affiliated
eye care professionals or other changes in reimbursement for eye care services
could reduce our revenue and our cash flow.
Risks Relating to this Offering
After this offering, approximately 71% of our total outstanding shares will be
restricted from immediate resale but may be sold into the market in the
future, which could cause our stock price to drop significantly
After this offering, we will have 24,821,655 shares of common stock
outstanding. This includes the 7,132,971 shares being sold in this offering,
which may be resold in the public market immediately unless acquired by our
affiliates, as that term is defined under the Securities Act of 1933. We refer
in this prospectus to these affiliates as "Rule 144 Affiliates" so as to avoid
confusion with our use of the term "affiliated eye care professionals." The
remaining 17,688,684 shares, which will continue to be held by our existing
stockholders, will represent approximately 71% of our shares outstanding after
this offering. The holders of these shares will be subject to contractual
restrictions on resales of these shares into the public market. We have
described these restrictions, which range from 180 days to two years, in more
detail under the caption "Shares Eligible for Future Sale".
The holders of these shares have the right to demand registration of
4,181,710 of these shares and have piggyback registration rights for 17,198,684
shares covering future offerings by us. The holders of 6,644,565 of these
shares have agreed to not exercise these registration rights for six months
after the date of this prospectus, and the holders of 11,044,119 of these
shares have agreed to not exercise these registration rights for one year after
the date of this prospectus. These restrictions have been agreed to with the
underwriters. However, Donaldson, Lufkin & Jenrette Securities Corporation, on
behalf of the underwriters, may waive these restrictions at any time. Rule 144
Affiliates also will be subject to the volume limitations of Rule 144 under the
Securities Act.
As restrictions on resale end, our stock price could drop significantly if
the holders of these
11
<PAGE>
restricted shares sell them or if the market perceives that these holders
intend to sell shares. This could occur without regard to the performance of
our business.
Any return on your investment in our stock will depend on your ability to
sell our stock at a profit
Some investors favor companies that pay dividends. We have never declared
or paid any dividends and our credit agreement prohibits payment of dividends
on our common stock. We anticipate that we will not declare dividends at any
time in the foreseeable future. Instead we will retain earnings for use in our
business. As a result, your return on an investment in our stock likely will
depend on your ability to sell our stock at a profit.
The absence of a prior public market for our stock and possible volatility in
our stock price could impair your ability to sell our stock at a profit
There has been no public market for our common stock. We are applying to
list our common stock on the Nasdaq National Market. We do not know whether
investor interest will lead to the development of a trading market. If a
trading market develops, that market may not be sustained or liquid.
We will determine the initial offering price for our shares through
negotiations with the underwriters. You may not be able to sell your shares at
or above this initial offering price. The price at which our shares will trade
will depend upon a number of factors, including:
. our historical and anticipated operating results
. announcements by us or our competitors
. changes in financial estimates by securities analysts regarding us, our
industry, our suppliers or our competitors
. conditions and trends in the industries in which we or our competitors
compete
. general market and economic conditions
In addition, the stock market has, from time to time, experienced extreme
price and volume fluctuations. These broad market fluctuations may adversely
affect the market price of our common stock.
Fluctuations in our quarterly operating results may make it difficult to
predict our future results of operations and may cause volatility in our
stock price
Our results of operations have varied and may continue to fluctuate from
quarter to quarter. We have a high level of fixed operating costs, including
compensation costs. As a result, our profitability depends to a large degree
on the volume of surgical procedures performed in, and on our ability to
utilize the capacity of, our eye surgery and laser centers and on the volume
of patients treated in the clinics of our affiliated eye care professionals.
We experience some seasonality in our operating results during the first
calendar quarter. The timing and degree of fluctuations in our operating
results will depend on several factors, including:
. decreases in demand for non-emergency procedures due to severe weather
. availability or sudden loss of the services of our affiliated eye care
professionals
. availability or shortages of laser and other vision correction surgery-
related products and equipment
. the timing and relative size of acquisitions and affiliations with eye
care professionals
These kinds of fluctuations in quarterly operating results may make it
difficult for you to assess our future results of operations and may cause
volatility in our stock price.
Our use of offering proceeds is not subject to a specific plan and may not
prove beneficial to us or our stockholders
We describe our intended uses of the proceeds of this offering under "Use
of Proceeds." However, we have not determined exactly how these proceeds will
be allocated among the uses we describe, other than with respect to the
repayment of all of our outstanding bank and subordinated exchangeable debt
outstanding following this offering. Therefore, you must rely on the judgment
of our management with respect to the use of the proceeds from this offering
not used to repay our bank and subordinated debt. We cannot assure you that
management will use these proceeds in a manner that will prove beneficial to
us or our stockholders.
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<PAGE>
You will incur immediate and substantial dilution
If you purchase shares of our stock in the offering, you will experience
immediate dilution in the net tangible book value of your shares of
approximately $9.61 per share assuming an offering price of $12.00 per share.
If we issue additional shares of common stock in the future, you will suffer
further dilution.
Provisions of our charter and bylaws, Delaware law and our Rights Agreement
could deter takeover attempts
Provisions of our Restated Certificate of Incorporation, our Bylaws,
Delaware law and our Rights Agreement may have the effect of delaying,
deterring or preventing a change in control, even if a change in control would
be beneficial to you. Members of our board of directors may have interests in a
change of control that differ from you. These interests could cause them to
resist a change in control that would help you better realize the value of your
investment.
Our existing stockholders will have the ability to control our affairs and to
deter a change in control and their interests in a change in control may
differ from your interests
After this offering, our Rule 144 Affiliates and affiliated eye care
professionals will own approximately 59% of the outstanding shares of our
stock. As a result, if these persons act together, they will have the ability
to exercise substantial control over our affairs and to elect a sufficient
number of directors to control our board of directors. Because of their
relationships with us, many of these persons may have interests in a change in
control that differ from your interests.
For example, our affiliated eye care professionals may have an interest in
the quality and nature of management services to be rendered following a change
in control. This interest could cause them to resist a change in control that
they perceive will result in new, different or less desirable management
services being offered to them.
In addition, our affiliated eye care professionals have agreed not to sell
their shares of our stock, subject to some exceptions, for a period of one year
from the date of this prospectus, without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation. They also have agreed to
specified volume limitations on sales of our stock during the year following
the first anniversary of the date of this prospectus. Consequently, the
ownership position of our Rule 144 Affiliates and affiliated eye care
professionals, as well as the contractual restrictions agreed to by our
affiliated eye care professionals, may also have the effect of delaying,
deterring or preventing a change in control, even if a change in control would
be beneficial to you.
Our actual results could differ materially from those mentioned in the
forward-looking statements contained in this prospectus
This prospectus contains forward-looking statements which relate to possible
future events, industry, demographic and consumer trends and our performance
and results of operations. In some cases, you can identify forward-looking
statements by our use of words including "may," "will," "should,"
"anticipates," "believes," "expects," "plans," "intends," "estimates,"
"projects" and other similar words. All forward-looking statements involve risk
and uncertainty. Our actual results could differ materially from those
mentioned in the forward-looking statements contained in this prospectus for
many reasons, including the risks described above and the occurrence of events
described elsewhere in this prospectus.
13
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COMPANY HISTORY AND ACQUISITIONS
Corporate Structure
We were originally organized as a Delaware limited liability company in
March 1995 under the name NovaMed Eyecare Management, LLC.
In connection with a capital infusion from venture capital investors, in
November 1996, we formed NovaMed Holdings Inc., an Illinois corporation, to
serve as a holding company, responsible for overall strategic planning, with
NovaMed Eyecare Management, LLC as an operating subsidiary. In May 1999,
NovaMed Holdings Inc. reincorporated as a Delaware corporation and changed its
name to NovaMed Eyecare, Inc. In June 1999, we changed the name of our
operating subsidiary to NovaMed Eyecare Services, LLC.
Initial Operations
In September 1995, we began providing various billing and financial
services, including clinical operations and practice development services, to
six Chicago metropolitan and Northwest Indiana ophthalmology groups:
. Brodersen-Williams Eye Institute, P.C., in Hammond, Indiana
. Deschamps Eye Care, P.C., in Merrillville, Indiana
. Walter I. Fried, Ph.D., M.D., S.C., in Gurnee, Illinois
. Kirk Eye Center, S.C., in River Forest, Illinois
. Northshore Eye Associates, Ltd., in Chicago, Illinois
. Northwest Ophthalmology Associates, S.C., in Arlington Heights, Illinois
On January 1, 1996, we purchased the nonmedical assets of each of these
founding ophthalmology groups. We entered into long-term service agreements
with each of these groups in which we agreed to provide a broader range of
business, administrative and financial services in exchange for a management
fee. We describe these services under "Business--Business Operations--Services
and Products". We also acquired four eye surgery and laser centers in these
transactions.
Acquisitions and Affiliations
We acquire eye surgery and laser centers through transactions in which we
acquire either all of the stock or substantially all of the assets of the
entity owning the center. We generally affiliate with eye care professionals by
acquiring substantially all of the nonmedical assets of the professional entity
owning the clinic. In some cases, we acquire the capital stock of a corporation
previously formed by the eye care professionals to own their nonmedical assets.
Nonmedical assets generally include:
. medical and office equipment
. computer hardware and software
. leasehold interests
. working capital
. medical and office supplies
. financial books and records
. the name of the professional entity owning the center or clinic
In connection with these acquisitions, we enter into a 40-year service
agreement with a professional entity owned by the affiliated eye care
professionals. These agreements require us to provide substantially all of the
business, administrative and financial services necessary to operate the
business functions and affairs of the professional entity. The professional
entity is required to retain a sufficient number of ophthalmologists and
optometrists to provide professional eye care services to its patients. The eye
care professionals retain control of patient treatment decisions. In these
affiliations, we require that the professional entity enter into employment
agreements with its ophthalmologists and optometrists that generally have five-
year initial terms. Typically, these agreements contain restrictions on the eye
care professional's ability to compete with the professional entity, and on his
or her ability to recruit our and their employees or interfere with patient
relationships. These covenants usually survive termination of employment for up
to one year. During the initial terms, ophthalmologists who have an equity
interest in an affiliated professional entity are required to pay liquidated
damages to the affiliated professional entity if they terminate their
employment. Under the terms of our service agreements, we are generally
entitled to
14
<PAGE>
receive liquidated damages payments made to our affiliated professional
entities.
In 1996, including the affiliations with our founding ophthalmology groups
on January 1, 1996, we acquired six eye surgery and laser centers and
affiliated with 13 eye care clinics, including seven optical retail outlets. We
commenced the operations of our optical products purchasing organization, the
NovaMed Alliance, in June 1996.
In 1997, we acquired four eye surgery and laser centers, and affiliated with
14 eye care clinics, including four optical retail outlets. During 1997, our
affiliated eye care professionals closed two eye care clinic locations,
including one optical retail outlet.
In 1998, we affiliated with 21 eye care clinics, including 18 optical retail
outlets. During 1998, our affiliated eye care professionals closed one eye care
clinic location and one optical retail outlet.
In 1999, we have affiliated with two eye care clinics, including two optical
retail outlets. During 1999, our affiliated eye care professionals closed two
eye care clinic locations and one optical retail outlet. We also commenced our
wholesale optical laboratory operations with the acquisition of two wholesale
optical laboratories in January 1999, and acquired our clinical research
business through a purchase of clinical research assets from an affiliated
professional entity effective July 1, 1999. For more information about our
clinical research business, see "Certain Transactions--Purchase of Clinical
Research Contracts" and "Business--Business Operations--Research".
In addition to our affiliations with our founding ophthalmology groups,
these transactions have included the following ophthalmology groups:
St. Louis, Missouri--The Eye Center. Effective November 1, 1996, we acquired
substantially all of the nonmedical assets of an ophthalmology group located in
Florissant, Missouri. In connection with this transaction, we also acquired
substantially all of the assets of an eye surgery and laser center located in
Florissant.
St. Louis, Missouri--Illinois Eye Specialists. Effective November 27, 1996,
we acquired substantially all of the nonmedical assets of an ophthalmology
group with offices in Granite City and Maryville, Illinois. In connection with
this transaction, we also acquired substantially all of the assets of an eye
surgery and laser center located in Maryville.
Richmond, Virginia--Dominion Eye Associates. Effective January 1, 1997, we
acquired all of the issued and outstanding shares of the owner of substantially
all of the nonmedical assets relating to the operation of an ophthalmology
group and of the owner and operator of an eye surgery and laser center located
in Richmond.
Kansas City, Missouri--Hunkeler Eye Centers. Effective March 3, 1997, we
acquired all of the issued and outstanding shares of an entity engaged in the
management of Hunkeler Eye Centers, an ophthalmology group with offices
throughout the Kansas City, Missouri metropolitan area. We also acquired two
eye surgery and laser centers located in Overland Park, Kansas and Kansas City,
Missouri.
Louisville, Kentucky--American Eye Institute. Effective May 1, 1997, we
acquired substantially all of the nonmedical assets of an ophthalmology group
located in New Albany, Indiana. In connection with this transaction, we also
acquired substantially all of the assets of an eye surgery and laser center
located in New Albany.
Kansas City, Missouri--EyeCare Midwest. Effective July 25, 1998, we acquired
substantially all of the nonmedical assets of two ophthalmology groups located
in the Kansas City, Missouri metropolitan area. In connection with the
transaction, the two ophthalmology groups combined their operations into a
single entity.
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<PAGE>
USE OF PROCEEDS
DIVIDEND POLICY
We estimate that our proceeds from this offering, after deducting
underwriting discounts and commissions and estimated offering expenses payable
by us, will approximate $54.6 million, or $66.5 million if the underwriters
exercise their over-allotment option in full. We will use approximately $16.9
million of the net proceeds to repay all of the outstanding principal and
interest on all of our existing bank debt. In addition, the holders of $1.35
million of our subordinated exchangeable promissory notes have elected not to
exchange their notes for shares of our common stock in connection with this
offering. We have the right to redeem these notes for an amount equal to their
outstanding principal plus accrued and unpaid interest as of the date of
redemption. We will use approximately $1.35 million of the net proceeds to
redeem all of these remaining notes.
After giving effect to this offering, the repayment of our existing bank
debt and the redemption of approximately $1.35 million of our subordinated
notes, we will have no material debt outstanding.
Under the terms of our credit agreement, interest is payable at an annual
rate equal to our lender's published base rate minus 0.50% or LIBOR plus a
range from 1.5% to 2.0%, varying upon our ability to meet financial covenants.
As of June 30, 1999, we had $16.9 million outstanding under our credit
facility. Our credit agreement expires in July 2000.
As of June 30, 1999, the annual interest rate was approximately 6.7%. Our
credit agreement includes a commitment fee of 0.375% for the unused portion
during the commitment period. During the twelve months ended June 30, 1999, we
borrowed approximately $16.9 million under our credit agreement for the
following purposes:
. $9.8 million for the acquisition of two wholesale optical laboratories
and the affiliation with 19 eye care clinics, including 19 optical retail
outlets
. $1.9 million for general working capital
. $5.2 million to repurchase 1,188,414 shares of our Series A convertible
preferred stock at a price of $4.38 per share
We intend to use the remainder of the net proceeds of this offering as
follows:
. For working capital
. To pursue our laser vision correction strategy through:
--New affiliations in our existing and future markets
--Acquisitions in our existing and future markets
--Expanding our patient-consumer directed marketing
--Expanding our eye-only research organization
Though we continuously evaluate potential acquisitions, we have no current
agreement, commitment or understanding with respect to any material
acquisition.
Pending their use, we plan to invest the net proceeds in short-term,
investment-grade, interest-bearing securities.
We have never paid a cash dividend on our common stock. We plan to retain
all future earnings to finance the development and growth of our business.
Therefore, we do not currently anticipate paying any cash dividends on our
common stock. Any future determination as to the payment of dividends will be
at our board of directors' discretion and will depend on our results of
operations, financial condition, capital requirements and other factors our
board of directors considers relevant. Our credit agreement prohibits the
payment of dividends on our common stock.
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<PAGE>
CAPITALIZATION
The table below shows our capitalization as of June 30, 1999. The Pro Forma
column gives effect to:
. the conversion of our convertible preferred stock into our common stock,
which will occur automatically upon completion of this offering
. the issuance of 1,010,412 shares of common stock upon exchange of our
subordinated exchangeable promissory notes
. the additional interest expense, net of tax benefit, of $2.0 million,
which we will record as a reduction in retained earnings for the
discount on the exchange of the subordinated exchangeable promissory
notes.
The As Adjusted column gives further effect to our issuance and sale of
5,000,000 shares of common stock at an assumed initial public offering price of
$12.00 per share, after deducting underwriting discounts and commissions and
estimated offering expenses payable by us, and the application of our net
proceeds from this offering. In addition, the table does not reflect either:
. the 4,986,883 shares of common stock issuable upon exercise of
outstanding options at July 23, 1999 at an average exercise price of
$3.44 per share
. the issuance of 75,000 shares of common stock in connection with the
purchase of our clinical research business, effective July 1, 1999
<TABLE>
<CAPTION>
June 30, 1999
------------------------------
Actual Pro Forma As Adjusted
(In thousands except share
data)
<S> <C> <C> <C>
Cash and cash equivalents....................... $ 864 $ 864 $37,214
======= ======= =======
Current maturities of long-term debt............ $ 150 $ 150 $ 150
------- ------- -------
Long-term debt, less current maturities:
Subordinated exchangeable promissory notes.... $11,050 $ 1,350 $ --
------- ------- -------
Bank debt and other........................... 16,914 16,914 14
------- ------- -------
Redeemable convertible preferred stock:
Series C convertible preferred stock, $.01 par
value, 2,400,000 shares authorized, 2,000,000
issued and outstanding actual, none pro forma
or as adjusted............................... 8,088 -- --
Series D convertible preferred stock, $.01 par
value, 3,000,000 shares authorized, 2,323,837
issued and outstanding actual, none pro forma
or as adjusted............................... 11,818 -- --
Stockholders' equity:
Series A convertible preferred stock, $.01 par
value, 13,112,000 shares authorized,
11,740,055 shares issued and 11,602,698
shares outstanding actual, none pro forma or
as adjusted.................................. 117 -- --
Series B convertible preferred stock, $.01 par
value, 455,000 shares authorized, 400,000
issued and outstanding actual, none pro forma
or as adjusted............................... 4 -- --
Common stock, $.01 par value, 26,000,000
shares authorized; 2,751,254 shares issued,
2,409,708 shares outstanding actual,
19,746,655 pro forma and 24,746,655 as
adjusted..................................... 28 203 248
Additional paid-in-capital.................... 20,224 52,201 104,410
Retained deficit, including $4,215 of
preferred stock accretion.................... (1,332) (3,327) (3,327)
Treasury Stock, at cost, 137,357 shares of
Series A convertible preferred stock actual,
none pro forma or as adjusted; 341,546 shares
of common stock actual and 478,903 pro forma;
no shares of common stock, as adjusted....... (2,346) (2,346) --
Total stockholders' equity.................. 14,223 44,259 98,859
------- ------- -------
Total capitalization........................ $62,243 $62,673 $99,023
======= ======= =======
</TABLE>
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DILUTION
Our pro forma net tangible book value as of June 30, 1999 was approximately
$4.1 million, or $0.21 per share. Pro forma net tangible book value per share
represents the amount of pro forma stockholders' equity, less intangible
assets, divided by the pro forma number of shares of common stock outstanding
as of June 30, 1999. Our as adjusted pro forma net tangible book value as of
June 30, 1999 would have been $59.2 million, or $2.39 per share after giving
effect to the sale of 5,000,000 shares of common stock offered by us at an
initial public offering price of $12.00 per share and after deducting
underwriting discounts and commissions and estimated offering expenses payable
by us.
This represents an immediate increase in pro forma net tangible book value
of $2.18 per share to existing stockholders and an immediate dilution in pro
forma net tangible book value of $9.61 per share to investors purchasing our
common stock in this offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Initial public offering price per share............................. $12.00
------
Pro forma net tangible book value per share before this offering.. 0.21
Increase per share attributable to new investors.................. 2.18
----
As adjusted pro forma net tangible book value per share after this
offering........................................................... 2.39
------
Dilution per share to new investors................................. $ 9.61
======
</TABLE>
The table below summarizes, on a pro forma basis, the differences between
our existing stockholders and the new investors purchasing our common stock in
this offering with respect to the total number of shares purchased from us, the
total consideration paid and the average price per share paid, based upon an
initial public offering price of $12.00 per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ -------------------- Average Price
Number Percent Amount Percent Paid Per Share
<S> <C> <C> <C> <C> <C>
Existing stockholders... 19,746,655 80% $ 52,404,000 47% $ 2.65
New investors........... 5,000,000 20 60,000,000 53 $12.00
---------- --- ------------ ---
Total............... 24,746,655 100% $112,404,000 100%
========== === ============ ===
</TABLE>
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
To aid you in your analysis, we are providing the following financial
information. We derived the selected consolidated financial data for the years
ended December 31, 1996, 1997 and 1998 from our audited consolidated financial
statements. The financial data for the year ended December 31, 1995 and for the
six month periods ended June 30, 1998 and 1999 are derived from our unaudited
consolidated financial statements and include, in our opinion, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly
the data for the periods presented. The following information is only a
summary, and you should read it in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our
consolidated financial statements and related notes included in this
prospectus. Specifically, please see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for the effects of acquisitions
and affiliations.
<TABLE>
<CAPTION>
Six months
Years ended December 31, ended June 30,
-------------------------------- ----------------
1995 1996 1997 1998 1998 1999
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenue:
Management services....... $ 568 $10,326 $24,401 $36,053 $15,131 $24,426
Surgery and laser
centers.................. -- 5,303 14,484 20,131 8,736 13,290
Product sales and other... -- 221 3,523 7,545 3,418 7,146
------ ------- ------- ------- ------- -------
Total net revenue....... 568 15,850 42,408 63,729 27,285 44,862
------ ------- ------- ------- ------- -------
Operating expenses:
Salaries, wages and
benefits................. 446 8,259 18,123 25,266 10,776 17,448
Cost of sales and medical
supplies................. -- 2,570 8,723 15,762 6,791 12,260
Selling, general and
administrative........... 950 5,044 11,315 14,625 6,512 9,948
Depreciation and
amortization............. -- 806 2,226 3,333 1,480 2,225
------ ------- ------- ------- ------- -------
Total operating
expenses............... 1,396 16,679 40,387 58,986 25,559 41,881
------ ------- ------- ------- ------- -------
Income (loss) from
operations................ (828) (829) 2,021 4,743 1,726 2,981
Other (income) expense..... (21) 83 1,710 1,373 571 1,040
------ ------- ------- ------- ------- -------
Income (loss) before income
taxes..................... (807) (912) 311 3,370 1,155 1,941
Provision for income taxes. -- -- 206 1,664 570 869
------ ------- ------- ------- ------- -------
Net income (loss).......... $ (807) $ (912) $ 105 $ 1,706 $ 585 $ 1,072
Less--Accretion of Series C
and Series D convertible
preferred stock........... -- -- -- (739) (169) (3,476)
------ ------- ------- ------- ------- -------
Income (loss) available to
Series A and Series B
convertible preferred and
common stock.............. $ (807) $ (912) $ 105 $ 967 $ 416 $(2,404)
====== ======= ======= ======= ======= =======
Earnings (loss) per common
share:
Basic..................... $ -- $ -- $ 0.01 $ 0.07 $ 0.03 $ (0.17)
====== ======= ======= ======= ======= =======
Diluted................... $(0.46) $ (0.08) $ 0.01 $ 0.06 $ 0.03 $ (0.17)
====== ======= ======= ======= ======= =======
Weighted average common
shares outstanding:
Basic..................... -- -- 2,178 2,751 2,751 2,471
====== ======= ======= ======= ======= =======
Diluted................... 1,747 11,358 17,237 16,003 16,223 14,374
====== ======= ======= ======= ======= =======
Pro forma earnings per
common share:
Basic..................... $ 0.11 $ 0.07
======= =======
Diluted................... $ 0.10 $ 0.06
======= =======
Pro forma weighted average
number of common shares
outstanding:
Basic..................... 19,671 19,709
======= =======
Diluted................... 21,143 22,297
======= =======
<CAPTION>
As of December 31, As of June 30,
-------------------------------- ----------------
1995 1996 1997 1998 1998 1999
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.. $ 642 $ 5,951 $ 4,009 $ 1,875 $ 4,179 $ 864
Total assets............... 2,034 27,694 52,734 62,679 56,008 71,613
Total debt, excluding
current portion........... -- 6,378 15,838 20,427 15,699 27,964
Redeemable convertible
preferred stock........... -- 5,794 12,680 16,430 15,863 19,906
Total stockholders' equity. 1,786 12,755 18,149 16,954 18,567 14,223
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion along with our consolidated
financial statements and related notes included in this prospectus. Our actual
results, performance and achievements in 1999 and beyond may differ materially
from those expressed in or implied by forward-looking statements contained in
this discussion. These statements are subject to risks, uncertainties and
assumptions described above under the heading "Risk Factors."
Overview
We are an eye care services company focused on laser vision correction. We
operate in the following metropolitan regions: Chicago, Illinois; Kansas City,
Missouri; Louisville, Kentucky; St. Louis, Missouri; and Richmond, Virginia.
Our revenue is earned from three sources:
. management services revenue derived from management fees paid by
affiliated eye care professional entities and reimbursement of expenses
paid or incurred by us on behalf of these entities
. eye surgery and laser center facility fees
. the sale of eye care products and accessories to eye care professionals,
including
--corrective lenses and eyeglasses produced by our three wholesale
optical laboratories, and
--eyeglass frames and contact lenses purchased from manufacturers by our
optical products purchasing organization
We provide services, facilities and equipment to our affiliated eye care
professionals under long-term service agreements. These service agreements
generally have 40-year initial terms and require us to provide substantially
all of the business, administrative and financial services necessary to operate
the eye care clinics and retail optical outlets.
The service agreements provide that our affiliated eye care professionals
retain sole control over:
. the dispensing of all medical and other professional services to their
patients
. decisions relating to selecting, hiring, compensating and terminating eye
care professionals
. corporate governance decisions and other internal matters affecting the
operation of their legal entities
. the employment of a sufficient number of ophthalmologists and
optometrists to provide professional eye care services to their patients
Under the service agreements, we are generally required to pay all expenses
incurred in connection with the business and medical operations of our
affiliated eye care clinics and retail optical outlets, except for the salaries
and benefits of those eye care professionals who have an ownership interest in
the professional entity employing them. Our affiliated eye care professionals
then reimburse us monthly for those expenses that we pay on their behalf.
In addition to reimbursing us for eye care clinic and retail optical outlet
expenses, our affiliated professional entities pay us a monthly fee for our
services. This is generally a targeted monthly fee established in an annual
budget that we negotiate each year with our affiliated eye care professionals.
This targeted monthly fee is adjusted upward or downward in direct proportion
to any positive or negative variance in the actual monthly operating results of
the eye care clinics and optical retail outlets from their respective budgeted
monthly operating results. There are no limitations on the amount of these fee
adjustments. On average, excluding reimbursement of expenses that we pay on
behalf of our affiliated professional entities, the fees paid to us in 1998
represented 35.7% of the earnings before interest and taxes of our affiliated
professional entities. The earnings of an affiliated professional entity are
determined by subtracting the expenses of its eye care clinics and optical
retail outlets from the professional services and other revenues earned by the
professional entity. These expenses generally include all expenses incurred in
connection with the business and medical operations of the professional entity,
except for any salaries and benefits of those eye care professionals who have
an ownership interest in the professional entity. Each professional entity is
then responsible for paying the salaries and benefits of its eye care
professional-owners from the amount retained by the professional entity after
paying our fee. To the extent the targeted monthly fee is adjusted upward or
downward as described above, the amounts retained by the affiliated
professional entities to pay the eye care professional-owners' salaries and
benefits are correspondingly adjusted upward or downward.
20
<PAGE>
We generally do not enter into nominee shareholder arrangements with our
affiliated eye care professionals, nor do we have a "controlling financial
interest" in any of our affiliated eye care professionals' practices as defined
by EITF 97-2, "Applications of FASB Statement No. 94 and APB No. 16 to
Physician Practice Management Entities and Certain Other Entities under
Contractual Management Arrangements." Accordingly, we do not consolidate the
financial statements of the affiliated eye care professionals' practices.
Please see "Business--Business Operations--Services and Products" elsewhere in
this prospectus for a further description of our service agreements.
We generate eye surgery and laser center facility fee revenue on a per
patient basis, and we recognize this revenue at the time of the encounter.
We receive a portion of our eye surgery and laser center revenue, and our
affiliated eye care professionals receive a portion of their revenue, from
Medicare and other third party payors. These amounts often differ from our
established rates and the established rates of our affiliated eye care
professionals. As a result, we are required to estimate the amount that we will
ultimately receive during the period these services are rendered. We recognize
any difference between our estimates and the amount ultimately received in the
period that final settlements are determined. To date, these differences
generally have been immaterial.
In 1998, government sponsored health care programs, directly or indirectly,
accounted for approximately 49% of our revenue, down from approximately 61% in
1997. We expect this share of our revenue to continue to decline, primarily as
a result of continued growth in our facility and service revenue attributable
to laser vision correction surgery.
We sell eye care products and accessories to eye care professionals through
our Optical Services division, which includes our wholesale optical
laboratories and our optical products purchasing organization, the NovaMed
Alliance. We generate wholesale optical laboratories revenue on a per unit
basis and we recognize this revenue upon the shipment of the completed product.
The NovaMed Alliance negotiates volume buying discounts with optical products
manufacturers. We sell products to both affiliated and non-affiliated
ophthalmologists and optometrists; however, sales to our affiliated eye care
professionals are eliminated in the preparation of our financial statements.
The manufacturers ship most of these products directly to the eye care
professionals. We recognize revenue based on the amount billed to the eye care
professionals and recognize expense based on the cost of the products purchased
from the manufacturers.
Our operating expenses consist of salaries, wages and benefits; cost of
sales and medical supplies; selling, general and administrative expense; and
depreciation and amortization. Cost of sales expense relates to the sale of
optical products to patients in our affiliated optical retail outlets, our
wholesale optical laboratories and through the NovaMed Alliance. Medical
supplies expense primarily relates to consumable items that our affiliated eye
care professionals use during surgery. Selling, general and administrative
expense consists primarily of sales and marketing expenses and corporate, eye
care clinic and eye surgery and laser center overhead.
Our operating expenses have fixed, variable and semi-variable components.
Some of the costs associated with operating our eye surgery and laser centers
and affiliated eye care clinics, including rent, utilities and general office
overhead, are fixed and will not change as volumes increase. Other of these
costs, including surgical supplies, cost of sales and pharmaceuticals, will
change in direct proportion to procedure volumes.
Our salaries, wages and benefits contain both fixed and variable cost
components. Employees including corporate and regional personnel, practice
administrators and some practice staff are not directly affected by changes in
procedure volume. On the other hand, the number of eye surgery and laser center
and eye care clinic nurses and technicians we employ generally increases or
decreases in proportion to changes in procedure volume. At the optical
laboratories, the labor component of cost of sales remains relatively fixed
over ranges of production volume.
Product costs in our Optical Services division are mostly variable,
representing the per unit cost of the related materials.
Our revenue has increased significantly since inception, and from 1997 to
1998, we experienced 50.3% revenue growth. The majority of our revenue
21
<PAGE>
growth was a result of higher procedure volumes in both our eye surgery and
laser centers and our affiliated eye care clinics and an increase in the number
of members utilizing the NovaMed Alliance. During 1998, we increased our
emphasis on laser vision correction by initiating full-scale marketing programs
aimed at vision correction patients, developing our affiliations with eye care
professionals and increasing the capacity of our eye surgery and laser centers
to provide laser vision correction and other refractive surgery procedures. We
plan to continue our focus on laser vision correction and, as a result,
anticipate that we will continue to increase expenditures in sales and
marketing, salaries and surgical supplies.
We also plan to continue our investment in the development of our
enterprise-wide information systems, or e-community. This will include
expenditures in people, hardware and software. Our e-community projects under
development, including data warehousing and a provider relationship management
system, are more fully described under "Business--Services and Products--
Information Technology".
The following chart shows the growth in the number of laser vision
correction procedures performed by our affiliated eye care professionals:
NovaMed Eyecare, Inc.
Quarterly Laser Vision Correction Procedures
When we affiliate with eye care professionals, we generally:
. acquire their non-medical assets and, in some cases, their eye surgery
and laser centers
. hire their non-medical personnel
. assume their office leases
. enter into service agreements with affiliated professional entities that
have an initial term of 40 years
In addition, we have acquired other businesses, including Midwest
Uncuts, Inc., our wholly-owned subsidiary that owns and operates two of our
wholesale optical laboratories. We allocate the purchase price paid in
these affiliations and acquisitions to all of the identifiable tangible and
intangible assets acquired based upon their relative fair value, with the
remainder being ascribed to service agreements. We determine the
appropriate useful life of the intangible assets resulting from
affiliations by considering factors including:
. the number of physicians in each eye care clinic
. the number of eye care clinics
. the clinics' ability to recruit additional physicians
. the clinics' relative market position
. the length of time each eye care clinic has been in existence
. the relative profitability of the practice
. the term of the service agreement
Effective January 1, 1998, we changed our estimate of the useful lives of
intangible assets related to our service agreements entered into on or before
January 1, 1998, from 32 years to 25 years. We made this change to conform our
policy with policies adopted by other healthcare services companies during 1998
and to better represent the useful lives of the service agreements. We now
expect to amortize all future intangible assets related to affiliations with
eye care professionals over a 5 to 25 year period. We amortize goodwill
resulting from acquisitions of nonmedical assets over a 25 to 40 year period.
22
<PAGE>
The timing and degree of fluctuations in our quarterly operating results
will depend on several factors, including:
. decreases in demand for non-emergency procedures due to severe weather
. availability or sudden loss of the services of our affiliated eye care
professionals
. availability or shortages of laser and other vision correction surgery-
related products and equipment
. the timing and relative size of acquisitions and affiliations with eye
care professionals
Effective Income Tax Rate
Our effective income tax rate reflects the impact of nondeductible
amortization expense. To the extent our pre-tax profitability continues to
rise as a result of growth in our operating earnings, we expect our effective
tax rate to continue to decline over time to a level of approximately 40%.
Effect of Transactions Relating to this Offering
The holders of our Series C and Series D convertible preferred stock have
the right to tender their stock for redemption in 2004 and 2005 at the greater
of the amount originally paid for the preferred stock or its fair market
value. Because the redemption right is outside of our control, generally
accepted accounting principles require that until the redemption date, we
increase the value of the preferred stock to its ultimate redemption value, a
principle known as accretion. This accretion is deducted from net income in
our accompanying consolidated financial statements to arrive at the income
available for common stockholders. Although we have not had an independent
appraisal, we have estimated the potential future redemption value based upon
various transactions with third parties and through comparison to similar
public companies within our market. Based upon our estimates, we have recorded
accretion of $739,000 and $3,476,000 for the twelve months ended December 31,
1998 and the six months ended June 30, 1999, respectively. Completion of this
offering, however, will result in the automatic conversion of each share of
our Series C and Series D convertible preferred stock into one share of our
common stock and the termination of the related redemption rights. We will
continue to record the accretion through the completion of this offering. We
will record the final charge for accretion upon the completion of this
offering.
$9.7 million of our subordinated exchangeable promissory notes will be
exchanged for our common stock in connection with this offering at an exchange
ratio of $1.00 worth of our common stock, based upon the initial public
offering price, for each $0.80 worth of outstanding principal on the notes.
Generally accepted accounting principles require that we record the net
difference between the $1.00 worth of common stock and the $0.80 worth of
outstanding principal on the note as a non-recurring, non-cash expense.
Accordingly, we will record in our results of operations for the three months
ended September 30, 1999, additional interest expense of $2.0 million, net of
tax benefits, related to the discount on the exchange of the notes.
During July 1999, we fully vested all options granted from February 1, 1999
through July 23, 1999, contingent on the completion of this offering. We
issued options to acquire 1,075,800 shares of our common stock during this
time period. Accordingly, we expect to record $1.6 million, net of tax, as
compensation expense during the quarter in which this offering is completed
related to those options which become fully vested on the date of the
completion of this offering.
Results of Operations
Six Months Ended June 30, 1999 Compared to the Six Months Ended June 30, 1998
Net Revenue. Net revenue increased 64.4% from $27.3 million to $44.9
million. Management services revenue increased 61.4% from $15.1 million to
$24.4 million. The increase in management services revenue was primarily a
result of new affiliations with eye care professionals as well as overall
increases in laser vision correction, cataract and other ophthalmic surgery
procedures performed by our affiliated eye care professionals. Surgery and
laser center revenue increased 52.1% from $8.7 million to $13.3 million,
primarily as a result of a 165.4% increase in laser vision correction
procedures, compared to the first six months of 1998. The increase in laser
vision correction procedures was a result of both an increase in the overall
demand for the procedure as well as an increase in the number of our
affiliated eye care professionals performing the procedures. For the six
months ended June 30, 1999, we had 18 affiliated eye care professionals
performing laser vision correction procedures compared to eight for the same
period in 1998. We also experienced a 33.4% increase in the number of cataract
and other eye related surgical procedures, compared to the six
23
<PAGE>
months ended June 30, 1998. Product sales revenue increased 109.1% from $3.4
million to $7.1 million, primarily as a result of the acquisition of Midwest
Uncuts, Inc.
Salaries, Wages and Benefits. Salaries, wages and benefits expense increased
61.9% from $10.8 million to $17.4 million. As a percentage of revenue,
salaries, wages and benefits expense decreased from 39.5% to 38.9%. The
absolute increase in salaries, wages and benefits expense primarily reflects
the additional payroll incurred as a result of new acquisitions and
affiliations. The decrease in salaries, wages and benefits expense as a
percentage of revenue was a result of better utilization of staff due primarily
to the increased volume of laser vision correction, cataract and other eye
related surgical procedures.
Cost of Sales and Medical Supplies. Cost of sales and medical supplies
expense increased 80.5% from $6.8 million to $12.3 million. As a percentage of
revenue, cost of sales and medical supplies expense increased from 24.9% to
27.3%. The absolute increase in cost of sales and medical supplies expense is
primarily a result of the January 1, 1999 acquisition of Midwest Uncuts, Inc.
and of higher volumes at the NovaMed Alliance. The increase in laser vision
correction procedures and the related supply costs also contributed to the
absolute increase during the period. In general, our optical laboratories and
the NovaMed Alliance have higher cost of sales as a percentage of revenue than
the optical retail outlets of our affiliated eye care professionals.
Selling, General and Administrative. Selling, general and administrative
expense increased 52.8% from $6.5 million to $9.9 million. As a percentage of
revenue, selling, general and administrative expense decreased from 23.9% to
22.2%. The absolute increase in selling, general and administrative
expenditures related primarily to the expansion of sales and marketing efforts
in connection with our laser vision correction business. In addition, we
increased our information technology expenditures related to our enterprise-
wide information systems and other programs supporting our laser vision
correction business. Increases in laser vision correction procedure volumes led
to improvement in selling, general and administrative expense as a percentage
of revenue.
Depreciation and Amortization. Depreciation and amortization expense
increased 50.3% from $1.5 million to $2.2 million. Acquisitions and
affiliations have increased overall amortization expense.
Other Expense. Other expense increased 82.0% from $571,000 to $1.0 million.
The increase in other expense was primarily related to higher interest expenses
resulting from additional borrowings, which were used primarily to fund
acquisitions and affiliations entered into after the first six months ended
June 30, 1998.
Provision for Income Taxes. Our effective tax rate decreased to 44.8% from
49.4%.
Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997
Net Revenue. Net revenue increased 50.3% from $42.4 million to $63.7
million. Management services revenue increased 47.8% from $24.4 million to
$36.0 million. The increase in management services revenue was primarily
related to new affiliations with eye care professionals as well as overall
increases in laser vision correction, cataract and other eye related surgical
procedures performed by our affiliated eye care professionals. These new
affiliations included a number of optical retail outlets that also contributed
to the increase in management services revenue. Surgery and laser center
revenue increased 39.0% from $14.5 million to $20.1 million, primarily related
to better utilization of our surgery and laser centers and a 503.5% increase in
laser vision correction procedures, compared to the year ended December 31,
1997. In addition, we experienced a 24.1% increase in the number of cataract
and other eye related surgical procedures, compared to the year ended December
31, 1997. Product sales revenue increased 114.2% from $3.5 million to $7.5
million, primarily as a result of higher volumes at the NovaMed Alliance.
Salaries, Wages and Benefits. Salaries, wages and benefits expense increased
39.4% from $18.1 million to $25.3 million. As a percentage of revenue,
salaries, wages and benefits expense decreased from 42.7% to 39.6%.
Approximately half of the absolute increase in salaries, wages and benefits
expense was a result of acquisitions and affiliations. We also invested in
additional personnel, including sales, marketing and information technology
personnel, in the second half of 1998 as part of our growth strategy relating
to laser vision correction. We expect to continue our investment in personnel
to further support the growth of our laser vision correction services and
facilities business.
24
<PAGE>
Cost of Sales and Medical Supplies. Cost of sales and medical supplies
expense increased approximately 80.7% from $8.7 million to $15.8 million. As a
percentage of revenue, cost of sales and medical supplies expense increased
from 20.6% to 24.7%. The absolute increase in these expenses during 1998 was
primarily related to the increased volume of laser vision correction, cataract
and other eye related surgical procedures performed in our eye surgery and
laser centers as well as the increased costs associated with increased sales at
the NovaMed Alliance. The increase in the cost of sales and medical supplies
expense as a percentage of revenue was primarily due to increased sales at the
NovaMed Alliance, which generally sells products with a higher cost of sales as
a percentage of revenue than our other sources of revenue. We expect cost of
sales and medical supplies expense, as a percentage of revenue, to decline as a
result of faster revenue growth from laser vision correction compared to our
other sources of revenue.
Selling, General and Administrative. Selling, general and administrative
expense increased approximately 29.3% from $11.3 million to $14.6 million. As a
percentage of revenue, selling, general and administrative expense decreased
from 26.7% to 22.9%. The absolute increase in selling, general and
administrative expenditures related primarily to investments in information
technology and marketing to support our growth related to laser vision
correction. Our selling, general and administrative expense as a percentage of
revenue declined as a result of spreading fixed operating costs over an
increased revenue base. We expect to continue our information technology and
marketing expenditures to further support the growth of our laser vision
correction services and facilities business.
Depreciation and Amortization. Depreciation and amortization expense
increased 49.7% from $2.2 million to $3.3 million. Increased capital spending,
acquisitions and a change in the estimated useful life of intangible assets
caused this increase. Effective January 1, 1998, we decreased our useful life
of intangible assets related to service agreements entered into, on or before
January 1, 1998, from 32 to 25 years, which added $250,000 to amortization
expense in 1998.
Other Expense. Other expense decreased 19.7% from $1.7 million to $1.4
million. Other expense was primarily related to interest expense, resulting
from additional borrowings used primarily to fund acquisitions and capital
expenditures. In addition, in 1997 we recorded a one-time expense of $589,000
for the disposition of fixed assets.
Provision for Income Taxes. Our effective tax rate declined from 66.2% to
49.4%.
Years Ended December 31, 1997 Compared to the Year Ended December 31, 1996
Net Revenue. Net revenue increased 167.6% from $15.9 million to $42.4
million. Management services revenue increased 136.3% from $10.3 million to
$24.4 million. Surgery and laser center revenue increased 173.1% from $5.3
million to $14.5 million. The increase in management services and surgery and
laser center revenue was primarily a result of new affiliations with eye care
professionals. In addition, sales through the NovaMed Alliance, which began
operations during the fourth quarter of 1996, were $3.5 million.
Salaries, Wages and Benefits. Salaries, wages and benefits expense increased
approximately 119.4% from $8.3 million to $18.1 million. As a percentage of
revenue, salaries, wages and benefits expense decreased from 52.1% to 42.7%.
The absolute increase in salaries, wages and benefits expense reflected the
additional payroll incurred as a result of new acquisitions and affiliations.
The decrease in salaries, wages and benefits expense as a percentage of revenue
was primarily a result of having an increased revenue base in 1997.
Cost of Sales and Medical Supplies. Cost of sales and medical supplies
expense increased approximately 239.4% from $2.6 million to $8.7 million. As a
percentage of revenue, cost of sales and medical supplies expense increased
from 16.2% to 20.6%. The optical retail outlets of our affiliated eye care
professionals accounted for the majority of the cost in 1996. The absolute
increase in the cost of sales was primarily a result of a higher volume of
sales at the NovaMed Alliance. The increase in cost of sales and medical
supplies expense as a percentage of revenue was caused by the NovaMed Alliance,
which sells products at a higher cost of
25
<PAGE>
sales as a percentage of revenue than the optical retail outlets of our
affiliated eye care professionals. The significant increase in medical supplies
expense was primarily related to new affiliations with eye care professionals.
Selling, General and Administrative. Selling, general and administrative
expense increased approximately 124.3% from $5.0 million to $11.3 million. As a
percentage of revenue, selling, general and administrative expense decreased
from 31.8% to 26.7%. The absolute increase in selling, general and
administrative expense was primarily a result of new affiliations with eye care
professionals. The remainder of the increase was a result of expenditures
related to building our corporate infrastructure.
Depreciation and Amortization. Depreciation and amortization expense
increased 176.2% from $806,000 to $2.2 million. Acquisitions, affiliations and
increased capital spending caused this increase.
Other Expense. Other expense increased from $83,000 to $1.7 million. The
increase was primarily related to increased interest expense, which resulted
from the issuance of subordinated exchangeable promissory notes issued in
connection with affiliations with eye care professionals. In addition, we
recorded a one-time expense of $589,000 in 1997 for a loss on the disposition
of fixed assets.
Provision for Income Taxes. During a majority of 1996, we operated as a
limited liability company and, accordingly, we passed along any tax benefit or
expense to our members. We converted to a tax paying entity at the end of 1996
and incurred a taxable loss from the date of the conversion to the end of the
year. We did not, however, record any tax benefit, which would have resulted
from our net operating loss carry-forward. Instead, we recorded a valuation
allowance against the associated tax benefit. Moreover, on a pro forma basis,
had we been a tax paying entity for all of 1996, we would not have recorded any
tax benefit that would have resulted from the net operating loss carry forward
due to future uncertainties. In 1997, our effective tax rate was 66.2%.
Liquidity and Capital Resources
We generated cash from operating activities for the six months ended June
30, 1999 of $1.0 million. We used $9.8 million in our investing activities
during the six months ended June 30, 1999, which included two acquisitions and
the purchase of property and equipment. We used net bank borrowings of $8.4
million, the proceeds from the issuance of stock, and net cash from operating
activities to fund our investing activities and to reduce subordinated debt and
other debt obligations. As of June 30, 1999, we had cash and cash equivalents
of approximately $864,000 and working capital of approximately $10.5 million.
In May 1999, we increased our revolving credit facility to $35 million.
Advances under the credit facility are secured by substantially all of our
assets. The credit agreement expires in July 2000. Interest is payable at an
annual rate equal to our lender's published base rate minus .50% or LIBOR plus
a range from 1.5% to 2.0%, varying upon our ability to meet financial
covenants. As of June 30, 1999, the annual rate was approximately 6.7%. Our
credit agreement includes a commitment fee of .375% for the unused portion
during the commitment period. Our credit agreement contains covenants that
include limitations on indebtedness, liens, capital expenditures, ratios that
define borrowing availability and restrictions on the payment of dividends.
Except for our failure to comply from time to time with covenants relating to
immaterial administrative matters for which we have received waivers, we have
never been in default under our credit agreement. As of June 30, 1999, we were
in compliance with all of our credit agreement covenants. We had $16.9 million
outstanding as of June 30, 1999.
During 1998, we repurchased 1,188,414 shares of our Series A convertible
preferred stock at a price of $4.38 per share, providing liquidity to some of
the Series A stockholders.
Also during 1998, some holders of our Series C convertible preferred stock
exercised a warrant to acquire 684,932 shares of our Series D convertible
preferred stock at $4.38 per share.
We expect that the proceeds from this offering, our funds from operations
and our existing revolving credit facility will be sufficient to fund our
operations for at least 12 months. Our future capital requirements and the
adequacy of our available funds will depend on many factors, including the
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timing of our acquisition activities, new affiliations with eye care
professionals, capital requirements associated with our laser vision correction
services and facilities, expansions and the future cost of surgical equipment.
We currently have outstanding loans to six affiliated eye care professionals
for an aggregate amount of $785,194. We anticipate that one of the selling
stockholders will repay approximately $490,000 of these loans out of his
proceeds of this offering. Although we are not required to do so under our
service agreements, we have from time to time made loans to our affiliated eye
care professionals to cover cash flow needs. These loan agreements are full
recourse and are negotiated on an individual basis with interest rates ranging
from 8.5% to 9.5% per annum. The loans are generally secured by collateral
ranging from any of our stock owned by the eye care professional to any
compensation due and owing the professional for services provided. These types
of loan arrangements may arise from time to time in the future.
In connection with this offering, $9.7 million of our subordinated
exchangeable promissory notes will be exchanged for shares of our common stock.
In connection with the exchange of these notes, we have agreed to lend each of
these noteholders on April 1, 2000 an amount equal to the Federal and state
income taxes payable by the holder as a result of the exchange of the notes,
but only for those shares of our common stock received in the exchange which
they still own on April 1, 2000. We estimate the aggregate amount of these tax
loans will not exceed $4 million. Each of the tax loans will be non-interest
bearing, non-recourse to the debtor and secured by a number of shares of our
common stock held by the debtor having a value, based on the offering price,
equal to two times the loan amount. Upon the sale by a debtor after April 1,
2000 of any shares of our common stock issued in exchange for a note, the
debtor will be required to repay a fraction of the debtor's initial tax loan
amount equal to the number of shares sold divided by the total number of shares
of our common stock previously issued in exchange for a note and owned by the
debtor on April 1, 2000. The tax loans also will be payable by the debtors upon
our demand for payment. Currently, we intend to allow the debtors to repay
these loans as they dispose of their shares of our common stock. We also have
agreed to reimburse these debtors, on a grossed-up basis, for any Federal or
state taxes that they recognize as a result of imputed interest on the tax
loans.
Recent Accounting Pronouncements
In March 1998, the Accounting Standards Committee issued AICPA Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use". This statement provides guidance on accounting for
the costs of computer software developed or obtained for internal use and
identifies characteristics of internal use software as well as assists in
determining when computer software is for internal use. SOP 98-1 is effective
for fiscal years beginning after December 15, 1998, with earlier application
permitted. We adopted SOP 98-1 during 1998, and it did not have a material
effect on our financial statements.
In March 1998, the Accounting Standards Committee issued AICPA Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities". This statement
provides guidance on the financial reporting of start-up costs and organization
costs. It requires that the cost of start-up activities and organization costs
be expensed as incurred. SOP 98-5 is effective for fiscal years beginning after
December 15, 1998, with earlier application permitted. We do not expect the
adoption of this SOP to have a material impact on our financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
changes the previous accounting definition of derivative which focused on
freestanding contracts, including, for example, options and forwards, and
futures and swaps, expanding it to include embedded derivatives and many
commodity contracts. Under the statement, every derivative is recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. SFAS
133 is effective for fiscal years beginning after June 15, 1999. We do not
anticipate that the adoption of SFAS 133 will have a material impact on our
financial position or results of operations.
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Year 2000 Readiness and Related Risks
The year 2000 issue relates to computer programs that have time-sensitive
hardware and software being unable to recognize or to interpret dates beyond
the year 1999. This could result in a system failure or miscalculations causing
disruptions of operations, including a temporary inability to process
transactions, bill and collect fees or engage in other business activities.
We have established a task force that includes operations, information
technology, accounting and legal personnel. Our task force has undertaken, but
has not yet completed, an assessment of our state of readiness and the
potential impact of any year 2000 risks. To date, the task force has focused on
the following areas to assess as to year 2000 readiness:
. Core business systems
. Third party payors, product and equipment manufacturers and other
suppliers
. Physical facility systems
For each of these areas, the task force has been assessing systems
potentially susceptible to year 2000 compliance issues, and where appropriate,
we have been developing and implementing corrective actions and testing to
ensure compliance. We believe that we are devoting the necessary resources to
identify and resolve any significant year 2000 issues in a timely manner.
Core Business Systems. Our core business systems primarily consist of
management and financial accounting systems. We use our management systems to
schedule patients, to bill payors for services rendered and to obtain
operational productivity data. We use our financial accounting systems to pay
vendors, to record transactions and for financial reporting. In evaluating
these systems, we received written confirmation from vendors that the
enterprise system software, hardware and network operating systems included in
our management and financial systems are year 2000 compliant.
All of our locations as well as the eye care clinics of our affiliated eye
care professionals are currently using our financial accounting systems. Most
of our locations as well as the eye care clinics of our affiliated eye care
professionals are currently using our management systems, with the remaining
locations expected to be incorporated into our management systems by the end of
1999. Two of the eye care clinics of our affiliated eye care professionals in
the St. Louis region currently use management systems that are not year 2000
compliant. We expect to equip these facilities with our year 2000 compliant
management systems by the end of September. If we are not able to complete the
integration of these facilities into our management systems as scheduled, this
may adversely affect our ability to seek reimbursement from Medicare and other
third party payors on a timely basis for these affiliated eye care clinics,
although we believe this effect would not be material to us because these two
facilities do not account for a significant portion of our accounts receivable.
Third Party Payors, Product and Equipment Manufacturers and Other Suppliers.
Some surgery procedures, primarily cataract removal, performed at our eye
surgery and laser centers or the eye care clinics of our affiliated eye care
professionals are covered by governmental reimbursement programs, including
Medicare, or third party payors, including private insurance companies.
Medicare has publicly announced that it believes its systems are year 2000
compliant. Medicare has also publicly announced that it has established
redundant systems certified by independent consultants as year 2000 compliant,
which are intended to serve as "back up" systems in the event their assessment
of their primary systems proves inaccurate. Our task force is in the process of
reviewing the Internet web sites of third party payors that provide a material
portion of payments we or our affiliated eye care professionals receive for
surgical and clinical procedures to assess their year 2000 readiness. If we are
unable to determine the year 2000 readiness of these payors, or need to address
year 2000 issues we identify, we intend to contact these payors to request
additional information about their year 2000 readiness, in an attempt to
mitigate the related collection risks to us.
We rely on third party manufacturers and suppliers for lasers and laser
surgery-related products and equipment, utilities and other key supplies and
services, and we are in the process of
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reviewing the Internet web sites of a number of our equipment manufacturers and
suppliers to assess their year 2000 readiness. Most of our excimer lasers are
manufactured by Summit Technology, Inc. Representatives from Summit have
informed us that its lasers utilize a system clock that recognizes dates in a
four digit format, and therefore, its lasers will function without any effect
upon safety or efficiency upon a change of date to the year 2000. We have not
incurred, and do not believe we will incur, material costs related to any
inquiry as to the year 2000 readiness of our third party payors, product and
equipment manufacturers and other suppliers.
Physical Facility Systems. We are continuing to evaluate the year 2000
readiness of our physical facility systems, including phone, power, security,
heating, ventilation and air conditioning systems. We have requested
information from the providers of our physical facility systems, and we intend
to make second requests relating to non-responses. Unsatisfactory responses or
non-responses from critical suppliers will be evaluated on a case by case basis
in an attempt to mitigate any risk to us. We expect to complete the assessment
phase of our physical facility systems during the third quarter of 1999, with
remedial action planned during the fourth quarter of 1999.
In addition to any remedial actions taken during the remainder of 1999, we
have implemented a year 2000 contingency plan that primarily involves
purchasing amounts of inventory so that we will be able to continue to operate
to help support our eye surgery and laser centers, and our affiliated eye care
professionals will be able to operate their eye care clinics, in the event of
any supply shortages resulting from any year 2000 problems experienced by our
suppliers. These purchases will be made incrementally over the remainder of
1999. Each of the eye care clinics of our affiliated eye care professionals is
also capable of manually performing billing, collection and other practice
management functions.
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BUSINESS
Our Business
We are an eye care services company focused on laser vision correction. We
operate in the following metropolitan regions: Chicago, Illinois; Kansas City,
Missouri; Louisville, Kentucky; St. Louis, Missouri; and Richmond, Virginia.
Our Industry
The eye care market consists of a large, diverse group of services and
products. The eye care services market includes routine eye examinations as
well as diagnostic and surgical procedures that address complex eye and vision
conditions. The most common conditions addressed by eye care professionals are
nearsightedness, farsightedness and astigmatism. Other frequently treated
conditions include cataracts, glaucoma, macular degeneration and diabetic
retinopathy. Eye and vision conditions are typically treated with surgery,
pharmaceuticals, prescription glasses, contact lenses or some combination of
these treatments. Additional services offered by eye care professionals include
research services for eye care devices or pharmaceuticals being developed or
tested in clinical trials. The optical products market consists of the
manufacture, distribution and sale of optical goods including corrective
lenses, eyeglasses, frames, contact lenses and other optical products and
accessories.
In the U.S., eye care services and products have traditionally been
delivered through a well developed, but fragmented, system of local
professionals, including individual or small groups of optometrists and
ophthalmologists. Optometrists complete four years of optometry school and are
generally licensed to perform routine eye examinations, determine visual
acuity, prescribe corrective eyewear and, in most states, prescribe specified
ophthalmic pharmaceuticals. Optometrists are not licensed to perform surgery,
but often provide pre- and post-operative care. Ophthalmologists must complete
four years of medical school and obtain an M.D. degree, and are licensed to
perform surgery as well as to prescribe pharmaceuticals and perform other
diagnostic eye care services. There are approximately 32,000 practicing
optometrists and 22,000 practicing ophthalmologists in the U.S.
Eye care professionals typically perform eye examinations in an office or
clinic setting. For surgical procedures, ophthalmologists frequently will
schedule operating room time in a hospital or ambulatory surgery center
including, for example, one of our eye surgery and laser centers.
Ophthalmologists frequently perform laser vision correction, cataract and other
eye related surgical procedures on an outpatient basis. As a result, there are
a number of ambulatory surgery centers focused on ophthalmology.
Eye care represents one of the largest health care service and product
markets in the U.S. According to industry sources, over 161 million people in
the U.S. require vision correction. Annual spending for health care costs
associated with eye and vision conditions is approximately $38.4 billion, while
annual spending on retail optical products is an additional $16.3 billion,
representing a total market of approximately $55 billion.
We expect the eye care market to continue to grow for the following reasons:
. Rapid Acceptance of New Technologies and Procedures and Increasing Demand
for Vision Correction Surgery. With the emergence of improved laser
vision correction technologies, the market for vision correction surgery
has been expanding rapidly. From 1996 to 1998, the number of laser vision
correction procedures performed annually increased from approximately
100,000 to 450,000.
. Continued Development of Improved Medical Technologies and
Pharmaceuticals. New medical technologies and pharmaceuticals have led to
earlier detection and improved treatment of many of the most common eye
and vision conditions, with fewer complications or side effects. New
technologies are in development that are expected to expand the access
to, and the effectiveness of, treatments, particularly the treatment of
refractive and cataract conditions.
. Aging of the Population. The incidence of eye disease, including
refractive and cataract disorders, increases substantially with age.
Increases in average life expectancy, combined with the aging of the baby
boom population, are expected to lead to an increase in the number of
adults over the age of 55. According to Frost & Sullivan, 19.5% of the
U.S. population in the year 2005 is
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forecasted to be between the ages of 55 and 74, with 94% of this age group
forecasted to be suffering from some type of refractive condition.
. Improved Patient Awareness. With the expansive amount of medical
information that has become available, patients have and continue to
become increasingly educated and aware of the different types of eye and
vision conditions and how they can be treated.
Vision Correction Surgery
Radial Keratotomy, or RK, introduced in the U.S in the 1970s, was the first
surgical technique approved for vision correction. RK procedures require a
delicate surgical technique and significant physician training, and the
procedure can result in the instability of the eye over a period of months to
years.
Recently, new surgical technologies and techniques have been introduced for
surgical correction of common vision conditions which result from the improper
curvature of the cornea. If the cornea's curvature is not correct, the cornea
cannot properly focus the light passing through it onto the retina, and the
person will see a blurred image. The three most common refractive conditions
are:
. myopia, commonly referred to as nearsightedness, which is caused by a
steepening of the cornea, resulting in the blurring of distant objects
. hyperopia, commonly referred to as farsightedness, which is caused by a
flattening of the cornea, resulting in the blurring of close objects
. astigmatism, in which images are not focused on any point due to the
varying curvature of the eye along different axes, which results in a
distorted view of images
Use of an excimer laser to alter the curvature of the cornea has become the
most common method of surgical vision correction. Although not approved in the
U.S. for general use until 1996, Photorefractive Keratectomy, or PRK, was
introduced abroad in 1988, as the first vision correction surgery that used
laser technology. PRK offers several advantages over RK, including a shorter,
simpler procedure, a less substantial training requirement for ophthalmologists
and fewer complications. However, the procedure proved to be more painful and
typically required three to six weeks of recovery time before full visual
acuity was restored, with the potential that full benefit of the procedure
would not be realized for up to six months.
Laser In-Situ Keratomileusis, or LASIK, was introduced in 1996, leading to a
dramatic increase in the popularity of laser vision correction surgery. LASIK
offers the ease-of-use benefits to ophthalmologists afforded by PRK, while
providing:
. significant reductions in patient pain or discomfort
. patient recovery times ranging from a few hours after the procedure to
two weeks
. reduced complication rates
In the LASIK procedure, an ophthalmologist uses an automated microsurgical
instrument to peel back a thin layer of corneal tissue which remains hinged to
the eye. A number of laser pulses are then applied to the cornea to remove
tissue and thereby correct the patient's vision by flattening the shape of the
cornea in nearsighted patients and steepening the shape of the cornea in
farsighted patients. After the surgeon replaces the layer of corneal tissue, no
bandages are required and most patients experience virtually no discomfort. A
LASIK procedure typically takes 10 to 15 minutes from set-up to completion,
with the length of time of the actual laser treatment lasting 15 to 90 seconds,
depending on the degree of correction required. LASIK is performed in an
outpatient setting, with only topical anesthesia. Only ophthalmologists are
licensed to perform LASIK, although optometrists are actively involved in
identifying appropriate candidates for the procedure and in providing pre- and
post-operative care.
The number of vision correction procedures performed in the U.S. has
expanded rapidly since 1996, primarily as a result of the advantages of the
LASIK procedure. Spectrum Consulting estimates that, in 1998, eye care
professionals performed approximately 450,000 laser vision correction surgery
procedures in the U.S., representing an increase of 97.4% over the number of
procedures performed in 1997. Spectrum Consulting also forecasts that eye care
professionals will perform approximately 950,000 and 1.4 million laser vision
correction procedures in the U.S. in 1999 and 2000, respectively. Despite this
rapid growth, the number
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of vision correction surgery patients in 1998 represented less than 0.2% of the
161 million people with refractive vision conditions in the U.S.
The following chart shows the growth in the number of laser vision
correction procedures performed in the U.S. from 1996 through 1998 and the
number of procedures forecasted for 1999 and 2000 by Spectrum Consulting:
[Bar Chart Appears Here]
Despite this rapid growth, the estimated number of vision correction surgery
patients in 1998 represented less than 0.2% of the 161 million people with
refractive vision conditions in the U.S. Based on an average price per eye of
$2,200 for a LASIK procedure, if 1% of the estimated 161 million people that
have refractive vision conditions in the U.S. elected to have a laser vision
correction procedure on both eyes, the potential value of the laser vision
correction market would exceed $7 billion. Further, unlike other eye-related
surgical procedures, vision correction surgery is an elective procedure that
patient-consumers pay for out-of-pocket.
We expect several factors to continue to expand the vision correction
surgery market for the next several years. Market penetration remains low, but
is expected to increase. We believe that high patient satisfaction with the
LASIK procedure has generated many word-of-mouth patient referrals for our
affiliated eye care professionals. In addition, improved laser technologies are
in development or are about to be approved that address other eye and vision
conditions including farsightedness and astigmatism. New technologies also have
recently been introduced that provide patients and physicians with even more
treatment options and are expected to expand the potential market. For example,
the intrastromal corneal ring, or Intacs(TM), which was commercially introduced
in the U.S. in April 1999, is a non-laser surgical technique approved to treat
nearsightedness.
Other Eye Care Services
Cataract Surgery. Cataract surgery is currently the most widely performed
surgical procedure in the U.S. A cataract occurs when the normally transparent
lens of the eye becomes cloudy as part of the aging process. In cataract
surgery, the ophthalmologist removes the clouded natural lens and replaces it
with a synthetic intraocular lens. Cataract surgery is typically performed on
an outpatient basis using local anesthesia, and the procedure time is typically
less than 30 minutes. According to the American Society of Cataract and
Refractive Surgery, more than 60% of people over the age of 60 have some degree
of cataract formation. In 1997, over 2.3 million cataract procedures were
performed in the U.S. Cataract procedures are expected to continue to increase
for the next several years, driven primarily by the aging of the population and
the introduction of improved technologies and surgical techniques. With the
preponderance of cataract surgery patients being over the age of 65, the
Medicare program has been the primary source of reimbursement for cataract
surgery providers.
Other Eye Disorders. Other common eye disorders include glaucoma, macular
degeneration and diabetic retinopathy. Glaucoma is one of the leading causes of
preventable blindness in the U.S., and the single most common cause of
blindness among African-Americans. Approximately 3 million people in the U.S.
are believed to have glaucoma, while only 1 million have currently been
diagnosed with the disease. By 2030, industry sources project that the number
of glaucoma cases diagnosed will double, primarily as a result of the aging of
the general population and an increase in the average life span. Age-related
macular degeneration is the leading cause of visual impairment for persons age
75 and older, and it is the most common cause of new cases of visual impairment
among those over age 65. Diabetic retinopathy is a leading cause of vision loss
and blindness. More than 40% of patients with diabetes for 15 years or more
have some degree of blood vessel damage which may result in diabetic
retinopathy. Incidence of this disease is expected to increase dramatically as
a result of a growing number of patients diagnosed with diabetes. Treatment of
these eye and vision conditions is generally reimbursed by Medicare and other
third party payors.
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Optical Services and Products
While the number of patient options for vision correction has increased with
improved surgical vision correction technologies and techniques, the market for
basic optical goods including corrective lenses, eyeglass frames, contact
lenses and other optical products and accessories, remains a significant
market. According to the Vision Council of America, consumers spent
approximately $16.3 billion on eyewear in 1998, up 5.8% from approximately
$15.4 billion in 1997. Eyeglass frames are typically sold through retail
optical outlets located in optometrist and ophthalmologist clinics, as well as
through retail stores.
Challenges Faced By Eye Care Providers
Recent advances in medical technology and surgical procedures for vision
correction have significantly increased consumer demand for laser vision
correction surgery. Ophthalmologists face a number of significant challenges in
meeting and capitalizing on this demand, including:
. maintaining their existing patient and procedure base while developing a
laser vision correction surgery practice
. developing marketing expertise in order to promote their services to
patient-consumers
. purchasing, or otherwise gaining access to, expensive laser vision
correction surgery equipment, including excimer laser systems that Frost
& Sullivan reports are priced in the range of $500,000
. adapting to the latest advances in laser vision correction technology and
procedures, as well as establishing and maintaining a level of expertise
with new technologies and procedures
. maintaining an efficient division of labor by partnering with, or
recruiting, additional ophthalmologists to perform surgery and
optometrists to provide pre- and post-operative care to laser surgery
patients
Our Strategy
Our goal is to become the leading laser vision correction services and
facilities company in each of our existing and future regional markets. We have
tailored our business model to focus on establishing and maintaining
contractual affiliations with leading eye care professionals in each of our
regional markets.
Our Business Model
We have focused on building regional clusters of eye surgery and laser
centers and affiliated eye care professionals. We structure these regional
clusters to achieve a hub and spoke configuration of affiliated eye care
professionals around our eye surgery and laser centers. We believe our business
model provides us with several advantages in assisting our affiliated eye care
professionals in developing a laser vision correction practice. These
advantages include our ability to:
. establish and maintain long-term relationships with leading
ophthalmologists and optometrists through access to our eye surgery and
laser centers, clinical research capability and range of business,
administrative and financial services
. assist our affiliated eye care professionals in establishing regional
market leadership in laser vision correction through our clinical
research, information technology and marketing know-how
. provide our affiliated eye care professionals with the benefits of
regional brand recognition
. create multiple sources of revenue through the range of business,
administrative and financial services and eye care products that we offer
We work with our affiliated eye care professionals to develop a patient-
consumer approach that we believe benefits not only the growth of their laser
vision correction practices, but all aspects of their continuum of eye care
services, ranging from basic eye examinations to the treatment of complex eye
and vision conditions.
We have implemented our business model in each of our existing regional
markets, building around the following key components:
Long-term affiliations with leading eye care professionals. We believe the
combination of access to our eye surgery and laser centers, clinical research
programs and the full range of business,
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administrative and financial services that we offer enhances our ability to
affiliate with leading eye care professionals in each of our markets. In
addition, we are working with our affiliated eye care professionals within
particular markets to reorganize their existing medical practices into a single
legal and business entity in that market. We believe that having a single
entity in each of our markets permits an efficient consolidation of fixed
overhead and staff, implementation of a common information technology system,
effective division of labor among ophthalmologists and optometrists, and
establishment of a unified entity for marketing and branding purposes.
Eye surgery and laser centers. We currently operate 10 eye surgery and laser
centers, each of which is a wholly-owned, licensed ambulatory surgical center.
Each of our eye surgery and laser centers is located adjacent to a clinic of
one of our affiliated eye care professionals. These eye surgery and laser
centers are designed to meet the demands of high volume eye surgeons, including
surgeons focusing on laser vision correction. We believe that access to fully
licensed ambulatory surgical centers in each of our markets provides our
affiliated eye care professionals with a long-term competitive advantage since
the centers are designed to efficiently accommodate a wide range of current and
emerging surgical vision correction procedures and avoid relying on any
particular technology or procedure.
We believe we are well positioned to capture increased laser vision
correction procedure volume and revenue in each of our eye surgery and laser
centers. Currently, we have three eye surgery and laser centers that are
approaching full utilization based upon a five day, eight hour per day work
week. We can create further capacity in these three centers by extending
surgery hours, adding surgery days, or adding additional lasers and related
surgical equipment. Our other seven centers currently operate at an average
utilization rate of 30%. In the future, when needed, we can increase the
capacity of these seven centers in a manner similar to the other three. We also
have additional capacity through our operation under service agreements of two
laser vision correction centers where affiliated eye care providers perform
laser vision correction surgery.
Clinical research. Our eye-only research organization provides clinical and
other research services to eye care device, product and pharmaceutical
manufacturers, with an emphasis on laser vision correction and other refractive
technologies. We believe our clinical research capability permits us and our
affiliated eye care professional entities to:
. attract and retain leading ophthalmologists and optometrists who seek the
professional challenge associated with participating in clinical research
activities
. preview emerging vision correction and other ophthalmic technologies and
adjust our business model and strategy accordingly
. become early adapters to the latest technologies and procedures, thus
enhancing our affiliated eye care professionals' patient care
. establish a quality brand name and regional market leadership for our
affiliated eye care professionals in vision correction surgery
Business, administrative and financial services. We have established
business, administrative and financial services which, we believe, have helped
us to attract and retain leading ophthalmologists and optometrists. We believe
that these services have helped generate significant growth in laser vision
correction surgery revenue for our affiliated eye care professionals. These
services include information technology, provider and patient-consumer directed
marketing, office staffing services, professional and staff recruiting
services, surgeon and staff training and optical products and services.
Our Growth Strategy
We are focused on the rapidly growing U.S. market for laser vision
correction surgery and our goal is to become the leading laser vision
correction services and facilities company in each of our existing and future
regional markets. We intend to achieve this goal by continuing to establish
contractual affiliations with leading eye care professionals and by
implementing a growth strategy which includes the following specific
components:
Expanding our presence in existing regional markets. We believe that there
are significant growth opportunities in our existing regional
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markets. We believe that the following factors will drive this growth:
. increasing demand for, and patient-consumer acceptance of, laser vision
correction surgery
. significant expansion of our marketing services, including patient-
consumer directed marketing designed to enhance awareness of the laser
vision correction expertise of our affiliated eye care professionals and
the full range of eye care services that they offer
. acquiring existing or establishing new eye surgery and laser centers
. acquiring existing or establishing new laser vision correction centers
. contractual affiliations with additional ophthalmologists and
optometrists
. continued development and implementation of our business, administrative
and financial services
Selectively targeting and entering new regional markets. We believe our
management team's experience in building and developing successful eye care
businesses will enable us to effectively identify additional markets in which
to build regional clusters of eye surgery and laser centers and affiliated eye
care professionals. We intend to enter new markets through multiple avenues,
including:
. acquiring existing or establishing new eye surgery and laser centers
. acquiring existing or establishing new laser vision correction centers
. entering into contractual affiliations with leading ophthalmologists and
optometrists
. developing and implementing our business, administrative and financial
services in each new region
Providing patient-consumer directed marketing support to our affiliated eye
care professionals. We believe our affiliated eye care professionals have
experienced improved market share as a result of our patient-consumer directed
marketing support, and we intend to continue to invest in these programs. Our
regional marketing activities include:
.direct to patient-consumer advertising
. patient seminars on laser vision correction
. centralized toll free call centers
. corporate and group sales
all of which are designed to create consumer brand awareness for us and our
affiliated eye care professionals. This marketing support allows our affiliated
eye surgeons to reach a broader range of new patients with the latest
information concerning laser vision correction, as well as traditional eye care
services. We also assist affiliated eye surgeons in establishing procedures for
co-managing patients with optometrists. This provides eye surgeons with an
opportunity to focus on surgery and better leverage their time, while also
allowing patients to elect to have their optometrist participate in their
continuing care.
Capitalizing on and expanding our eye-only research organization. Our
research activities provide our affiliated eye care professionals with early
access to, and experience with, the latest vision correction technologies in
advance of many competing eye surgeons. We believe that there are significant
growth opportunities for the research business because of the prevalence of new
eye care devices, products and pharmaceuticals in development, and the demand
among eye care device, product and pharmaceutical companies for these types of
services. We believe that we will be able to use our marketing, information
systems and management experience to further pursue these growth opportunities.
We further believe that these research opportunities will expand as we continue
to affiliate with leading ophthalmologists and optometrists in both our
existing and future markets. As we grow, we plan to expand our clinical
research activities to other regions and more actively market our research-
related services to eye care device, product and pharmaceutical companies.
Continuing to develop and implement business, administrative and financial
services to enhance laser vision correction growth. We believe that our full
complement of business, administrative and financial services will continue to
provide us with an advantage in attracting, affiliating and maintaining
affiliations with leading ophthalmologists and optometrists. These services
include:
. information technology
. provider and patient-consumer directed marketing
. clinic and office staffing services
. professional and staff recruiting services
. surgeon and staff training
. optical products and services
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We also expect to build upon this portfolio of services. In 1999, we plan to
implement new information technology offerings including an intranet-based
patient marketing and scheduling system, patient outcomes tracking and an
optical point-of-sale system. All of these will be integrated into our new,
enterprise wide e-community and data warehouse.
Business Operations
Eye Surgery and Laser Centers
We operate 10 eye surgery and laser centers, each of which is a wholly-
owned, licensed ambulatory surgical center. Eye care professionals perform
laser vision correction, cataract and other eye related surgical procedures at
our eye surgery and laser centers. We currently have nine excimer lasers in
service and an additional three lasers dedicated to conducting clinical trials.
We plan to deploy additional excimer lasers in 1999.
We generally try to acquire or establish eye surgery and laser centers with
two suites. This allows for efficient use of the surgeon's time since operative
preparation can be performed in one suite while the surgeon operates in the
adjacent suite. To date, each of our eye surgery and laser centers has been
located adjacent to one of the clinics of our affiliated professional entities.
This further contributes to the time and cost efficiency of surgical operations
and facilitates our ability to coordinate pre- and post-operative patient
visits between our affiliated ophthalmologists and optometrists.
Today, most forms of laser vision correction surgery may be performed in a
clean room in a physician's office and we have structured the operation of two
laser vision correction centers in this manner. As new vision correction
technologies are developed, however, we believe that medical standards will
dictate that some types of surgical vision correction procedures will need to
be performed in a licensed ambulatory surgery center or hospital. Examples of
new technologies currently in clinical trials include phakic intraocular lenses
and implantable contact lenses.
Accordingly, we believe that the flexibility of our eye surgery and laser
centers to accommodate the full spectrum of existing and future vision
correction surgeries will provide us with an advantage over our competitors
whose facilities may not be able to accommodate these procedures. This
advantage is further enhanced in those states with rigorous certificate of need
requirements that make it difficult to construct a licensed facility.
Seven of our surgery and laser centers have been accredited by the American
Association of Ambulatory Healthcare (AAAHC), and we expect our three remaining
centers to be accredited by the end of 1999. We believe as managed care panels
shift to requiring accreditation by the AAAHC or the Joint Commission on
Accreditation of Healthcare Organizations as a condition to reimbursement, our
accreditation will provide us a competitive advantage with respect to
reimbursable procedures including, for example, cataract surgery.
Services and Products
Long-Term Service Agreements. We have long-term service agreements in place
with professional entities covering 44 ophthalmologists and 39 optometrists,
who provide eye care services in one or more of our 45 eye care clinics.
Generally, we seek to cluster eye care clinics within regional markets that can
support one or more eye surgery and laser centers. Our strategy involves
affiliating with leading eye care professionals within a regional market until
we have achieved a cluster of eye care clinics, affiliated eye care
professionals and eye surgery and laser centers in a hub and spoke
configuration throughout the regional market.
We believe that acquiring or building concentrated clusters of eye care
clinics around eye surgery and laser centers allows us to more effectively
utilize our eye surgery and laser center capacity. Each cluster has a regional
management team and uniform information technology. As a result, we can more
effectively assist affiliated eye care professionals in creating brand name
recognition within their regional market and integrating subspecialists in a
manner that effects a more efficient division of labor.
We provide services, facilities and equipment to our affiliated eye care
professionals under long-term service agreements. These service agreements are
generally for a 40-year term and require us to provide all of the business,
administrative and
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financial services necessary to operate the eye care clinics and optical retail
outlets. These services typically include:
. billing, collection and cash management services
. procuring and maintaining all office space, office and medical supplies,
medical and nonmedical equipment, information systems, and furniture and
furnishings
. subject to federal and state law, recruiting, employing, supervising and
training all non-professional personnel
. assisting our affiliated eye care professionals in recruiting additional
ophthalmologists and optometrists
. information technology services
. marketing services
. assisting our affiliated eye care professionals with the establishment
and implementation of quality assurance, risk management and utilization
review programs
. assisting our affiliated eye care professionals in obtaining and
maintaining federal, state and local licenses and permits
. negotiating managed care contracts on behalf of our affiliated eye care
professionals
The professional entities or our affiliated eye care professionals, and not
us, generally enter into managed care agreements relating to the provision of
professional and dispensing services. Occasionally, we may execute a managed
care agreement as agent on behalf of our affiliated eye care professionals;
however, our affiliated eye care professionals or entities are the providers
under these contracts. Collectively, our affiliated eye care professionals are
parties to only four capitated agreements, which generate less than $100,000 in
total annual revenues. We also have entered into managed care agreements in our
capacity as the owner and operator of eye surgery and laser centers. None of
these agreements is on a capitated basis.
The service agreements provide that our affiliated eye care professionals
retain sole control over:
. the dispensing of all medical and other professional services to their
patients
. all decisions relating to the selecting, hiring, compensating and
terminating of eye care professionals
. all corporate governance decisions and other internal matters affecting
the operation of their legal entities
. the employment of a sufficient number of ophthalmologists and
optometrists to provide professional eye care services to their patients
Under the service agreements, we are generally required to pay substantially
all expenses incurred in connection with the business and medical operations of
our eye are clinics and optical retail outlets, except for the salaries and
benefits of those eye care professionals who have an ownership interest in the
professional entity employing them. Our affiliated eye care professionals then
reimburse us on a monthly basis for those expenses that we pay on their behalf.
Other than our responsibility for payment of the eye care clinic and optical
retail outlet expenses, we are not required to make any loans to any individual
eye care professionals or their professional entities.
In addition to reimbursing us for eye care clinic and optical retail outlet
expenses, our affiliated professional entities pay us a monthly fee for our
services. This is generally a targeted monthly fee established in an annual
budget that we negotiate each year with our affiliated eye care professionals.
This targeted monthly fee is adjusted upward or downward in direct proportion
to any positive or negative variance in the actual monthly operating results of
the eye care clinics and optical retail outlets from their respective budgeted
monthly operating results. There are no limitations on the amount of these fee
adjustments. On average, excluding reimbursement of expenses that we pay on
behalf of our affiliated professional entities, the fees paid to us in 1998
represented 35.7% of the earnings before interest and taxes of the professional
entities. The earnings of an affiliated professional entity are determined by
subtracting the expenses of the eye care clinics and optical retail outlets
from the professional services and other revenues earned by the professional
entity. These expenses generally include all expenses incurred in connection
with the business and medical operations of the professional entity, except for
any salaries and benefits of those eye care professionals who have an ownership
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interest in the professional entity. Each professional entity is then
responsible for paying the salaries and benefits of its eye care professional-
owners from the amount retained by the professional entity after paying our
fee. To the extent the targeted monthly fee is adjusted upward or downward as
described above, the amounts retained by the affiliated professional entities
to pay the eye care professional- owners' salaries and benefits are
correspondingly adjusted upward or downward.
The service agreements generally are not terminable by our affiliated eye
care professionals or professional entities unless a court makes a final
determination that we have breached a material fiduciary duty owed to the eye
care professionals, or that we have misappropriated or misapplied funds of the
eye care professionals.We generally cannot terminate the service agreement
unless:
. one or a group of affiliated eye care professionals loses their medical
licensing
. the professional entity loses its Medicare provider number or ability to
treat Medicare patients
. the professional entity is dissolved or goes bankrupt
. the affiliated professional entity defaults in the performance of any of
its material duties
Generally, affiliations with our eye care professionals have been the result
of acquisitions of their non-medical assets, including equipment and office
leases, for consideration consisting of a combination of stock, notes or cash.
In connection with these transactions, a professional entity owned by the
affiliated eye care professionals enters into employment agreements with the
ophthalmologists and optometrists that generally have five year initial terms.
Typically, these agreements contain restrictions on the eye care professional's
ability to compete with us, and on his or her ability to recruit our or their
employees or interfere with patient relationships. These covenants usually
survive termination of employment for up to one year. During the initial terms,
ophthalmologists who have an equity interest in an affiliated professional
entity are required to pay liquidated damages to the affiliated professional
entity if they terminate their employment. Our service agreements generally
require the affiliated professional entities to remit these damages to us.
Provider and Patient-Consumer Marketing Support. Our marketing professionals
perform detailed analyses for each of our regional markets. An awareness
program is developed for each market that includes advertising, public
relations and direct marketing programs. An important component of our
marketing support strategy involves creating brand recognition. This applies
equally to branding NovaMed Eyecare to ophthalmologists andoptometrists, as
well as branding our regional clusters of affiliated eye care professionals to
patient-consumers. We are working with our affiliated eye care professionals
within particular markets to reorganize their existing medical practices into a
single legal and business entity. This allows us to use a single brand name for
advertising and other marketing purposes. To date, we have implemented this
strategy in Kansas City, Louisville and Richmond, and we plan to implement this
strategy in Chicago and St. Louis by the end of 1999.
We believe this single regional brand strategy provides stronger name
recognition than would otherwise be possible, reinforces the regional brand's
reputation for laser vision correction and the broad eye care expertise of our
affiliated eye care professionals, and provides cost efficiencies through
marketing economies of scale. As a result we believe that a single regional
brand provides an important advantage in the highly-fragmented laser vision
correction market. This branding strategy supports our goal of becoming the
leading laser vision correction services and facilities company in each
regional market we choose to enter.
We provide our affiliated eye care professionals with uniform brochures and
marketing support and utilize targeted media penetration including local radio,
television and newspaper advertisements. In addition, we develop specialized
programs targeting ophthalmologists and optometrists in order to help them
educate patient-consumers. We also have a dedicated sales and marketing team
focused on corporate and group sales.
Our marketing programs encourage patient-consumers to contact one of our
toll free call centers, where we provide them with further information and
attempt to enroll them in a laser vision correction informational seminar or
schedule them directly for an in-office consultation with one
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of our affiliated eye care professionals. Our affiliated eye care professionals
plan to deliver more than 600 informational seminars across our five regional
markets in 1999.
We provide personnel and assistance to our affiliated eye care professionals
to facilitate a service-driven, pleasant experience for their patients. This
includes management of schedules to foster on-time appointments and laser
vision correction counselors to help current and potential patients understand
the laser vision correction procedures and processes.
Our ten person marketing staff is decentralized, with a marketing director
in each region providing expertise on local market issues, supported by a staff
that coordinates key initiatives across markets.
We encourage our affiliated eye care professionals to develop relationships
with optometrists and other primary care physicians in their region. In
addition, attendance and visibility at local professional society meetings,
presentations at education meetings and published research all help to promote
the professional standing of our affiliated eye care professionals within the
ophthalmology and optometry community.
Information Technology. We have designed our information technology strategy
to provide our locations with standardized information systems and business
processes which allow us to generate timely, accurate and consistent
information for our management team and affiliated eye care professionals. We
have an in-house information technology group consisting of 25 people who are
responsible for the installation, training, support and operation of these
systems.
We provide our affiliated eye care professionals with installation and
operational services to support our standard management and financial reporting
information systems. After we establish a new affiliation, our information
technology specialists complete an advanced deployment of our information
technology systems at the new affiliated eye care professional's offices. This
initial installation allows newly affiliated eye care professionals to access
our company-wide e-mail system, providing quick and easy access to our
corporate resources and to eye care professionals at our other regional eye
surgery and laser centers and eye care clinics of our affiliated eye care
professionals. Generally, within 60 days of our advanced deployment, all
accounting functions are integrated with our corporate finance system. To date,
we have fully integrated all of our eye surgery and laser centers and the eye
care clinics of our affiliated eye care professionals into the standard
financial accounting systems and most of our locations have been fully
integrated into our management systems, with the remaining locations expected
to be incorporated into our management systems by the end of 1999.
To further capitalize on our investment in information systems, we are
currently developing enhancements to our laser vision correction marketing
system and our consolidated reporting capability to enable us to track and
coordinate the activities of our eye surgery and laser centers, affiliated eye
care clinics and eye surgeons and co-managing optometrists. We also are
developing software enhancements for patient outcomes tracking, optical point-
of-sale and our Internet website. These enhancements will become part of our e-
community, which will also include projects under development, including data
warehousing and a new provider relationship management system.
Our data warehouse is designed to consolidate information, including
revenue, expense, patient demographics, procedures and clinical information,
across our eye surgery and laser centers and affiliated eye care clinics. This
data warehouse will enable us to improve decision support and reporting
capabilities at the corporate and affiliated eye care professional levels.
Our new provider relationship management system enables us to track and
coordinate the activities of our eye surgery and laser centers, the eye care
clinics of our affiliated eye care professionals, affiliated eye surgeons and
co-managing optometrists. We believe that this new system will allow us to
significantly improve our ability to create contacts with our affiliated eye
care professionals' patients, improve relationships with our affiliated eye
care professionals and provide new opportunities to enhance and expand our
business, administrative and financial services. In addition, this system will
enable us to track our affiliated eye care professionals' patients through our
call centers, eye surgery and laser centers, affiliated eye care
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clinics and Internet website. As a result, we will have the ability to maintain
contact with, and promote the eye care services offered by our affiliated eye
care professionals to, these patients.
Administrative Services. As part of the administrative services provided to
our eye surgery and laser centers and affiliated eye care professionals, we:
. recruit, train, and oversee a regional management team in each of our
markets to implement various operational and strategic initiatives and to
integrate our operations
. evaluate and improve the clinical operations of our eye surgery and laser
centers and affiliated eye care clinics and optical retail outlets in
order to improve eye care professional and staff productivity and provide
quality patient care
. provide billing and collection, cash management and financial accounting
and reporting services
Recruiting. We have three full-time recruiting professionals on staff to
assist our affiliated eye care professionals in recruiting ophthalmologists,
optometrists and support staff. These recruiting services include identifying
candidates, negotiating employment agreements and structuring compensation and
benefits packages for eye care professionals and support staff. Our internal
recruiting efforts allow our existing eye care professionals to avoid diverting
time and attention from providing eye care services to patients. Our dedicated
recruiting staff also allows us to minimize the costs associated with retaining
recruiting firms.
Surgeon and Staff Training. Several of our affiliated ophthalmologists serve
as lead investigators in clinical trials of eye care devices, products and
pharmaceuticals. As a result, some of our eye surgeons have established
clinical best practices in the field of vision correction. In our surgical
training program, these surgeons share these practices with our other
affiliated eye care professionals. Our leading affiliated eye surgeons
frequently meet with our other affiliated eye care professionals, both
individually and in all-doctor meetings, to educate them on new technologies.
We do not pay these eye surgeons for participating in the training of other
affiliated eye care professionals. We believe that they participate because
their participation:
. contributes to their reputation in the professional community
. provides a useful forum for discussing new ideas and techniques with
other eye care professionals who have a common interest through their
affiliation with us
Our involvement in clinical research also affords our affiliated eye care
professionals early access to certification and training programs for new
technologies. All of our eye surgeons are certified to use the excimer laser by
third party certification programs. In addition, most of our eye surgeons have
been trained in Intacs(TM), a non-laser refractive surgery procedure recently
approved by the FDA.
We also have a comprehensive clinic staff training program that covers all
aspects of eye care, with a focus on laser vision correction. Under the
program, we regularly provide clinic staff with training in the latest clinical
technologies, information technology systems, business processes and patient-
consumer marketing strategies. Our programs are designed to develop best
practices at the clinic staff level and stress the importance of the patient-
consumer experience to our overall business strategy.
Co-Management. A vision correction procedure typically involves, in addition
to the surgical procedure itself, a pre-operative examination and up to six
post-operative examinations within a year of surgery. These post-operative
visits allow an eye care professional to monitor a patient's healing and vision
improvement. A patient often may elect to have the post-operative examinations
performed by an optometrist. This allows ophthalmologists to focus on
performing laser vision correction surgery procedures, while optometrists focus
on pre- and post-operative care. The coordination of this care and the
communication between ophthalmologists and optometrists are critical to
achieving quality patient care, maximizing patient satisfaction and achieving
the optimal division of labor. Our information technology system fosters this
coordination and communication between eye care professionals to ensure the co-
management relationship is as seamless as possible for the patient.
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Optical Retail Business. Under the terms of our long-term service
agreements, we assist our affiliated eye care professionals in operating 28
optical retail outlets across our five regional markets. Each of these
affiliated optical retail outlets is located in a clinic of one of our
affiliated eye care professionals. These retail outlets sell eyeglasses,
contact lenses and related optical products and accessories to patient-
consumers. As part of the business, administrative and financial services for
which we receive a management fee under these agreements, we:
. employ the non-medical staff in these retail outlets
. manage optical product inventory, including scheduling of shipping and
delivery
. assist in optical product pricing and marketing efforts
Optical Services and Products
Optical Laboratory. We own and operate three full-service wholesale optical
laboratories that specialize in surfacing, finishing and distributing
corrective lenses and eyeglasses. These optical laboratories employ 65
individuals. Our laboratories have in excess of 325 active customers, including
affiliated and non-affiliated ophthalmologists, optometrists, opticians and
optical retail chains.
Optical Products Purchasing Organization. Our optical products purchasing
organization, allows affiliated and non-affiliated eye care professionals to
purchase optical products through us at volume discounts. This purchasing
center operates out of a leased 5,000 square foot facility located in
Roseville, Illinois, and has 18 full-time employees. We have in excess of 500
customers that utilize our optical products purchasing organization. We also
provide monthly reports to our customers that allow them to identify purchasing
trends and manage their optical product inventories more efficiently. We intend
to expand the scope of services offered to our customers by including eye care
equipment used in our affiliated and non-affiliated eye care professionals'
offices and optical laboratories.
Research
Our eye-only research center in Kansas City, Missouri, conducts Phase II-IV
clinical trials on eye care devices and pharmaceuticals, with an emphasis on
laser vision correction-related items. We believe our research center is the
largest non-university affiliated eye care research facility of its kind in the
U.S. The center has three excimer lasers that are dedicated for use in clinical
trials. The center also currently has research sponsor agreements relating to
30 clinical studies involving over 500 subjects participating in clinical
trials. The staff at our research center has a combined 60 years of research
experience. To date, more than 100 studies have been completed at the Kansas
City research center. Currently, our affiliated eye care professionals are
involved in research studies in all five of our regional markets.
We believe the quality of the Kansas City research center's results is
demonstrated by the high rate of same-sponsor studies conducted at the center.
The center competes for research projects based on its ability to provide
appropriate patient candidates as well as accurate, prompt and reliable
clinical data to research sponsors. Research relates to both vision correction
surgery and pathology studies, with vision correction technology research
studies accounting for approximately two-thirds of the trials we conduct. Other
studies also involve device or pharmaceutical treatments for glaucoma,
cataracts, retinal and other eye and vision conditions.
We own the assets of the Kansas City research center, and we employ all of its
non-medical personnel. Five of our affiliated eye care professionals supervise,
manage and conduct the medical aspects of the clinical trials at the center,
supported by our eight full-time research coordinators. Prior to July 1999, a
professional entity owned by our affiliated eye care professionals in Kansas
City entered into each of the sponsor agreements, and this professional entity
received the clinical trial fees paid by the sponsors. We derived additional
management fees under our service agreement with this Kansas City professional
entity as a result of these revenues. In July 1999, we acquired clinical
research assets including substantially all of these sponsor agreements from
the Kansas City professional entity. See "Certain Transactions--Purchase of
Clinical Research Contracts". Under these agreements, we will derive revenues
from various services including:
. identifying and providing investigators to conduct the clinical studies
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. providing the non-medical personnel, supplies and equipment necessary for
the performance of the clinical trials
. maintaining possession of all research records
From these revenues, we will then pay our affiliated eye care professionals a
fee for various services they provide as investigators in these trials
including:
. recruitment and enrollment of patients
. performance of all patient medical treatments
. timely and accurate reporting of complications and adverse events
. preparation of any reporting documentation required by the FDA or any
sponsors
Our research capability is an essential component of our integrated eye care
services model. We believe the center's reputation for conducting quality
research enhances our ability to recruit, establish and maintain affiliations
with leading eye care providers due to the prestige of associating with a
highly-regarded research program. We also believe our access to new technology
allows us to be an early adapter to shifts in science and technology relative
to our competitors.
Competition
The market for laser vision correction and other refractive surgery is subject
to intense competition. We and our affiliated eye care professionals compete
with other entities, including:
. refractive laser center companies
. hospitals
. individual ophthalmologists
. other surgery and laser centers
. manufacturers of excimer laser equipment
in offering these services and access to related equipment. In addition, the
laser vision correction and other refractive surgery procedures performed by
affiliated eye care professionals at our eye surgery and laser centers compete
with more traditional non-surgical treatments for refractive conditions,
including eyeglasses and contact lenses.
Eye care professionals interested in deploying excimer laser technology have
formed commercial enterprises in order to support the capital requirements for
acquiring the lasers and other necessary equipment. The industry today remains
highly fragmented, with most procedures performed by independent physician
groups. Several laser vision correction companies are developing national
operations. In addition, several eye care companies are featuring access to
laser vision correction and other refractive surgery services as a component of
their eye care practice development activities.
Our eye surgery and laser centers and affiliated eye care professionals
generally compete on the bases of:
. quality of patient care
. reputation
. price
We compete in fragmented geographic markets and do not face any single dominant
U.S. national competitor. Our principal corporate competitors in the market for
services and facilities related to laser vision correction and other refractive
surgery include TLC The Laser Center, Inc., Laser Vision Centers, Inc.,
ClearVision Laser Centers, Ltd., LCA-Vision Inc. and ARIS Vision, Inc.
In the market for providing business, administrative and financial services
to eye care professionals, we primarily compete with Omega Health Systems, Inc.
and Vision Twenty-One, Inc. The bases for competition in this market include:
. service
. pricing
. strength of delivery network
. strength of operational systems
. the degree of cost efficiencies
. access to surgery facilities
. marketing strength
. information technology systems
. managed care expertise
. patient access
. quality assessment programs
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Although there are competitors in some of our markets who charge less than
us for the products and services we provide, we believe that our integrated eye
care model and alliances with recognized industry leaders afford us a
competitive advantage. Similarly, there are competitors of our affiliated eye
care professionals who charge less than them for laser vision correction.
However, we believe that industry experience to date suggests that price
generally has not been the driving factor in the patient decision regarding
laser vision correction.
Suppliers of eyeglasses and contact lenses, including, for example,
optometric chains, may also compete with us and our affiliated eye care
professionals, either by marketing alternatives to laser vision correction or
other refractive surgery procedures or by purchasing excimer lasers and
offering refractive surgery to their customers.
We compete in the optical laboratory market on the bases of:
. quality of service
. breadth of services
. reputation
. price
Our three wholesale optical laboratories face a variety of national, regional
and local competitors.
In the market for providing optical group purchasing services, we primarily
compete with C&E Vision Group, Block Vision, Vision West and Buyer's Edge.
Competition in this market is based upon:
. service
. price
. strength of the purchasing organization, including the ability to
negotiate discounts
Although there are competitors in some of our markets that charge less than us
for optical laboratory and optical products purchasing services, we believe
that our expertise in providing custom surfacing and finishing in our
laboratory and the purchasing services from our optical products purchasing
organization afford us a competitive advantage in each of these markets.
Employees
As of June 30, 1999, we had approximately 889 employees. Approximately 135
are engaged in corporate management, 478 in eye care clinics, 142 in our eye
surgery and laser centers, 40 in optical retail outlets, 71 in our wholesale
optical laboratories, 15 in optical group purchasing services and eight in
clinical research. We are affiliated with 44 ophthalmologists and 39
optometrists. We believe that our relations with our employees are good. We are
not a party to any collective bargaining agreements.
Properties
We do not own any real property. We lease space for our corporate
headquarters in Chicago, our regional offices, our surgery and laser centers,
the clinics of our affiliated eye care professionals and our optical services
manufacturing and warehouse operations. In some cases, these facilities are
leased from affiliated providers. See "Certain Transactions" and notes 9 and 14
to our consolidated financial statements included in this prospectus. The terms
and conditions of our real property leases vary. The forms of lease range from
"modified triple net" to "gross" leases, with terms generally ranging from
month-to-month to five years, with multiple five-year renewal terms at our
option. Generally, our eye surgery and laser centers, eye care clinics and
optical retail outlets are located in medical complexes, office buildings or
free standing buildings. Any capacity constraints with our affiliated eye care
clinics and optical retail outlets can generally be resolved either through a
build-out of adjacent space or the leasing of additional office space in other
proximate locations. Depending on state licensing and Certificate of Need
issues, addressing capacity constraints in any of our eye surgery and laser
centers in a similar manner may require state regulatory approval.
Legal Proceedings
There are no material lawsuits or administrative actions pending, or to our
knowledge, threatened, which may have a material adverse effect upon our
business, financial condition or results of operations.
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GOVERNMENT REGULATION
As a participant in the health care industry, our operations and the
operations of our affiliated opthalmologists and optometrists are subject to
extensive and increasing regulation by governmental entities at the Federal,
state and local levels. Many of these laws and regulations are subject to
varying interpretations, and we believe courts and regulatory authorities
generally have provided little clarification. Moreover, state and local laws
and interpretations vary from jurisdiction to jurisdiction. As a result, we may
not always be able to accurately predict interpretations of applicable law, and
some of our activities, or the activities of our affiliated eye care
professionals, could be challenged.
We believe that our business operations and arrangements with our affiliated
eye care professionals comply in all material respects with Federal, state and
local laws. Additionally, it is our understanding that our affiliated
ophthalmologists and optometrists comply in all material respects with Federal,
state and local law, although we cannot assure you of this compliance. However,
we cannot assure you that Federal or state regulatory authorities would not
challenge any of these relationships or arrangements. If any of our activities
are challenged, we may have to divert substantial time, attention and resources
from running our business to defend against these challenges regardless of
their merit. If we do not successfully defend these challenges, we and our
affiliated providers may face a variety of adverse consequences including
service agreements being terminated or rendered unenforceable, third party
payor agreements being terminated, affiliated providers losing their
eligibility to participate in Medicare, Medicaid or other federal health care
programs, or losing other contracting privileges and, in some instances, civil
or criminal fines. Under some circumstances, we may be able to redesign or
reformulate our relationships or arrangements to address these challenges. Any
of these consequences could have a material adverse effect on our business,
financial condition and results of operations.
The regulatory environment in which we and our affiliated eye care
professionals operate may change significantly in the future. Numerous
legislative proposals have been introduced in the U.S. Congress and in various
state legislatures over the past several years that could cause major reforms
of the U.S. health care system. In response to new or revised laws, regulations
or interpretations, we could be required to revise the structure of our legal
arrangements or the structure of our fees, incur substantial legal fees, fines
or other costs, or curtail our business activities, reducing the potential
profit to us of some of our legal arrangements, any of which may have a
material adverse effect on our business, financial condition and results of
operations.
The following is a summary of some of the health care regulatory issues
affecting us, our affiliated eye care providers and our respective operations.
Federal Law
Anti-Kickback Statute. The Federal anti-kickback statute prohibits the
knowing and willful solicitation, receipt, offer or payment of any direct or
indirect remuneration in return for the referral of patients or the ordering or
purchasing of items or services payable under Medicare, Medicaid or other
federal health care programs. Violations of this statute may result in criminal
penalties, including imprisonment or criminal fines of up to $25,000 per
violation, civil penalties of up to $50,000 per violation, and exclusion from
federal programs including Medicare or Medicaid.
The Federal anti-kickback statute contains a number of exceptions. In order
to address the problems created by the broad language of the statute, Congress
directed the Department of Health and Human Services to develop regulations,
known as safe harbors, to the Federal anti-kickback statute. However,
relationships for which there is no safe harbor protection and relationships
that do not meet the prescribed safe harbor standards do not necessarily
violate the statute.
We believe our operations comply in all material respects with the Federal
anti-kickback statute. However, some aspects of our business, the business of
our affiliated providers, and our relationships with our affiliated providers
either do not meet the prescribed safe harbor standards, or relate to practices
for which no safe harbor standards have been proposed. These include:
. interests in us held by affiliated eye care professionals through stock
ownership and promissory notes made by us
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<PAGE>
. marketing and managed care services provided to our affiliated professional
entities, where our services revenue is based, in part, on the revenue or
profit that is generated from these entities
. if we are deemed a provider of health care services, through our surgery and
laser centers or otherwise, referrals of patients to us from our affiliated
eye care professionals that own shares in us
. our role as an optical products purchasing organization
. compensation relationships between our affiliated ophthalmologists and
optometrists and their affiliated professional entities
. referrals between one of our affiliated professional entities and an entity
with which that professional entity has a financial relationship, including,
for example, for the rental of office equipment or space
. referrals among our affiliated professional entities
. co-management relationships of our affiliated providers, which could be
interpreted as an agreement between ophthalmologists and optometrists to
refer patients to one another
The federal agency responsible for interpreting and enforcing this statute
has stated that if ophthalmologists and optometrists engage in agreements to
refer, they may be violating the anti-kickback statute. Vision correction
surgery is not reimbursable by Medicare, Medicaid or other federal programs,
and thus the Federal anti-kickback laws do not generally apply to our
activities, and the activities of our affiliated eye care professionals, in the
areas of vision correction surgery. However, this agency also has taken the
position that this statute applies to non-Medicare or Medicaid covered
services, if the arrangement has an impact on referral patterns for services
covered by Medicare or Medicaid. Further, we and our affiliated eye care
professionals are subject to state anti-kickback laws that are similar in
nature.
No safe harbor currently exists to protect co-management relationships
between providers. We believe, however, that these arrangements comply in all
material respects with the Federal anti-kickback laws because our affiliated
eye care professionals are paid solely for the services they perform and these
payments reflect the fair market value of the services each eye care
professional offers each patient. In addition, approximately six years ago, a
safe harbor was proposed for "referral agreements for specialty services."
While we believe that the co-management relationships of our affiliated eye
care providers would satisfy the requirements of this proposed safe harbor, we
cannot predict when, if ever, the final regulations will be published, whether
they will differ from the proposal or whether they will apply to the co-
management relationships of our affiliated ophthalmologists and optometrists.
Self-Referral Law. Subject to limited exceptions, the Federal self-referral
law, known as the "Stark Law," prohibits physicians and optometrists from
referring their Medicare or Medicaid patients for the provision of "designated
health services" to any entity with which they or their immediate family
members have a financial relationship. "Financial relationships" include both
compensation and ownership relationships. "Designated health services" include
clinical laboratory services, radiology and ultrasound services, durable
medical equipment and supplies, and prosthetics, orthotics and prosthetic
devices, as well as seven other categories of services. We do not provide
"designated health services." Our affiliated providers, however, do provide
limited categories of designated health services, specifically, ultrasound
services, including A-scans and B-scans, and prosthetic devices, including
eyeglasses and contact lenses furnished to patients following cataract surgery.
Violating the Stark Law may result in denial of payment for the designated
health services performed, civil fines of up to $15,000 for each service
provided pursuant to a prohibited referral, a fine of up to $100,000 for
participation in a circumvention scheme, and exclusion from the Medicare,
Medicaid and other Federal health care programs. The Stark Law is a strict
liability statute. Any referral made where a financial relationship exists that
fails to meet an exception constitutes a violation of the law.
We do not believe that our operations are subject to the Stark Law.
Specifically, with respect to referrals from our affiliated eye care
professionals to us, including to our eye surgery and laser centers, we believe
the Stark Law is not implicated. The
45
<PAGE>
Stark Law's list of designated health services does not include services
rendered by ambulatory surgery centers, including our eye surgery and laser
centers.
To the extent that our affiliated eye care professionals provide designated
health services to Medicare and Medicaid beneficiaries, or make or receive
Medicare or Medicaid referrals for these services, the Stark Law could be
implicated. It is our understanding that our affiliated eye care professionals
have structured their operations and compensation arrangements to comply with
the Stark Law, although we cannot assure you of this compliance. Specifically,
we believe that the referral by our affiliated eye care professionals to the
retail outlets owned by their affiliated professional entities qualify for the
in-office ancillary services exception to the Stark Law which applies to
designated health services that are:
. furnished by or under the direct supervision of a member of a physician
group practice;
. provided in the same building in which group practice physicians furnish
physician services or in a building used by the group for the
centralized provision of designated health services; and
. billed under a group practice billing number.
Moreover, we also believe that our affiliated eye care professionals'
provision of designated health services, including A-scans and B-scans, also
qualifies for the in-office ancillary services exception.
In January 1998, the government promulgated proposed rules interpreting
provisions of the Stark Law. Because the proposed rules leave many ambiguities,
it is likely that the final regulations will differ somewhat from the proposal.
We believe that our affiliated professional entities have structured their
arrangements in accordance with the proposed regulations. We do not intend to
expand our business to include the provision of designated health services, and
we believe that our affiliated professional entities do not intend to provide
designated health services unless an exception to the Stark Law applies.
Nevertheless, we cannot predict whether our affiliated professional entities
will be affected once final regulations pursuant to the Stark Law are
published.
Civil False Claims Act. The Federal Civil False Claims Act prohibits
knowingly presenting or causing to be presented any false or fraudulent claim
for payment by the government, or using any false or fraudulent record in order
to have a false or fraudulent claim paid. Violations of the law may result in
repayment of three times the damages suffered by the government and penalties
from $5,000 to $10,000 per false claim. Collateral consequences of a violation
of the False Claims Act include administrative penalties and possible exclusion
from participation in Medicare, Medicaid and other federal health care
programs.
State Law
Anti-Kickback Laws. In addition to the Federal anti-kickback law, a number
of states have enacted laws which prohibit the payment for referrals and other
types of anti-kickback arrangements. These state laws typically apply to all
patients regardless of their source of payment. We believe that our operations
comply in all material respects with the anti-kickback laws of the states in
which we operate.
Self-Referral Laws. In addition to the Federal Stark Law, a number of states
have enacted laws which require disclosure of or prohibit referrals by health
care providers to entities in which the providers have an investment interest
or compensation relationship. In some states, these restrictions apply
regardless of the patient's source of payment. We believe that our operations
comply in all material respects with the self-referral laws of the states in
which we operate.
Corporate Practice of Medicine Laws. A number of states have enacted laws
which prohibit the corporate practice of medicine. These laws are designed to
prevent interference in the medical decision-making process from anyone who is
not a licensed physician. Many states have similar restrictions in connection
with the practice of optometry. Application of the corporate practice of
medicine prohibition varies from state-to-state. The following states where we
operate bar the corporate practice of medicine: Illinois, Indiana and Kansas.
In each of these states, a business corporation may not employ physicians or
provide medical services. Because we neither employ physicians nor provide
medical services, we believe that we comply in all material respects with the
corporate practice of medicine laws in these states. Our arrangements
46
<PAGE>
with affiliated professional entities expressly limit our duties to provide
management, administrative and business services to those that are necessary or
appropriate for the day-to-day administration of the non-medical aspects of the
affiliated professional entities. Our affiliated eye care professionals retain
complete authority, responsibility, supervision and control over the provision
of all medical and other professional healthcare services and are solely
responsible for providing or supervising the provision of these services.
However, because the corporate practice of medicine doctrine has been seldom
enforced or litigated in the states where we do business, the precise
parameters of the doctrine have not been defined, particularly in terms of the
management responsibilities that may be delegated to a company that provides
management services. Because of this, to the extent any act or service to be
performed by us is construed by a court or enforcement agency to constitute the
practice of medicine, our service agreements provide that our obligations to
perform the act or service is waived. While we believe that we have structured
our relationships with eye care professionals so that they comply, in all
material respects, with applicable corporate practice of medicine restrictions,
we cannot be sure that a particular state court or enforcement agency may not
take a contrary view. In this case, we may be required to redesign or
reformulate our relationships with our affiliated eye care professionals and
there is a possibility that some provisions of our service agreements may not
be enforceable.
Fee-Splitting Laws. The laws of some states prohibit providers from dividing
with anyone, other than providers who are part of the same group practice, any
fee, commission, rebate or other form of compensation for any services not
actually and personally rendered. Penalties for violating these fee-splitting
statutes or regulations may include revocation, suspension or probation of a
provider's license, or other disciplinary action. In addition, courts have
refused to enforce contracts found to violate state fee splitting prohibitions.
Four of the states where we currently do business prohibit some form of fee
splitting: Illinois, Kansas, Kentucky and Virginia. The precise language and
judicial interpretation of fee splitting prohibitions varies from state to
state. Courts in some states have interpreted fee splitting statutes to
prohibit all percentage of gross revenue and percentage of net profit
management fee arrangements. Other state statutes apply only to prohibit fee
splitting in return for referrals.
Our management fee arrangements differ from those invalidated as unlawful
fee splits because they establish a flat monthly fee that is subject to
adjustment based on the degree to which actual practice revenues or expenses
vary from budget. However, there is some risk that our arrangements could be
construed by a state court or enforcement agency to run afoul of state fee
splitting prohibitions. Accordingly, all of our service agreements contain
either a reformation provision or a mechanism establishing an alternative fee
structure, or both.
Fee splitting statutes are also the focus of ongoing litigation in states
where we do not currently conduct business. For example, litigation is pending
in Florida and North Carolina concerning the validity of a percentage fee paid
to a management company which conducts marketing services on behalf of a group
of doctors. In connection with this litigation, the state agencies are taking
the approach that these percentage arrangements violate the state's fee
splitting laws. Accordingly, as we expand into additional states, we may need
to amend or restrict various operations in order to ensure compliance with
applicable state laws, rules and regulations.
Facility Licensure and Certificate of Need. We may be required to obtain
licenses from the state departments of health in states where we open or
acquire eye surgery and laser centers. We believe that we have obtained the
necessary licenses in states where licenses are required. However, we believe
courts and state regulatory authorities generally have provided little
clarification as to some of the regulations governing licensure requirements.
It is possible that a state regulatory authority could challenge our position.
With respect to future expansion, we cannot assure you that we will be able to
obtain the required licenses. However, we have no reason to believe that, in
states requiring facility licenses, we will be not able to obtain this license
without unreasonable expense or delay.
Some states require a Certificate of Need, or CON, prior to the construction
or modification of an
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<PAGE>
ambulatory surgery center, including, for example, our eye surgery and laser
centers, or the purchase of specified medical equipment in excess of an amount
set by the state. We believe that we have obtained the necessary CONs in states
where a CON is required. However, we believe courts and state regulatory
authorities generally have provided little clarification as to some of the
regulations governing the need for CONs. It is possible that a state regulatory
authority could challenge our determination. With respect to future expansion,
we cannot assure you that we will be able to acquire a CON in all states where
a CON is required.
Insurance Provisions. Many states also regulate the establishment of various
healthcare provider networks. These laws do not typically affect providers of
business and administrative services to professional entities. We are aware,
however, of some state insurance regulations requiring organizations involved
in specified types of contracting arrangements to register with the state
department of insurance and purchase surety bonds. It also is possible that a
state could require our licensure as a provider network or organization, health
maintenance organization or insurer. However, as long as another entity in the
chain of contracts is licensed by the state department of insurance, we believe
that we are unlikely to be viewed by any state where we do business as
requiring a license from the department. Because NovaMed does not enter into
any capitated or other risk-sharing contract without an HMO or other licensed
entity in the chain of contracts, we believe that we are not required to be
licensed under the insurance provisions of any states in which we currently
operate. However, we believe courts and state regulatory authorities generally
have provided little clarification as to some of the regulations governing the
need for licensure. It is possible that a state regulatory authority could
challenge our determination. We cannot assure you that we will be able to
acquire an insurance license in all states where licensure is required.
However, we have no reason to believe that in those states that require an
insurance or other license, we will not be able to obtain one.
Excimer Laser Regulation
Medical devices, including the excimer lasers used in our eye surgery and
laser centers, are subject to regulation by the U.S. Food and Drug
Administration, referred to as the FDA. Medical devices may not be marketed for
commercial sale in the U.S. until the FDA grants pre-market approval for the
device.
The FDA has not specifically approved the use of LASIK or the use of excimer
lasers to treat both eyes on the same day, commonly referred to as bilateral
treatment. The FDA considers these uses to be a practice of medicine decision.
Ophthalmologists, including our affiliated ophthalmologists, often perform
LASIK and bilateral treatment in an exercise of professional judgment in
connection with the practice of medicine.
Failure to comply with applicable FDA requirements could subject us, our
affiliated providers or laser manufacturers to enforcement action, product
seizures, recalls, withdrawal of approvals and civil and criminal penalties.
Further, failure to comply with regulatory requirements, or any adverse
regulatory action, including a reversal of the FDA's current position that the
"off-label," or non-FDA-approved, use of excimer lasers by physicians outside
the FDA approved guidelines is a practice of medicine decision, which the FDA
is not authorized to regulate, could result in a limitation on or prohibition
of our use of excimer lasers.
Regulation of Laser Vision Correction Marketing
The marketing and promotion of laser vision correction and other vision
correction surgery procedures in the U.S. are subject to regulation by the FDA
and the Federal Trade Commission, referred to as the FTC. The FDA and FTC have
released a joint communique on the requirements for marketing these procedures
in compliance with the laws administered by both agencies. The FTC staff also
issued more detailed staff guidance on the marketing and promotion of these
procedures and has been monitoring marketing activities in this area through a
non-public inquiry to identify areas that may require further FTC attention.
The FDA has traditionally taken the position that the promotion and advertising
of lasers by manufacturers and physicians should be limited to the uses
approved by the FDA. Although the FDA does not prevent surgeons from using
excimer lasers off-label, the FDA reserves the right to regulate advertising
and promotion of off-label uses.
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<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table contains information with respect to our directors,
executive officers and key employees:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Stephen J.
Winjum 36 President, Chief Executive Officer and Chairman of the Board of Directors
Ronald G.
Eidell 55 Executive Vice President and Chief Financial Officer
E. Michele
Vickery 44 Executive Vice President Operations
J. Gary
Jordan 52 Senior Vice President Sales
Robert A.
Wallach 41 Senior Vice President Marketing
John D.
Hunkeler,
M.D. 57 Medical Director and Director
R. Judd
Jessup 51 Director
Scott H.
Kirk,
M.D. 46 Director
Steven V.
Napolitano 40 Director
James B.
Tananbaum 36 Director
Peter C.
Wendell 49 Director
Douglas P.
Williams,
M.D. 41 Director
</TABLE>
Stephen J. Winjum, our founder, has been our President and Chief Executive
Officer and a member of our board of directors since NovaMed's formation in
March 1995. In May 1998, the board of directors established the position of
Chairman, and Mr. Winjum has served in that capacity ever since. From 1991
through 1994, Mr. Winjum was general counsel to Midwest Uncuts, Inc., a
national, full-service, wholesale optical laboratory. Prior to being general
counsel for Midwest Uncuts, Mr. Winjum co-founded Midwest Uncuts Chicago, an
optical company affiliated with Midwest Uncuts, and was its President and Chief
Executive Officer for approximately 18 months. Mr. Winjum earned his J.D., cum
laude, from the University of Notre Dame Law School in 1988, and his B.S.B.A.,
cum laude, in Accounting from Creighton University in 1985.
Ronald G. Eidell has been our Executive Vice President and Chief Financial
Officer since July 1998. From January 1996 to May 1998, Mr. Eidell was Senior
Vice President and Chief Financial Officer of Metromail Corporation, a provider
of information and technology products and services to direct marketing firms.
From June 1988 to December 1995, Mr. Eidell worked at R.R. Donnelley & Sons
Co., an international commercial printing company, where he was that company's
Senior Vice President, Finance and Treasurer from January 1991 to December
1995, and a Vice President from June 1988 through December 1990. Mr. Eidell
earned his M.B.A. from the University of Chicago in 1982 and his B.S. in
Business Administration from Drexel University in 1967.
E. Michele Vickery has been our Executive Vice President Operations since
March 1997. From 1990 to 1996, Ms. Vickery was employed by Surgical Care
Affiliates (SCA), a company specializing in the management of outpatient
surgery centers, as a Regional Vice President from 1990 until 1992, and as one
of two Senior Vice Presidents of Operations from 1992 to 1996. Upon the
acquisition of SCA by HealthSouth in 1996, Ms. Vickery continued as a Senior
Vice President of the Surgery Division of HealthSouth until joining us. Ms.
Vickery received her B.S.N. from Case Western Reserve University in 1978, and
her B.A. from Wittenberg University in 1976.
J. Gary Jordan joined us in April 1999 as our Senior Vice President Sales,
responsible for our sales organization and oversight of some of our development
activities. Prior to joining us, Mr. Jordan was President of the Cardiology
Division of the Cordis Corporation, a subsidiary of Johnson & Johnson, from
January 1997 to August 1998. In that capacity, he managed U.S. sales and
marketing,
49
<PAGE>
worldwide finance, information technology, quality assurance and human
resources. From July 1996 to December 1996, he was Cordis Corporation's Vice
President Sales and Marketing. From 1990 to 1996, Mr. Jordan was Vice President
of worldwide sales and marketing for St. Jude Medical where he directed
marketing and sales for St. Jude's heart valve division. Mr. Jordan earned his
B.A. from the University of Georgia in 1970.
Robert A. Wallach joined us in April 1999 as our Senior Vice President
Marketing, responsible for the overall strategy and field execution of our
marketing programs. Prior to joining us, Mr. Wallach was vice president of
global marketing for Clean Shower, L.P., a consumer products company. From 1997
to 1998, Mr. Wallach was a vice president of marketing for Nabisco. From 1992
through 1997, Mr. Wallach was vice president of marketing for the Dannon
Company. Mr. Wallach has served on a number of industry association boards and
has recently been elected to the Board of Directors of the American Marketing
Association. Mr. Wallach earned his M.B.A. in marketing from Columbia
University in 1984, and his B.A., magna cum laude, from the State University of
New York at Albany in 1979.
John D. Hunkeler, M.D. is our Medical Director and has been a member of our
board of directors since January 1997. He is currently a director of Premier
Laser Systems, Inc., a company that designs, manufactures and sells lasers and
diagnostic equipment for dental, surgical and ophthalmic procedures. Dr.
Hunkeler is the founder and Medical Director of the Hunkeler Eye Centers and
has been practicing ophthalmology in the Kansas City area since 1973. In
October 1996, he was honored by the Ophthalmology Times as one of the top 100
ophthalmologists in the nation. Dr. Hunkeler is a Clinical Professor and Chair
of the Department of Ophthalmology at the University of Kansas School of
Medicine. He is certified by the American Board of Ophthalmology and is a past
president of the American Society for Cataract & Refractive Surgery. Dr.
Hunkeler earned his M.D. from the University of Kansas School of Medicine in
1967, served his internship at the Los Angeles County Hospital in Los Angeles,
California and completed his residency at the University of Kansas School of
Medicine in 1973.
R. Judd Jessup has been a member of our board of directors since November
1998. He is currently a director of CorVel Corporation, an independent
nationwide provider of medical cost containment and managed care services. Mr.
Jessup is currently a private investor. From 1994 to 1996 he served as
President of the HMO Division of FHP International Corporation, a diversified
health care services company. From 1987 to 1994, Mr. Jessup served as President
of Take Care, Inc., a multi-state HMO which was acquired by FHP International
Corporation in 1994. Mr. Jessup earned his M.B.A. from the University of Denver
in 1971, and his B.A. from Knox College in 1969.
Scott H. Kirk, M.D. has been a member of our board of directors since August
1995. Dr. Kirk has practiced ophthalmology in the Chicago area since 1982, and
has been the Medical Director at Kirk Eye Center in River Forest, Illinois
since 1987. Dr. Kirk is an assistant clinical professor at the University of
Illinois and is on the medical staff at West Suburban Hospital, Oak Park
Hospital and Gottleib Memorial Hospital. Dr. Kirk has served as a site surveyor
for the AAAHC since 1991 and is a current member of the AAAHC Board of
Directors. Dr. Kirk is certified by the American Board of Ophthalmology and is
a Fellow of the American Academy of Ophthalmology. Dr. Kirk is also a director
of the Outpatient Ophthalmology Surgical Society. Dr. Kirk earned his M.D. from
Washington University Medical School in 1978 and completed his residency there
in 1982.
Steven V. Napolitano has been a member of our board of directors since
January 1997. Mr. Napolitano is a senior partner in the law firm of Katten
Muchin & Zavis where he has practiced since 1995. He is a member of the firm's
Board of Directors and is also a co-chair of the firm's Private Equity and
Emerging Growth Company practice group. Mr. Napolitano practiced law in Chicago
with the firm of Dickinson, Wright, Moon, Van Dusen & Freeman from May 1991
through March 1995 and with Kirkland & Ellis from September 1985 through April
1991. He earned his J.D. from the Boston University School of Law, as a G.
Joseph Tauro Scholar, in 1985, and his B.A. in Economics from the University of
Notre Dame in 1981.
James B. Tananbaum has been a member of our board of directors since January
1997. Mr. Tananbaum has been President and Chief Executive Officer of Advanced
Medicine Inc., a private pharmaceutical research company since November 1996.
Mr. Tananbaum was a co-founder of GelTex Pharmaceuticals Inc., where he was a
director until January 1997. He has also served as a director of Intensiva
HealthCare Corporation and was a
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founding investor in Healtheon, Inc. From 1994 to 1996, he was a partner in
Sierra Ventures, a Menlo Park, California venture capital fund. Prior to
joining Sierra Ventures, Mr. Tananbaum was with Merck & Company, Inc., an
international pharmaceuticals company, where he served in a variety of line
operating management positions. Mr. Tananbaum earned his M.B.A. from Harvard
Business School in 1991, his M.D. from Harvard Medical School in 1989 and his
B.S.E.E. and B.S. degrees from Yale University in 1984.
Peter C. Wendell has been a member of our board of directors since March
1999. Mr. Wendell is the founder, and has been a General Partner, of Sierra
Ventures, a Menlo Park, California venture capital fund since 1982. He teaches
at Stanford University's Graduate School of Business, where he holds a faculty
appointment. In addition, Mr. Wendell is on the Board of Directors of the
Princeton University Investment Company which is responsible for the Princeton
endowment. He also serves as a director of Fatbrain.Com, Inc., an online
retailer of information resources, a position he has served in since September
1996. Previously, Mr. Wendell has worked in a variety of executive management
positions for IBM and has worked for McKinsey & Company management consultants.
Mr. Wendell earned his M.B.A., with distinction, from Harvard Business School
in 1976, and his B.A., magna cum laude, from Princeton University in 1972.
Douglas P. Williams, M.D. has been a member of our board of directors since
August 1995. Dr. Williams has been practicing ophthalmology at the Brodersen-
Williams Eye Institute, P.C. in Hammond, Indiana since July 1987. He is
certified by the American Board of Ophthalmology and is a member of the
American Society of Cataract and Refractive Surgery and the American College of
Eye Surgeons. Dr. Williams earned his M.D., A.O.A. from the University of
Chicago in 1983. He completed his residency at the University of Illinois Eye
and Ear Infirmary of Chicago in 1987.
Board of Directors
Our board of directors consists of eight directors. Following this offering,
the board of directors will be divided into three classes, with each class
serving for a term of three years. At each annual meeting of stockholders,
successors to those directors whose terms are expiring will be elected by our
stockholders. Directors whose terms will expire in 2000 are: Messrs. Winjum and
Wendell; directors whose terms will expire in 2001 are: Drs. Hunkeler and Kirk
and Mr. Tananbaum; directors whose terms will expire in 2002 are: Messrs.
Jessup and Napolitano and Dr. Williams.
Committees of the Board of Directors
Our audit committee recommends to our entire board of directors the
independent public accountants to be engaged by us, reviews the plan and scope
of our annual audit and reviews our internal controls and financial management
policies with our independent public accountants. The members of our audit
committee are Messrs. Jessup and Tananbaum.
Our compensation committee establishes guidelines and standards relating to
the determination of executive compensation, reviews executive compensation
policies and recommends to our entire board of directors compensation for our
executive officers. Our compensation committee also administers our stock
option and incentive award plans and determines the number of shares covered
by, and terms of, options to be granted to executive officers and key employees
pursuant to these plans. The members of our compensation committee are Messrs.
Jessup and Tananbaum.
Director Compensation
Except for grants of options to purchase our common stock granted upon the
initial election of some of our directors to our board of directors, our
directors do not receive compensation for serving as directors, attending or
participating in meetings or for serving on committees or participating in
committee meetings.
Compensation Committee Interlocks and Insider Participation
Our compensation committee currently consists of Messrs. Jessup and
Tananbaum. Neither member of the compensation committee has been an officer or
employee of us at any time. None of our executive officers serves as a member
of the board of directors or compensation committee of any other company that
has one or more executive officers
51
<PAGE>
Option Grants in 1998
serving as a member of our board of directors or compensation committee. Prior
to the formation of the compensation committee in May 1999, the board of
directors as a whole made decisions relating to compensation of our executive
officers. Mr. Winjum participated in all of these discussions and decisions,
except those regarding his own compensation.
Executive Compensation
The following table contains information with respect to all compensation
paid by us to our chief executive officer and our two other most highly
compensated executive officers in 1998. We employed no other executive officers
as of December 31, 1998. The $31,203 listed as Mr. Winjum's "Other Annual
Compensation" for 1998, is comprised of $22,203 paid to Mr. Winjum for accrued
but unused vacation in accordance with our established employee benefits policy
and a $9,000 annual allowance for automobile expense. The amounts relating to
Mr. Eidell reflect his compensation for the partial year commencing July 7,
1998, the date Mr. Eidell joined us.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation Awards
----------------------------- ------------------------------
Restricted Securities
Other Annual Stock Underlying LTIP All Other
Year Salary Bonus Compensation Award(s) Options/SARs Payout Compensation
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stephen J. Winjum....... 1998 $200,000 $75,000 $31,203 -- 50,000 -- --
Chairman of the Board,
President and Chief
Executive Officer
E. Michele Vickery...... 1998 $175,000 $40,000 -- -- 24,000 -- --
Executive Vice
President Operations
Ronald G. Eidell........ 1998 $ 80,096 $20,000 -- -- 250,000 -- --
Executive Vice
President and Chief
Financial Officer
</TABLE>
The following table contains information concerning our grant of stock
options to our chief executive officer and our two other most highly
compensated executive officers in 1998. Potential realizable value is presented
net of the option exercise price, but before any Federal or state income taxes
associated with exercise, and is calculated assuming that the fair market value
on the date of the grant appreciates at the indicated annual rates, compounded
annually, for the term of the option. The 5% and 10% assumed rates of
appreciation are mandated by the rules of the SEC and do not represent our
estimate or projection of future increases in the price of our common stock.
Actual gains will depend on the future performance of our common stock and the
option holder's continued employment throughout the vesting period. The amounts
reflected in the following table may not be achieved.
<TABLE>
<CAPTION>
Potential
Realizable Value at
Assumed Annual
Number of Percent of Rates of Stock
Shares Total Options Price Appreciation
Underlying Granted to Per Share for Option Term
Options Employees in Exercise or Expiration -------------------
Name Granted Fiscal Year Base Price Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Stephen J. Winjum....... 50,000 4.4% $3.50 2/01/2008 $110,100 $ 278,900
E. Michele Vickery...... 24,000 2.1% $3.50 2/01/2008 $ 52,800 $ 133,900
Ronald G. Eidell........ 250,000 22.1% $4.00 7/07/2008 $628,895 $1,593,742
</TABLE>
52
<PAGE>
1998 Option Values
The following table contains information regarding unexercised options held
by our chief executive officer and two other most highly compensated executive
officers at December 31, 1998. None of these individuals exercised any options
during 1998. The value of "in-the-money" options represents the difference
between the exercise price of an option and the fair market value of our common
stock as of December 31, 1998, which, solely for purposes of this calculation,
we estimate to have been $4.38 per share.
<TABLE>
<CAPTION>
Number of Shares
Underlying Unexercised Value of Unexercised
Options at December 31, In-The-Money Options at
1998 December 31, 1998
------------------------- -------------------------
Exercisable/Unexercisable Exercisable/Unexercisable
<S> <C> <C>
Stephen J. Winjum........... 585,834/404,166 $1,598,909/$946,291
E. Michele Vickery.......... 92,500/131,500 $195,150/$261,970
Ronald G. Eidell............ -- /250,000 $ -- /$ 95,000
</TABLE>
Employment Agreements
We have entered into employment agreements with Messrs. Winjum and Eidell
and Ms. Vickery that provide for current annual base salaries of $250,000,
$200,000, and $200,000, respectively. These executives are eligible to receive
an annual incentive compensation award based upon our executive compensation
plan which was effective January 1, 1999 and which was approved by our board of
directors. Incentive amounts payable under the plan for a year are based upon
relative achievement of earnings targets set by the board of directors at the
beginning of that year. Incentive compensation amounts are determined by
applying a percentage to the executive's salary. This percentage is determined
by reference to the level of actual earnings achievement compared to the
target. Achievement of targeted earnings levels will result in payments ranging
from 20% to 50% of the executive's salary. The agreements also provide for the
right to participate in our stock option plan and employee benefit programs.
These programs include hospitalization, disability, life and health insurance.
The employment agreements have initial terms of three years that automatically
renew on a year-to-year basis, unless either of us chooses to terminate the
agreement. The employment agreements impose on each employee non-competition
restrictions that survive termination of employment for one year and post-
termination confidentiality obligations. Each of these executives received
option grants as consideration for entering into these agreements.
We may terminate these agreements with or without cause or upon executive's
disability. If we terminate an executive for disability or cause, the executive
is not entitled to receive any salary or other severance after the date of
termination. We may terminate an executive for cause under the agreement if he
or she:
. materially breaches any term or condition of the agreement
. is grossly negligent in the performance of his or her duties
. fails to comply with any of our written guidelines that we have
furnished to the executive
. has committed an act that materially, negatively affects our business or
reputation, as reasonably determined by our board of directors
. has committed an act constituting a felony or other act involving
dishonesty, disloyalty or fraud against us, as reasonably determined by
our board of directors
If we terminate an executive without cause, the executive receives severance
compensation in a fixed amount equal to the executive's then-current base
salary and pro rata bonus for a period ranging from six to 18 months.
Limitation of Liability and Indemnification Matters
Our Restated Certificate of Incorporation contains provisions that eliminate
the personal liability of our directors to us or our stockholders for monetary
damages for breach of their fiduciary duty as a director to the fullest extent
permitted by the Delaware General Corporation Law, except for liability for:
53
<PAGE>
. any breach of their duty of loyalty to us or our stockholders
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law
. unlawful payments of dividends or unlawful stock repurchases or
redemptions
. any transaction from which the director derived an improper personal
benefit
Our Restated Certificate of Incorporation also contains provisions that
require us to indemnify our directors and that permit us to indemnify our
officers and employees to the fullest extent permitted by Delaware law,
including circumstances where indemnification would be discretionary. We are
not obligated to indemnify a person:
. with respect to proceedings, claims or actions initiated or brought
voluntarily by the person and not by way of defense
. for any amounts paid in settlement of an action indemnified against by us
without our prior written consent
We have obtained directors' and officers' liability insurance and have
entered into indemnity agreements with each of our directors and some of our
officers providing for this indemnification. We believe these measures are
essential to attracting and retaining qualified persons as directors and
officers.
1996 Stock Incentive Plan
In December 1996, we adopted the establishment of our 1996 Stock Incentive
Plan which is designed to promote our overall financial objectives by
motivating directors, officers, employees and other persons who are
instrumental to our long-term growth.
The 1996 plan is administered by the compensation committee of our board of
directors and is a flexible program that provides the Committee with broad
discretion to fashion the terms of grants of options as the compensation
committee deems appropriate. The plan currently permits the issuance of
nonstatutory stock options for the purchase of up to an additional 5,898,288
shares of common stock.
Directors, officers, employees, independent contractors and consultants who
are in a position to make contributions to our growth, management, protection
and success are eligible for selection by the compensation committee as
participants in the 1996 plan. Subject to the terms of the specific option
agreement, and with the exception of 1,075,800 options granted during the
period from February 1, 1999 through July 23, 1999, each option to purchase
common stock issued under our 1996 plan will become exercisable in stages
beginning six months after its grant date, when 1/8th of the participant's
options will become exercisable. An additional 1/48th of each of these options
will become exercisable as of the last day of each month thereafter. As a
result, each option will be exercisable in full 48 months after its grant date.
During July 1999, we fully vested all options granted to employees from
February 1, 1999 through July 23, 1999, contingent upon the completion of this
offering. We issued to employees options to acquire 1,075,800 shares of common
stock during this time period. In connection with the acceleration of these
options, each affected employee will be required to execute a lock-up agreement
with Donaldson, Lufkin & Jenrette that will restrict his or her ability to sell
shares received upon exercise of these options. The terms of these lock-up
agreements will restrict the affected employees from selling these shares for a
period of one year from the date of the final prospectus, and also place volume
limitations on the amount of shares that can be sold during the second and
third years following the date of the final prospectus.
We have also issued options to purchase common stock under the 1996 plan to
some of our affiliated eye care professionals. These options were purchased at
their fair market value based upon the Black-Scholes option-pricing model.
Retirement Plan
We have adopted a retirement savings plan covering most of our employees
provided they are 21 and have been working for us for the requisite length of
time. This retirement plan is intended to qualify under Sections 401(a) and
401(k) of the Internal Revenue Code.
Under terms of this plan, participants may elect to contribute up to 15% of
their annual compensation, subject to limitations under the Internal Revenue
Code, to the plan. In addition, we
54
<PAGE>
match 50% of a participant's contributions on the first 3% of salary
contributed by a participant to the plan.
These contributions are fully vested, except that our matching contributions
vest over time, fully vesting after five years of service. Benefits under this
plan are usually distributed through either a lump sum or installments
following retirement, death, disability or other termination of employment.
Benefits are sometimes distributed prior to termination of employment in
limited circumstances, including, for example, hardship and attainment of age
59 1/2.
1999 Stock Purchase Plan
In May 1999, our board of directors adopted an employee stock purchase plan
under which we reserved a total of 400,000 shares of our common stock for
purchase by our employees. We anticipate that this plan will be submitted to a
vote of our stockholders at our next annual meeting. Our compensation committee
administers the stock purchase plan. Employees are eligible to participate in
the stock purchase plan if they are employed by us and otherwise satisfy the
terms of the plan. The stock purchase plan will permit our eligible employees
to purchase our common stock through payroll deductions.
The stock purchase plan will operate on a calendar year basis. The stock
purchase plan will be implemented in a series of consecutive offering periods,
each approximately six months long, with the first offering period expected to
commence on the first trading day after September 30, 1999. The purchase price
per share at which shares are sold in an offering under the stock purchase plan
is expected to be 85% of the lesser of the fair market value of our stock on
the first day of the offering period, and the fair market value of our stock on
the last day of the offering period. Employees may end or modify their
participation in the stock purchase plan at any time during an offering period.
Participation ends automatically upon termination of employment. Payroll
deductions may not exceed $20,000 for any employee in any offering period.
No person will be able to purchase our common stock under the stock purchase
plan if that person or his or her family members, immediately after the
purchase, would own or control greater than 5% of our voting stock.
55
<PAGE>
CERTAIN TRANSACTIONS
Acquisition of Midwest Uncuts, Inc.
Effective January 1, 1999, we acquired all of the issued and outstanding
shares of Midwest Uncuts, Inc. in exchange for $5,400,000 in cash and 250,000
shares of our Series A convertible preferred stock valued at $4.38 per share.
The stockholders were Mr. and Mrs. John P. Winjum, the parents of our Chairman
of the Board, President and Chief Executive Officer. The terms and conditions
of this transaction were approved by a special committee appointed by our
Board, consisting of two independent, disinterested members of the Board. Prior
to this acquisition, we had retained Midwest Uncuts to finish and surface
lenses on a purchase order basis on market terms. We made payments of
approximately $520,000, $820,000 and $982,000 pursuant to these purchase orders
during 1996, 1997 and 1998, respectively.
Midwest Uncuts is now our wholly-owned subsidiary. We entered into a lease
agreement with John P. Winjum relating to the real estate underlying the
Indianola, Iowa location of Midwest Uncuts. The lease is effective as of
January 1, 1999 and is for 9,500 square feet of space. The lease has a five
year term and requires us to pay $48,000 per year in base rent over the term of
the lease.
Repurchase of Series A Convertible Preferred Stock
On June 25, 1998, we made an offer to the holders of our Series A
convertible preferred stock to purchase up to 1,200,000 shares of this stock at
a purchase price of $4.38 per share. This offer was designed to provide these
stockholders with liquidity. Pursuant to this offer, we purchased 1,188,414
shares of our Series A convertible preferred stock from some of the holders at
a purchase price of $4.38 per share. Douglas Williams Family Limited
Partnership, one of our 5% stockholders, was among the holders of Series A
convertible preferred stock who participated in this offer by selling 420,000
shares. Douglas Williams, a member of our board of directors, is the general
partner of Douglas Williams Family Limited Partnership.
Acquisition of TRI-OC Management, Inc.
Effective May 1, 1996, we acquired substantially all of the assets of TRI-OC
Management, Inc., a company specializing in the provision of optical dispensary
management services in exchange for 96,000 shares of our common stock. TRI-OC
is owned by three stockholders, each of whom was associated in some manner with
us prior to completion of this acquisition. TRI-OC's stockholders include John
P. Winjum, the father of our Chairman of the Board, President and Chief
Executive Officer, and Robert C. Goettling, an existing stockholder and our
Vice President Corporate Development. The disinterested members of the Board
unanimously approved this acquisition.
Physician Loans
We have also made the following loans which have been repaid:
We loaned $300,000 to Douglas P. Williams, M.D., a physician employed by,
and a stockholder of, Brodersen-Williams Eye Institute, P.C., an affiliated
professional entity located in Hammond, Indiana. Dr. Williams is also a member
of our Board. Dr. Williams signed a secured promissory note payable upon our
demand and bearing an interest rate of 9% per annum.
We loaned $150,000 to Ann K. Williams, M.D., a physician employed by, and a
stockholder of, Brodersen-Williams Eye Institute, P.C. Dr. Williams signed a
secured promissory note payable upon our demand and bearing an interest rate of
9% per annum.
Leases from Our Affiliated Physicians
Effective January 1, 1996, we entered into a lease agreement with Eldi E.
Deschamps, M.D. and his wife to lease approximately 10,000 square feet of
surgery and laser center and eye care clinic space located in Merrillville,
Indiana. The lease has a five year term and requires us to pay between $118,000
to $133,000 per year in base rent over the term of the lease. Dr. Deschamps is
the beneficial owner of more than 5% of our common stock.
56
<PAGE>
Effective January 1, 1996, we entered into a lease agreement with First
Colonial Trust Company, as trustee on behalf of Scott H. Kirk, M.D. to lease
10,098 square feet of surgery and laser center and eye care clinic space
located in River Forest, Illinois. The lease has a five year term and requires
us to pay between $165,000 to $186,000 per year in base rent over the term of
the lease. Dr. Kirk is one of our directors.
Effective January 1, 1996, we entered into a lease agreement with Mercantile
National Bank of Indiana, as trustee on behalf of Douglas P. Williams, M.D. to
lease 11,500 square feet of surgery and laser center and eye care clinic space
in Hammond, Indiana. The lease has a five year term and requires us to pay
between $173,000 to $194,000 per year in base rent over the term of the lease.
Dr. Williams is one of our directors.
Purchase of Clinical Research Contracts
Effective July 1, 1999, we purchased clinical research assets including
clinical research sponsor agreements from Hunkeler Eye Centers, P.C., in
exchange for 75,000 shares of our common stock. Hunkeler Eye Centers, P.C.'s
stockholders include John D. Hunkeler, M.D., our Medical Director and a member
of our board of directors.
Other Relationships with Affiliated Physicians
Scott H. Kirk, M.D., a member of our board of directors, is an
ophthalmologist employed by Hunkeler Eye Centers-Chicago, L.L.C., a
professional entity whose eye care professionals have been affiliated with us
since January, 1996. In 1996, 1997 and 1998, we recognized management services
revenue of approximately $3,151,000, $2,959,000, $3,034,000, respectively, from
the professional entity employing Dr. Kirk over this period. As described
above, we also lease office space from an entity affiliated with Dr. Kirk. Dr.
Kirk's brother, Kent H. Kirk, M.D., one of our shareholders, is also an
ophthalmologist employed by Hunkeler Eye Centers--Chicago, L.L.C.
John D. Hunkeler, M.D., a member of our board of directors, is an
ophthalmologist employed by Hunkeler Eye Centers, P.C., a physician group
affiliated with us since March 1997. In March, 1997, we acquired all of the
capital stock of NovaMed Management of Kansas City, Inc. from eleven
individuals, including Dr. Hunkeler. Dr. Hunkeler received 657,486 shares of
our common stock in exchange for his interest in NovaMed Management of Kansas
City, Inc. In addition, during 1997 and 1998, we recognized management services
revenue of approximately $6,747,000 and $9,841,000, respectively, from Hunkeler
Eye Centers, P.C.
Douglas P. Williams, M.D., a member of our board of directors, is an
ophthalmologist employed by Hunkeler Eye Centers-Chicago, L.L.C., a
professional entity whose eye care professionals have been affiliated with us
since January, 1996. In 1996, 1997 and 1998, we recognized management services
revenue of $1,799,000, $1,832,000 and $1,925,000, respectively, from the
professional entity employing Dr. Williams over this period. As described
above, we also lease office space from an entity affiliated with Dr. Williams.
Eldi E. Deschamps, M.D., a 5% stockholder is an ophthalmologist employed by
Hunkeler Eye Centers--Chicago, L.L.C., a professional entity whose eye care
professionals have been affiliated with us since January, 1996. In 1996, 1997
and 1998, we recognized management services revenue of $926,000, $954,000 and
$887,000, respectively, from the professional entity employing Dr. Deschamps
over this period. As described above, we also lease office space from an entity
affiliated with Dr. Deschamps.
57
<PAGE>
SELLING STOCKHOLDERS
Some of the shares being sold are presently owned by existing stockholders.
These shares were acquired through conversions of our preferred stock upon
completion of this offering or through private placements pursuant to Section
4(2) of the Securities Act.
The following table contains information regarding beneficial ownership of
our common stock as of June 30, 1999 and as adjusted to reflect the sale of
each selling stockholder's common stock in this offering. The selling
stockholders have furnished this information to us, and this information is, to
the best of our knowledge, accurate.
<TABLE>
<CAPTION>
Options to
Beneficial Ownership Beneficial Ownership Purchase Shares
of Common Stock Number of Common Stock Included in
Prior to this Offering of After this Offering Beneficial
---------------------- Shares ---------------------- Ownership
Number of Percent of Being Number of Percent of Figures
Name Shares Voting Power Offered Shares(1) Voting Power ---------------
<S> <C> <C> <C> <C> <C> <C>
Timothy B. Cavanaugh 177,098 * 35,419 148,939 * --
Cavanaugh Investments,
LLC 17,123 * 3,425 13,698 * --
Clifton D. Cokingtin (1) 117,131 * 23,426 97,815 * --
Eldi E. Deschamps
Revocable Trust (2) 1,001,313 5.34% 300,000 701,313 2.83% --
Daniel S. Durrie 363,548 1.93% 117,156 272,105 1.09% 70,417
Walter I. Fried and Gail
S. Fried Family Limited
Partnership 628,000 3.35% 10,000 618,000 2.49% --
Godfrey Family Limited
Partnership 90,404 * 5,000 86,561 * --
Blake Horio 53,622 * 6,849 46,773 * 19,375
John D. Hunkeler
Revocable Trust (3) 859,055 4.57% 70,000 800,481 3.22% 64,583
Jemshed A. Khan (4) 152,626 * 30,525 124,572 * --
Illinois Eye
Specialists, Ltd. (5) -- -- 4,167 16,666 * --
Kirk Family Limited
Partnership (6) 2,620,000 13.98% 600,000 2,020,000 8.14% --
Andrew L. Moyes 93,803 * 10,000 86,908 * --
Northshore Eye
Surgicenter, Ltd. 460,300 2.46% 126,460 333,840 1.34% --
Robert A. Rymer Trust 45,662 * 19,613 27,299 * --
Kathleen M. Scarpulla
(7) 397,300 2.12% 79,460 317,840 1.28% --
Steven M. Silverstein
Revocable Trust 117,329 * 23,466 97,014 * --
Michael C. Stiles (8) 170,981 * 34,190 143,653 * --
Stephen Vile Limited
Partnership 350,000 1.87% 61,000 289,000 1.16% --
Vile Family Limited
Partnership 90,000 * 27,000 63,000 * --
Stephen C. Volk (9) 102,740 * 100,000 565,240 2.28% --
Daniel Weinberg 4,000 * 800 3,200 * --
Stephen B. Wiles 196,076 1.05% 39,215 161,022 * --
Douglas P. Williams
Family Limited
Partnership (10) 1,820,000 9.71% 300,000 1,520,000 6.12% --
Lawrence D. Wolin
Limited Partnership 464,000 2.48% 105,800 358,200 1.44% --
</TABLE>
- --------
* Less than 1%
(1) Includes the issuance of common stock in connection with the acquisition of
our clinical research business effective July 1, 1999. See "Certain
Transactions--Purchase of Clinical Research Contracts" and "Business--
Business Operations--Research."
(2) Includes 34,247 shares jointly held with Diana L. Cokington before the
offering and 10,821 shares held after the offering.
(3) The trustee for Eldi E. Deschamps Revocable Trust is Eldi E. Deschamps,
M.D., a 5% stockholder. See "Principal Stockholders." Excludes 518,687
shares held in a separate trust for which Dr. Deschamps is also trustee.
(4) The trustee for the John D. Hunkeler Revocable Trust is John D. Hunkeler, a
member of our board of directors and our Medical Director.
(5) Includes 40,000 shares jointly held by Jemshed A. Khan and Michelle Hart-
Khan before the offering and 27,326 shares held after the offering.
(6) Upon the closing of this offering, Illinois Eye Specialists will exercise
its right to convert a subordinated exchangeable promissory note having a
face value of $200,000 into 20,833 shares.
(7) The general partner of the Kirk Family Limited Partnership is Kirk Eye
Center, S.C. Scott H. Kirk, M.D., a member of our board of directors, and
his brother Kent A. Kirk, M.D. are the sole shareholders of Kirk Eye
Center, S.C.
(8) Includes 120,000 shares jointly held with Richard Scarpulla before the
offering and 115,840 shares held after the offering.
(9) Includes 5,708 shares jointly held with Michella M. Stiles before the
offering and 4,568 shares held after the offering.
(10) Upon the closing of this offering, Stephan C. Volk will exercise his right
to convert a subordinated exchangeable promissory note having a face value
of $5,400,000 into 562,500 shares.
(11) The general partner of the Douglas Williams Family Limited Partnership is
Brodersen-Williams Eye Institute, P.C. Douglas P. Williams, M.D., a member
of our board of directors, is the sole shareholder of Brodersen-Williams
Eye Institute, P.C. Excludes 68,000 shares held by Dr. Williams
individually.
58
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table contains information regarding the beneficial ownership
of our common stock as of June 30, 1999, and as adjusted to reflect the sale of
our common stock in this offering, by:
. each person or group of affiliated persons known by us to beneficially
own more than 5% of the outstanding shares of our common stock
. each of our directors
. each of our chief executive officer and the two other most highly
compensated executive officers in 1998
. all of our directors and executive officers as a group
Unless otherwise indicated below the persons in this table have sole voting
and investment power with respect to all shares shown as beneficially owned by
them. Beneficial ownership is determined in accordance with the rules of the
SEC. The number of shares beneficially owned by a person and the percentage
ownership of that person include shares of our common stock subject to options
and warrants held by that person that are currently exercisable or exercisable
within 60 days from the date of this offering. Unless otherwise indicated, the
address of the beneficial owners is c/o NovaMed Eyecare, Inc., 980 North
Michigan Avenue, Suite 1620, Chicago, Illinois 60611.
<TABLE>
<CAPTION>
Options to Purchase
Beneficial Ownership of Beneficial Ownership Shares Included
Common Stock of Common Stock in Beneficial
Prior to this Offering After this Offering Ownership Figures
----------------------- ---------------------- -------------------
Number of Percent of Number of Percent of
Name and Address Shares Voting Power Shares Voting Power
<S> <C> <C> <C> <C> <C>
Five Percent Stockholders:
Kirk Family Limited
Partnership (1)........ 2,620,000 13.98% 2,020,000 8.14% --
c/o Kirk Eye Center,
S.C.
7427 Lake Street
River Forest, Illinois
60305
Sierra Ventures V, L.P.. 2,366,722 12.63% 2,366,722 9.53% --
c/o Peter Wendell
3000 Sand Hill Road
Building 4, Suite 210,
Menlo Park, California
94025
Douglas Williams Family
Limited Partnership
(2).................... 1,820,000 9.71% 1,520,000 6.12% --
c/o Brodersen-Williams
Eye Institute, P.C.,
6850 Holman Avenue
Hammond, Indiana 46324
Eldi E. Deschamps, M.D.
(3).................... 1,520,000 8.11% 1,220,000 4.92% --
8510 Broadway Street
Merrillville, Indiana
46410
Directors and Officers:
Stephen J. Winjum....... 1,658,933 8.49% 1,658,933 6.47% 810,833
Ronald G. Eidell........ 154,786 * 154,786 * 97,708
E. Michele Vickery...... 195,621 1.04% 195,621 * 121,667
Scott H. Kirk, M.D. (4). 2,774,247 14.81% 2,174,247 8.76% --
John D. Hunkeler, M.D... 859,055 4.57% 800,481 3.22% 64,583
R. Judd Jessup (5)...... 110,074 * 110,074 * 18,750
Steven V. Napolitano
(6).................... 132,583 * 132,583 * 64,583
James B. Tananbaum...... 64,583 * 64,583 * 8,333
Douglas P. Williams,
M.D. (7)............... 1,888,000 10.08% 1,588,000 6.40% --
Peter C. Wendell (8).... 2,366,722 12.63% 2,366,722 9.53% --
All Executive Officers and
Directors as a Group
(12 people).............. 10,424,604 51.75% 9,466,030 36.09% 1,406,457
</TABLE>
59
<PAGE>
- --------
* Less than 1%
(1) The general partner of the Kirk Family Limited Partnership is Kirk Eye
Center, S.C. Scott H. Kirk, M.D., a member of our board of directors, and
his brother Kent A. Kirk, M.D., are the sole stockholders of Kirk Eye
Center, S.C.
(2) The general partner of the Douglas Williams Family Limited Partnership is
Brodersen-Williams Eye Institute, P.C. Douglas P. Williams, M.D., a member
of our board of directors, is the sole shareholder of Brodersen-Williams
Eye Institute, P.C.
(3) Includes 518,687 shares held by Eldi Deschamps as Trustee for the Eldi
Deschamps Grantor Annuity Trust u/a/d June 1, 1998 and 1,001,313 shares
held by Eldi Deschamps as Trustee for the Eldi Deschamps Revocable Trust
u/a/d June 1, 1998.
(4) Includes 2,620,000 shares held by the Kirk Family Limited Partnership of
which Dr. Kirk is a partner.
(5) Includes 91,324 shares which are held by R. Judd Jessup and Charlene Lynne
Jessup, as Trustees for the R. Judd Jessup and Charlene Lynne Jessup
Living Trust u/a/d May 6, 1991.
(6) Excludes 23,962 shares of our common stock owned by Katten Muchin & Zavis,
the law firm of which Mr. Napolitano is a partner. See "Legal Matters".
(7) Includes 1,820,000 shares held by the Douglas Williams Family Limited
Partnership of which Dr. Williams is a partner.
(8) Includes 2,366,722 shares held by Sierra Ventures V, L.P., of which Mr.
Wendell is a general partner. Mr. Wendell disclaims beneficial ownership
of these shares, except to the extent of his economic interest in the
shares.
60
<PAGE>
DESCRIPTION OF SECURITIES
General
The following summary is subject to, and qualified by, applicable law and
the provisions of our Restated Certificate of Incorporation and By-laws. We
have included these organizational documents as exhibits to the registration
statement of which this prospectus is a part.
Our Restated Certificate of Incorporation authorizes us to issue 100 million
shares of capital stock, of which 81,761,465 shares are designated common stock
and 18,238,535 shares are designated preferred stock. We currently have
outstanding 11,602,698 shares of Series A convertible preferred stock, 400,000
shares of Series B convertible preferred stock, 2,000,000 shares of Series C
convertible preferred stock and 2,323,837 shares of Series D convertible
preferred stock. Upon completion of this offering, all of this preferred stock
will automatically convert into an aggregate of 16,326,535 shares of our common
stock, and there will be no shares of preferred stock outstanding. Following
conversion of the outstanding preferred stock into common stock, the Series A,
B, C and D convertible preferred stock will be eliminated and these shares will
not be available for reissuance.
We currently have 2,484,708 shares of common stock outstanding. Of the
81,761,465 authorized shares of our common stock, 16,326,535 shares are
reserved for issuance upon conversion of the preferred stock, 5,898,288 shares
are reserved for issuance pursuant to our 1996 Stock Incentive Plan, and
400,000 shares are reserved for issuance pursuant to our 1999 Stock Purchase
Plan.
Common Stock
Our board of directors is classified into three classes as nearly equal in
number as possible, with the term of each class expiring on a staggered basis.
The classification of our board of directors may make it more difficult to
change the composition of the board of directors and thereby may discourage or
make more difficult an attempt by a person or group to obtain control of us.
Cumulative voting for the election of directors is not permitted, enabling
holders of a majority of our outstanding common stock to elect all members of
the class of directors whose terms are then expiring.
Voting Rights
Holders of our common stock are entitled to one vote per share. Subject to
any voting rights granted to holders of any preferred stock, a majority of the
votes entitled to be cast by all holders of our common stock will generally be
required to approve matters voted on by our stockholders. Amendments to our
Restated Certificate of Incorporation that would change and adversely affect
the powers, preferences or rights of a class or series of our stock also must
be approved by a majority of the votes entitled to be cast by the holders of
the adversely affected class or series, voting as a separate class or series.
Dividends
Subject to the rights of holders of any outstanding preferred stock, the
holders of outstanding shares of our common stock will share ratably on a per
share basis in any dividends declared from time to time by our board of
directors.
Other Rights
Subject to the rights of holders of any outstanding preferred stock, upon
our liquidation, dissolution or winding up, we will distribute any assets
legally available for distribution to our stockholders, ratably among the
holders of our common stock outstanding at that time. All shares of our common
stock currently outstanding are, and all shares of our common stock when duly
issued and paid for will be, fully paid and nonassessable, not subject to
redemption and without preemptive rights.
Preferred Stock
Upon completion of this offering, all of our currently outstanding preferred
stock will automatically convert into shares of our common stock and there will
be no shares of preferred stock outstanding. Therefore, the following
information does not pertain to the currently outstanding preferred stock, but
rather the 1,820,000 shares of preferred stock that we may issue in the future
pursuant to our Restated Certificate of Incorporation.
We may issue preferred stock in series from time to time. Our board of
directors may designate the rights, preferences and limitations of these
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<PAGE>
shares. The rights, preferences and limitations of different series of
preferred stock may differ with respect to a variety of matters, including:
. dividend rates
. amounts payable on liquidation
. voting rights
. conversion rights
. redemption provisions
. sinking fund provisions
Our board of directors may authorize the issuance of preferred stock which
ranks senior to our common stock as to payment of dividends and the
distribution of assets on liquidation. In addition, our board of directors may
fix the limitations and restrictions, if any, upon the payment of dividends on
common stock to be effective while any shares of preferred stock are
outstanding. Our board of directors, without stockholder approval, may issue
preferred stock with voting and conversion rights which could adversely affect
the voting power of the holders of common stock.
Our undesignated preferred stock may allow our board of directors to render
more difficult or to discourage an attempt to obtain control of us by means of
a tender offer, proxy contest, merger or otherwise. The issuance of this
preferred stock pursuant to the board of director's authority may adversely
affect the rights of the holders of our common stock. For example, preferred
stock issued by us may rank prior to our common stock as to dividend rights,
liquidation preference or both, may have full or limited voting rights and may
be convertible into shares of our common stock. Accordingly, the issuance of
shares of preferred stock may discourage bids for our common stock or may
otherwise adversely affect the market price of our common stock. Except as
described in our Rights Agreement, we have no present intention to issue shares
of preferred stock.
Delaware Anti-Takeover Law and Charter and Bylaw Provisions
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, this section prohibits a publicly held Delaware
corporation from engaging in a business combination with an interested
stockholder for a period of three years after the date of the transaction in
which the person becomes an interested stockholder, unless each of the
following is satisfied:
. prior to the date at which the stockholder became an interested
stockholder, our board of directors approved either the business
combination or the transaction in which the person became an interested
stockholder
. in the transaction in which the stockholder becomes an interested
stockholder, the stockholder acquires more than 85% of the outstanding
voting stock of the corporation, excluding shares held by directors who
are officers or held in specified employee stock plans
. at a stockholder meeting held on or subsequent to the date of the
business combination, the business combination is approved by our board
of directors and by two-thirds of the outstanding voting stock of the
corporation, excluding shares held by the interested stockholder
An interested stockholder is a person who, together with affiliates and
associates, owns, or at any time within the prior three years did own, 15% or
more of the corporation's voting stock. Business combinations include, without
limitation, mergers, consolidations, stock sales and asset-based transactions
and other transactions resulting in a financial benefit to the interested
stockholder.
Our Restated Certificate of Incorporation and Bylaws contain a number of
provisions relating to corporate governance and to the rights of our
stockholders. These provisions may be deemed to have a potential anti-takeover
effect in that these provisions may delay, defer or prevent a change of control
of us. These provisions include:
. a requirement that, following this offering, stockholder action may be
taken only at stockholder meetings and not by written consent
. notice requirements relating to nominations to our board of directors and
to the raising of business matters at stockholder meetings that generally
require the stockholder to notify us within 45 to 75 days prior to the
first anniversary of the previous year's annual meeting of his or her
intention to raise a matter at the meeting provided that the
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<PAGE>
stockholder has sent a proxy to the holders of at least the percentage of
voting shares required to carry the proposal or, in the case of a
nomination, to the holders of at least the percentage of voting shares
that the stockholder reasonably believes to be sufficient to elect the
nominee
. a requirement that special meetings of stockholders can only be called by
our Chairman of the Board, President, Chief Executive Officer or a
majority of our board of directors
. the classification of our board of directors, following this offering,
into three classes, each serving for staggered three-year terms
Rights Agreement
On July 7, 1999, our board of directors declared a dividend of one right for
each outstanding share of our common stock. The dividend was paid on July 12,
1999 to the stockholders of record on that date. Each right entitles the
registered holder to purchase from us one one-thousandth of a share of Series E
Junior Participating Preferred Stock, par value $.01 per share at a price of
$110.00 per one one-thousandth of a share of Series E Junior Participating
Preferred Stock, subject to adjustment. The description and terms of the rights
are set forth in a Rights Agreement between us and The American Stock Transfer
Company, as Rights Agent.
The rights are not exercisable until the distribution date which occurs on
the earlier of:
. the close of business on the tenth day after the first public
announcement that a person or group of affiliated or associated persons
has become an acquiring person by acquiring beneficial ownership of 15%
or more of our outstanding common stock, or
. the close of business on the tenth day, or a later date as may be
determined by our board of directors prior to the time that any person
becomes an acquiring person, following the commencement of, or
announcement of an intention to make, a tender or exchange offer the
consummation of which would result in the beneficial ownership of this
person or group of 15% or more of the outstanding shares of our common
stock.
Until the distribution date, the rights will be evidenced by our common
stock certificates and will be transferable only by the transfer of the shares
of common stock associated with the rights. Any transfer of the shares of our
common stock will constitute a transfer of the rights. As described below,
after a person or group becomes an acquiring person, the rights may not be
redeemed and may be amended under limited circumstances.
Until the distribution date or earlier redemption or expiration of the
rights, new certificates for shares of our common stock issued after July 12,
1999, upon transfer or new issuance of shares of our common stock, will contain
a legend incorporating the rights agreement by reference. Until the
distribution date or earlier redemption or expiration of the rights, the
surrender for transfer of any certificate for shares of our common stock
outstanding as of July 12, 1999 will also constitute the transfer of the rights
associated with shares of our common stock represented by this certificate. As
soon as practicable following the distribution date, separate certificates
evidencing the rights will be mailed to holders of record of the shares of our
common stock as of the close of business on the distribution date and these
separate rights certificates alone will evidence the rights. Each right is
exercisable for one one-thousandth of a share of our Series E Junior
Participating Preferred Stock at any time after the distribution date.
The rights are not exercisable for shares of our common stock until a
person, entity or group becomes an acquiring person. The rights will expire on
July 11, 2009, unless this date is extended or unless the rights are redeemed
earlier by us, in each case, as described below.
If a person or group becomes an acquiring person, each holder of a right
will have the right to receive, upon exercise, shares of our common stock, or
in specified circumstances, cash, property or other securities of us, having a
value equal to two times the purchase price of the right. However, all rights
that are, or were, beneficially owned by any acquiring person will be void.
At any time after the first date of public announcement by us or an
acquiring person that an acquiring person has become an acquiring person, if:
. we are the surviving corporation in a merger with any other company or
entity,
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<PAGE>
. we are acquired in a merger or other business combination transaction,
. 50% or more of our consolidated assets or earning power are sold, or
. an acquiring person engages in specified self-dealing transactions with
us,
each holder of a right, other than those whose rights have become void, will
have the right to receive, upon the exercise of the right at the then current
purchase price of the right, a number of shares of common stock of the
surviving or acquiring company which at the time of this type of transaction
will have a market value of two times the purchase price of this right.
At any time after a person or group becomes an acquiring person and prior to
the acquisition by this type of person or group of 50% or more of the
outstanding shares of our common stock, our board of directors may exchange the
rights, in whole or in part, without any additional payment, for shares of our
common stock at an exchange ratio of one share of our common stock per right.
Our board of directors shall exclude rights that have become void, and our
board of directors may issue a preferred share having equivalent rights,
preferences and privileges rather than a share of our common stock.
At any time prior to a person or group becoming an acquiring person, our
board of directors may redeem all, but not less than all, of the rights at a
redemption price of $.01 per right. The redemption of the rights may be made
effective at a time, on a basis and with any conditions as our board of
directors in its sole discretion may establish. Immediately upon any redemption
of the rights, the right to exercise the rights will terminate and the only
right of the holders of rights will be to receive the redemption price.
Any of the provisions of the rights may be amended by our board of directors
in order to cure any ambiguity or to make any other changes which our board of
directors deems necessary or desirable. However, after a person or group
becomes an acquiring person, any amendment must not adversely affect the
interests of holders of rights, other than the interests of any acquiring
person.
We have included the Rights Agreement as an exhibit to the registration
statement of which this prospectus is a part. A copy of the Rights Agreement
also is available free of charge from us. This summary description of the
rights does not purport to be complete and is qualified in its entirety by
reference to the Rights Agreement.
Registration Rights
Following is a description of the registration rights of our existing
stockholders:
Demand Rights. Our existing stockholders have the right to demand
registration of 4,181,710 of the shares they hold. At any time at least six
months after this offering, our stockholders that held our Class C or D
convertible preferred stock prior to this offering are entitled to one demand
registration upon initiation by at least 51% of these holders. Thereafter, a
second demand registration may be initiated by not less than 25% of these
holders. We are only required to effect a registration if at least 20% of the
common stock that was Class C or D convertible preferred stock prior to this
offering is to be sold in the demand offering and the anticipated aggregate
offering price of this demand registration exceeds $5,000,000. These holders
will be entitled to sell all of the shares requested to be registered, subject
to pro rata cutback in the underwriters' discretion.
Piggyback Rights. Our existing stockholders have piggyback registration
rights for 17,198,684 shares covering future offerings by us. Our stockholders
that held our Class C or D convertible preferred stock prior to this offering
have waived their piggyback registration rights with respect to this offering.
In a secondary public offering effected at our initiation, these holders are
entitled to pro rata piggyback registration rights with respect to 50% of the
shares, other than shares to be sold for our benefit, permitted by the
underwriters to be sold in a secondary offering.
Our stockholders that held our common stock and Class A or B convertible
preferred stock prior to this offering have also waived their piggyback
registration rights with respect to this offering. In a secondary offering
initiated by us, these holders are entitled to pro rata piggyback registration
rights with respect to 50% of the shares, other than shares to be sold for our
benefit, permitted by the underwriter to be sold. These holders also have
piggyback registration rights with respect to any registration effected
pursuant to the demand registration rights of our stockholders that held our
Class C or D
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
convertible preferred stock prior to this offering; provided, however, that any
of these registration rights are subordinate to the rights of our former Class
C or D convertible preferred holders and us to participate in the offering and
are subject to cutback in the underwriter's discretion.
The holders of shares who are entitled to either demand rights or piggyback
rights have agreed not to exercise these rights as follows:
. holders of 6,644,565 of these shares have agreed not to exercise these
rights for six months after the date of this prospectus
. the holders of 11,044,119 of these shares have agreed not to exercise
these rights for one year after the date of this prospectus
Expenses. Expenses of the registrations described above are paid by us other
than underwriting discounts and commissions and the fees of special counsel for
selling stockholders.
Transfer. Registration rights shall be transferable only with the transfer
of at least 500,000 shares of our common stock entitled to these rights or the
transfer of this common stock to a partner, stockholder or affiliate of the
transferor.
Termination. All registration rights shall terminate five years after this
offering.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is The American Stock
Transfer and Trust Company.
There will be 24,821,655 shares of our common stock outstanding immediately
after this offering. The 7,132,971 shares being sold in this offering are
freely tradeable without restriction unless held by a Rule 144 Affiliate.
After this offering, 136 holders of our common stock who did not purchase
shares in this offering will own 17,688,684 shares of our common stock. These
shares have not been registered under the Securities Act and, therefore, may
not be sold unless registered under the Securities Act or sold pursuant to an
exemption from registration, including, for example, the exemption provided by
Rule 144.
Lock-Up Agreements
We and our existing stockholders, including our executive officers and
directors, but excluding our affiliated eye care professionals who are
discussed below, have agreed that, for a period of 180 days from the date of
the final prospectus, we and they will not, subject to some exceptions, without
the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
. enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common
stock, regardless of whether any of the transactions described in these
subparagraphs is to be settled by the delivery of common stock or other
securities, in cash or otherwise.
Our affiliated eye care professionals who are stockholders, including the
selling stockholders, have agreed to similar restrictions for a period of one
year from the date of the final prospectus and to additional volume limitations
during the year following the first anniversary of the date of the final
prospectus.
In connection with our acceleration of the vesting of options to acquire
1,075,800 shares of common stock granted to employees, each affected employee
will be required to execute a lock-up agreement with Donaldson Lufkin &
Jenrette. The lock-up agreements will prohibit the affected employees from
selling the shares issued upon exercise of these options for a period of one
year from the date of the final prospectus and also places volume limitations
on the amount of these shares the affected employees may sell during the second
and third years following the date of the final prospectus.
In addition, for a 180 day period we have agreed not to file any
registration statement with
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<PAGE>
respect to, and each of our executive officers, directors and some of our
stockholders, including the selling stockholders, has agreed not to make any
demand for, or exercise any right with respect to, the registration of any
shares of common stock or any securities convertible into or exercisable for
common stock without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation.
As a result of these contractual restrictions, notwithstanding possible
earlier eligibility for sale under the provisions of Rules 144 and 701 of the
Securities Act discussed below, shares subject to these lock-up agreements will
not be salable until the agreements expire or unless prior written consent is
received from Donaldson, Lufkin & Jenrette Securities Corporation. Any early
waiver of the lock-up agreements by the underwriters, which, if granted, could
permit sales of a substantial number of shares and could adversely affect the
trading price of our shares, may not be accompanied by an advance public
announcement by us.
Taking into account these lock-up agreements, 6,644,565 shares will be
eligible for sale 180 days from the date of the final prospectus and 11,044,119
shares will become eligible for sale one year from the date of the final
prospectus, subject in some cases to volume and manner of sale limitations.
Rule 144
In general, under Rule 144, beginning 90 days after the date of the final
prospectus, a person, or persons whose shares are aggregated, who has
beneficially owned restricted shares for at least one year, including a person
who may be deemed our Rule 144 Affiliate, would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
. one percent of the number of shares of our common stock then outstanding;
or
. the average weekly trading volume of our common stock during the four
calendar weeks preceding the filing of a notice on Form 144 with respect
to the proposed sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us. We are unable to estimate accurately the number of restricted shares that
will be sold under Rule 144 because this will depend in part on the market
price of our common stock, the personal circumstances of the seller and other
factors.
Under Rule 144(k), a person who is not deemed to have been our Rule 144
Affiliate at any time during the 90 days preceding a sale, and who has
beneficially owned for at least two years the shares proposed to be sold, would
be entitled to sell those shares under Rule 144(k) without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144. Therefore, subject to the lock-up agreements, these shares may be
sold upon completion of this offering.
Rule 701
Beginning 90 days after the date of this prospectus, the shares of common
stock issuable upon exercise of the options granted by us prior to the
effective date of the registration statement will be eligible for sale in the
public market pursuant to Rule 701 under the Securities Act, subject to the
lock-up agreements. In general, Rule 701 permits resales of shares issued under
specified compensatory benefit plans and contracts commencing 90 days after the
issuer becomes subject to the reporting requirements of the Securities Exchange
Act in reliance upon Rule 144, but without compliance with restrictions,
including the holding period requirements, contained in Rule 144.
Registration Statements on Form S-8
Following this offering, we intend to file under the Securities Act one or
more registration statements on Form S-8 to register all of the shares of our
common stock eligible for this form of registration statement:
. issuable upon exercise of outstanding options granted pursuant to our
1996 stock incentive plan
. reserved for future option grants pursuant to individual option
agreements or our 1996 stock incentive plan
. that we intend to offer for sale to our employees pursuant to our
employee stock purchase plan
These registration statements are expected to become effective upon filing and
shares covered by these registration statements will be subject to vesting
provisions and, in the case of Rule 144 Affiliates only, to the restrictions of
Rule 144, other than the holding period requirement, and subject to expiration
of the lock-up agreements.
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UNDERWRITING
Subject to the terms and conditions contained in the underwriting agreement
dated , 1999, the underwriters identified below, who are represented
by Donaldson, Lufkin & Jenrette Securities Corporation, Hambrecht & Quist LLC,
William Blair & Company, L.L.C. and DLJdirect Inc. have severally agreed to
purchase from us and the selling stockholders, the respective number of shares
of our common stock appearing opposite their names below:
<TABLE>
<CAPTION>
Number of
Underwriters Shares
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation..............
Hambrecht & Quist LLC............................................
William Blair & Company, L.L.C. ................................
DLJdirect Inc....................................................
---------
Total.......................................................... 7,132,971
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock
offered in this prospectus are subject to approval by their counsel of legal
matters and to other conditions. The underwriters are obligated to purchase and
accept delivery of all the shares of common stock offered in this prospectus,
other than those shares covered by the over-allotment option described below,
if any are purchased.
The underwriters propose to initially offer the shares of common stock in
part directly to the public at the public offering price set forth on the cover
page of this prospectus and in part to dealers, including the underwriters, at
this price less a concession not in excess of $ per share. The
underwriters may allow, and those dealers may re-allow, to other dealers a
concession not in excess of $ per share. After the initial offering of
the common stock, the public offering price and other selling terms may be
changed by the representatives of the underwriters at any time without notice.
The underwriters have informed us that they do not intend to confirm sales to
discretionary accounts.
The following table shows the underwriting fees to be paid to the
underwriters by us and the selling stockholders in connection with this
offering. The fees to be paid by us will be % of the initial public
offering price and are shown below assuming both no exercise and full exercise
of the underwriters' option to purchase additional shares of common stock.
<TABLE>
<CAPTION>
Paid by Selling
Paid by Company Stockholders
----------------- ---------------
No
Exercise Full
-------- --------
<S> <C> <C> <C> <C>
Per share.................................. $ $ $ $
Total...................................... $
</TABLE>
We will pay the offering expenses, estimated to be $ , which include,
among other things:
. the SEC registration fee of $29,646
. the NASD filing fee of $10,500
. the Nasdaq National Market listing fee of $
. accountants' fees and expenses of $
. legal fees and expenses of $
. transfer agent and registrar fees and expenses of $
. printing and engraving expenses of $
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<PAGE>
We have granted the underwriters an option, exercisable for 30 days from the
date of the underwriting agreement, to purchase up to 1,069,945 additional
shares at the public offering price less the underwriting discount. This option
may be exercised solely to cover over-allotments, if any, made in connection
with this offering. To the extent the underwriters exercise this option, each
underwriter will become obligated, subject to conditions, to purchase a number
of additional shares approximately proportionate to the underwriter's initial
purchase commitment.
We and the selling stockholders have agreed to indemnify the underwriters
against civil liabilities, including liabilities under the Securities Act of
1933, or to contribute to payments that the underwriters may be required to
make in respect of any of those liabilities.
Prior to this offering, there was no established trading market for our
common stock. The initial public offering price of our common stock in this
offering will be determined by negotiations among us, the selling stockholders
and the representatives. Among the factors to be considered in determining the
initial public offering price are:
. the history and the prospects for the industry in which we compete
. our past and present operations
. our historical results of operations
. our prospects for future earnings
. the general condition of the securities markets at the time of this
offering
. the recent market prices of securities of generally comparable companies
We cannot assure you that an active trading market will develop for our common
stock or that it will trade at or above the initial public offering price in
the public market after this offering. We are applying to have our common stock
listed on the Nasdaq National Market under the symbol "NOVA."
In connection with this offering, the representatives, on behalf of the
underwriters, may engage in over-allotment, stabilizing transactions, syndicate
covering transactions and penalty bids in accordance with Regulation M under
the Securities Exchange Act of 1934, as amended. Over-allotment involves sales
in excess of the offering size, which creates a syndicate short position.
Stabilizing transactions involve bids to purchase our common stock in the open
market for the purpose of pegging, fixing or maintaining the price of our
common stock. Syndicate covering transactions involve purchases of our common
stock in the open market after the distribution has been completed in order to
cover short positions. Penalty bids permit the representatives to reclaim a
selling concession from a syndicate member when shares of our common stock
originally sold by the syndicate member are purchased in a syndicate covering
transaction to cover syndicate short positions. These stabilizing transactions,
syndicate covering transactions and penalty bids may cause the price of our
common stock to be higher than it would otherwise be in the absence of these
transactions. These activities, if commenced, may be discontinued at any time.
We and our existing stockholders, including our executive officers and
directors, have agreed to restrictions on our ability to offer or sell our
securities. We have described these restrictions under the caption "Shares
Eligible for Future Sale".
Other than in the United States, no action has been taken by us, the selling
stockholders or the underwriters that would permit a public offering of the
shares of common stock included in this offering in any jurisdiction where
action for that purpose is required. The shares included in this offering may
not be offered or sold, directly or indirectly, nor may this prospectus or any
other offering material or advertisement in connection with the offer and sale
of any of these shares be distributed or published in any jurisdiction, except
under circumstances that will result in compliance with the applicable rules
and regulations of that jurisdiction. Persons who receive this prospectus are
advised to inform themselves about and to observe any restrictions relating to
the offering of the common stock and the distribution of this prospectus. This
prospectus is not an offer to sell or a solicitation of an offer to buy any
shares of common stock included in this offering in any jurisdiction where that
would not be permitted or legal.
Affiliates of Donaldson, Lufkin & Jenrette Securities Corporation, purchased
237,739 shares of our common stock in September 1998, for $4.38 per share.
68
<PAGE>
LEGAL MATTERS
EXPERTS
WHERE YOU CAN FIND MORE INFORMATION
450 Fifth Street, N.W. Seven World Trade Center Citicorp Center
Judiciary Plaza Suite 1300 500 West Madison
Room 1024 New York, NY 10048 Street
Washington, D.C. 20549 Suite 1400
Chicago, IL 60661
Katten Muchin & Zavis, Chicago, Illinois will pass upon the validity of this
offering of our common stock and other matters for us. The firm owns 23,962
shares of our common stock, and some of the partners of the firm are beneficial
owners of an additional 197,737 shares of our common stock, including Steven V.
Napolitano, who serves as one of our directors and is the beneficial owner of
132,583 shares of our common stock. Legal matters will be passed upon for the
underwriters by McDermott, Will & Emery, Chicago, Illinois.
Our consolidated financial statements as of December 31, 1997 and 1998 and
for each of our three fiscal years in the period ended December 31, 1998,
included in this prospectus, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
Matters dealing with our compliance with Federal and state healthcare laws
and regulations set forth under "Government Regulation" have been included in
this document in reliance upon advice provided by either Katten Muchin & Zavis,
Chicago, Illinois or Arent Fox Kintner Plotkin & Kahn, PLLC, Washington, D.C.
and their status as experts in such matters.
This prospectus is part of a registration statement we filed with the SEC.
This prospectus does not contain all of the information contained in the
registration statement and all of its exhibits and schedules.
For further information about us, please see the complete registration
statement. Statements contained in this prospectus concerning the provisions of
documents filed with the registration statement as exhibits are necessarily
summaries of these documents. Please refer to the exhibits to the registration
statement for complete copies of these documents.
You may read and copy our registration statement and all of its exhibits and
schedules at the following SEC public reference rooms:
You may obtain information on the operation of the SEC public reference room
in Washington, D.C. by calling the SEC at 1-800-SEC-0330. You may also inspect
and copy the complete registration statement and other information at the
offices of The Nasdaq Stock Market located at 1735 K Street, N.W., Washington,
D.C. 20006-1500. The registration statement is also available from the SEC's
Web site at http://www.sec.gov, which contains reports, proxy and information
statements and other information regarding issuers that file electronically.
69
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Financial Statements of NovaMed Eyecare, Inc.:
Report of Independent Public Accountants................................ F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998 and June
30, 1999 (unaudited)................................................... F-3
Consolidated Statements of Operations for the years ended December 31,
1996, 1997 and 1998 and the six months ended June 30, 1998 and 1999
(unaudited)............................................................ F-5
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1997 and 1998 and the six months ended June 30, 1999
(unaudited)............................................................ F-6
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998 and the six months ended June 30, 1998 and 1999
(unaudited)............................................................ F-7
Notes to Consolidated Financial Statements.............................. F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
NovaMed Eyecare, Inc.:
We have audited the accompanying consolidated balance sheets of NOVAMED
EYECARE, INC. AND SUBSIDIARIES as of December 31, 1997 and 1998, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years ended December 31, 1996, 1997 and 1998. These
consolidated financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule 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 NovaMed Eyecare, Inc. and
Subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years ended December 31,
1996, 1997 and 1998, in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Rule 12-09 Valuation Reserve
Schedule is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subject to the auditing procedure applied in the audit
of the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 16, 1999
(except for Note 15,
as to which date is May 28, 1999)
F-2
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June Pro forma
December 31, 30, June 30,
ASSETS --------------- ------- ---------
------ 1997 1998 1999 1999
(unaudited)
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents.............. $ 4,009 $ 1,875 $ 864 $
Accounts receivable, net of allowances
of $6,994, $10,347 and $10,017,
respectively.......................... 6,980 11,278 12,995
Due from affiliated providers, net..... 755 110 84
Notes receivable from affiliated
providers............................. 2,035 393 322
Inventory.............................. 715 1,490 2,449
Other current assets................... 940 1,240 1,549 1,979
------- ------- ------- ------
Total current assets................. 15,434 16,386 18,263
Property and equipment, net.............. 6,492 9,893 12,692
Note receivable from related party....... 400 400 --
Intangible assets, net................... 30,127 35,660 40,351
Other assets, net........................ 281 340 307
------- ------- -------
Total assets......................... $52,734 $62,679 $71,613
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
June Pro forma
December 31, 30, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY ---------------- ------- ---------
------------------------------------ 1997 1998 1999 1999
(unaudited)
<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable........................ $ 1,692 $ 3,142 $ 4,116
Accrued expenses........................ 2,811 3,297 3,210
Income taxes payable.................... 35 427 192
Current maturities of long-term debt.... 444 300 150
------- ------- -------
Total current liabilities............. 4,982 7,166 7,668
------- ------- -------
Long-term debt, net of current maturities. 15,838 20,427 27,964 $18,264
------- ------- ------- -------
Deferred income tax liabilities........... 629 1,702 1,852
------- ------- -------
Minority interests in equity of
consolidated entities.................... 456 -- --
------- ------- -------
Commitments and contingencies
Redeemable convertible preferred stock:
Series C convertible preferred stock,
$.01 par value, 2,400,000 shares
authorized, 2,000,000 issued and
outstanding at December 31, 1997 and
1998 and June 30, 1999 (none pro
forma), respectively................... 5,794 6,350 8,088 --
------- ------- ------- -------
Series D convertible preferred stock,
$.01 par value, 3,000,000 shares
authorized; 1,636,622, 2,323,837 and
2,323,837 issued and outstanding at
December 31, 1997 and 1998 and June 30,
1999 (none pro forma), respectively.... 6,886 10,080 11,818 --
------- ------- ------- -------
Stockholders' equity:
Series A convertible preferred stock,
$.01 par value, 13,112,000 shares
authorized, 11,733,166, 11,740,055 and
11,740,055 shares issued and
11,655,236, 11,072,698 and 11,602,698
shares outstanding at December 31, 1997
and 1998, and June 30, 1999 (none pro
forma), respectively; 160,000 shares
issuable at December 31, 1998.......... 117 117 117 --
Series B convertible preferred stock,
$.01 par value, 455,000 shares
authorized, 400,000 issued and
outstanding at December 31, 1997 and
1998, and June 30, 1999 (none pro
forma), respectively................... 4 4 4 --
Common stock, $.01 par value, 26,000,000
shares authorized; 2,748,503,
2,751,254, 2,751,254, and 20,081,205
shares issued and 2,748,503, 2,751,254,
2,409,708, and 19,746,655 shares
outstanding as of December 31, 1997 and
1998, June 30, 1999 and pro forma,
respectively........................... 27 28 28 203
Additional paid-in capital................ 18,083 17,955 20,224 52,201
Deferred compensation..................... -- -- (2,472) (2,472)
Retained earnings (deficit)............... 105 1,072 (1,332) (3,327)
Treasury stock, at cost, consists of
77,930, 507,347 and 137,357 shares of
Series A convertible preferred stock at
December 31, 1997 and 1998, and June 30,
1999 (none pro forma) and 341,546 shares
of common stock as of June 30, 1999,
478,903 pro forma........................ (187) (2,222) (2,346) (2,346)
------- ------- ------- -------
Total stockholders' equity............ 18,149 16,954 14,223 44,259
------- ------- ------- -------
Total liabilities and stockholders'
equity............................... $52,734 $62,679 $71,613
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December Six Months
31, Ended June 30,
------------------------- ----------------
1996 1997 1998 1998 1999
(unaudited)
<S> <C> <C> <C> <C> <C>
Net revenue:
Management services............. $10,326 $24,401 $36,053 $15,131 $24,426
Surgery and laser centers....... 5,303 14,484 20,131 8,736 13,290
Product sales and other......... 221 3,523 7,545 3,418 7,146
------- ------- ------- ------- -------
Total net revenue............. 15,850 42,408 63,729 27,285 44,862
------- ------- ------- ------- -------
Operating expenses:
Salaries, wages and benefits.... 8,259 18,123 25,266 10,776 17,448
Cost of sales and medical
supplies....................... 2,570 8,723 15,762 6,791 12,260
Selling, general and
administrative................. 5,044 11,315 14,625 6,512 9,948
Depreciation and amortization... 806 2,226 3,333 1,480 2,225
------- ------- ------- ------- -------
Total operating expenses...... 16,679 40,387 58,986 25,559 41,881
------- ------- ------- ------- -------
Income (loss) from operations. (829) 2,021 4,743 1,726 2,981
------- ------- ------- ------- -------
Other (income) expense:
Interest expense................ 87 1,363 1,546 701 1,130
Interest income................. (29) (322) (273) (173) (73)
Minority interests in earnings
of consolidated entities....... 17 108 132 69 --
Other........................... 8 561 (32) (26) (17)
------- ------- ------- ------- -------
Total other expense........... 83 1,710 1,373 571 1,040
------- ------- ------- ------- -------
Income (loss) before income taxes. (912) 311 3,370 1,155 1,941
Provision for income taxes........ -- 206 1,664 570 869
------- ------- ------- ------- -------
Net income (loss)................. $ (912) $ 105 $ 1,706 $ 585 $ 1,072
Less--Accretion of Series C and
Series D convertible preferred
stock............................ -- -- (739) (169) (3,476)
------- ------- ------- ------- -------
Income (loss) available to Series
A and Series B convertible
preferred and common
stockholders..................... $ (912) $ 105 $ 967 $ 416 $(2,404)
======= ======= =======
Earnings (loss) per common share
(audited):
Basic........................... $ -- $ .01 $ .07 $ .03 $ (.17)
======= ======= ======= ======= =======
Diluted......................... $ (.08) $ .01 $ .06 $ .03 $ (.17)
======= ======= ======= ======= =======
Weighted average common shares
outstanding (audited):
Basic........................... -- 2,178 2,751 2,751 2,471
======= ======= ======= ======= =======
Diluted......................... 11,358 17,237 16,003 16,223 14,374
======= ======= ======= ======= =======
Pro forma (Note 2)(unaudited):
Accretion to redemption value
eliminated as a result of the
completion of initial public
offering......................... 739 3,476
Interest expense eliminated due to
debt conversion, net of tax
benefit.......................... 483 242
------- -------
Pro forma net income.............. $ 2,189 $ 1,314
======= =======
Pro forma earnings per common
share (unaudited)
Basic........................... $ .11 $ .07
======= =======
Diluted......................... $ .10 $ .06
======= =======
Pro forma weighted average number
of common shares outstanding--
(unaudited)
Basic........................... 19,671 19,709
======= =======
Diluted......................... 21,143 22,297
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars and shares in thousands)
<TABLE>
<CAPTION>
Series A Series B
Preferred Preferred Common Stock Treasury Stock
------------- ------------ ------------ Additional Retained --------------- Total
Par Par Par Paid-in Deferred Earnings Stockholders'
Shares Value Shares Value Shares Value Capital Compensation (Deficit) Shares At Cost Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December
31, 1995......... 2,880 $ 29 -- $-- -- $-- $ 2,566 -- $ (809) -- $ -- $ 1,786
Stock issued in
conjunction with
practice
affiliations.... 8,400 84 -- -- -- -- 10,416 -- -- -- -- 10,500
Stock issued in
connection with
acquisitions.... 96 1 -- -- -- -- 119 -- -- -- -- 120
Redemption of
shares.......... (272) (3) -- -- -- -- (337) -- -- -- -- (340)
Issuance of--
Series A
preferred stock. 480 5 -- -- -- -- 596 -- -- -- -- 601
Series B
preferred stock. -- -- 400 4 -- -- 996 -- -- -- -- 1,000
Net loss........ -- -- -- -- -- -- -- -- (912) -- -- (912)
Accumulated
deficit at date
of
incorporation... -- -- -- -- -- -- (1,721) -- 1,721 -- -- --
------ ---- --- ---- ----- ---- ------- ------- ------- ------ ------- -------
BALANCE, December
31, 1996......... 11,584 116 400 4 -- -- 12,635 -- -- -- -- 12,755
Stock issued in
conjunction with
practice
affiliations.... -- -- -- -- 2,748 27 5,265 -- -- -- -- 5,292
Redemption of
shares.......... -- -- -- -- -- -- -- -- -- (78) (187) (187)
Stock options
exercised....... 149 1 -- -- -- -- 183 -- -- -- -- 184
Net income...... -- -- -- -- -- -- -- -- 105 -- -- 105
------ ---- --- ---- ----- ---- ------- ------- ------- ------ ------- -------
BALANCE, December
31, 1997......... 11,733 117 400 4 2,748 27 18,083 -- 105 (78) (187) 18,149
Stock options
exercised/sold.. 7 -- -- -- 3 1 32 -- -- -- -- 33
Redemption of
Series A
preferred stock,
net............. -- -- -- -- -- -- (71) -- -- (1,228) (5,380) (5,451)
Issuance of
Treasury stock
in conjunction
with practice
affiliations.... -- -- -- -- -- -- (89) -- -- 799 3,345 3,256
Accretion of
Series C and D
preferred stock. -- -- -- -- -- -- -- -- (739) -- (739)
Net income...... -- -- -- -- -- -- -- -- 1,706 -- -- 1,706
------ ---- --- ---- ----- ---- ------- ------- ------- ------ ------- -------
BALANCE, December
31, 1998 ........ 11,740 117 400 4 2,751 28 17,955 -- 1,072 (507) (2,222) 16,954
(Unaudited):
Issuance of
Treasury stock
in conjunction
with practice
affiliations.... -- -- -- -- -- -- -- -- -- 270 1,182 1,182
Common stock
reacquired from
affiliate....... -- -- -- -- -- -- -- -- -- (437) (2,179) (2,179)
Stock options
exercised....... -- -- -- -- -- -- (421) -- -- 195 873 452
Deferred
compensation
expense......... -- -- -- -- -- -- 2,690 (2,690) -- -- -- --
Amortization of
deferred
compensation
expense......... -- -- -- -- -- -- -- 218 -- -- -- 218
Accretion of
Series C and D
preferred stock. -- -- -- -- -- -- -- -- (3,476) -- -- (3,476)
Net income...... -- -- -- -- -- -- -- -- 1,072 -- -- 1,072
------ ---- --- ---- ----- ---- ------- ------- ------- ------ ------- -------
BALANCE, June 30,
1999 (unaudited). 11,740 $117 400 $ 4 2,751 $ 28 $20,224 $(2,472) $(1,332) (479) $(2,346) $14,223
====== ==== === ==== ===== ==== ======= ======= ======= ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December Six Months Ended
31, June 30,
------------------------- ------------------
1996 1997 1998 1998 1999
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)............. $ (912) $ 105 $ 1,706 $ 585 $ 1,072
Adjustments to reconcile net
income (loss) to net cash
provided (used) in operating
activities, net of effects of
purchase transactions--
Depreciation and
amortization............... 806 2,226 3,333 1,480 2,225
Amortization of deferred
compensation............... -- -- -- -- 218
Deferred taxes.............. -- 171 1,237 -- --
Preferred stock issued for
services................... -- 125 -- -- --
Minority interests.......... 5 41 (46) 42 --
Loss on disposition of
property and equipment..... -- 589 -- -- --
Changes in non-cash working
capital items--
Accounts receivable and
due (to) from affiliated
providers, net........... (1,059) (3,015) (3,204) (1,622) (1,478)
Inventory................. (55) (5) (374) (71) (400)
Other current assets...... (538) (374) (260) 22 (322)
Other noncurrent assets... -- (180) (70) 24 111
Accounts payable, accrued
expenses and income taxes
payable.................. 1,055 (105) 65 (227) (420)
------- ------- ------- -------- --------
Net cash provided (used)
in operating
activities............. (698) (422) 2,387 233 1,006
------- ------- ------- -------- --------
Cash flows from investing
activities:
Purchases of property and
equipment.................... (1,302) (2,875) (4,466) (2,293) (3,906)
Acquisitions of and
affiliations with entities... (110) (2,222) (3,649) (217) (6,337)
Receipt (issuance) of notes
receivable from affiliated
providers.................... (75) (1,918) 1,491 (400) 472
------- ------- ------- -------- --------
Net cash used in
investing activities... (1,487) (7,015) (6,624) (2,910) (9,771)
------- ------- ------- -------- --------
Cash flows from financing
activities:
Borrowings under revolving
line of credit............... -- 3,000 14,735 -- 18,900
Payments under revolving line
of credit.................... -- (3,000) (6,250) -- (10,485)
Payments of subordinated debt. -- -- (3,700) -- (850)
Proceeds from the issuance of
preferred stock, net of
issuance costs............... 7,394 6,946 3,044 3,015 451
Payments for the redemption of
preferred stock, net of
transaction costs............ (340) (187) (5,262) -- --
Other long-term debt and
capital lease obligations.... 440 (1,264) (464) (168) (262)
------- ------- ------- -------- --------
Net cash provided by
financing activities... 7,494 5,495 2,103 2,847 7,754
------- ------- ------- -------- --------
Net increase (decrease) in cash
and cash equivalents........... 5,309 (1,942) (2,134) 170 (1,011)
Cash and cash equivalents,
beginning of year.............. 642 5,951 4,009 4,009 1,875
------- ------- ------- -------- --------
Cash and cash equivalents, end
of year........................ $ 5,951 $ 4,009 $ 1,875 $ 4,179 $ 864
======= ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information as of June 30, 1999 and for the six months ended June 30, 1998 and
1999 is unaudited
(Dollars in thousands, except per share data)
1. GENERAL INFORMATION
Description of the Business
NovaMed Eyecare, Inc. (NovaMed) along with its wholly-owned subsidiaries
(collectively, the Company), is an eye care services company engaged in the
business of: (i) owning, operating and/or managing eye surgery and laser
centers, optical retail outlets, wholesale optical laboratories, and an optical
products purchasing organization; (ii) providing financial, administrative,
information technology, marketing and other business services to ophthalmic and
optometric providers; and (iii) providing clinical and other research services
to eye care device, product and pharmaceutical manufacturers. The Company
operates within the United States in regional markets including Chicago,
Illinois; St. Louis, Missouri; Kansas City, Missouri; Louisville, Kentucky and
Richmond, Virginia.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Financial Statement Presentation
The consolidated financial statements have been prepared on the accrual
basis of accounting and include the accounts of the Company and its wholly
owned subsidiaries. The Company acquires certain net operating assets and
assumes certain liabilities of physician groups (the Affiliated Professional
Entities). The Company provides services, facilities and equipment to our
affiliated eye care professionals under long-term service agreements (SA). Each
of the SAs is generally for a 40-year term and requires the Company to provide
all of the business, administrative and financial services necessary to operate
the eye care clinics and optical dispensaries. These services typically
include:
. billing, collection and cash management services
. procuring and maintaining all office space, office and medical supplies,
medical and nonmedical equipment, information systems, and furniture and
fixtures
. recruiting, employing, supervising and training all non-professional
personnel
. recruiting services relating to our affiliated professionals, recruiting
of additional ophthalmologists and optometrists
. all administrative and support services
. information technology services
. marketing services
. assisting our affiliated professionals with the establishment and
implementation of quality assurance, risk management and utilization
review programs
. assisting our affiliated professionals in obtaining and maintaining
federal, state and local licenses and permits
. negotiating managed care contracts on behalf of our affiliated eye care
professionals
The SAs provide that the Affiliated Professional Entities retain sole and
exclusive control over the dispensing of all medical and other professional
services to their patients. The SAs also provide that the Affiliated
Professional Entities:
. retain control over all decisions relating to the selecting, hiring,
compensating and terminating of eye care professionals
F-8
<PAGE>
. retain control over all corporate governance decisions and other internal
matters affecting the operation of their legal entities
. employ or otherwise retain a sufficient number of ophthalmologists and
optometrists to provide professional eye care services to their patients.
Under the SAs, the Company is generally required to pay all expenses
incurred in connection with the business and medical operations of the eye care
clinics and optical dispensaries, except for the salaries and benefits of those
eye care professionals who have an ownership interest in the professional
entity employing them. The Affiliated Professional Entities then reimburse the
Company on a monthly basis for those expenses that are paid on the Affiliated
Professional Entities' behalf.
In addition to being reimbursed for eye care clinic and optical dispensary
overhead, the Company is paid a monthly fee for its services. This fee is
generally based on a fixed monthly amount established in an annual budget that
the Company negotiates each year with its Affiliated Professional Entities. If
the revenue or expenses of the eye care clinics and retail optical outlets in
any month vary from the budget for that month, then the fee is adjusted to
reflect the actual results of the eye care clinics and retail optical outlets.
There are no limitations on the amount of these fee adjustments. On average,
the fees paid to the Company in 1998 represented approximately 35.7% of the
earnings before interest and taxes of the Affiliated Professional Entities. The
earnings of the Affiliated Professional Entities are determined by subtracting
the expenses of the eye care clinics and retail optical outlets from the net
professional services and other revenues earned by the Affiliated Professional
Entity. These expenses generally include all expenses incurred in connection
with the business and medical operations of the Affiliated Professional Entity,
except for any salaries and benefits of those eye care professionals who have
an ownership interest in the Affiliated Professional Entity. Each Affiliated
Professional Entity is then responsible for paying the salaries and benefits of
its eye care professional-owners from the amount retained by the Affiliated
Professional Entity after paying the management fee.
The SAs are generally not terminable by the Affiliated Professional Entities
unless a court makes a final determination that the Company has breached a
material fiduciary duty owed to the eye care professionals, or that the Company
has misappropriated or misapplied funds of the eye care professionals. The
Company generally can not terminate the SAs unless:
. one or a group of Affiliated Professionals loses their medical license
. the professional entity loses its Medicare provider number or ability to
treat Medicare patients
. the professional entity is dissolved or goes bankrupt
. or the affiliated eye care professionals default in the performance of
any of their material duties
The Company does not generally enter into nominee shareholder arrangements with
Affiliated Professional Entities, nor does it have a "controlling financial
interest" in the Affiliated Professional Entities as defined by EITF 97-2,
"Applications of FASB Statement No. 94 and APB No. 16 to Physician Practice
Management Entities and Certain Other Entities under Contractual Management
Arrangements". Accordingly, the Company does not consolidate the financial
statements of the Affiliated Professional Entities. All significant
intercompany accounts and transactions have been eliminated.
Interim Financial Information
The financial information as of June 30, 1999, and for the six months ended
June 30, 1998 and 1999 is unaudited but includes all adjustments (consisting
only of normal recurring adjustments) which the Company considers necessary for
a fair presentation of the financial position at such date and the operating
results and cash flows for those periods. Results for the six months ended June
30, 1999 are not necessarily indicative of the results to be expected for the
entire year.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid instruments with an
original maturity of three months or less from the date of purchase.
F-9
<PAGE>
Due (To) From Affiliated Providers
Amounts due (to) from affiliated providers, which are unsecured, non-
interest-bearing and due on demand, include amounts owed to Affiliated
Professional Entities for services performed under SAs, receivables from
Affiliated Professional Entities and affiliated providers for expenses paid on
their behalf and certain other receivables.
Inventory
Inventory consists primarily of optical products such as spectacle frames
and lenses as well as surgical supplies used in connection with the operation
of the Company's Surgery and Laser Centers (SLCs). Inventory is valued at the
lower of cost or market, with cost determined using the first-in, first-out
(FIFO) method. The Company routinely reviews its inventory for obsolete, slow
moving or otherwise impaired inventory and records a related expense in the
period such impairment is known and quantifiable. The Company recorded an
immaterial expense for obsolete and slow moving inventory for the years ended
December 31, 1996, 1997 and 1998.
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is calculated using the straight-line method over the estimated
useful lives of the related assets, generally three to seven years for
equipment, computer software, furniture and fixtures, and the lesser of the
lease term or 10 years for leasehold improvements. Routine maintenance and
repairs are charged to expense as incurred.
Intangible Assets
The Company's affiliations involve the purchase of tangible and intangible
assets and the assumption of certain liabilities. As part of the purchase price
allocation, the Company allocates the purchase price to the tangible assets
acquired and liabilities assumed, based on estimated fair market values.
Because the Company does not practice medicine, maintain patient relationships,
hire physicians or enter into employment agreements with the physicians, the
intangible asset created in the affiliation is solely with the SA for the
Affiliated Professional Entity and that there are no other significant,
identifiable intangible assets. In connection with the determination of the
appropriate life of the SAs' identifiable intangible assets, the Company
analyzes the nature of each Affiliated Professional Entity with which an SA is
entered into, including the Affiliated Professional Entity's historical
profitability, the number of physicians in each Affiliated Professional Entity,
number of service sites, ability to recruit additional physicians, relative
market position, the length of time each Affiliated Professional Entity has
been in existence, and the term of the SA. Based on this practice-by-practice
evaluation, the Company's SAs are amortized over a composite period ranging
between 5 and 25 years. For practices with a 25-year amortization period, the
Company believes that the related physician groups are long-lived entities with
an indeterminate life and that the physicians, patient demographics and
customer relationships will be continuously replaced. In addition, for these
practices, none of the Affiliated Professional Entities nor physicians,
individually, are material to the results of operations of the Company. Also,
each Affiliated Practice Entity has been profitable since the date of
Affiliation. The Company also has the right to require the Affiliated
Professional Entity to purchase and assume the assets (including unamortized
intangible assets) and liabilities and obligations provided by the practice
upon the involuntary termination of the SA.
Effective January 1, 1998, on a prospective basis the Company changed its
estimate of the maximum useful lives of intangible assets associated with
affiliations under SAs from 32 years to 25 years. This change was made to
conform the Company's policy with that adopted by other healthcare services
companies during 1998 and to better represent the useful lives of the SAs. Of
the 23 practice affiliations completed through December 31, 1998, 9 SAs are
being amortized over a 5 to 15 year period with the remainder being amortized
over 25 years.
Impairment of Long-Lived Assets
The Company reviews the carrying value of the long-lived assets and goodwill
at least quarterly on an entity by entity basis to determine if facts and
circumstances exist which would suggest that assets might be
F-10
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
impaired or that the amortization period needs to be modified. Among the
factors the Company considers in making the evaluation are changes in the
Affiliated Professional Entity or SLC's market position, reputation,
profitability and geographical penetration. If facts and circumstances are
present which may indicate impairment is probable, the Company will prepare a
projection of the undiscounted cash flows of the specific Affiliated
Professional Entity/SLC and determine if the long-lived assets and/or goodwill
are recoverable based on these undiscounted cash flows. If impairment is
indicated, then an adjustment will be made to reduce the carrying amount of
these assets to their fair value. To date, no such impairments have been
incurred.
Income Taxes
The Company uses the liability method of accounting for income taxes in
accordance with Statement of Financial Statement Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes." Deferred income taxes reflect the net
tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income
tax purposes, using enacted tax rates in effect for the year in which the
differences are expected to reverse. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
Fair Value of Financial Instruments
The carrying value of all financial instruments such as accounts receivable,
amounts due (to) from affiliated providers, accounts payable and accrued
expenses are reasonable estimates of their fair value because of the short
maturity of these items. The Company believes the carrying amounts of the
Company's note receivable from related parties, subordinated debt, line of
credit and obligations under capital leases approximate fair value because the
interest rates on these instruments are subject to change with, or approximate,
market interest rates.
Minority Interests
The Company owned 75% of two SLC's, and recorded the results of their
operations under the consolidation method of accounting. The interests of the
minority owners in the earnings of these SLCs are reflected as minority
interests in the consolidated balance sheets.
In November 1998, the Company purchased the remaining minority interests of
two SLCs held by certain persons associated with Affiliated Professional
Entities for 160,000 shares of the Company's Series A convertible preferred
stock. Accordingly, the Company now owns 100% of 10 SLCs. The acquisition of
the minority interests was accounted for under the purchase method of
accounting.
Revenue Recognition
Management Services
Management services revenue is equal to the net revenue of the Affiliated
Professional Entities, less amounts retained by the Affiliated Professional
Entities. The amounts retained by the Affiliated Professional Entities
represent the net billings of the Affiliated Professional Entities less
operating expenses and the Company's management fee. Management services
revenue is recognized when the Affiliated Professional Entities render services
and recognize operating expenses under the accrual method of accounting. Net
revenue is recorded by the Affiliated Professional Entities at established
rates reduced by a provision for contractual adjustments and doubtful accounts.
Contractual adjustments arise due to the terms of certain reimbursement
contracts. Such adjustments represent the difference between the charges at
established rates and estimated recoverable amounts and are recognized in the
period the services are rendered. Any differences between estimated contractual
adjustments and actual final settlements under reimbursement contracts, which
are immaterial, are recognized as contractual adjustments in the period of
final settlements.
F-11
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the years ended December 31, 1996, 1997 and 1998 and the six months
ended June 30, 1998 and 1999, management services revenue was as follows:
<TABLE>
<CAPTION>
Six Months
Years Ended December 31, Ended June 30,
-------------------------- ----------------
1996 1997 1998 1998 1999
(unaudited)
<S> <C> <C> <C> <C> <C>
Net revenue of the Affiliated
Professional Entities........ $13,880 $32,263 $ 46,374 $18,967 $30,093
Less--amounts retained by
Affiliated Professional
Entities..................... (3,554) (7,862) (10,321) (3,836) (5,667)
------- ------- -------- ------- -------
$10,326 $24,401 $ 36,053 $15,131 $24,426
======= ======= ======== ======= =======
</TABLE>
For the years ended December 31, 1997 and 1998, the management services
revenue of one Affiliated Professional Entity accounted for 15.9% and 15.4% of
total net revenue, respectively.
Surgery and Laser Centers Revenue
Revenue derived from SLCs is based on fees charged to patients, third-party
payors or others for use of the SLCs and relate primarily to cataract, laser
vision correction and other refractive surgery procedures. SLC revenue is net
of contractual adjustments and a provision for doubtful accounts. Although the
Company does not separately track contractual adjustments and provisions for
doubtful accounts, management believes that the amounts related to bad debts
are immaterial for all periods presented. This revenue is recognized by the
Company and is not subject to SAs.
Optical Product Sales and Other
Through 1998, optical product sales consisted solely of an optical products
purchasing organization (the Alliance). The Alliance negotiates volume buying
discounts with optical products manufacturers. Products are sold to both
affiliated and non-affiliated ophthalmologists and optometrists. All sales to
affiliated ophthalmologists and optometrists are eliminated in consolidation.
Most of the products are shipped directly from the manufacturer to the
customer. Revenue is recognized, net of an allowance for returns, based on the
amount billed to the customer and is recorded upon receipt of the invoice from
the manufacturer or the shipping date if shipped from the Alliance. Beginning
in January 1999, the Company acquired a wholesale optical laboratory, Midwest
Uncuts, Inc. which manufactures and distributes corrective lenses and
eyeglasses (see note 3).
Cost of sales and medical supplies
Cost of sales and medical supplies includes the cost of optical products
such as frames, optical lenses, contact lenses and medical supplies.
Earnings (Loss) Per Common Share
Since the Series A and Series B Convertible Preferred Stock participate
along with the common stock in the Company's earnings, the Company uses the two
class method for calculation of earnings per share (EPS). Under the two class
method, earnings or loss is allocated to the Series A and Series B convertible
preferred stock as one class, and to common stock as a second class. For each
class of stock, Basic EPS is calculated by dividing allocated earnings (loss)
allocable to the class by the weighted average number of shares outstanding of
that class during the period. Diluted EPS is calculated by dividing net income
(loss) by the weighted average number of common shares, including the dilutive
effect of potential common shares outstanding during the period. Potential
common shares consist of outstanding options, warrants, convertible debt and
preferred stock. The dilutive effect of options and warrants are calculated
using the treasury stock method. The dilutive effect of the Series A and Series
B convertible preferred shares are calculated using the if converted method.
F-12
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In 1996, there were no earnings for the period in which the common stock
was outstanding, and therefore, the entire loss was allocated to the class of
convertible preferred stock for Basic EPS. For 1997 and 1998, total earnings
were allocated to each class of stock based upon the weighted average shares
outstanding for each class as a percentage of total weighted average shares
outstanding.
Earnings (loss) per common share is calculated as follows (amounts in
thousands, except per share data):
<TABLE>
<CAPTION>
Years Ended Six Months
December 31, Ended June 30,
------------------------ ---------------
1996 1997 1998 1998 1999
(unaudited)
<S> <C> <C> <C> <C> <C>
Income (loss) available to Series A
and B convertible preferred and
common stockholders................. $ (912) $ 105 $ 967 $ 416 $(2,404)
Income (loss) allocated to preferred
stockholders........................ (912) 89 784 339 (1,991)
------- ------- ------- ------- -------
Income (loss) available to common
stockholders-basic.................. $ -- $ 16 $ 183 $ 77 $ (413)
======= ======= ======= ======= =======
Income (loss) available to common
stockholders-diluted................ $ (912) $ 105 $ 967 $ 416 $(2,404)
======= ======= ======= ======= =======
Basic weighted average number of
common shares outstanding........... -- 2,178 2,751 2,751 2,471
Weighted average number of common
shares issuable upon the conversion
of dilutive preferred shares........ 11,358 14,624 11,780 12,055 11,903
Effect of dilutive securities--stock
options............................. -- 435 1,472 1,417 --
------- ------- ------- ------- -------
Diluted weighted average number of
shares outstanding.................. 11,358 17,237 16,003 16,223 14,374
======= ======= ======= ======= =======
Earnings (loss) per common share:
Basic.............................. $ -- $ 0.01 $ 0.07 $ 0.03 $ (0.17)
======= ======= ======= ======= =======
Diluted............................ $ (0.08) $ 0.01 $ 0.06 $ 0.03 $ (0.17)
======= ======= ======= ======= =======
</TABLE>
The effect of the subordinated exchangeable notes is anti-dilutive in all
periods presented and, accordingly, is excluded from diluted EPS.
Additionally, the effect of the conversion of the Series C and Series D
convertible preferred stock is anti-dilutive for the year ended December 31,
1998 and the six months ended June 30, 1999. Also, the effect of dilutive
securities--stock options for the six months ended June 30, 1999 have been
excluded as their effect is anti-dilutive.
Stock Compensation
In October 1995, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123, "Accounting for Stock-Based Compensation", which allows entities
to measure compensation costs related to awards of stock based compensation
using either the fair value method or the intrinsic value method. The Company
has elected to account for stock-based compensation programs using the
intrinsic value method. See Note 12 for the pro forma disclosures of the
effect on net income (loss) and earnings (loss) per share.
Concentration of Credit Risk
For the years ended December 31, 1996, 1997 and 1998, approximately 67%,
61% and 49%, respectively, of the Company's net revenue was received from
Medicare and other governmental programs, which reimburse providers based on
fee schedules determined by the related governmental agency. In the ordinary
course of business, providers receiving reimbursement from Medicare and other
governmental programs are potentially subject to a review by regulatory
agencies concerning the accuracy of billings and sufficiency of supporting
documentation.
F-13
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(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 at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Unaudited Pro Forma Information
The unaudited pro forma consolidated balance sheet presents the Company's
balance sheet assuming (i) the conversion of 11,740,055 issued shares of Series
A convertible preferred stock into common stock on a share for share basis;
(ii) the conversion of 400,000 issued shares of Series B convertible preferred
stock into common stock on a share for share basis; (iii) the conversion of
2,000,000 issued shares of Series C convertible preferred stock into common
stock on a share for share basis; (iv) the conversion of 2,323,837 issued
shares of Series D convertible preferred stock into common stock on a share for
share basis; (v) the issuance of 1,010,412 shares of common stock upon the
exchange of the subordinated exchangeable promissory notes; and (vi) an
additional interest expense of $2.0 million, net of tax benefits, related to
the discount granted to the holders of the subordinated exchangeable notes,
which will occur automatically upon completion of the Company's proposed
initial public offering, as if the foregoing took place on June 30, 1999.
The unaudited pro forma earnings (loss) per share for the 12 months ended
December 31, 1998 and the six months ended June 30, 1999, is presented
assuming: (i) the accretion of the Series C and Series D convertible preferred
stock is excluded, (ii) the automatic conversion of preferred stock into shares
of the Company's common stock; and (iii) the issuance of 1,010,412 shares of
the Company's common stock upon exchange of the subordinated exchangeable
promissory notes, and the elimination of the additional interest expense to be
recorded by the Company related to the discount on the exchange of the notes.
3. AFFILIATIONS AND ACQUISITIONS
The Company acquires certain net assets of Affiliated Professional Entities
and the entire operations of the SLCs. In addition, the Company acquires the
right to provide services to Affiliated Professional Entities.
<TABLE>
<CAPTION>
Affiliated Professional Entity Effective Date Location
- ------------------------------ -------------- --------
<S> <C> <C>
1998:
Eyecare Midwest..................... July 1, 1998 Kansas City, MO
Louisville Optical Centers.......... September 24, 1998 Louisville, KY
1997:
Dominion Eye Associates (1)......... January 1997 Richmond, VA
Hunkeler Vision Centers (1)......... March 1997 Kansas City, MO & KS
American Eye Institute (1).......... May 1997 New Albany, IN
1996:
Brodersen-Williams Eye Institute
(1)................................ January 1996 Hammond, IN
Deschamps Eye Care (1).............. January 1996 Merrillville, IN
Walter I. Fried..................... January 1996 Gurnee, IL
Kirk Eye Center (1)................. January 1996 River Forest, IL
Northshore Eye Associates (1)....... January 1996 Chicago, IL
Northwest Ophthalmology Associates.. January 1996 Arlington Heights, IL
The Eye Center (1).................. November 1996 Florissant, MO
Illinois Eye Specialists (1)........ November 1996 Granite City, IL
</TABLE>
- --------
(1)Affiliation includes SLC(s)
F-14
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The acquisitions of nonmedical operating assets and liabilities have been
accounted for using the purchase method of accounting and, accordingly, the
purchase price has been allocated to the tangible assets acquired and
liabilities assumed based on the estimated fair values at the dates of
acquisition. Simultaneous with each acquisition, the Company entered into an SA
with each Affiliated Professional Entity. The following is an allocation of
purchase price for the acquisitions completed during the years 1996, 1997 and
1998:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Intangible assets acquired.......................... $ 13,519 $17,746 $ 6,920
Net assets acquired................................. 3,711 (570) (15)
-------- ------- -------
Total purchase price............................ 17,230 17,176 6,905
Less--
Fair value of stock issued........................ (10,620) (5,290) (3,256)
Notes issued...................................... (6,500) (9,664) --
-------- ------- -------
Cash purchase price............................. $ 110 $ 2,222 $ 3,649
======== ======= =======
</TABLE>
In January 1999, the Company acquired Midwest Uncuts, Inc., a wholesale
optical laboratory with two manufacturing locations, from a related party. The
transaction was accounted for by the purchase method of accounting and the
results of operations are included in the consolidated financial statements
since the date of acquisition. The consideration for the acquisition consisted
of $5.4 million of cash and 250,000 shares of Series A convertible preferred
stock issued at a value of $4.38 per share.
In addition, in January 1999 the Company acquired the stock of, and entered
into an SA with, an optometric practice located in St. Louis, Missouri.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of December 31, 1997 and
1998:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Equipment.................................................. $ 4,953 $ 8,792
Equipment under capital lease obligations.................. 993 1,039
Computer software.......................................... 492 1,006
Furniture and fixtures..................................... 373 608
Leasehold improvements..................................... 1,300 1,996
------- -------
8,111 13,441
Less--Accumulated depreciation and amortization............ (1,619) (3,548)
------- -------
$ 6,492 $ 9,893
======= =======
</TABLE>
Depreciation and amortization expense for property and equipment in 1996,
1997 and 1998 was approximately $531, $1,363 and $1,946, respectively. In
addition, during 1997, the Company replaced its management software system and,
as a result, recorded an expense for the write-off of the net book value of
approximately $589, which is included in other expense on the accompanying
consolidated statements of operations.
5. INTANGIBLE ASSETS
Intangible assets consist of the following as of December 31, 1997 and 1998:
<TABLE>
<CAPTION>
Amortization
Period 1997 1998
<S> <C> <C> <C>
SAs........................................ 5-25 Years $31,265 $38,185
Less--Accumulated amortization........... (1,138) (2,525)
------- -------
$30,127 $35,660
======= =======
</TABLE>
F-15
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Amortization expense for intangible assets in 1996, 1997 and 1998 was
approximately $275, $863 and $1,387, respectively. Effective January 1, 1998,
the Company reduced the maximum useful life of the costs associated with
affiliations under the SAs from 32 years to 25 years. This change was made to
conform the Company's policy with that adopted by other healthcare services
companies during 1998 and to better represent the useful lives of the SAs. The
change in the estimated useful life was treated on a prospective basis and
increased 1998 amortization expense by $250.
6. ACCRUED EXPENSES
Accrued expenses consist of the following as of December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Accrued payroll and related................................ $1,640 $1,988
Accrued interest........................................... 768 674
Accrued other.............................................. 403 635
------ ------
$2,811 $3,297
====== ======
</TABLE>
7. INCOME TAXES
The provision for income tax expenses consists of the following for the
years ended December 31, 1996, 1997 and 1998:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Current--
Federal................................................ $-- $ 31 $ 366
State.................................................. -- 4 61
---- ---- ------
-- 35 427
---- ---- ------
Deferred--
Federal................................................ -- 151 1,062
State.................................................. -- 20 175
---- ---- ------
-- 171 1,237
---- ---- ------
$-- $206 $1,664
==== ==== ======
</TABLE>
Prior to the Recapitalization discussed in Note 11, income for federal
income tax purposes was recognized by the members of NovaMed Eyecare
Management, LLC (NovaMed LLC) rather than the Company. Simultaneous with the
Recapitalization, the Company became a taxable entity. During the period from
the Recapitalization through December 31, 1996, the Company incurred a taxable
net loss and, accordingly, no provision for income taxes was recorded. As of
December 31, 1996, the Company recorded a valuation allowance equal to the
benefit related to the net operating loss carryforward.
The reasons for the differences between the income tax expense and the
amounts calculated using the U.S. statutory rate of 34% were as follows:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Tax expense at U.S. statutory rate.................... $-- $ 106 $1,146
Intangible asset amortization......................... -- 192 283
State taxes, net...................................... -- 49 235
Reversal of valuation allowance related to operating
loss carryforward.................................... -- (141) --
---- ----- ------
Provision for income taxes.......................... $-- $ 206 $1,664
==== ===== ======
</TABLE>
F-16
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred tax assets (liabilities) are comprised of the following at December
31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Current deferred tax assets (liabilities)
Compensation accruals.................................. $ 231 $ 98
Receivable allowances.................................. 110 220
Other.................................................. (173) (130)
----- -------
168 188
----- -------
Long-term deferred tax assets (liabilities)
Depreciation and amortization.......................... (476) (1,168)
Disposal of property................................... 198 --
Acquisitions........................................... (143) (335)
Other.................................................. (208) (199)
----- -------
(629) (1,702)
----- -------
$(461) $(1,514)
===== =======
</TABLE>
The Company paid no amounts for income taxes in 1996 and 1997, and $594
during 1998.
8. LONG-TERM DEBT
Long-term debt consists of the following as of December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Subordinated exchangeable promissory notes.............. $15,600 $11,900
Revolving line of credit................................ -- 8,485
Other................................................... 682 342
------- -------
16,282 20,727
Less: Current maturities of long-term debt.............. (444) (300)
------- -------
$15,838 $20,427
======= =======
</TABLE>
Subordinated Exchangeable Promissory Notes
The Company issued subordinated exchangeable promissory notes (the Notes) in
connection with the acquisition of certain net assets of Affiliated
Professional Entities and certain SLCs, and the right to provide services to
Affiliated Professional Entities. Each Note has a term of 15 years, with the
entire principal balance payable at the end of such term and bears interest at
a rate of 8.25% payable quarterly. The Notes originally contained certain
redemption features which allowed holders to require the Company to redeem the
face amount of the Notes, plus all accrued and unpaid interest, within a
prescribed time frame at the second anniversary of the issuance of such Notes.
The Company has renegotiated with the Note holders whereby the holders have
extended their redemption rights. The holders can now redeem $3,100 in May
2000, $1,000 in June 2000, $1,550 in November 2000 and $5,400 in January 2001.
Each Note also contains the following features, which are triggered upon an
initial public offering (IPO) of the Company or any affiliate (Public Company):
(a) 25% of $6,200 face amount notes and 90% of $4,100 face amount notes are
automatically exchanged into common stock of Public Company at a 20% discount
to the IPO price; and (b) the holder may elect to (i) exchange the remaining
principal balance of the Note into common stock of Public Company at the 20%
discount to the IPO price, (ii) require the Company to redeem the remaining
principal balance of the Note, plus all accrued and unpaid interest, (iii)
maintain the Note or (iv) select a combination of any or all of (i) through
(iii). The Company, 90 days after an IPO, may elect to redeem any outstanding
balance plus accrued interest without penalty. Upon exchange of the Notes, the
company will incur a non-recurring non-cash expense equal to the 20% discount
to the IPO price. Such amount will be recorded as additional interest expense
on the date of the IPO. The Notes contain provisions subordinating the holders'
rights and priorities to the rights of any holders of senior debt.
F-17
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During 1996 and 1997, the Company issued Notes with aggregate principal
amounts of $6,100 and $9,500 respectively, in connection with the practice
affiliations and the acquisition of SLCs.
Revolving Credit Facility
The Company has entered into a $20 million credit agreement (the Credit
Facility) which provides for a revolving line of credit that expires in July
2000. Interest is payable at LIBOR, plus an applicable margin ranging from 1.5%
to 2.0%, depending on the Company's leverage ratios (as defined), or at the
prime rate minus .50%. As of December 31, 1998, the effective interest rate on
the Credit Facility was 7.16%. In addition, again depending on the Company's
leverage ratio, the Company must pay a commitment fee ranging from .25% to
.375% for the unused portion during the revolving commitment period. The Credit
Facility contains certain covenants, which include limitations on indebtedness,
liens, capital expenditures and certain ratios, which define borrowing
availability. In addition, the Company must maintain a minimum net worth (as
defined in the agreement) of $40 million. As of December 31, 1998, the Company
was in compliance (or has obtained waivers) with the covenants of the Credit
Facility.
In May 1999, the Company further amended its Credit Facility to increase the
total commitment to $35 million.
Interest Expense
The Company paid $20, $624 and $1,417 for interest and commitment fees
during 1996, 1997 and 1998, respectively.
9. OPERATING LEASES
The Company has commitments under long-term, non-terminable operating
leases, principally for facility and office space. Lease terms generally cover
one to ten years. Certain leases contain consecutive renewal options of five-
year periods. At December 31, 1998, minimum annual rental commitments under
operating leases with terms in excess of one year are as follows:
<TABLE>
<S> <C>
1999............................................................. $ 3,666
2000............................................................. 3,299
2001............................................................. 1,915
2002............................................................. 1,662
2003 and thereafter.............................................. 3,280
-------
Total minimum lease payments................................. $13,822
=======
</TABLE>
Rent expense related to operating leases amounted to approximately $1,060,
$2,911, and $3,627 during 1996, 1997 and 1998, respectively.
10. COMMITMENTS AND CONTINGENCIES
Litigation
The Company is subject to various claims and legal actions that arise in the
ordinary course of business. In the opinion of management, the ultimate
resolution of such matters will not have a material adverse effect on the
Company's financial position or results of operations.
F-18
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Professional Liability Risk
The Company maintains third party professional liability insurance for its
SLC and business activities and procures insurance for its Affiliated
Professional Entities through a third-party insurer. Although the Company
believes that this insurance is adequate as to the amounts at risk, there can
be no assurance that any claim asserted against the Company will not exceed the
coverage limits of such insurance.
Insurance
The Company and the Affiliated Professional Entities are insured with
respect to medical malpractice risks on a claims-made basis. Management is not
aware of any claims against the Company or the Affiliated Professional Entities
that might have a material impact on the Company's financial position or
results of operations.
Purchase Commitment
During October 1998, the Company entered into an agreement with a vendor to
purchase approximately $3,400 in medical supplies over a term of 42 months. As
of December 31, 1998, the Company had $3,100 remaining on that commitment.
11. STOCKHOLDERS' EQUITY
NovaMed was incorporated in November 1996. In conjunction with a
recapitalization on December 20, 1996 (the Recapitalization), NovaMed issued
11,584,000 shares of Series A convertible preferred stock, par value $.01 per
share (Series A Stock), to replace previously granted 5,792 units of NovaMed
LLC. In addition, the Company issued options to purchase 1,528,000 shares of
Series A Stock in exchange for options to purchase 764 units of NovaMed LLC.
Contemporaneous with the Recapitalization, NovaMed issued 400,000 shares of
Series B convertible preferred stock, par value $.01 per share (Series B
Stock), for $2.50 per share; 2,000,000 shares of Series C convertible preferred
stock, par value $.01 per share (Series C Stock), for $3.00 per share; and
warrants to purchase an aggregate of 684,932 shares of Series D convertible
preferred stock, par value $.01 per share (Series D Stock), at $4.38 per share.
The Series B Stock, Series C Stock and the warrants to acquire Series D Stock
were issued under terms defined in a Securities Purchase Agreement (the
Securities Agreement), which provided for certain covenants and restrictions
including: (a) limitations on NovaMed's ability to issue additional shares
excluding shares issued in connection with a practice affiliation or SLC
acquisition and other prescribed exceptions; (b) subordination of Series A
Stock and Series B Stock to Series C Stock and Series D Stock (the Senior
Preferred Stock); (c) limitations on liens, guarantees and secured debt; and
(d) limitations on NovaMed's ability to enter into any practice affiliation or
acquisition involving the issuance of shares in excess of 20% of NovaMed's
value. In addition holders of the Senior Preferred Stock hold certain demand
and piggyback registration rights. The Securities Agreement provided that
certain investors were obligated to acquire, and NovaMed was obligated to
issue, an additional 456,621 shares of Series D Stock at a price of $4.38 per
share upon the attainment of a defined threshold of earnings before interest,
taxes, depreciation and amortization (the Trigger Event). NovaMed attained the
Trigger Event in 1997 and issued 456,621 shares of Series D Stock to the
prescribed investors at $4.38 per share and issued an additional 1,180,001
shares of Series D Stock to certain other investors at $4.38 per share. In
addition, holders of Senior Preferred Stock received certain registration
rights in connection with the transaction. The holders of preferred stock have
the right to vote on a share-for-share basis.
In connection with the execution of the Securities Agreement, NovaMed
amended its articles of incorporation (the Amendment) to provide that holders
of at least two-thirds of the then outstanding Senior Preferred Stock may elect
to redeem for cash up to 50% of their respective shares each year after April
2004, and April 2005, at the greater of a prescribed liquidation preference
amount per share (the Carrying Value), or
F-19
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the fair value of such preferred stock as established by independent
appraisers. The Amendment provides for a mandatory conversion of each share of
convertible preferred stock to one share of common stock in the event NovaMed
undertakes a qualifying IPO.
Although the Company has not obtained an independent appraisal, it has
estimated the potential future redemption value based upon various transactions
with third parties and through comparison to comparable publicly traded
companies. Accordingly, the Company has recorded an accretion of $739 to
increase the carrying value of its Senior Preferred Stock as of December 31,
1998.
Series D Warrant Exercise
In April 1998, certain investors exercised warrants for $3,011 to acquire an
aggregate of 687,216 shares of Series D Stock issued under the Securities
Agreement.
Treasury Stock
On May 26, 1998, the Board of Directors authorized a repurchase of up to
1,200,000 shares of the Company's Series A convertible preferred stock. The
Company purchased a total of 1,188,414 shares at an aggregate cost of $5,262.
Throughout 1998, the Company reissued 798,987 shares of treasury stock in
connection with practice affiliations.
12. EMPLOYEE BENEFIT PLANS
Employee Benefits and Compensation
The Company maintains a voluntary savings plan (the Plan) for eligible
employees under section 401(k) of the Internal Revenue Code whereby
participants may contribute a percentage of up to 15% of their compensation.
During 1997, the Plan was amended to provide for the Company to match 50% of
the employee's contributions on the first 3% of salary contributed by each
employee. The Company's matching contributions approximated $16, $70 and $136
for 1996, 1997 and 1998, respectively.
Stock Option Plans
In August 1995, NovaMed LLC approved an employee stock option plan (the 1995
Plan) and reserved 1,000 limited liability company units for certain officers
and key employees of NovaMed LLC. Under the terms of the 1995 Plan, options
generally become exercisable over a three-year period with vesting beginning
six months from the date of each grant and 1/36th of the total options granted
become exercisable each month thereafter.
In December 1996, the Company adopted the NovaMed Holdings Inc. Stock
Incentive Plan (the 1996 Plan). Under the 1996 Plan, NovaMed authorized
1,528,000 shares of $.01 par value Series A Stock to replace unit options
granted under the 1995 Plan. At such time, NovaMed also authorized 1,468,800
shares of its common stock, par value $.01 per share (Common Stock), to be
reserved for future grants. Authorized options for common stock under the 1996
Plan are exercisable over a four-year period with vesting beginning six months
from the date of each grant and 1/48th of the total options granted becoming
exercisable each month thereafter. The option period for Common Stock options
is 10 years from the date each option is granted. In March 1997, NovaMed
amended the 1996 Plan and authorized options for an additional 1,000,000 shares
of Common Stock and options for 55,000 shares of Series B Stock. In October
1998, NovaMed further amended the 1996 Plan and authorized options for an
additional 1,200,000 shares of Common Stock. All current outstanding options
are nonqualified stock options.
F-20
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company grants stock options to employees and nonemployee members of the
Company's Board of Directors. Pursuant to Accounting Principles Board No. 25,
the Company recognizes as compensation expense the difference between the
exercise price and the fair market value of its common stock on the date of
grant. Stock based compensation expense is deferred and recognized over the
vesting period of the stock option. During the years ended December 31, 1996,
1997 and 1998, the Company did not recognize any stock based compensation
expense. During the six months ended June 30, 1999, the Company recognized
approximately $218 in stock based compensation expense. During July, 1999, the
Company fully vested all options granted from February 1, 1999 through July 23,
1999, contingent on the completion of this offering. The Company has issued
1,075,800 options during this time period. Accordingly, the Company expects to
record $1.6 million, net of tax, as compensation expense during the quarter in
which this offering is completed related to those options which become fully
vested on the date of the completion of this offering.
In addition, the Company grants stock options to physicians employed by
Affiliated Professional Entities. The physicians reimburse the Company in full
for the compensation charge taken upon the granting of these options, which is
equal to their estimated fair market value on the date of the grant as
determined by the Black-Scholes option-pricing model.
The following table summarizes the activity in the stock option plan:
<TABLE>
<CAPTION>
Weighted
Average
Options Price Per Exercise
Outstanding Share Price
<S> <C> <C> <C>
December 31, 1995........................ 690,000 $ 1.25 $1.25
Granted................................ 981,000 $1.25-$2.50 $1.35
Exercised.............................. -- -- --
Canceled............................... (155,000) $ 1.25 $1.25
---------
December 31, 1996........................ 1,516,000 $1.25-$2.50 $1.31
Granted................................ 1,932,500 $1.88-$4.38 $2.05
Exercised.............................. (150,374) $1.25-$1.88 $1.26
Canceled............................... (234,626) $1.25-$2.50 $1.45
---------
December 31, 1997........................ 3,063,500 $1.80
Granted................................ 1,061,000 $3.50-$6.00 $4.46
Exercised.............................. (7,388) $1.25-$2.50 $1.93
Canceled............................... (114,112) $1.25-$3.85 $2.04
---------
December 31, 1998........................ 4,003,000 $2.49
========= =====
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
-------------------------- ------------------
Exercise Average Average
Price Range Average Exercise Exercise
----------- Shares Life Price Shares Price
<S> <C> <C> <C> <C> <C>
$1.25 to $3.00................. 2,924,000 7.74 $1.77 1,871,065 $1.61
$3.01 to $6.00................. 1,079,000 9.48 4.46 81,519 3.73
--------- ---- ----- --------- -----
4,003,000 8.20 $2.49 1,952,584 $1.70
========= ==== ===== ========= =====
</TABLE>
The Company believes the exercise price of these stock options approximated
or exceeded the fair value of the applicable class of stock at the date of
grant based on the pricing of transactions involving the preferred stock as
discussed in Note 11, and the Company's financial condition at the date of
grant.
F-21
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following summarizes the pro forma effect on net income (loss) if the
fair values of stock based compensation had been recognized in the year
presented as compensation expense on a straight-line basis over the vesting
period of the grant:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Net income (loss) available to common stockholders.... $(1,099) $ 14 $578
======= ==== ====
Earnings (loss) per common share:
Basic............................................... $ -- $-- $.04
======= ==== ====
Diluted............................................. $ (.10) $-- $.04
======= ==== ====
</TABLE>
The fair value of these options was estimated using the minimum value method
with the following assumptions:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Expected option life in years........................... 10 10 10
Risk-free interest rate................................. 6.50% 6.06% 4.85%
Dividend yield.......................................... -- -- --
</TABLE>
13. OPERATING SEGMENTS
During 1998, the Company adopted SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. The Company manages its business
segments by types of service provided. The Company's reportable segments are as
follows:
Management services. Management services include medical services
provided to patients, the sale of optical products and research.
Surgery and Laser Centers. Surgery and laser centers include the results
of operations from owning, managing and operating surgery and laser
centers.
Product sales. Product sales include the Alliance optical products
purchasing organization, and beginning in 1999, Midwest Uncuts, a wholesale
optical laboratory and an optical products purchasing organization.
The accounting policies of the various segments are the same as those
described in the "Summary of Significant Accounting Policies" in Note 2, except
for the management services segment. Management services revenue is reported to
management using the net revenue of the Affiliated Professional Entities as the
total revenue. The revenue for the management services segment on the
accompanying Consolidated Statements of Operations is the net revenue of the
Affiliated Professional Entities reduced by amounts retained by the Affiliated
Professional Entities (See Note 2). Under either approach, the earnings before
income taxes (EBT) are identical.
The Company evaluates the performance of its segments based on EBT. Segment
EBT includes all revenue and expenses directly attributable to the segment
except amortization of intangible assets and excludes certain expenses that are
managed outside the reportable segment. Items excluded from the segment EBT
primarily consist of corporate expenses for salaries, wages and benefits,
general and administrative, interest on debt, and amortization of intangible
assets.
The Company excludes intercompany transfers for management reporting
purposes, as they have no effect on the EBT of the individual segments. Segment
identifiable assets include accounts receivable, inventory, other current
assets and long-lived assets of the segment. Corporate identifiable assets
represent all other assets of the Company including cash and cash equivalents,
corporate other current assets, and corporate long-lived assets, which include
property and equipment, notes receivable, intangible assets, and other long-
term assets. Capital expenditures for long-lived assets are not reported to
management by segment and are excluded, as presenting such information is not
practical.
F-22
<PAGE>
NOVAMED EYECARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Surgery
and
Management Laser Product
Services Centers Sales Corporate Eliminations Total
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Six months ended June
30, 1999
Net revenue........... $30,092 $13,290 $7,146 $ -- $ (5,666) $44,862
EBT................... 2,940 5,102 746 (6,847) -- 1,941
Depreciation and
amortization......... 529 395 51 1,250 -- 2,225
Interest (income)..... (9) -- (23) (41) -- (73)
Interest expense...... 2 1 -- 1,127 -- 1,130
Identifiable assets... 13,555 7,927 4,172 45,959 -- 71,613
======= ======= ====== ======== ======== =======
Six months ended June
30, 1998
Net revenue........... $18,947 $ 8,736 $3,418 $ -- $ (3,816) $27,285
EBT................... 2,208 3,066 228 (4,347) -- 1,155
Depreciation and
amortization......... 388 241 2 849 -- 1,480
Interest (income)..... (5) -- (4) (164) -- (173)
Interest expense...... 9 -- 1 691 -- 701
Identifiable assets... 8,832 5,295 908 40,973 -- 56,008
======= ======= ====== ======== ======== =======
1998--
Net revenue........... $46,285 $20,131 $7,545 $ -- $(10,232) $63,729
EBT................... 5,707 7,181 546 (10,064) -- 3,370
Depreciation and
amortization......... 874 563 5 1,891 -- 3,333
Interest (income)..... (14) -- (11) (248) -- (273)
Interest expense...... 17 1 1 1,527 -- 1,546
Identifiable assets... 12,120 7,236 1,301 42,022 -- 62,679
======= ======= ====== ======== ======== =======
1997--
Net revenue........... $32,253 $14,484 $3,523 $ -- $ (7,852) $42,408
EBT................... 4,192 5,349 173 (9,403) -- 311
Depreciation and
amortization......... 587 386 9 1,244 -- 2,226
Interest (income)..... -- (12) (4) (306) -- (322)
Interest expense...... -- 35 1 1,327 -- 1,363
Identifiable assets... 8,717 4,373 517 39,127 -- 52,734
======= ======= ====== ======== ======== =======
1996--
Net revenue........... $13,860 $ 5,303 $ 221 $ -- $ (3,534) $15,850
EBT................... 2,516 2,179 14 (5,621) -- (912)
Depreciation and
amortization......... 262 77 3 464 -- 806
Interest (income)..... -- -- -- (29) -- (29)
Interest expense...... -- -- -- 87 -- 87
Identifiable assets... 4,191 2,081 125 21,297 -- 27,694
======= ======= ====== ======== ======== =======
</TABLE>
The Company has no revenues attributed to customers outside of the United
States and no assets located in foreign countries.
F-23
<PAGE>
NOVAMED EYECARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
14. RELATED-PARTY TRANSACTIONS
Facility Rent
The Company leases facility space from various partnerships, which include
affiliated providers as partners and trusts in which relatives of the
affiliated providers are named beneficiaries. Rent expense on related-party
operating leases amounted to approximately $816, $1,290 and $1,457 during 1996,
1997 and 1998, respectively.
Notes Receivable
The Company holds notes receivable of $393 from physicians affiliated with
the Company. The loans bear interest rates between 9.0-9.5%, are secured
against future services, and are either payable upon demand of the Company or
within two years of issuance.
The Company presently holds a note receivable for a total of $400 from a
physician affiliated with the Company related to the purchase of a minority
interest in an SLC. The note bears interest at 6% and is payable annually. The
principal is due in 2001. The note is included in note receivable from related
party at December 31, 1997 and 1998, and was paid in full subsequent to March
31, 1999.
Other
The Company purchased optical supplies such as spectacle frames and lenses
from Midwest Uncuts, which was owned by individuals who are related to an
officer of the Company. Total payments for purchases of optical supplies from
Midwest Uncuts during 1996, 1997 and 1998 were approximately $520, $820, and
$982, respectively. The Company purchased Midwest Uncuts in January 1999 (see
Note 3).
The Company receives professional services from a firm that employs a
director of the Company. Total payments for services received during 1996, 1997
and 1998 were approximately $543, $516 and $422, respectively.
15. MIGRATORY MERGER
Effective May 28, 1999, the Company reincorporated in Delaware and changed
its name to NovaMed Eyecare, Inc.
F-24
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
7,132,971 Shares of Common Stock
-------------------
PROSPECTUS
-------------------
Donaldson, Lufkin & Jenrette
Hambrecht & Quist
William Blair & Company
------------------
DLJdirect Inc.
- --------------------------------------------------------------------------------
Until , 1999, all dealers selling shares of our common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This delivery requirement is in addition to the obligations of
dealers to deliver a prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
See forth below is an estimate of the approximate amount of fees and
expenses (other than underwriting commissions and discounts) payable by the
registrant in connection with the issuance and distribution of the common stock
pursuant to the prospectus contained in this registration statement. Registrant
will pay all of these expenses.
<TABLE>
<CAPTION>
Approximate
Amount
<S> <C>
Securities and Exchange Commission registration fee........... $29,646
NASD filing fee............................................... 10,500
Nasdaq National Market listing fee............................ *
Accountants' fees and expenses................................ *
Legal fees and expenses....................................... *
Transfer agent and registrar fees and expenses................ *
Printing and engraving expenses............................... *
Miscellaneous expenses........................................ *
-------
Total..................................................... $ *
=======
</TABLE>
- --------
* To be provided by amendment.
Item 14. Indemnification of Directors and Officers.
The registrant's Restated Certificate of Incorporation provides that the
registrant shall indemnify its directors to the full extent permitted by the
General Corporation Law of the State of Delaware and may indemnify its officers
and employees to such extent, except that the registrant shall not be obligated
to indemnify any such person (1) with respect to proceedings, claims or actions
initiated or brought voluntarily by any such person and not by way of defense,
or (2) for any amounts paid in settlement of an action indemnified against by
the registrant without the prior written consent of the registrant. Registrant
has entered into indemnity agreements with each of its directors. These
agreements may require the registrant, among other things, to indemnify such
directors against certain liabilities that may arise by reason of their status
or service as directors, to advance expenses to them as they are incurred,
provided that they undertake to repay the amount advanced if it is ultimately
determined by a court that they are not entitled to indemnification.
In addition, the registrant's Restated Certificate of Incorporation provides
that a director of the registrant shall not be personally liable to the
registrant or its stockholders for monetary damages for breach of his or her
fiduciary duty as a director, except for liability (1) for any breach of the
director's duty of loyalty to the registrant or its stockholders, (2) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) for willful or negligent conduct in paying
dividends or repurchasing stock out of other than lawfully available funds or
(4) for any transaction from which the director derives an improper personal
benefit.
Reference is made to Section 145 of the General Corporation Law of the State
of Delaware which provides for indemnification of directors and officers in
certain circumstances.
The registrant has purchased a directors' and officers' liability insurance
policy.
Under the terms of the underwriting agreement, the Underwriters have agreed
to indemnify, under certain conditions, the registrant, its directors, certain
of its officers and persons who control the registrant within the meaning of
the Securities Act of 1933, as amended.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities.
The following information reflects our recent sales of unregistered
securities:
On or about August 6, 1996, we issued 240 membership units in NovaMed
Eyecare Management, LLC to 20 investors consisting of individuals, joint
tenants and partnerships for an aggregate offering price of $600,000.
On or about November 1, 1996, we issued two subordinated exchangeable
promissory notes having an aggregate face value of $3,700,000 to two
affiliated eye care professionals in exchange for substantially all of the
nonmedical assets of an eye care practice, and a 75% interest in an eye
surgery and laser center.
On or about November 26, 1996, we issued 100 shares of common stock to
an individual investor for an aggregate offering price of $25.
On or about November 27, 1996, we issued two subordinated exchangeable
promissory notes having an aggregate face value of $2,000,000 to two
affiliated eye care professionals in exchange for substantially all of the
nonmedical assets of an eye care practice, and a 75% interest in an eye
surgery and laser center.
On or about December 20, 1996, in connection with our initial
restructuring in which we formed a holding company to hold all of the
ownership interests of our operating subsidiary, we issued 11,584,000
shares of Series A convertible preferred stock to all of the members of
NovaMed Eyecare Management, LLC in exchange for 5,792 units of membership
in NovaMed Eyecare Management, LLC in a tax-free reorganization.
On or about December 20, 1996, we issued 400,000 shares of Series B
convertible preferred stock to 19 investors consisting of individuals,
joint tenants and a partnership in exchange for an aggregate offering price
of $1,000,000.
On or about December 20, 1996, we issued 2,000,000 shares of Series C
convertible preferred stock and warrants to purchase 684,932 shares of
Series D convertible preferred stock to four investors consisting of
partnerships for an aggregate price of $6,010,000.
On or about January 1, 1997, we issued one subordinated exchangeable
promissory note having a face value of $5,400,000 to an affiliated eye care
professional in exchange for all of the issued and outstanding shares of
the owner of substantially all of the nonmedical assets relating to the
operation of an eye care practice and of the owner and operator of an eye
surgery and laser center.
On or about March 3, 1997, we issued 2,280,174 shares of common stock to
11 affiliated eye care professionals and options to purchase 55,000 shares
of Series B convertible preferred stock to two affiliated eye care
professionals in exchange for all of the issued and outstanding capital
stock of a corporation engaged in the management of an eye care practice
and which owned 100% interests in two eye surgery and laser centers.
On or about April 15, 1997, we issued 390,391 shares of common stock to
an affiliated eye care professional in exchange for all of the provider's
capital stock of a corporation engaged in the management of an eye care
practice.
On or about April 21, 1997, we issued 76,630 shares of common stock and
warrants to purchase 3,378 shares of common stock to five investors
consisting of partnerships, a trust and an individual in exchange for
negotiation and valuation services rendered in connection with an
affiliation with an eye care practice.
On or about May 1, 1997, we issued one subordinated exchangeable
promissory note to an affiliated eye care practice having a face value of
$3,100,000 in exchange for substantially all of the nonmedical assets of an
eye care practice.
On or about June 1, 1997, we issued one subordinated exchangeable
promissory note to an affiliated eye care provider having a face value of
$1,000,000 in exchange for substantially all of the assets of an eye
surgery and laser center.
II-2
<PAGE>
Over the period from July 31, 1997 through January 1, 1998, we issued
1,638,905 shares of Series D convertible preferred stock to 67 investors
consisting of individuals, joint tenants, trusts, corporations and
partnerships for an aggregate purchase price of $7,178,403.90.
On or about March 25, 1998, an individual investor, consisting of a
trust, exercised warrants to acquire 2,252 shares of common stock in
exchange for $9,863.76.
In April 1998, four investors, consisting of partnerships, exercised
warrants to acquire 684,932 shares of Series D convertible preferred stock
in exchange for $3,000,002.16.
On or about May 26, 1998, one investor, consisting of a trust, exercised
warrants to acquire 68,493 shares of Series D convertible preferred stock
in exchange for $299,999.34.
On or about July 25, 1998, we issued 550,987 shares of Series A
convertible preferred stock to three affiliated eye care professionals in
exchange for substantially all of the nonmedical assets of two eye care
practices.
On or about September 24, 1998, we issued 88,000 shares of Series A
convertible preferred stock to four affiliated eye care professionals in
exchange for all of the shares of the capital stock of an eye care
practice, all of the non-medical assets of an optometric partnership and a
50% partnership interest in another optometric partnership.
On or about November 30, 1999, we acquired from an affiliated eye care
professional the remaining 25% of the membership interests of an eye
surgery and laser center that we originally acquired on November 27, 1996,
in exchange for 80,000 shares of Series A convertible preferred stock.
On or about November 30, 1998, we acquired from two affiliated eye care
providers the remaining 25% of the membership interests of an eye surgery
and laser center that we originally acquired on November 1, 1996, in
exchange for 80,000 shares of Series A convertible preferred stock.
On or about January 1, 1999, we issued 250,000 shares of Series A
convertible preferred stock to two individual investors in exchange for all
of the shares of the capital stock of Midwest Uncuts, Inc.
On or about January 15, 1999, we issued 20,000 shares of Series A
convertible preferred stock to an affiliated eye care professional in
exchange for the eye care professional's shares of the capital stock of an
eye care practice.
On July 16, 1999, we issued 75,000 shares of common stock to an
affiliated professional entity in connection with the acquisition of our
clinical research business.
No underwriters were involved in any of the transactions described above. We
issued all of the securities in the foregoing transactions in reliance upon the
exemption from registration available under Section 4(2) of the Securities Act,
including Regulation D promulgated thereunder, as transactions by an issuer not
involving any public offering and the transactions involved the issuance and
sale of our securities to financially sophisticated entities or individuals who
represented that they were aware of our activities and business and financial
condition, and who took these securities for investment purposes and understood
the ramifications of their actions. Each security holder represented that they
acquired such securities for investment for their own account and not for
distribution. All certificates representing the stock issued have a legend
imprinted on them stating that the shares have not been registered under the
Securities Act and cannot be transferred until properly registered under the
Securities Act or an exemption applies.
Between April 1996 and June 1999 we issued options to purchase 591,000
shares of Series A convertible preferred stock, 55,000 shares of Series B
convertible preferred stock and 3,956,000 shares of common stock at exercise
prices ranging from $1.25 to $10.00 to employees, members of our board of
directors and affiliated eye care professionals. No options were issued to
affiliated eye care professionals after April 1999.
Between April 1996 and June 1999, an aggregate of 256,055 shares of Series A
convertible preferred stock, and 97,457 shares of common stock were issued upon
exercise of options under our stock option plan.
II-3
<PAGE>
No underwriters were involved in any of the transactions relating to options
that are described above. We issued all of the securities in the foregoing
transactions in reliance upon the exemption from registration available under
Section 4(2) of the Securities Act, including Rule 701 promulgated thereunder,
as transactions by an issuer not involving any public offering and pursuant to
a written compensatory benefit plan.
II-4
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
<TABLE>
<C> <S>
1+ Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of the
Registrant
3.2+ Bylaws of the Registrant
4.1+ Specimen stock certificate representing Common Stock
4.2 Registrant's Rights Agreement
5 Opinion of Katten Muchin & Zavis as to the legality of the
securities being registered (including consent)
10.1+ Registrant's 1996 Stock Incentive Plan, as amended
10.2 Registrant's Amended and Restated 1999 Stock Purchase Plan
10.3+ Indemnification Agreement
10.4+ Registration Rights Agreement
10.5+ Subordinated Registration Rights Agreement
10.6+ Employment Agreement
10.7* Summit Technology, Inc. Agreement
10.8+ Second Amendment and Consent to the Amended and Restated Credit
Agreement
10.9* Management Services Agreement (American Eye Institute, P.C.)
10.10* Management Services Agreement (Dominion Eye Associates, P.C.)
10.11* Management Services Agreement (The Eye Center, Inc.)
10.12* Management Services Agreement (Hunkeler Eye Centers--Chicago,
L.L.C.)
10.13* Management Services Agreement (Hunkeler Eye Centers--Kansas
City, L.L.C.)
10.14* Management Services Agreement (Illinois Eye Specialists, Ltd.)
10.15+ Registrant's 401(k) Plan
21+ Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Katten Muchin & Zavis (contained in its opinion to be
filed as Exhibit 5 hereto)
23.3 Consent of Arent Fox Kintner Plotkin & Kahn, PLLC
27 Financial Data Schedule
</TABLE>
- --------
*We have applied for confidential treatment of portions of this document
+Previously filed
(b) Financial Statement Schedules.
II-5
<PAGE>
NOVAMED EYECARE, INC.
RULE 12-09 VALUATION RESERVES
(in 000's)
<TABLE>
<CAPTION>
Balance at Charged to Balance at
beginning of costs and end of
Description period expenses Deductions period
- ----------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
1996
Allowance for contractual
adjustments................... $ -- $14,486 $(12,056) $ 2,430
Allowance for bad debts........ -- 307 (216) 91
------ ------- -------- -------
$ -- $14,793 $(12,272) $ 2,521
====== ======= ======== =======
1997
Allowance for contractual
adjustments................... $2,430 $29,243 $(25,614) $ 6,059
Allowance for bad debts........ 91 1,170 (326) 935
------ ------- -------- -------
$2,521 $30,413 $(25,940) $ 6,994
====== ======= ======== =======
1998
Allowance for contractual
adjustments................... $6,059 $39,746 $(36,559) $ 9,246
Allowance for bad debts........ 935 901 (735) 1,101
------ ------- -------- -------
$6,994 $40,647 $(37,294) $10,347
====== ======= ======== =======
</TABLE>
II-6
<PAGE>
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To provide to the underwriters at the closing specified in the
underwriting agreement, certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to each
purchaser.
(2) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that, in the opinion of the Securities and
Exchange 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, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(3) For purposes of determining any liability under the Securities Act, (i)
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 and (ii) each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Chicago, and State of Illinois on the 26th day of July, 1999.
NovaMed Eyecare, Inc.
/s/ Stephen J. Winjum
By: _________________________________
Stephen J. Winjum
Chairman, Chief Executive Officer
and
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed below by the following
persons in the capacities indicated on July 26, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Stephen J. Winjum Chairman of the Board, Chief Executive
___________________________________________ Officer and President (Principal
Stephen J. Winjum Executive Officer)
/s/ Ronald G. Eidell* Executive Vice President and Chief
___________________________________________ Financial Officer (Principal Financial
Ronald G. Eidell Officer)
/s/ Martin A. Koehler* Vice President Finance (Principal
___________________________________________ Accounting Officer)
Martin A. Koehler
/s/ John D. Hunkeler, M.D.* Director
___________________________________________
John D. Hunkeler, M.D.
/s/ R. Judd Jessup* Director
___________________________________________
R. Judd Jessup
/s/ Scott H. Kirk, M.D.* Director
___________________________________________
Scott H. Kirk, M.D.
/s/ Steven V. Napolitano* Director
___________________________________________
Steven V. Napolitano
/s/ James B. Tannanbaum* Director
___________________________________________
James B. Tannanbaum
/s/ Peter C. Wendell* Director
___________________________________________
Peter C. Wendell
/s/ Douglas P. Williams. M.D.* Director
___________________________________________
Douglas P. Williams, M.D.
</TABLE>
/s/ Stephen J. Winjum
*By: ________________________________
Stephen J. Winjum
Attorney-in-Fact
II-8
<PAGE>
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of Series E
Preferred Stock shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 7. No Redemption. The shares of Series E Preferred Stock shall
not be redeemable.
Section 8. Rank. The Series E Preferred Stock shall rank, with respect to
the payment of dividends and the distribution of assets, junior to all series
of any other class of the Company's Preferred Stock.
Section 9. Amendment. The Certificate of Incorporation of the Company
shall not be amended in any manner which would materially alter or change the
powers, preferences or special rights of the Series E Preferred Stock so as to
affect them adversely without the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Series E Preferred Stock, voting
together as a single class.
IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf
of the Company by its President and Chief Executive Officer and attested by its
Secretary this 7th day of July, 1999.
/s/ Stephen J. Winjum
-------------------------------------
Stephen J. Winjum
President and Chief Executive Officer
<PAGE>
Exhibit 4.2
- --------------------------------------------------------------------------------
NovaMed Eyecare, Inc.
and
American Stock Transfer & Trust Company
Rights Agent
Rights Agreement
Dated as of July 7, 1999
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
Section 1. Certain Definitions.............................................. 1
Section 2. Appointment of Rights Agent...................................... 4
Section 3. Issuance of Rights Certificates.................................. 4
Section 4. Form of Rights Certificates...................................... 6
Section 5. Countersignature and Registration................................ 7
Section 6. Transfer, Split-Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights
Certificates.......................................................8
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.... 9
Section 8. Cancellation and Destruction of Rights Certificates.............. 10
Section 9. Availability of Capital Stock.................................... 11
Section 10. Preferred Shares Record Date..................................... 12
Section 11. Adjustment of Purchase Price, Number and Kind of Shares or
Number of Rights................................................. 13
Section 12. Certificate of Adjusted Purchase Price or Number of Shares....... 20
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning
Power............................................................ 20
Section 14. Fractional Rights and Fractional Shares.......................... 23
Section 15. Rights of Action................................................. 24
Section 16. Agreement of Rights Holders...................................... 25
Section 17. Rights Certificate Holder Not Deemed a Stockholder............... 25
Section 18. Concerning the Rights Agent...................................... 25
Section 19. Merger or Consolidation or Change of Name of Rights Agent........ 26
Section 20. Duties of Rights Agent........................................... 27
Section 21. Change of Rights Agent........................................... 29
Section 22. Issuance of New Rights Certificates.............................. 30
Section 23. Redemption....................................................... 30
Section 24. Exchange......................................................... 31
Section 25. Notice of Certain Events......................................... 32
Section 26. Notices.......................................................... 33
Section 27. Supplements and Amendments....................................... 34
Section 28. Determination and Actions by the Board of Directors, etc......... 34
Section 29. Successors....................................................... 35
Section 30. Benefits of this Agreement....................................... 35
Section 31. Severability..................................................... 35
Section 32. Governing Law.................................................... 35
Section 33. Counterparts..................................................... 35
Section 34. Descriptive Headings............................................. 35
i
<PAGE>
Page
----
Exhibit A - Form of Certificate of Designations of Series E Junior
Participating Preferred Stock of NovaMed Eyecare, Inc. .........A-1
Exhibit B - Form of Rights Certificate......................................B-1
Exhibit C - Summary of Rights to Purchase Preferred Shares..................C-1
ii
<PAGE>
RIGHTS AGREEMENT
----------------
Agreement, dated as of July 7, 1999, between NovaMed Eyecare, Inc., a
Delaware corporation (the "Company"), and American Stock Transfer & Trust
Company, a ________________________________________(the "Rights Agent").
The Board of Directors of the Company (the "Board of Directors") has
authorized and declared a dividend of one preferred share purchase right (a
"Right") for each Common Share (as hereinafter defined) of the Company
outstanding on July 12, 1999 (the "Record Date"), each Right representing the
right to purchase one one-thousandth of a Preferred Share (as hereinafter
defined), upon the terms and subject to the conditions herein set forth, and has
further authorized and directed the issuance of one Right with respect to each
Common Share that shall become outstanding between the Record Date and the
earliest of the Distribution Date, the Redemption Date and the Final Expiration
Date (as such terms are hereinafter defined).
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
-------------------
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates and
Associates (as such terms are hereinafter defined) of such Person, shall be
the Beneficial Owner (as hereinafter defined) of 15% or more of the Common
Shares of the Company then outstanding, but shall not include (i) the
Company, (ii) any Subsidiary (as hereinafter defined) of the Company, (iii)
any employee benefit plan of the Company or any Subsidiary of the Company,
(iv) any entity organized, appointed or established by the Company for, or
pursuant to the terms of, any such plan, or (v) any member or members of
the Winjum Family. Notwithstanding the foregoing, no Person shall become an
"Acquiring Person" as the result of (a) an acquisition of Common Shares by
the Company which, by reducing the number of Common Shares outstanding,
increases the proportionate number of Common Shares beneficially owned by
such Person to 15% or more of the Common Shares of the Company then
outstanding or (b) the acquisition by such Person of newly issued Common
Shares directly from the Company (it being understood that a purchase from
an underwriter or other intermediary is not directly from the Company);
provided, however, that if a Person becomes the Beneficial Owner of 15% or
more of the Common Shares of the Company then outstanding by reason of
share purchases by the Company or the receipt of newly-issued Common Shares
directly from the Company and, after such share purchases or direct
issuance by the Company, becomes the Beneficial Owner of any additional
Common Shares of the Company and is the Beneficial Owner of 15% or more of
the Common Shares of the Company then outstanding, then such Person shall
be deemed to be an "Acquiring Person". Notwithstanding the foregoing, if
the Board of Directors determines in good faith that a Person who would
otherwise be an "Acquiring
<PAGE>
Person", as defined pursuant to the foregoing provisions of this Section
1(a), has become such inadvertently, and such Person divests as promptly as
practicable a sufficient number of Common Shares so that such Person would
no longer be an Acquiring Person, as defined pursuant to the foregoing
provisions of this Section 1(a), then such Person shall not be deemed to be
an "Acquiring Person" for any purposes of this Agreement.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Exchange Act (as hereinafter defined) as in effect on the date of
this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of, and shall be
deemed to "beneficially own," any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has (A) the right to acquire
(whether such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or
understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide
public offering of securities), or upon the exercise of conversion
rights, exchange rights, rights, warrants or options, or otherwise;
provided, however, that a Person shall not be deemed the Beneficial
Owner of, or to beneficially own, (x) securities tendered pursuant to
a tender or exchange offer made by or on behalf of such Person or any
of such Person's Affiliates or Associates until such tendered
securities are accepted for purchase or exchange, (y) securities
issuable upon exercise of Rights at any time prior to the occurrence
of a Triggering Event (as hereinafter defined) or (z) securities
issuable upon exercise of Rights from, and after the occurrence of, a
Triggering Event which Rights were acquired by such Person or any of
such Person's Affiliates or Associates prior to the Distribution Date
or pursuant to Section 3(a) or Section 22 hereof (the "Original
Rights") or pursuant to Section 11(i) hereof in connection with an
adjustment made with respect to any Original Rights; or (B) the sole
or shared right to vote or dispose pursuant to any agreement,
arrangement or understanding; provided, however, that a Person shall
not be deemed the Beneficial Owner of, or to beneficially own, any
security if the agreement, arrangement or understanding to vote such
security (1) arises solely from a revocable proxy or consent given to
such Person in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable rules and
regulations promulgated under the Exchange Act and (2) is not also
then reportable on Schedule 13D or Schedule 13G under the Exchange Act
(or any comparable or successor report); or (C) "beneficial ownership"
of (as
2
<PAGE>
determined pursuant to Rule 13d-3 of the General Rules and Regulations
under the Exchange Act); or
(iii) which are beneficially owned, directly or indirectly,
by any other Person (or any Affiliate or Associate thereof) with which
such Person or any of such Person's Affiliates or Associates has any
agreement, arrangement or understanding, whether written or oral
(other than customary agreements with and between underwriters and
selling group members with respect to a bona fide public offering of
securities), for the purpose of acquiring, holding, voting (except to
the extent contemplated by the proviso to Section 1(c)(ii)(B)) or
disposing of any securities of the Company.
Notwithstanding anything in this definition of Beneficial Ownership to
the contrary, the phrase "then outstanding," when used with reference to a
Person's Beneficial Ownership of securities of the Company, shall mean the
number of such securities then issued and outstanding together with the
number of such securities not then actually issued and outstanding which
such Person would be deemed to own beneficially hereunder.
(d) "Business Day" shall mean any day other than a Saturday, a Sunday
or a day on which banking institutions in Illinois are authorized or
obligated by law or executive order to close.
(e) "Close of Business" on any given date shall mean 5:00 P.M.,
Chicago, Illinois time, on such date; provided, however, that if such date
is not a Business Day it shall mean 5:00 P.M., Chicago, Illinois time, on
the next succeeding Business Day.
(f) "Common Shares" shall mean the shares of Common Stock, par value
$.01 per share, of the Company, except that when the context refers to
"Common Shares" of any Person other than the Company such term shall mean
the capital stock (or equity interest) of such other Person with the
greatest voting power, or the equity securities or other equity interest
having power to control or direct the management of such Person.
(g) "Distribution Date" shall have the meaning set forth in Section 3
hereof.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(i) "Final Expiration Date" shall have the meaning set forth in
Section 7 hereof.
(j) "Person" shall mean any individual, trust, firm, corporation,
partnership, limited liability company or other entity, and shall include
any successor (by merger or otherwise) of such entity.
3
<PAGE>
(k) "Preferred Shares" shall mean shares of Series E Junior
Participating Preferred Stock, par value $.01 per share, of the Company
having the rights and preferences set forth in the Form of Certificate of
Designations attached to this Agreement as Exhibit A.
---------
(l) "Redemption Date" shall have the meaning set forth in Section 7
hereof.
(m) "Section 11(a)(ii) Event" shall mean an event described in
Section 11(a)(ii) hereof.
(n) "Shares Acquisition Date" shall mean the first date of public
announcement (which for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) under the Exchange
Act) by the Company or an Acquiring Person that an Acquiring Person has
become such.
(o) "Subsidiary" of any Person shall mean any corporation or other
entity of which a majority of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by such
Person.
(p) "Triggering Event" shall mean a Section 11(a)(ii) Event or an
event described in Section 13(a) hereof.
(q) "Winjum Family" shall mean Stephen J. Winjum, his spouse, heirs
and any group (within the meaning of Section 13(d)(3) of the Exchange Act)
of which any of the foregoing Persons is a member for purposes of
acquiring, holding or disposing of Common Shares, any trust established by
or for the benefit of any of the foregoing and any other Person controlled
by or for the benefit of any of the foregoing.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
---------------------------
Rights Agent to act as agent for the Company in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable.
Section 3. Issuance of Rights Certificates.
-------------------------------
(a) Until the earlier of (i) the Close of Business on the tenth day
after the Shares Acquisition Date or (ii) the Close of Business on the
tenth Business Day (or such later date as may be determined by action of
the Board of Directors prior to such time as any Person becomes an
Acquiring Person) after the date of the commencement by any Person (other
than the Company, any member or members of the Winjum Family, any
Subsidiary of the Company, any employee benefit plan of the Company or of
any Subsidiary of the Company or any person or entity organized, appointed
or established by the Company for, or pursuant to the terms of, any such
plan) of, or of the first public announcement of the
4
<PAGE>
intention of any Person (other than the Company, any member or members of
the Winjum Family, any Subsidiary of the Company, any employee benefit plan
of the Company or of any Subsidiary of the Company or any person or entity
organized, appointed or established by the Company for, or pursuant to the
terms of, any such plan) to commence, a tender or exchange offer the
consummation of which would result in any Person becoming the Beneficial
Owner of Common Shares aggregating 15% or more of the then outstanding
Common Shares (including any such date which is after the date of this
Agreement and prior to the issuance of the Rights; the earlier of such
dates being herein referred to as the "Distribution Date"), (x) the Rights
will be evidenced (subject to the provisions of Section 3(b) hereof) by the
certificates for Common Shares registered in the names of the holders
thereof (which certificates shall also be deemed to be certificates for
Rights) and not by separate certificates, (y) the Rights will be
transferable only in connection with the transfer of Common Shares and (z)
each transfer of Common Shares (including a transfer to the Company) shall
constitute a transfer of the Rights associated with such Common Shares. As
soon as practicable after the Distribution Date, the Company will prepare
and execute, the Rights Agent will countersign, and the Company will send
or cause to be sent (and the Rights Agent will, if requested, send) by
first-class, insured, postage-prepaid mail, to each record holder of Common
Shares as of the Close of Business on the Distribution Date, at the address
of such holder shown on the records of the Company, a Rights Certificate,
in substantially the form of Exhibit B hereto (a "Rights Certificate"),
---------
evidencing one Right for each Common Share so held. As of the Distribution
Date, the Rights will be evidenced solely by such Rights Certificates.
(b) On the Record Date, or as soon as practicable thereafter, the
Company will send a copy of a Summary of Rights to Purchase Preferred
Shares, in substantially the form of Exhibit C hereto (the "Summary of
---------
Rights"), by first-class, postage-prepaid mail, to each record holder of
Common Shares as of the Close of Business on the Record Date, at the
address of such holder shown on the records of the Company. With respect
to certificates for Common Shares outstanding as of the Record Date, until
the Distribution Date, the Rights will be evidenced by such certificates
registered in the names of the holders thereof together with a copy of the
Summary of Rights attached thereto. Until the Distribution Date (or the
earlier of the Redemption Date or the Final Expiration Date), the surrender
for transfer of any certificate for Common Shares outstanding on the Record
Date, with or without a copy of the Summary of Rights attached thereto,
shall also constitute the transfer of the Rights associated with the Common
Shares represented thereby.
(c) Certificates for Common Shares which become outstanding
(including, without limitation, reacquired Common Shares referred to in the
last sentence of this Section 3 (c)) after the Record Date but prior to the
earliest of the Distribution Date, the Redemption Date or the Final
Expiration Date shall have impressed on, printed on, written on or
otherwise affixed to them the following legend:
5
<PAGE>
This certificate also evidences and entitles the holder hereof to certain
rights as set forth in a Rights Agreement between NovaMed Eyecare, Inc. and
American Stock Transfer & Trust Company dated as of July 7, 1999 (the
"Rights Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal executive offices
of NovaMed Eyecare, Inc. Under certain circumstances, as set forth in the
Rights Agreement, such Rights will be evidenced by separate certificates
and will no longer be evidenced by this certificate. NovaMed Eyecare, Inc.
will mail to the holder of this certificate a copy of the Rights Agreement,
without charge, after receipt of a written request therefor. As described
in the Rights Agreement, Rights issued to any Person who becomes an
Acquiring Person or any Associate or Affiliate thereof (as such terms are
defined in the Rights Agreement) shall become null and void.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby. In
the event that the Company purchases or acquires any Common Shares after the
Record Date but prior to the Distribution Date, any Rights associated with such
Common Shares shall be deemed canceled and retired so that the Company shall not
be entitled to exercise any Rights associated with the Common Shares which are
no longer outstanding.
Section 4. Form of Rights Certificates
---------------------------
(a) The Rights Certificates and the forms of election to purchase and of
assignment to be printed on the reverse thereof, shall be substantially the same
as Exhibit B hereto, and may have such marks of identification or designation
---------
and such legends, summaries or endorsements printed thereon as the Company may
deem appropriate and as are not inconsistent with the provisions of this
Agreement, or as may be required to comply with any applicable law or with any
rule or regulation made pursuant thereto or with any rule or regulation of any
stock exchange on which the Rights may from time to time be listed, or to
conform to usage. Subject to the terms, provisions and restrictions elsewhere
herein, the Rights Certificates shall entitle the holders thereof to purchase
such number of one one-thousandths of a Preferred Share as shall be set forth
therein at the price per one one-thousandth of a Preferred Share set forth
therein (the "Purchase Price"), but the amount and type of securities
purchasable upon the exercise of each Right and the Purchase Price shall be
subject to adjustment as provided herein.
6
<PAGE>
(b) Any Rights Certificate issued pursuant to Section 3(a) or
Section 22 hereof that represents Rights beneficially owned by: (i) an
Acquiring Person or any Associate or Affiliate of an Acquiring Person, (ii)
a transferee of an Acquiring Person (or of any such Associate or Affiliate)
who becomes a transferee after the Acquiring Person became an Acquiring
Person, or (iii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently
with the Acquiring Person becoming an Acquiring Person and receives such
Rights pursuant to either (A) a transfer (whether or not for consideration)
from the Acquiring Person to holders of equity interests in such Acquiring
Person or to any Person with whom such Acquiring Person has any continuing
agreement, arrangement or understanding, whether written or oral, regarding
the transferred Rights or (B) a transfer which the Board of Directors has
determined in good faith is part of a plan, arrangement or understanding,
whether written or oral, which has as a primary purpose or effect avoidance
of the second paragraph of Section 11(a)(ii) hereof, and any Rights
Certificate issued pursuant to Section 6 or Section 11 hereof upon
transfer, exchange, replacement or adjustment of any other Rights
Certificate referred to in this sentence, shall contain (to the extent
feasible) the following legend:
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring Person
or an Affiliate or Associate of an Acquiring Person (as such terms are
defined in the Rights Agreement). Accordingly, this Rights
Certificate and the Rights represented hereby may become null and void
in the circumstances specified in the second paragraph of Section
11(a)(ii) of the Rights Agreement.
The provisions of the second paragraph of Section 11(a)(ii) shall apply
whether or not any Rights Certificate actually contains the foregoing legend.
Section 5. Countersignature and Registration. The Rights Certificates
---------------------------------
shall be executed on behalf of the Company by its Chairman of the Board, its
Chief Executive Officer, its President, any of its Vice Presidents, or its
Treasurer, either manually or by facsimile signature, shall have affixed thereto
the Company's seal or a facsimile thereof, and shall be attested by the
Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature. The Rights Certificates shall be manually countersigned by
the Rights Agent and shall not be valid for any purpose unless countersigned.
In case any officer of the Company who shall have signed any of the Rights
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Rights Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the Person who signed such Rights Certificates had not ceased to be such officer
of the Company; and any Rights Certificate may be signed on behalf of the
Company by any Person who, at the actual date of the execution of such Rights
Certificate, shall be a proper officer of the Company to sign such Rights
Certificate (as described in the first
7
<PAGE>
sentence of this Section 5), although at the date of the execution of this
Rights Agreement any such Person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or cause to be
kept, at its principal office, books for registration and transfer of the Rights
Certificates of each series issued hereunder. Such books shall show the names
and addresses of the respective holders of the Rights Certificates, the number
of Rights evidenced on its face by each of the Rights Certificates and the date
of each of the Rights Certificates.
Section 6. Transfer, Split-Up, Combination and Exchange of Rights
------------------------------------------------------
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
- ----------------------------------------------------------------------
(a) Subject to the provisions of Sections 4(b), 14 and 24 hereof,
at any time after the Close of Business on the Distribution Date, and at or
prior to the Close of Business on the earlier of the Redemption Date or the
Final Expiration Date, any Rights Certificate or Rights Certificates (other
than Rights Certificates representing Rights that have become void pursuant
to Section 11(a)(ii) hereof or that have been exchanged pursuant to Section
24 hereof) may be transferred, split-up, combined or exchanged for another
Rights Certificate or Rights Certificates, entitling the registered holder
to purchase a like number of one one-thousandths of a Preferred Share (or
Common Shares, other securities or property, as the case may be) as the
Rights Certificate or Rights Certificates surrendered then entitle such
holder to purchase. Any registered holder desiring to transfer, split-up,
combine or exchange any Rights Certificate or Rights Certificates shall
make such request in writing delivered to the Rights Agent, and shall
surrender the Rights Certificate or Rights Certificates to be transferred,
split-up, combined or exchanged at the principal office of the Rights
Agent. Neither the Rights Agent nor the Company shall be obligated to take
any action whatsoever with respect to the transfer of any such surrendered
Rights Certificate until the registered holder shall have completed and
signed the certificate contained in the form of assignment on the reverse
side of such Rights Certificate and shall have provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial
Owner) or Affiliates or Associates thereof as the Company shall reasonably
request. Thereupon, the Rights Agent shall, subject to Sections 4 and
11(a)(ii) hereof, countersign and deliver to the Person entitled thereto a
Rights Certificate or Rights Certificates, as the case may be, as so
requested. The Company may require payment of a sum sufficient to cover any
tax or governmental charge that may be imposed in connection with any
transfer, split-up, combination or exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Rights Certificate, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to them, and,
at the Company's request, reimbursement to the Company and the Rights Agent
of all reasonable expenses incidental thereto, and upon surrender to the
Rights Agent and cancellation of the Rights Certificate, if mutilated, the
Company will make and
8
<PAGE>
deliver a new Rights Certificate of like tenor to the Rights Agent for
delivery to the registered holder in lieu of the Rights Certificate so
lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.
-------------------------------------------------------------
(a) Subject to Section 11(a)(ii) hereof, the registered holder of
any valid Rights Certificate may exercise the Rights evidenced thereby
(except as otherwise provided herein including, without limitation, the
restrictions on exercisability set forth in Section 9(c) hereof) in whole
or in part at any time after the Distribution Date upon surrender of the
Rights Certificate, with the form of election to purchase and the
certificate on the reverse side thereof duly executed, to the Rights Agent
at the principal office of the Rights Agent, together with payment of the
Purchase Price (as defined below) for each one one-thousandth of a
Preferred Share (or Common Shares, other securities, cash or property, as
the case may be) as to which the Rights are exercised, at or prior to the
earliest of (i) the close of business on July 11, 2009 (the "Final
Expiration Date"), (ii) the time at which the Rights are redeemed as
provided in Section 23 hereof (the "Redemption Date"), or (iii) the time at
which such Rights are exchanged as provided in Section 24 hereof.
(b) The Purchase Price for each one one-thousandth of a Preferred
Share to be issued upon exercise of a Right shall initially be $110.00,
shall be subject to adjustment from time to time as provided in Sections 11
and 13 hereof and shall be payable in lawful money of the United States of
America in accordance with Section 7(c) below.
(c) Upon receipt of a Rights Certificate representing exercisable
Rights, with the form of election to purchase and the certificate on the
reverse side of the Rights Certificate duly executed, accompanied by
payment of the aggregate Purchase Price for the Preferred Shares (or other
securities or property, as the case may be) to be purchased and an amount
equal to any applicable transfer tax required to be paid by the holder of
such Rights Certificate in accordance with Section 9 hereof by wire
transfer, certified check, cashier's check or money order payable to the
order of the Company, or such other payment method reasonably required by
the Company, the Rights Agent shall thereupon promptly (i) (A) requisition
from any transfer agent of the Preferred Shares (or make available if the
Rights Agent is the transfer agent of the Preferred Shares) certificates
for the number of Preferred Shares to be purchased and the Company hereby
irrevocably authorizes its transfer agent to comply with all such requests
or (B) requisition from the depositary agent depositary receipts as
provided in Section 14(b) hereof, representing such number of one one-
thousandths of a Preferred Share as are to be purchased (in which case
certificates for the Preferred Shares represented by such receipts shall be
deposited by the transfer agent with the depositary agent and the Company
hereby directs the depositary agent to comply with such request, (ii) when
appropriate, requisition from the Company or such other entity the amount
of cash to be paid in lieu of issuance of fractional shares in accordance
with Section 14 hereof, (iii) after receipt of such certificates or
depositary
9
<PAGE>
receipts, cause the same to be delivered to, or upon the order of, the
registered holder of such Rights Certificate, registered in such name or
names as may be designated by such holder, and (iv) when appropriate, after
receipt, deliver such cash to, or upon the order of, the registered holder
of such Rights Certificate. In the event that the Company elects or is
obligated to issue other securities (including Common Shares) of the
Company, pay cash and/or distribute other property pursuant to Section
11(a)(iii) hereof, the Company will make all arrangements necessary so that
such other securities, cash and/or property are available for distribution
by the Rights Agent, if and when appropriate.
(d) In case the registered holder of any Rights Certificate shall
exercise less than all the Rights evidenced thereby, a new Rights
Certificate evidencing Rights equivalent to the Rights remaining
unexercised shall be issued by the Rights Agent to the registered holder of
such Rights Certificate or to his duly authorized assigns, subject to the
provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake
any action with respect to a registered holder upon the occurrence of any
purported exercise as set forth in this Section 7 unless such registered
holder shall have (i) completed and signed the certificate contained in the
form of election to purchase set forth on the reverse side of the Rights
Certificate surrendered for such exercise, and (ii) provided such
additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Company shall
reasonably request.
(f) Notwithstanding any statement to the contrary contained in this
Agreement or in any Rights Certificate, if the Distribution Date or the
Shares Acquisition Date shall occur prior to the Record Date, the
provisions of this Agreement, including (without limitation) Sections 3 and
11(a)(ii), shall be applicable to the Rights upon their issuance to the
same extent such provisions would have been applicable if the Record Date
were the date of this Agreement.
Section 8. Cancellation and Destruction of Rights Certificates. All
---------------------------------------------------
Rights Certificates surrendered for the purpose of exercise, transfer, split-up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Rights Agreement. The Company shall deliver to
the Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Rights Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall
deliver all canceled Rights Certificates to the Company, or shall, at the
written request of the Company, destroy such canceled Rights Certificates, and
in such case shall deliver a certificate of destruction thereof to the Company.
10
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Section 9. Availability of Capital Stock.
-----------------------------
(a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued Preferred
Shares (and, following the occurrence of a Distribution Date, out of its
authorized and unissued Common Shares and/or other securities or out of its
authorized and issued shares held in its treasury), the number of Preferred
Shares (or Common Shares and/or other securities, as the case may be) that
will be sufficient to permit the exercise in full of all outstanding Rights
as provided in this Agreement.
(b) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all Preferred Shares (or Common
Shares and/or other securities, as the case may be) delivered upon exercise
of Rights shall be, at the time of delivery of the certificates for such
Preferred Shares (or Common Shares and/or other securities, as the case may
be) (subject to any necessary payment of the Purchase Price), duly and
validly authorized and issued and fully paid and nonassessable shares.
(c) The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges
which may be payable in respect of the issuance or delivery of the Rights
Certificates or of any Preferred Shares (or Common Shares and/or other
securities, as the case may be) upon the exercise of Rights. The Company
shall not, however, be required to pay any transfer tax which may be
payable in respect of any transfer or delivery of Rights Certificates to a
Person other than, or the issuance or delivery of certificates or
depositary receipts for the Preferred Shares (or Common Shares and/or other
securities, as the case may be) in a name other than that of, the
registered holder of the Rights Certificate evidencing Rights surrendered
for exercise or to issue or to deliver any certificates or depositary
receipts for Preferred Shares (or Common Shares and/or other securities, as
the case may be) upon the exercise of any Rights until any such tax shall
have been paid (any such tax being payable by the holder of such Rights
Certificate at the time of surrender) or until it has been established to
the Company's reasonable satisfaction that no such tax is due.
(d) So long as the Preferred Shares (and, following the occurrence
of a Distribution Date, Common Shares and/or other securities, as the case
may be) issuable and deliverable upon the exercise of the Rights may be
listed on any inter-dealer quotation system or national securities
exchange, the Company shall use its best efforts to cause, from and after
such time as the Rights become exercisable, all shares reserved for such
issuance to be listed on one such system or exchange upon official notice
of issuance upon such exercise.
(e) The Company shall use its best efforts to (i) file on the
appropriate form, as soon as practicable following the earliest date after
the first occurrence of a Section 11(a)(ii) Event on which the
consideration to be delivered by the Company upon exercise
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<PAGE>
of the Rights has been determined hereunder, a registration statement under
the Securities Act of 1933, as amended (the "Act"), with respect to the
securities purchasable upon exercise of the Rights, (ii) cause such
registration statement to become effective as soon as practicable after
such filing, and (iii) cause such registration statement to remain
effective (with a prospectus at all times meeting the requirements of the
Act) until the earlier of (A) the date as of which the Rights are no longer
exercisable for such securities, and (B) the Final Expiration Date. The
Company may temporarily suspend, for a period of time not to exceed ninety
(90) days after the date set forth in clause (i) of the first sentence of
this Section 9(e), the exercisability of the Rights in order to prepare and
file such registration statement and permit it to become effective. Upon
any such suspension, the Company shall issue a public announcement stating
that the exercisability of the Rights has been temporarily suspended, as
well as a public announcement at such time as the suspension is no longer
in effect. In addition, if the Company shall determine that a registration
statement is required following the Distribution Date, the Company may
temporarily suspend the exercisability of the Rights until such time as a
registration statement has been declared effective. The Company will also
take such action as may be appropriate under, or to ensure compliance with,
the securities or "blue sky" laws of the various states in connection with
the exercisability of the Rights. Notwithstanding any provision of this
Agreement to the contrary, the Rights shall not be exercisable in any
jurisdiction if the requisite qualification in such jurisdiction shall not
have been obtained, the exercise thereof shall not be permitted under
applicable law or a registration statement shall not have been declared
effective.
Section 10. Preferred Shares Record Date. Each Person in whose name any
----------------------------
certificate for Preferred Shares (or Common Shares and/or other securities, as
the case may be) is issued upon the exercise of Rights shall for all purposes be
deemed to have become the holder of record of the Preferred Shares (or Common
Shares and/or other securities, as the case may be) represented thereby on, and
such certificate shall be dated, the date upon which the Rights Certificate
evidencing such Rights was duly surrendered and payment of the applicable
Purchase Price (and any applicable transfer taxes) was made (or Rights were duly
surrendered in exchange for Common Shares pursuant to Section 24 hereof);
provided, however, that if the date of such surrender and payment is a date upon
which the Preferred Shares (or Common Shares and/or other securities, as the
case may be) transfer books of the Company are closed, such Person shall be
deemed to have become the record holder of such shares on, and such certificate
shall be dated, the next succeeding Business Day on which the Preferred Shares
(or Common Shares and/or other securities, as the case may be) transfer books of
the Company are open. Prior to the exercise of the Rights evidenced thereby,
the holder of a Rights Certificate shall not be entitled to any rights of a
holder of Preferred Shares (or Common Shares and/or other securities, as the
case may be) for which the Rights shall be exercisable, including, without
limitation, the right to vote, to receive dividends or other distributions or to
exercise any preemptive rights, and shall not be entitled to receive any notice
of any proceedings of the Company, except as provided herein.
12
<PAGE>
Section 11. Adjustment of Purchase Price, Number and Kind of Shares or
----------------------------------------------------------
Number of Rights. The Purchase Price, the number and kind of shares covered by
- ----------------
and obtainable upon exercise of each Right, and the number of Rights
outstanding, are subject to adjustment from time to time as provided in this
Section 11 and Section 13 hereof.
(a) (i) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Preferred Shares
payable in Preferred Shares, (B) subdivide the outstanding Preferred
Shares, (C) combine the outstanding Preferred Shares into a smaller
number of Preferred Shares or (D) issue any shares of its capital
stock in a reclassification of the Preferred Shares (including any
such reclassification in connection with a consolidation or merger in
which the Company is the continuing or surviving corporation), except
as otherwise provided in this Section 11(a), the Purchase Price in
effect at the time of the record date for such dividend or of the
effective date of such subdivision, combination or reclassification,
and the number and kind of shares of capital stock issuable on such
date, shall be proportionately adjusted so that the holder of any
Right exercised after such time shall be entitled to receive the
aggregate number and kind of shares of capital stock which, if such
Right had been exercised immediately prior to such date and at a time
when the Preferred Shares transfer books of the Company were open,
such holder would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification; provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right. If an event occurs which would
require adjustment under both this Section 11(a)(i) and Section
11(a)(ii) hereof, the adjustment provided for in this Section 11(a)(i)
shall be in addition to, and shall be made prior to, any adjustment
required pursuant to Section 11(a)(ii) hereof.
(ii) Subject to Section 24 hereof, in the event any
Person shall become an Acquiring Person, each holder of a valid Right
shall thereafter have a right to receive, upon exercise thereof at a
price equal to the then current Purchase Price multiplied by the
number of one one-thousandths of a Preferred Share for which a Right
is then exercisable, in accordance with the terms of this Agreement,
and in lieu of Preferred Shares, such number of Common Shares of the
Company as shall equal the result obtained by (x) multiplying the then
current Purchase Price by the number of one one-thousandths of a
Preferred Share for which a Right is then exercisable, and dividing
that product by (y) 50% of the then current per share market price of
the Company's Common Shares (determined pursuant to Section 11(d)
hereof) on the date of the occurrence of the event described above. In
the event that any Person shall become an Acquiring Person and the
Rights shall then be outstanding, the Company shall not take any
action which would eliminate or diminish the benefits intended to be
afforded by the Rights.
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<PAGE>
From and after the time when a Person becomes an Acquiring
Person (a "Section 11(a)(ii) Event") any Rights that are or were
acquired or beneficially owned by (i) any Acquiring Person or any
Associate or Affiliate of such Acquiring Person, (ii) a transferee of
an Acquiring Person (or of any such Associate or Affiliate) who
becomes a transferee after the Acquiring Person became an Acquiring
Person or (iii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or
concurrently with the Acquiring Person becoming an Acquiring Person
and receives such Rights pursuant to either (A) a transfer (whether or
not for consideration) from the Acquiring Person to holders of equity
interests in such Acquiring Person or to any Person with whom such
Acquiring Person has any continuing agreement, arrangement or
understanding, whether written or oral, regarding the transferred
Rights or (B) a transfer which the Board of Directors has determined
in good faith is part of a plan, arrangement or understanding, whether
written or oral, which has as a primary purpose or effect the
avoidance of this second paragraph of this Section 11(a)(ii), shall
each be void and any holder of such Rights shall thereafter have no
exercise or any other rights whatsoever with respect to such Rights
under any provision of this Agreement or otherwise. No Rights
Certificate shall be issued pursuant to Section 3, this Section
11(a)(ii) or Section 24 that represents Rights beneficially owned by
an Acquiring Person or any Associate or Affiliate thereof whose Rights
would be void pursuant to the preceding sentence; no Rights
Certificate shall be issued at any time upon the transfer of any
Rights to an Acquiring Person or any Associate or Affiliate thereof
whose Rights would be void pursuant to the preceding sentence or to
any nominee of such Acquiring Person, Associate or Affiliate; and any
Rights Certificate delivered to the Rights Agent for transfer to an
Acquiring Person, Associate or Affiliate thereof whose Rights would be
void pursuant to the preceding sentence shall be canceled.
(iii) In lieu of issuing Common Shares of the Company in
accordance with Section 11(a)(ii) hereof, the Company may, in the sole
discretion of the Board of Directors, elect to (and, in the event that
the Board of Directors has not exercised the exchange right contained
in Section 24 hereof and there are not sufficient issued but not
outstanding and authorized but unissued Common Shares to permit the
exercise in full of the Rights in accordance with Section 11(a)(ii)
hereof, the Company shall) take all such action as may be necessary to
authorize, issue or pay, upon the exercise of the Rights, cash
(including by way of a reduction of the Purchase Price), property,
other securities or any combination thereof having an aggregate value
equal to the value of the Common Shares of the Company which otherwise
would have been issuable pursuant to Section 11(a)(ii), which
aggregate value shall be determined by the Board of Directors. For
purposes of the preceding sentence, the value of the Common Shares
shall be determined pursuant to Section 11(d) hereof and the value of
any equity securities which the Board of Directors determines to be a
"common stock equivalent"
14
<PAGE>
(including the Preferred Shares, in such ratio as the Board of
Directors shall determine) shall be deemed to have the same value as
the Common Shares. Any such election by the Board of Directors must be
made and publicly announced within 60 days following the date on which
the event described in Section 11(a)(ii) shall have occurred.
Following the occurrence of the event described in Section 11(a)(ii),
the Board of Directors may suspend the exercisability of the Rights
for a period of up to 60 days following the date on which the event
described in Section 11(a)(ii) shall have occurred to the extent that
the Board of Directors has not determined whether to exercise the
Company's right of election under this Section 11(a)(iii). In the
event of any such suspension, the Company shall issue a public
announcement stating that the exercisability of the Rights has been
temporarily suspended.
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Shares entitling
them (for a period expiring within 45 calendar days after such record date)
to subscribe for or purchase Preferred Shares (or shares having the same
rights, privileges and preferences as the Preferred Shares ("equivalent
preferred shares")) or securities convertible into Preferred Shares or
equivalent preferred shares at a price per Preferred Share or equivalent
preferred share (or having a conversion price per share, if a security
convertible into Preferred Shares or equivalent preferred shares) less than
the then current per share market price of the Preferred Shares (as defined
in Section 11(d)) on such record date, the Purchase Price to be in effect
after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the number of Preferred Shares outstanding on
such record date plus the number of Preferred Shares which could be
purchased at the current per share market price for the aggregate offering
price of the total number of Preferred Shares and/or equivalent preferred
shares so to be offered (and/or the aggregate initial conversion price of
the convertible securities so to be offered) and the denominator of which
shall be the number of Preferred Shares outstanding on such record date
plus the number of additional Preferred Shares and/or equivalent preferred
shares to be offered for subscription or purchase (or into which the
convertible securities so to be offered are initially convertible);
provided, however, that in no event shall the consideration to be paid upon
the exercise of one Right be less than the aggregate par value of the
shares of capital stock of the Company issuable upon exercise of one Right.
In case such subscription price may be paid in a consideration part or all
of which shall be in a form other than cash, the value of such
consideration shall be as determined in good faith by the Board of
Directors, whose determination shall be described in a statement filed with
the Rights Agent. Preferred Shares owned by or held for the account of the
Company shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively whenever such a
record date is fixed; and in the event that such rights, options or
warrants are not so issued, the Purchase Price shall be adjusted to be the
Purchase Price which would then be in effect if such record date had not
been fixed.
15
<PAGE>
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of
indebtedness or assets (other than a regular quarterly cash dividend or a
dividend payable in Preferred Shares) or subscription rights or warrants
(excluding those referred to in Section 11(b) hereof), the Purchase Price
to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the then current per share market
price of the Preferred Shares on such record date, less the fair market
value (as determined in good faith by the Board of Directors, whose
determination shall be described in a statement filed with the Rights
Agent) of the portion of the assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to one
Preferred Share and the denominator of which shall be such current per
share market price of the Preferred Shares; provided, however, that in no
event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the
Company to be issued upon exercise of one Right. Such adjustments shall be
made successively whenever such a record date is fixed; and in the event
that such distribution is not so made, the Purchase Price shall again be
adjusted to be the Purchase Price which would then be in effect if such
record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, the "current
per share market price" of any security (a "Security" for the purpose of
this Section 11(d)(i)) on any date shall be deemed to be the average of the
daily closing prices (determined as provided in the next sentence) per
share of such Security for the 30 consecutive Trading Days (as such term is
hereinafter defined) immediately prior to such date, and for the purpose of
any computation under Section 11(a)(iii) hereof, the "current per share
market price" of a Security on any date shall be deemed to be the average
of the daily closing prices per share of such Security for the 30
consecutive Trading Days immediately following such date; provided,
however, that in the event that the current per share market price of the
Security is determined during a period following the announcement by the
issuer of such Security of (A) a dividend or distribution on such Security
payable in shares of such Security or securities convertible into such
shares (other than the Rights), or (B) any subdivision, combination or
reclassification of such Security and prior to the expiration of 30 Trading
Days after the ex-dividend date for such dividend or distribution, or the
record date for such subdivision, combination or reclassification, then,
and in each such case, the current per share market price shall be
appropriately adjusted to reflect the current market price per share
equivalent of such Security as if such dividend, distribution, combination
or reclassification has not been declared. The closing price for each day
shall be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular
way, in either case as reported in the principal consolidated transaction
reporting system with respect to securities listed on the Nasdaq National
Market or, if the Security is listed or admitted for trading on a national
exchange,
16
<PAGE>
as reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange
on which the Security is listed or admitted to trading, or, if the Security
is not listed on the Nasdaq National Market or listed or admitted to
trading on any national securities exchange, the last quoted price or, if
not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by any other system then in use, or,
if on any such date the Security is not quoted by any such organization,
the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Security selected by the
Board of Directors. The term "Trading Day" shall mean a day on which the
inter-dealer quotation system or principal national securities exchange on
which the Security is listed or admitted to trading is open for the
transaction of business or, if the Security is not listed or admitted to
trading on any inter-dealer quotation system or national securities
exchange, a Business Day.
(ii) For the purpose of any computation hereunder, the "current
per share market price" of the Preferred Shares shall be determined in
accordance with the method set forth in Section 11(d)(i) hereof. If the
Preferred Shares are not publicly traded, the "current per share market
price" of the Preferred Shares shall be conclusively deemed to be the
current per share market price of the Common Shares as determined pursuant
to Section 11(d)(i) (appropriately adjusted to reflect any stock split,
stock dividend or similar transaction occurring after the date hereof),
multiplied by one-hundred. If neither the Common Shares nor the Preferred
Shares are publicly held or so listed or traded, "current per share market
price" shall mean the fair value per share as determined in good faith by
the Board of Directors, whose determination shall be described in a
statement filed with the Rights Agent.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the
Purchase Price; provided, however, that any adjustments which by reason of
this Section 11(e) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under
this Section 11 shall be made to the nearest cent or to the nearest one
one-millionth of a Preferred Share or one ten-thousandth of any other share
or security, as the case may be. Notwithstanding the first sentence of
this Section 11(e), any adjustment required by this Section 11 shall be
made no later than the earlier of (i) three years from the date of the
transaction which requires such adjustment or (ii) the date of the
expiration of the right to exercise any Rights.
(f) If as a result of an adjustment made pursuant to Section 11(a)
hereof, the holder of any Right thereafter exercised shall become entitled
to receive any shares of capital stock of the Company other than Preferred
Shares, thereafter the number of such other shares so receivable upon
exercise of any Right shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions
with respect to the Preferred Shares contained in Sections 11(a), 11(b) and
11(c), and the
17
<PAGE>
provisions of Sections 7, 9, 10, 13 and 14 with respect to the Preferred
Shares shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-thousandths
of a Preferred Share purchasable from time to time hereunder upon exercise
of the Rights all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided
in Section 11(i) hereof, upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and 11(c) hereof, each
Right outstanding immediately prior to the making of such adjustment shall
thereafter evidence the right to purchase, at the adjusted Purchase Price,
that number of one one-thousandths of a Preferred Share (calculated to the
nearest one one-millionth of a Preferred Share) obtained by (i) multiplying
(x) the number of one one-thousandths of a share covered by a Right
immediately prior to this adjustment by (y) the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price and (ii)
dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of one one-thousandths of a Preferred Share
purchasable upon the exercise of a Right. Each of the Rights outstanding
after such adjustment of the number of Rights shall be exercisable for the
number of one one-thousandths of a Preferred Share for which a Right was
exercisable immediately prior to such adjustment. Each Right held of
record prior to such adjustment of the number of Rights shall become that
number of Rights (calculated to the nearest one ten-thousandth) obtained by
dividing the Purchase Price in effect immediately prior to adjustment of
the Purchase Price by the Purchase Price in effect immediately after
adjustment of the Purchase Price. The Company shall make a public
announcement of its election to adjust the number of Rights, indicating the
record date for the adjustment, and, if known at the time, the amount of
the adjustment to be made. This record date may be the date on which the
Purchase Price is adjusted or any day thereafter, but, if the Rights
Certificates have been issued, shall be at least 10 days later than the
date of the public announcement. If Rights Certificates have been issued,
upon each adjustment of the number of Rights pursuant to this Section
11(i), the Company shall, as promptly as practicable, cause to be
distributed to holders of record of Rights Certificates on such record date
Rights Certificates evidencing, subject to Section 14 hereof, the
additional Rights to which such holders shall be entitled as a result of
such adjustment, or, at the option of the Company, shall cause to be
distributed to such holders of record in substitution and replacement for
the Rights Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Company, new
Rights Certificates evidencing all the Rights to which such holders shall
be entitled
18
<PAGE>
after such adjustment. Rights Certificates so to be distributed shall be
issued, executed and countersigned in the manner provided for herein and
shall be registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-thousandths of a Preferred Share issuable upon the
exercise of the Rights, the Rights Certificates theretofore and thereafter
issued may continue to express the Purchase Price and the number of one
one-thousandths of a Preferred Share which were expressed in the initial
Rights Certificates issued hereunder, without prejudice to the validity of
such Rights Certificate(s) or the application of the provisions hereof.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below one one-thousandth of the then par value, if any,
of the Preferred Shares issuable upon exercise of the Rights, the Company
shall take any corporate action which may, in the opinion of its counsel,
be necessary in order that the Company may validly and legally issue fully
paid and nonassessable Preferred Shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for
a specified event, the Company may elect to defer until the occurrence of
such event the issuing to the holder of any Right exercised after such
record date of the Preferred Shares and other capital stock or securities
of the Company, if any, issuable upon such exercise over and above the
Preferred Shares and other capital stock or securities of the Company, if
any, issuable upon such exercise on the basis of the Purchase Price in
effect prior to such adjustment; provided, however, that the Company shall
deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional shares upon the
occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and
to the extent that it in its sole discretion shall determine to be
advisable in order that any consolidation or subdivision of the Preferred
Shares, issuance wholly for cash of any Preferred Shares at less than the
current market price, issuance wholly for cash of Preferred Shares or
securities which by their terms are convertible into or exchangeable for
Preferred Shares, dividends on Preferred Shares payable in Preferred Shares
or issuance of rights, options or warrants referred to in Section 11(b),
hereafter made by the Company to holders of its Preferred Shares shall not
be taxable to such stockholders.
(n) In the event that at any time after the date of this Agreement and
prior to the Shares Acquisition Date, the Company shall (i) declare or pay
any dividend on the
19
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Common Shares payable in Common Shares or (ii) effect a subdivision,
combination or consolidation of the Common Shares (by reclassification or
otherwise than by payment of dividends in Common Shares) into a greater or
lesser number of Common Shares, then in any such case (i) the number of one
one-thousandths of a Preferred Share purchasable after such event upon
proper exercise of each Right shall be determined by multiplying the number
of one one-thousandths of a Preferred Share so purchasable immediately
prior to such event by a fraction, the numerator of which is the number of
Common Shares outstanding immediately before such event and the denominator
of which is the number of Common Shares outstanding immediately after such
event, and (ii) each Common Share outstanding immediately after such event
shall have issued with respect to it that number of Rights which each
Common Share outstanding immediately prior to such event had issued with
respect to it. The adjustments provided for in this Section 11(n) shall be
made successively whenever such a dividend is declared or paid or such a
subdivision, combination or consolidation is effected.
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.
----------------------------------------------------------
Whenever an adjustment is made as provided in Section 11 and 13 hereof, the
Company shall promptly (a) prepare a certificate setting forth such adjustment,
and a brief statement of the facts accounting for such adjustment, (b) file with
the Rights Agent and with each transfer agent for the Common Shares or the
Preferred Shares a copy of such certificate and (c) mail a brief summary thereof
to each holder of a Rights Certificate in accordance with Section 25 hereof.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning
--------------------------------------------------------------
Power.
- -----
(a) If, after the Shares Acquisition Date, directly or indirectly,
(w) the Company shall consolidate with, or merge with and into, any other
Person, (x) any Person shall consolidate with the Company, or merge with
and into the Company and the Company shall be the continuing or surviving
corporation of such merger and, in connection with such merger or
consolidation all or part of the outstanding Common Shares are changed into
or exchanged for stock or other securities of any other Person (or the
Company) or cash or any other property, (y) the Company shall sell,
mortgage or otherwise transfer (or one or more of its Subsidiaries shall
sell, mortgage or otherwise transfer), in one or more transactions, assets
or earning power aggregating 50% or more of the assets or earning power of
the Company and its Subsidiaries (taken as a whole) to any Person other
than the Company or one or more of its wholly-owned Subsidiaries, or (z)
any Acquiring Person or any Associate or Affiliate of any such Acquiring
Person, at any time after the date of this Agreement, directly or
indirectly, (A) shall, in one transaction or a series of transactions,
transfer any assets to the Company or to any of its Subsidiaries in
exchange (in whole or in part) for Common Shares, for shares of other
equity securities of the Company or for securities exercisable for or
convertible into shares of equity securities of the Company (Common Shares
or otherwise) or otherwise obtain from the Company, with or without
consideration, any additional shares of such equity securities or
securities exercisable for or convertible into shares of such equity
securities
20
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(other than pursuant to a pro rata distribution to all holders of Common
Shares), (B) shall sell, purchase, lease, exchange, mortgage, pledge,
transfer or otherwise acquire or dispose of assets, in one transaction or a
series of transactions, to, from or with the Company or any of its
Subsidiaries without obtaining a written opinion from a nationally
recognized investment banking firm that the terms of such transaction or
arrangement are no less favorable to the Company than the Company would be
able to obtain in arm's-length negotiation with an unaffiliated third
party, (C) shall sell, purchase, lease, exchange, mortgage, pledge,
transfer or otherwise acquire or dispose of in one transaction or a series
of transactions, to, from or with the Company or any of the Company's
Subsidiaries (other than incidental to the lines of business, if any,
engaged in as of the date hereof between the Company and such Acquiring
Person or Associate or Affiliate) assets having an aggregate fair market
value of more than $5,000,000, (D) shall receive any compensation from the
Company or any of the Company's Subsidiaries other than compensation for
full-time employment as a regular employee at rates in accordance with the
Company's (or its Subsidiaries') past practices, or (E) shall receive the
benefit, directly or indirectly (except proportionately as a stockholder
and except if resulting from a requirement of law or governmental
regulation), of any loans, advances, guarantees, pledges or other financial
assistance or any tax credits or other tax advantage provided by the
Company or any of its Subsidiaries, then, and in each such case, (i) each
holder of a Right (except as otherwise provided herein) shall thereafter
have the right to receive, upon the exercise thereof at a price equal to
the then current Purchase Price multiplied by the number of one one-
thousandths of a Preferred Share for which a Right is then exercisable in
accordance with the terms of this Agreement, and in lieu of Preferred
Shares, such number of validly authorized and issued, fully paid, non-
assessable and freely tradeable Common Shares of the Principal Party (as
hereinafter defined) not subject to any liens, encumbrances, rights of
first refusal or other adverse claims, as shall equal the result obtained
by (A) multiplying the then current Purchase Price by the number of one
one-thousandths of a Preferred Share for which a Right is then exercisable
and dividing that product by (B) 50% of the then current per share market
price of the Common Shares of the Principal Party (determined pursuant to
Section 11(d) hereof) on the date of consummation of such consolidation,
merger, sale or transfer; (ii) such Principal Party shall thereafter be
liable for, and shall assume, by virtue of such consolidation, merger, sale
or transfer, all the obligations and duties of the Company pursuant to this
Agreement; (iii) the term "Company" shall thereafter be deemed to refer to
such Principal Party; and (iv) such Principal Party shall take such steps
(including, but not limited to, the reservation of a sufficient number of
its Common Shares in accordance with Section 9 hereof) in connection with
such consummation as may be necessary to assure that the provisions hereof
shall thereafter be applicable, as nearly as reasonably may be, in relation
to the Common Shares thereafter deliverable upon the exercise of the
Rights.
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<PAGE>
(b) "Principal Party" shall mean:
(i) In the case of any transaction described in (w) or (x) of
the first sentence of Section 13(a) hereof, the Person that is the
issuer of any securities into which Common Shares of the Company are
converted in such merger or consolidation, and if no securities are so
issued, the Person that is the surviving entity of such merger or
consolidation (including the Company if applicable); and
(ii) in the case of any transaction described in (y) or (z) of
the first sentence in Section 13(a) hereof, the Person that is the
party receiving the greatest portion of the assets, securities,
earning power or other benefit transferred pursuant to such
transaction or transactions;
provided, however, that in any such case described in clauses (b)(i) and
-------- -------
(b)(ii): (1) if the Common Shares of such Person are not at such time and
have not been continuously over the preceding 12-month period registered
under Section 12 of the Exchange Act, and such Person is a direct or
indirect Subsidiary of another Person the Common Shares of which are and
have been so registered, "Principal Party" shall refer to such other
Person; (2) in case such Person is a Subsidiary, directly or indirectly, of
more than one person, the Common Shares of two or more of which are and
have been so registered, "Principal Party" shall refer to whichever of such
Persons is the issuer of the Common Shares having the greatest aggregate
market value; and (3) in case such Person is owned, directly or indirectly,
by a joint venture formed by two or more Persons that are not owned,
directly or indirectly, by the same person, the rules set forth in (1) and
(2) above shall apply to each of the chains of ownership having an interest
in such joint venture as if such party were a "Subsidiary" of both or all
of such joint venturers and the Principal Parties in each such chain shall
bear the obligations set forth in this Section 13 in the same ratio as
their direct or indirect interests in such Person bear to the total of such
interests.
(c) The Company shall not consummate any such consolidation, merger,
sale or transfer unless the Principal Party shall have sufficient Common
Shares authorized to permit the full exercise of the Rights and prior
thereto the Company and such Principal Party shall have executed and
delivered to the Rights Agent a supplemental agreement providing for the
terms set forth in Sections 13(a) and 13(b) hereof and further providing
that, as soon as practicable after the date of any consolidation, merger,
sale or transfer mentioned in Section 13(a) hereof, the Principal Party
will:
(i) prepare and file a registration statement under the Act, with
respect to the Rights and the securities purchasable upon exercise of
the Rights on an appropriate form, and will use its best efforts to
cause such registration statement to (A) become effective as soon as
practicable after such filing and (B) remain effective (with a
prospectus at all times meeting the requirements of the Act) until the
Final Expiration Date;
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<PAGE>
(ii) deliver to holders of the Rights historical financial
statements for the Principal Party and each of its Affiliates which
comply in all respects with the requirements for registration on Form
10 under the Exchange Act; and
(iii) take such actions as may be necessary or appropriate under
the blue sky laws of the various states.
The Company shall not enter into any transaction of the kind referred
to in this Section 13 if at the time of such transaction there are any
rights, warrants, instruments or securities outstanding or any agreements
or arrangements which, as a result of the consummation of such transaction,
would eliminate or substantially diminish the benefits intended to be
afforded by the Rights. The provisions of this Section 13 shall similarly
apply to successive mergers, consolidations, sales or transfers.
Section 14. Fractional Rights and Fractional Shares.
---------------------------------------
(a) The Company shall not be required to issue fractions of Rights
or to distribute Rights Certificates which evidence fractional Rights. In
lieu of such fractional Rights, there shall be paid to the registered
holders of the Rights Certificates with regard to which such fractional
Rights would otherwise be issuable, an amount in cash equal to the same
fraction of the current market value of a whole Right. For the purposes of
this Section 14(a), the current market value of a whole Right shall be the
closing price of the Rights for the Trading Day immediately prior to the
date on which such fractional Rights would have been otherwise issuable.
The closing price for any day shall be the last sale price, regular way,
or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as reported in
the principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the principal national
securities exchange or the Nasdaq National Market on which the Rights are
listed or admitted to trading or, if the Rights are not listed or admitted
to trading on any national securities exchange or the Nasdaq National
Market, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by any
other system then in use, or, if on any such date the Rights are not quoted
by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the Rights
selected by the Board of Directors. If on any such date no such market
maker is making a market in the Rights, the fair value of the Rights on
such date as determined in good faith by the Board of Directors shall be
used.
(b) The Company shall not be required to issue fractions of
Preferred Shares (other than fractions which are integral multiples of one
one-thousandth of a Preferred Share) upon exercise of the Rights or to
distribute certificates which evidence fractional Preferred Shares (other
than fractions which are integral multiples of one one-thousandth of a
Preferred Share). Fractions of Preferred Shares in integral multiples of
23
<PAGE>
one one-thousandth of a Preferred Share may, at the election of the
Company, be evidenced by depositary receipts, pursuant to an appropriate
agreement between the Company and a depositary selected by it; provided,
that such agreement shall provide that the holders of such depositary
receipts shall have all the rights, privileges and preferences to which
they are entitled as beneficial owners of the Preferred Shares represented
by such depositary receipts. In lieu of fractional Preferred Shares that
are not integral multiples of one one-thousandth of a Preferred Share, the
Company shall pay to the registered holders of Rights Certificates at the
time such Rights are exercised as herein provided an amount in cash equal
to the same fraction of the current market value of one Preferred Share.
For the purposes of this Section 14(b), the current market value of a
Preferred Share shall be the closing price of a Preferred Share (as
determined pursuant to the second sentence of Section 11(d)(i) hereof) for
the Trading Day immediately prior to the date of such exercise.
(c) Following the occurrence of a Distribution Date, the Company
shall not be required to issue fractions of Common Shares upon exercise of
the Rights or to distribute certificates which evidence fractional Common
Shares. In lieu of fractional Common Shares, the Company may pay to the
registered holders of Rights Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction
of the current market value of one Common Share. For purposes of this
Section 14(c), the current market value of one Common Share shall be the
closing price of one Common Share (as determined pursuant to the second
sentence of Section 11(d)(i) hereof) for the Trading Day immediately prior
to the date of such exercise.
(d) The holder of a Right by the acceptance of the Right expressly
waives his right to receive any fractional Rights or any fractional shares
upon exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect of this
----------------
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Rights Certificate (or, prior
to the Distribution Date, of the Common Shares), without the consent of the
Rights Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in its own behalf and for its own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, its right to
exercise the Rights evidenced by such Rights Certificate in the manner provided
in such Rights Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations under, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to, this Agreement.
24
<PAGE>
Section 16. Agreement of Rights Holders. Every holder of a Right, by
---------------------------
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Rights Certificates will be
transferable only on the registry books of the Rights Agent if surrendered
at the principal office of the Rights Agent, duly endorsed or accompanied
by a proper instrument of transfer and with appropriate forms and
certificates fully executed;
(c) the Company and the Rights Agent may deem and treat the Person
in whose name the Rights Certificate (or, prior to the Distribution Date,
the associated certificate for Common Shares) is registered as the absolute
owner thereof and of the Rights evidenced thereby (notwithstanding any
notations of ownership or writing on the Rights Certificates or the
associated certificate for Common Shares made by anyone other than the
Company or the Rights Agent) for all purposes whatsoever, and neither the
Company nor the Rights Agent shall be affected by any notice to the
contrary; and
(d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any
holder of a Right or any other Person as a result of its inability to
perform any of its obligations under this Agreement by reason of any
preliminary or permanent injunction or other order, decree or ruling issued
by a court of competent jurisdiction or by a governmental, regulatory or
administrative agency or commission, or any statute, rule, regulation or
executive order promulgated or enacted by any governmental authority
prohibiting or otherwise restraining performance of such obligation.
Section 17. Rights Certificate Holder Not Deemed a Stockholder. No holder,
--------------------------------------------------
as such, of any Rights Certificate shall be entitled to vote, receive dividends
or be deemed for any purpose the holder of the Preferred Shares or any other
securities of the Company which may at any time be issuable on the exercise of
the Rights represented thereby, nor shall anything contained herein or in any
Rights Certificate be construed to confer upon the holder of any Rights
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Rights Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. Concerning the Rights Agent. The Company agrees to pay to the
---------------------------
Rights Agent reasonable compensation for all services rendered by it hereunder
and, from time to time,
25
<PAGE>
on demand of the Rights Agent, its reasonable expenses and counsel fees and
other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The Company
also agrees to indemnify the Rights Agent for, and to hold it harmless against,
any loss, liability, or expense, incurred without negligence, bad faith or
willful misconduct on the part of the Rights Agent, for anything done or omitted
by the Rights Agent in connection with the acceptance and administration of this
Agreement, including the costs and expenses of defending against any claim of
liability arising, directly or indirectly, therefrom. In no case shall the
Rights Agent be liable for special, indirect, incidental or consequential loss
or damage of any kind whatsoever (including but not limited to lost profits),
even if the Rights Agent has been advised of the possibility of such loss or
damage.
The Rights Agent shall be protected and shall incur no liability for, or in
respect of any action taken, suffered or omitted by it in connection with, its
administration of this Agreement in reliance upon any Rights Certificate or
certificate for the Preferred Shares or Common Shares or for other securities of
the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
Person or Persons, or otherwise upon the advice of counsel as set forth in
Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of Rights Agent. Any
---------------------------------------------------------
corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the stock transfer or
corporate trust business of the Rights Agent or any successor Rights Agent,
shall be the successor to the Rights Agent under this Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, provided that such corporation would be eligible for appointment
as a successor Rights Agent under the provisions of Section 21 hereof. In case
at the time such successor Rights Agent shall succeed to the agency created by
this Agreement any of the Rights Certificates shall have been countersigned but
not delivered, any such successor Rights Agent may adopt the countersignature of
the predecessor Rights Agent and deliver such Rights Certificates so
countersigned; and in case at that time any of the Rights Certificates shall not
have been countersigned, any successor Rights Agent may countersign such Rights
Certificates either in the name of the predecessor Rights Agent or in the name
of the successor Rights Agent; and in all such cases such Rights Certificates
shall have the full force provided in the Rights Certificates and in this
Agreement.
In case at any time the name of the Rights Agent shall be changed and at
such time any of the Rights Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Rights Certificates so countersigned; and in case at that time any
of the Rights Certificates shall not have been countersigned, the Rights Agent
may countersign such Rights Certificates either in its prior name or in its
changed name;
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<PAGE>
and in all such cases such Rights Certificates shall have the full force
provided in the Rights Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties
----------------------
and obligations imposed by this Agreement upon the following terms and
conditions by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Company), and the opinion of such counsel shall be
full and complete authorization and protection to the Rights Agent as to
any action taken or omi tted by it in good faith and in accordance with
such opinion.
(b) Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or desirable that any fact or
matter be proved or established by the Company prior to taking or suffering
any action hereunder, such fact or matter (unless other evidence in respect
thereof be herein specifically prescribed) may be deemed to be conclusively
proved and established by a certificate signed by any one of the Chairman
of the Board, the Chief Executive Officer, the President, any Vice
President, the Treasurer or the Secretary of the Company and delivered to
the Rights Agent; and such certificate shall be full authorization to the
Rights Agent for any action taken or suffered in good faith by it under the
provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and
any other Person only for its own negligence, bad faith or willful
misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the
Rights Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be
deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery
hereof (except the due execution hereof by the Rights Agent) or in respect
of the validity or execution of any Rights Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by
the Company of any covenant or condition contained in this Agreement or in
any Rights Certificate; nor shall it be responsible for any change in the
exercisability of the Rights (including the Rights becoming void pursuant
to Section 11(a)(ii) hereof) or any adjustment in the terms of the Rights
(including the manner, method or amount thereof) provided for in Section 3,
11, 13, 23 or 24 hereof, or the ascertaining of the existence of facts that
would require any such change or adjustment (except with respect to the
exercise of Rights evidenced by Rights Certificates after actual notice
that such change or adjustment is required); nor shall it by any act
hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Preferred Shares
27
<PAGE>
(or Common Shares and/or other securities, as the case may be) to be issued
pursuant to this agreement or any Rights Certificate or as to whether any
Preferred Shares (or Common Shares and/or other securities, as the case may
be) will, when issued, be validly authorized and issued, fully paid and
nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and delivered
all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or
performing by the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept,
prior to the Shares Acquisition Date, instructions with respect to the
performance of its duties hereunder from any one of the Chairman of the
Board, the Chief Executive Officer, the President, any Vice President, the
Secretary or the Treasurer of the Company, and to apply to such officers
for advice or instructions in connection with its duties, and it shall not
be liable for any action taken or suffered by it in good faith in
accordance with instructions of any such officer or for any delay in acting
while waiting for those instructions.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or
other securities of the Company, or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or
lend money to the Company or otherwise act as fully and freely as though it
were not Rights Agent under this Agreement. Nothing herein shall preclude
the Rights Agent from acting in any other capacity for the Company or for
any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or
by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of
any such attorneys or agents or for any loss to the Company resulting from
any such act, default, neglect or misconduct, provided reasonable care was
exercised in the selection and continued employment thereof.
Section 21. Change of Rights Agent. The Rights Agent or any successor
----------------------
Rights Agent may resign and thereafter be discharged from its duties under this
Agreement upon 30 days' notice in writing mailed to the Company and to each
transfer agent of the Common Shares or Preferred Shares by registered or
certified mail, and to the holders of the Rights Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
30 days' notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Shares or
Preferred Shares by registered or certified mail, and to the holders of the
Rights Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall appoint
a
28
<PAGE>
successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of 30 days after giving notice of such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Rights Certificate
(who shall, with such notice, submit his Rights Certificate for inspection by
the Company), then the registered holder of any Rights Certificate may apply to
any court of competent jurisdiction for the appointment of a new Rights Agent.
Any successor Rights Agent, whether appointed by the Company or by such a court,
shall be either (A) a corporation organized and doing business under the laws of
the United States or of any state of the United States, in good standing,
authorized under such laws to exercise corporate trust or stock transfer powers,
and subject to supervision or examination by federal or state authority and
which has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $50 million or (B) an affiliate of such a corporation.
After appointment, the successor Rights Agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been originally named
as Rights Agent without further act or deed; but the predecessor Rights Agent
shall deliver and transfer to the successor Rights Agent any property at the
time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the effective
date of any such appointment the Company shall file notice thereof in writing
with the predecessor Rights Agent and each transfer agent of the Common Shares
or Preferred Shares, and mail a notice thereof in writing to the registered
holders of the Rights Certificates. Failure to give any notice provided for in
this Section 21, however, or any defect therein, shall not affect the legality
or validity of the resignation or removal of the Rights Agent or the appointment
of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Rights Certificates. Notwithstanding any of
-----------------------------------
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Rights Certificates evidencing Rights in such form
as may be approved by the Board of Directors to reflect any adjustment or change
in the Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Rights Certificates made in
accordance with the provisions of this Agreement.
Section 23. Redemption.
----------
(a) The Rights may be redeemed by action of the Board of Directors
pursuant to Section 23 (b) hereof and shall not be redeemed in any other
manner.
(b) The Board of Directors may, at its option, at any time prior
to such time as any Person becomes an Acquiring Person, redeem all, but not
less than all, of the then outstanding Rights at a redemption price of $.01
per Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof (such
redemption price being hereinafter referred to as the "Redemption Price").
The redemption of the Rights by the Board of Directors may be made
effective at such time on such basis and with such conditions as the Board
of Directors in its sole discretion may establish. If redemption of the
Rights is to be effective as of a future date, the Rights shall
29
<PAGE>
continue to be exercisable, subject to Section 11(a)(ii) hereof, until the
effective date of the redemption, provided that nothing contained herein
shall preclude the Board of Directors from subsequently causing the Rights
to be redeemed at a date earlier than the previously scheduled effective
date of the redemption. The Company may, at its option, pay the Redemption
Price in cash, Common Shares (based on the current per share market price
of the Common Shares at the time of redemption) or any other form of
consideration deemed appropriate by the Board of Directors.
(c) Immediately upon the action of the Board of Directors ordering
the redemption of the Rights pursuant to Section 23(b) hereof (or at the
effective time of such redemption established by the Board of Directors
pursuant to Section 23(b) hereof), and without any further action and
without any notice, the right to exercise the Rights will terminate and the
only right thereafter of the holders of Rights shall be to receive the
Redemption Price. The Company shall promptly give public notice of any such
redemption; provided, however, that the failure to give, or any defect in,
any such notice shall not affect the validity of such redemption. Within 10
days after such action of the Board of Directors ordering the redemption of
the Rights pursuant to Section 23(b) hereof or if later, the effectiveness
of the redemption of the rights pursuant to the last sentence of Section
23(b), the Company shall mail a notice of redemption to all the holders of
the then outstanding Rights at their last addresses as they appear upon the
registry books of the Rights Agent or, prior to the Distribution Date, on
the registry books of the transfer agent for the Common Shares. Any notice
which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of
redemption will state the method by which the payment of the Redemption
Price will be made. The Company may, at its option, discharge all of its
obligations with respect to the Rights by (i) issuing a press release
announcing the manner of redemption of the Rights, (ii) depositing with a
bank or trust company having a capital and surplus of at least $100
million, funds necessary for such redemption, in trust, to be applied to
the redemption of the Rights so called for redemption and (iii) arranging
for the mailing of the Redemption Price to the registered holders of the
Rights; then, and upon such action, all outstanding Rights Certificates
shall be null and void without further action by the Company. Neither the
Company nor any of its Affiliates or Associates may redeem, acquire or
purchase for value any Rights at any time in any manner other than that
specifically set forth in this Section 23 or in Section 24 hereof, and
other than in connection with the purchase of Common Shares prior to the
Shares Acquisition Date.
Section 24. Exchange.
--------
(a) The Board of Directors may, at its option, at any time after
any Person becomes an Acquiring Person, exchange all or part of the then
outstanding and exercisable Rights (which shall not include Rights that
have become void pursuant to the provisions of Section 11(a)(ii) hereof)
for Common Shares at an exchange ratio of one Common Share per Right,
appropriately adjusted to reflect any stock split, stock dividend or
similar
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<PAGE>
transaction occurring after the date hereof. Notwithstanding the foregoing,
the Board of Directors shall not be empowered to effect such exchange at
any time after any Person (other than the Company, any member or members of
the Winjum Family, any Subsidiary of the Company, any employee benefit plan
of the Company or any such Subsidiary, or any entity holding Common Shares
for or pursuant to the terms of any such plan), together with all
Affiliates and Associates of such Person, becomes the Beneficial Owner of
50% or more of the Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors ordering the
exchange of any Rights pursuant to Section 24(a) hereof and without any
further action and without any notice, the right to exercise such Rights
shall terminate and the only right thereafter of a holder of such Rights
shall be to receive that number of Common Shares equal to the number of
valid Rights held by such holder. The Company shall promptly give public
notice of any such exchange; provided, however, that the failure to give,
or any defect in, such notice shall not affect the validity of such
exchange. The Company promptly shall mail a notice of any such exchange to
all of the holders of such Rights at their last addresses as they appear
upon the registry books of the Rights Agent. Any notice which is mailed in
the manner herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of exchange will state the method by
which the exchange of the Common Shares for Rights will be effected and, in
the event of any partial exchange, the number of Rights which will be
exchanged. Any partial exchange shall be effected pro rata based on the
number of Rights (other than Rights which have become void pursuant to the
provisions of Section 11(a)(ii) hereof) held by each holder of Rights.
(c) In any exchange pursuant to this Section 24, the Company, at its
option, may substitute Preferred Shares (or equivalent preferred shares, as
such term is defined in Section 11(b) hereof) for Common Shares
exchangeable for Rights, at the initial rate of one one-thousandth of a
Preferred Share (or equivalent preferred share) for each Common Share, as
appropriately adjusted to reflect adjustments in the voting rights of the
Preferred Shares pursuant to the terms thereof, so that the fraction of a
Preferred Share delivered in lieu of each Common Share shall have the same
voting rights as one Common Share.
(d) In the event that there shall not be sufficient Common Shares or
Preferred Shares issued but not outstanding or authorized but unissued to
permit any exchange of Rights as contemplated in accordance with this
Section 24, the Company shall take all such action as may be necessary to
authorize additional Common Shares or Preferred Shares for issuance upon
exchange of the Rights.
(e) The Company shall not be required to issue fractions of Common
Shares or to distribute certificates which evidence fractional Common
Shares. In lieu of such fractional Common Shares, the Company shall pay to
the registered holders of the Rights
31
<PAGE>
Certificates with regard to which such fractional Common Shares would
otherwise be issuable an amount in cash equal to the same fraction of the
current market value of a whole Common Share. For the purposes of this
Section 24(e), the current market value of a whole Common Share shall be
the closing price of a Common Share (as determined pursuant to the second
sentence of Section 11(d)(i) hereof) for the Trading Day immediately prior
to the date of exchange pursuant to this Section 24.
Section 25. Notice of Certain Events.
------------------------
(a) In case the Company shall propose (i) to pay any dividend
payable in stock of any class to the holders of its Preferred Shares or to
make any other distribution to the holders of its Preferred Shares (other
than a regular quarterly cash dividend), (ii) to offer to the holders of
its Preferred Shares rights or warrants to subscribe for or to purchase any
additional Preferred Shares or shares of stock of any class or any other
securities, rights or options, (iii) to effect any reclassification of its
Preferred Shares (other than a reclassification involving only the
subdivision of outstanding Preferred Shares), (iv) to effect any
consolidation or merger into or with, or to effect any sale or other
transfer (or to permit one or more of its Subsidiaries to effect any sale
or other transfer), in one or more transactions, of 50% or more of the
assets or earning power of the Company and its Subsidiaries (taken as a
whole) to, any other Person, (v) to effect the liquidation, dissolution or
winding up of the Company, or (vi) to declare or pay any dividend on the
Common Shares payable in Common Shares or to effect a subdivision,
combination or consolidation of the Common Shares (by reclassification or
otherwise), then, in each such case, the Company shall give to each holder
of a Rights Certificate, in accordance with Section 26 hereof, a notice of
such proposed action, which shall specify the record date for such event,
and the date of participation therein by the holders of the Common Shares
and/or Preferred Shares, if any such date is to be fixed, and such notice
shall be so given in the case of any action covered by clause (i) or (ii)
above at least 10 days prior to the record date for determining holders of
the Preferred Shares for purposes of such action, and in the case of any
such other action, at least 10 days prior to the date of the taking of such
proposed action or the date of participation therein by the holders of the
Common Shares and/or Preferred Shares, whichever shall be the earlier.
(b) In case any of the events set forth in Section 11(a)(ii) hereof
shall occur, then the Company shall as soon as practicable thereafter give
to each holder of a Rights Certificate, in accordance with Section 26
hereof, a notice of the occurrence of such event, which notice shall
describe such event and the consequences of such event to holders of Rights
under Section 11(a)(ii) hereof.
Section 26. Notices. Notices or demands authorized by this Agreement to
-------
be given or made by the Rights Agent or by the holder of any Rights Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
32
<PAGE>
NovaMed Eyecare, Inc.
980 North Michigan Avenue, Suite 1620
Chicago, Illinois 60611
Attention: Secretary
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Rights Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
Attention: Ms. Susan Silber
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. The Company may from time to
--------------------------
time supplement or amend this Agreement without the approval of any holders of
Rights Certificates in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provisions herein, or to make any other provisions with respect to the Rights
which the Company may deem necessary or desirable, any such supplement or
amendment to be evidenced by a writing signed by the Company and the Rights
Agent; provided, however, that from and after such time as any Person becomes an
Acquiring Person, this Agreement shall not be amended in any manner which would
adversely affect the interests of the holders of Rights (except the interests of
any Acquiring Person and its Affiliates and Associates).
Section 28. Determination and Actions by the Board of Directors, etc..
---------------------------------------------------------
The Board of Directors shall have the exclusive power and authority to
administer this Agreement and to exercise all rights and powers specifically
granted to the Board of Directors, or the Company, or as may be necessary or
advisable in the administration of this Agreement, including, without
limitation, the right and power to (i) interpret the provisions of this
Agreement, and (ii) make all determinations deemed necessary or advisable for
the administration of this Agreement (including, without limitation, a
determination to redeem or not redeem the Rights or to amend the Agreement and
whether any proposed amendment adversely affects the interests of the holders of
Rights Certificates). For all purposes of this Agreement, any calculation of
the number of Common Shares or other securities outstanding at any particular
time, including for purposes of determining the particular percentage of such
outstanding Common Shares or any other securities of which any Person is the
Beneficial Owner, shall be made in accordance with the last sentence of Rule
13d-
33
<PAGE>
3(d)(1)(I) of the General Rules and Regulations under the Exchange Act as in
effect on the date of this Agreement. All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y) below,
all omissions with respect to the foregoing) which are done or made by the Board
of Directors in good faith, shall (x) be final, conclusive and binding on the
Company, the Rights Agent, the holders of the Rights Certificates and all other
parties unless the Board of Directors specifically states that such action,
calculations, interpretation or determination is not final, conclusive and
binding, and (y) not subject the Board of Directors to any liability to the
holders of the Rights Certificates.
Section 29. Successors. All the covenants and provisions of this
----------
Agreement by, or for the benefit of, the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 30. Benefits of this Agreement. Nothing in this Agreement shall
--------------------------
be construed to give to any Person other than the Company, the Rights Agent and
the registered holders of valid Rights Certificates (and, prior to the
Distribution Date, the Common Shares) any legal or equitable right, remedy or
claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
valid Rights Certificates (and, prior to the Distribution Date, the Common
Shares).
Section 31. Severability. If any term, provision, covenant or
------------
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Section 32. Governing Law. This Agreement and each Rights Certificate
-------------
issued hereunder shall be deemed to be a contract made under the laws of the
State of Delaware and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State.
Section 33. Counterparts. This Agreement may be executed in any number
------------
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
Section 34. Descriptive Headings. Descriptive headings of the several
--------------------
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
34
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, all as of the day and year first above written.
NOVAMED EYECARE, INC.
Attest:
By: /s/ Ronald G. Eidell By: /s/ Stephen J. Winjum
--------------------------- ---------------------------
Name: Ronald G. Eidell Stephen J. Winjum, President and CEO
Title: Corporate Secretary
AMERICAN STOCK TRANSFER
& TRUST COMPANY,
as Rights Agent
Attest:
By: /s/ Susan Silber By: /s/ Herbert J. Lemmer
--------------------------- ---------------------------
Name: Susan Silber Name: Herbert J. Lemmer
Title: Assistant Secretary Title: Vice President
<PAGE>
Exhibit A
---------
FORM
of
CERTIFICATE OF DESIGNATIONS
of
Series E JUNIOR PARTICIPATING PREFERRED STOCK
of
NOVAMED EYECARE, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
------------------------------------------
NOVAMED EYECARE, INC., a corporation organized and existing under the
General Corporation Law of the State of Delaware (hereinafter called the
"Company"), hereby certifies that the following resolution was adopted by the
Board of Directors of the Company as required by Section 151 of the General
Corporation Law at a meeting duly called and held on July 7, 1999:
RESOLVED, that pursuant to the authority granted to and vested in the Board
of Directors of this Company (hereinafter called the "Board of Directors" or the
"Board") in accordance with the provisions of the Company's Certificate of
Incorporation, the Board of Directors hereby creates a series of Preferred
Stock, par value $.01 per share (the "Preferred Stock"), of the Company and
hereby states the designation and number of shares, and fixes the relative
rights, preferences, and limitations thereof as follows:
Series E Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series shall be
----------------------
designated as "Series E Junior Participating Preferred Stock" (the "Series E
Preferred Stock") and the number of shares constituting the Series E Preferred
Stock shall initially be 50,000. Such number of shares may be increased or
decreased by resolution of the Board of Directors; provided, that no decrease
--------
shall reduce the number of shares of Series E Preferred Stock to a number less
than the number of shares then outstanding plus the number of shares reserved
for issuance upon the exercise of outstanding options, rights or warrants or
upon the conversion of any outstanding securities or rights issued by the
Company convertible into Series E Preferred Stock and further
-----------
A-1
<PAGE>
provided that the Board of Directors shall increase the number of shares
- --------
constituting the Series E Preferred Stock to the extent necessary for the
Company to have available sufficient shares of such Series E Preferred Stock
available to fulfill all of the Company's obligations to holders of securities
and Rights of the Company.
Section 2. Dividends and Distributions.
---------------------------
(A) Subject to the rights of the holders of any shares of any series
of Preferred Stock (or any similar stock) ranking prior and superior to the
Series E Preferred Stock with respect to dividends, the holders of shares
of Series E Preferred Stock, in preference to the holders of Common Stock,
par value $.01 per share (the "Common Stock"), of the Company, and of any
other junior stock, shall be entitled to receive, when, as and if declared
by the Board of Directors out of the funds legally available for the
purpose, dividends payable when and as dividends are declared on the Common
Stock in an amount, subject to the provision for adjustment hereinafter set
forth, equal to 1000 times the aggregate per share amount of all cash
dividends, and 1000 times the aggregate per share amount (payable in kind)
of all non-cash dividends or other distributions, declared on the Common
Stock (except as provided in the next sentence). In the event the Company
shall at any time declare or pay any dividend on the Common Stock payable
in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the amount to which holders of shares of Series E
Preferred Stock were entitled immediately prior to such event under the
preceding sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately
prior to such event.
(B) The Company shall declare a dividend or distribution on the
Series E Preferred Stock as provided in paragraph (A) of this Section 2
immediately after it declares a dividend or distribution on the Common
Stock.
Section 3. Voting Rights. The holders of shares of Series E Preferred
-------------
Stock shall have the following voting rights:
(A) Each share of Series E Preferred Stock shall entitle the holder
thereof to 1000 votes on all matters submitted to a vote of the
stockholders of the Company.
(B) Except as otherwise provided herein, in any other Certificate of
Designations creating a series of Preferred Stock or any similar stock, or
by law, the holders of shares of Series E Preferred Stock and the holders
of shares of Common Stock
A-2
<PAGE>
and any other capital stock of the Company having general voting rights
shall vote together as one class on all matters submitted to a vote of
stockholders of the Company.
(C) Except as set forth herein, or as otherwise provided by law,
holders of Series E Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock as set forth herein) for taking any
corporate action.
Section 4. Reacquired Shares. Any shares of Series E Preferred Stock
-----------------
purchased or otherwise acquired by the Company in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred Stock subject to
the conditions and restrictions on issuance set forth herein, in the Company's
Certificate of Incorporation, or in any other Certificate of Designations
creating a series of Preferred Stock or any similar stock or as otherwise
required by law.
Section 5. Liquidation, Dissolution or Winding Up. Upon any liquidation,
--------------------------------------
dissolution or winding up of the Company, no distribution shall be made (1) to
the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series E Preferred Stock unless,
prior thereto, the holders of shares of Series E Preferred Stock shall have
received an aggregate amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1000 times the aggregate amount to be
distributed per share to holders of shares of Common Stock. In the event the
Company shall at any time declare or pay any dividend on the Common Stock
payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
aggregate amount to which holders of shares of Series E Preferred Stock were
entitled immediately prior to such event under the proviso in clause (1) of the
preceding sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 6. Consolidation, Merger, etc. In case the Company shall enter
---------------------------
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for, or changed into, other stock or
securities, cash and/or any other property, then in any such case each share of
Series E Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Company shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than
A-3
<PAGE>
by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the amount set forth in
the preceding sentence with respect to the exchange or change of shares of
Series E Preferred Stock shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 7. No Redemption. The shares of Series E Preferred Stock shall
-------------
not be redeemable.
Section 8. Rank. The Series E Preferred Stock shall rank, with respect
----
to the payment of dividends and the distribution of assets, junior to all series
of any other class of the Company's Preferred Stock.
Section 9. Amendment. The Certificate of Incorporation of the Company
---------
shall not be amended in any manner which would materially alter or change the
powers, preferences or special rights of the Series E Preferred Stock so as to
affect them adversely without the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Series E Preferred Stock, voting
together as a single class.
IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf
of the Company by its President and Chief Executive Officer and attested by its
Secretary this 7th day of July, 1999.
-------------------------------------
Stephen J. Winjum
President and Chief Executive Officer
Attest:
- ------------------------
- ------------------------
Secretary
A-4
<PAGE>
Exhibit B
---------
Form of Rights Certificate
Certificate No. ____ _____ Rights
NOT EXERCISABLE AFTER JULY 11, 2009 OR EARLIER IF REDEMPTION OR EXCHANGE
OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER RIGHT, AND ARE
VOIDABLE AND SUBJECT TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS
AGREEMENT. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE
BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN
AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN
THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS
REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED
IN THE SECOND PARAGRAPH OF SECTION 11(a)(ii) OF THE RIGHTS AGREEMENT.]*
Rights Certificate
NovaMed Eyecare, Inc.
This certifies that ____________________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of July 7, 1999 (the "Rights Agreement") between NovaMed
Eyecare, Inc., a Delaware corporation (the "Company"), and American Stock
Transfer & Trust Company, a ______________ ___________________ (the "Rights
Agent"), to purchase from the Company at any time after the Distribution Date
(as such term is defined in the Rights Agreement) and prior to 5:00 p.m.,
Chicago, Illinois time on July 11, 2009 at the principal office of the Rights
Agent, or at the office of its successor as Rights Agent, one one-thousandth of
a fully paid nonassessable share of Series E Junior Participating Preferred
Stock, par value $.01 per share (the "Preferred Shares"), of the Company, at a
purchase price of $110.00 per one one-thousandth of a Preferred Share (the
"Purchase Price"), upon presentation and surrender of this Rights Certificate
with the Form of Election to Purchase and the Certificate duly executed.
- -----------------
* The portion of the legend in brackets shall be inserted only if applicable
and shall replace the preceding sentence.
B-1
<PAGE>
The number of Rights evidenced by this Rights Certificate (and the number of one
one-thousandths of a Preferred Share which may be purchased upon exercise
hereof) set forth above, and the Purchase Price set forth above, are the number
and Purchase Price as of July 7, 1999, based on the Preferred Shares as
constituted at such date. As provided in the Rights Agreement, the Purchase
Price and the number of one one-thousandths of a Preferred Share which may be
purchased upon the exercise of the Rights evidenced by this Rights Certificate
are subject to modification and adjustment upon the happening of certain events.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company and the above-mentioned offices of the Rights Agent.
This Rights Certificate, with or without other Rights Certificates, upon
surrender at the principal office of the Rights Agent, may be exchanged for
another Rights Certificate or Rights Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
Preferred Shares as the Rights evidenced by the Rights Certificate or Rights
Certificates surrendered shall have entitled such holder to purchase. If this
Rights Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Rights Certificate or Rights Certificates
for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate (i) may be redeemed by the Company at a redemption price of
$.01 per Right or (ii) may be exchanged in whole or in part for Preferred Shares
or shares of the Company's Common Stock, par value $.01 per share, on the terms
set forth in the Rights Agreement.
No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-thousandths of a Preferred Share, which may, at the
election of the Company, be evidenced by depositary receipts), but in lieu
thereof a cash payment will be made, as provided in the Rights Agreement.
No holder of this Rights Certificate shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of the Preferred Shares or of
any other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in the Rights
Agreement), or to receive dividends or subscription rights, or
B-2
<PAGE>
otherwise, until the Rights evidenced by this Rights Certificate shall have been
exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal. Dated as of __________________.
ATTEST: NOVAMED EYECARE, INC.
By:
- ------------------- ---------------------------------------
Countersigned:
________________________, as Rights Agent
By:
----------------------------
Authorized Signature
B-3
<PAGE>
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED, ______________________________ hereby sells, assigns
and transfers unto _____________________________________________________________
________________________________________________________________________________
(Please print name and address of transferee)
------------------------------------------------------------------------
(Please print social security or other identifying number of transferee)
this Rights Certificate, together with all interest therein, and does hereby
irrevocably constitute and appoint ___________________ Attorney, to transfer the
within Rights Certificate on the books of the within-named Company, with full
power of substitution.
Dated:
-----------------------
---------------------------------------
Signature
Signature Guaranteed: __________________________________________________________
Signature must be guaranteed by an Eligible Guarantor Institution as
defined by SEC Rule 17Ad-15 (17 C.F.R. 240.17-Ad-15).
B-4
<PAGE>
CERTIFICATE
-----------
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) this Rights Certificate [_] is [_] is not being sold, assigned and
transferred by or on behalf of a Person who is or was an Acquiring Person
or an Affiliate or Associate of any such Person (as such terms are defined
in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it
[_] did [_] did not acquire the Rights evidenced by this Rights Certificate
from any Person who is, was or subsequently became an Acquiring Person or
an Affiliate or Associate of any such Person.
Dated:
---------------------------
-----------------------------------------
Signature
Signature Guaranteed: __________________________________________________________
NOTICE
------
The signatures to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
The signature must be guaranteed by an Eligible Guarantor Institution
as defined by SEC Rule 17Ad-15 (17 C.F.R. 240.17-Ad-15).
B-5
<PAGE>
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed if holder desires to
exercise the Rights Certificate.)
To: NovaMed Eyecare, Inc.
The undersigned hereby irrevocably elects to exercise _____________ Rights
represented by this Rights Certificate to purchase the Preferred Shares issuable
upon the exercise of such Rights (or such other securities of the Company or of
any other person which may be issuable upon the exercise of the Rights) and
requests that certificates for such Preferred Shares be issued in the name of:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address)
-----------------------------------------------------------
(Please insert social security or other identifying number)
If such number of Rights shall not be all the Rights evidenced by this Rights
Certificate, a new Rights Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address)
-----------------------------------------------------------
(Please insert social security or other identifying number)
Dated:
---------------------------
-----------------------------------------
Signature
Signature Guaranteed: __________________________________________________________
Signatures must be guaranteed by an Eligible Guarantor Institution as
defined by SEC Rule 17Ad-15 (17 C.F.R. 240.17-Ad-15).
B-6
<PAGE>
CERTIFICATE
-----------
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Rights Certificate [_] are [_] are
not being exercised by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of any such Person (as such terms are
defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it
[_] did [_] did not acquire the Rights evidenced by this Rights Certificate
from any Person who is, was or subsequently became an Acquiring Person or
an Affiliate or Associate of any such Person.
Dated:
---------------------------
-----------------------------------------
Signature
Signature Guaranteed: __________________________________________________________
NOTICE
------
The signatures to the foregoing Election to Purchase and Certificate
must correspond to the name as written upon the face of this Rights Certificate
in every particular, without alteration or enlargement or any change whatsoever.
The signature must be guaranteed by an Eligible Guarantor Institution
as defined by SEC Rule 17Ad-15 (17 C.F.R. 240.17-Ad-15).
B-7
<PAGE>
NOTICE
------
In the event the certification set forth above in the Form of Assignment or
the Form of Election to Purchase, as the case may be, is not completed, the
Company and the Rights Agent will deem the beneficial owner of the Rights
evidenced by this Rights Certificate to be an Acquiring Person or an Affiliate
or Associate thereof (as defined in the Rights Agreement) and such Assignment or
Election to Purchase will not be honored.
B-8
<PAGE>
Exhibit C
---------
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES UNDER PLAN ADOPTED BY
NOVAMED EYECARE, INC.
On July 7, 1999, the Board of Directors of NovaMed Eyecare, Inc. (the
"Company") declared a dividend of one Right for each outstanding share of common
stock (a "Right"), par value $.01 per share (the "Common Shares"), of the
Company. The dividend is payable on July 12, 1999 (the "Record Date") to the
stockholders of record on that date. Each Right entitles the registered holder
to purchase from the Company one one-thousandth of a share of Series A Junior
Participating Preferred Stock, par value $.01 per share (the "Preferred
Shares"), of the Company at a price of $110.00 per one one-thousandth of a
Preferred Share (the "Purchase Price"), subject to adjustment. The description
and terms of the Rights are set forth in a Rights Agreement (the "Rights
Agreement") between the Company and American Stock Transfer & Trust Company, as
Rights Agent (the "Rights Agent").
Until the earlier of (i) the close of business on the tenth day after the
first public announcement that a person or group of affiliated or associated
persons have acquired beneficial ownership of 15% or more of the outstanding
Common Shares (an "Acquiring Person"), or (ii) the close of business on the
tenth day (or such later date as may be determined by action of the Company's
Board of Directors prior to such time as any person becomes an Acquiring Person)
following the commencement of, or announcement of an intention to make, a tender
offer or exchange offer the consummation of which would result in the beneficial
ownership of such person or group of 15% or more of such outstanding Common
Shares (the earlier of such dates being called the "Distribution Date"), the
Rights will be evidenced by the Common Share certificates, will be transferable
only by the transfer of the Common Shares associated with such Rights and any
transfer of the Common Shares (including a transfer to the Company) will
constitute a transfer of the Rights. As described below, after a person or
group becomes an Acquiring Person, the Rights may not be redeemed or amended.
Until the Distribution Date (or earlier redemption or expiration of the
Rights), new Common Share certificates issued after the Record Date, upon
transfer or new issuance of Common Shares, will contain a legend incorporating
the Rights Agreement by reference. Until the Distribution Date (or earlier
redemption or expiration of the Rights), the surrender for transfer of any
certificates for Common Shares outstanding as of the Record Date, even without
such notation or a copy of this Summary of Rights being attached, will also
constitute the transfer of the Rights associated with the Common Shares
represented by such certificate. As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights ("Rights
Certificates") will be mailed to holders of record of the Common Shares as of
the close of business
C-1
<PAGE>
on the Distribution Date and such separate Rights Certificates alone will
evidence the Rights. Each Right is exercisable for one-one thousandth of a
Preferred Share at any time after the Distribution Date.
The Rights are not exercisable for Common Shares until a person, entity or
group becomes an Acquiring Person. The Rights will expire on July 11, 2009 (the
"Final Expiration Date"), unless the Final Expiration Date is extended or unless
the Rights are redeemed earlier by the Company, in each case, as described
below.
If a person or group of affiliated or associated persons becomes an
Acquiring Person, each holder of a Right (other than those described in the next
sentence) will thereafter have the right to receive, upon exercise, Common
Shares (or, in certain circumstances, cash, property or other securities of the
Company) having a value equal to two times the Purchase Price of the Right. All
Rights that are, or (under certain circumstances specified in the Rights
Agreement) were, beneficially owned by any Acquiring Person will be void.
At any time after the first date of public announcement by the Company or
an Acquiring Person than an Acquiring Person has become such, if (i) the Company
is the surviving corporation in a merger with any other company or entity, (ii)
the Company is acquired in a merger or other business combination transaction,
(iii) 50% or more of the Company's consolidated assets or earning power are
sold, or (iv) an Acquiring Person engages in certain "self-dealing" transactions
with the Company, each holder of a Right (other than those whose Rights have
become void) will thereafter have the right to receive, upon the exercise
thereof at the then current Purchase Price of the Right, that number of shares
of common stock of the surviving or acquiring company which at the time of such
transaction will have a market value of two times the Purchase Price of such
Right.
At any time after a person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
Common Shares, the Board of Directors of the Company may exchange the Rights
(other than Rights owned by such person or group which have become void), in
whole or in part, without any additional payment, for Common Shares at an
exchange ratio of one Common Share (or of a share of a class or series of the
Company's preferred shares having equivalent rights, preferences and
privileges), per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions which are integral multiples of one one-thousandth of a Preferred
Share, which may, at the election of the Company, be evidenced by depositary
receipts) and in lieu thereof, an adjustment in cash will be made based on the
market price of the Preferred Shares on the last trading day prior to the date
of exercise.
C-2
<PAGE>
At any time prior to a person or group becoming an Acquiring Person, the
Board of Directors of the Company may redeem all, but not less than all, of the
Rights at a price of $.01 per Right (the "Redemption Price"). The redemption of
the Rights may be made effective at such time, on such basis and with such
conditions as the Board of Directors in its sole discretion may establish.
Immediately upon any redemption of the Rights, the right to exercise the
Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.
Any of the provisions of the Rights may be amended by the Board of
Directors of the Company in order to cure any ambiguity or to make any other
changes which the Board deems necessary or desirable. However, after a person
or group becomes an Acquiring Person, any such amendment must not adversely
affect the interests of holders of Rights (excluding the interests of any
Acquiring Person).
[A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A dated
________________, 1999.] A copy of the Rights Agreement is available free of
charge from the Company. This summary description of the Rights does not
purport to be complete and is qualified in its entirety by reference to the
Rights Agreement, which is hereby incorporated herein by reference.
C-3
<PAGE>
EXHIBIT 5
[LETTERHEAD OF KATTEN MUCHIN & ZAVIS]
July 26, 1999
NovaMed Eyecare, Inc.
980 North Michigan Avenue
Suite 1620
Chicago, IL 60611
Re: Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
We have acted as counsel for NovaMed Eyecare, Inc., a Delaware corporation
(the "Company"), in connection with the preparation and filing of a Registration
Statement on Form S-1 (the "Registration Statement") with the Securities and
Exchange Commission under the Securities Act of 1933, as amended. The
Registration Statement relates to 7,132,971 shares of the Company's Common
Stock, $.01 par value per share (the "Common Stock").
In connection with this opinion, we have relied as to matters of fact,
without investigation, upon certificates of public officials and others and upon
affidavits, certificates and written statements of directors, officers and
employees of, and the accountants for, the Company. We have also examined
originals or copies, certified or otherwise identified to our satisfaction, of
such instruments, documents and records as we have deemed relevant and necessary
to examine for the purpose of this opinion, including (a) the Registration
Statement, (b) the proposed Underwriting Agreement by and among the Company,
Donaldson, Lufkin & Jenrette Securities Corporation, Hambrecht & Quist LLC and
William Blair & Company, L.L.C. (the "Underwriting Agreement"), as
representatives of the several underwriters identified therein (c) the Amended
and Restated Certificate of Incorporation of the Company, (d) the Bylaws of the
Company, as amended to date, and (e) resolutions adopted by the Board of
Directors of the Company.
In connection with this opinion, we have assumed the accuracy and
completeness of all documents and records that we have reviewed, the genuineness
of all signatures, the due authority
<PAGE>
NovaMed Eyecare, Inc.
July 26, 1999
Page 2
of the parties signing such documents, the authenticity of the documents
submitted to us as originals and the conformity to authentic original documents
of all documents submitted to us as certified, conformed or reproduced copies.
Based upon and subject to the foregoing, it is our opinion that the
8,202,916 shares of Common Stock covered by the Registration Statement
(including 1,069,945 shares subject to the over-allotment option), when issued
and sold by the Company and when paid for in accordance with the provisions of
the Underwriting Agreement, will be validly issued, fully paid and non-
assessable.
Our opinion expressed above is limited to the General Corporation Law of
the State of Delaware, and we do not express any opinion concerning any other
laws. This opinion is given as of the date hereof and we assume no obligation
to advise you of changes that may hereafter be brought to our attention.
We hereby consent to the reference to our name in the Registration
Statement under the captions "Certain Legal Matters" and "Experts" and further
consent to the filing of this opinion as Exhibit 5 to the Registration
Statement.
Very truly yours,
/s/ Katten Muchin & Zavis
KATTEN MUCHIN & ZAVIS
<PAGE>
Exhibit 10.2
NOVAMED EYECARE, INC.
AMENDED AND RESTATED
1999 STOCK PURCHASE PLAN
(Adopted effective ___________, 1999)
<PAGE>
NOVAMED EYECARE, INC.
AMENDED AND RESTATED
1999 STOCK PURCHASE PLAN
(Adopted effective __________, 1999)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I ESTABLISHMENT AND PURPOSE.................................... - 1 -
1.1 Purpose...................................................... - 1 -
ARTICLE II DEFINITIONS.................................................. - 1 -
2.1 "Account..................................................... - 1 -
2.2 "Agreement" or "Option Agreement............................. - 1 -
2.3 "Board of Directors" or "Board............................... - 1 -
2.4 "Code" or "Internal Revenue Code............................. - 1 -
2.5 "Committee................................................... - 2 -
2.6 "Common Stock................................................ - 2 -
2.7 "Company..................................................... - 2 -
2.8 "Continuous Service.......................................... - 2 -
2.9 "Contribution Rate........................................... - 2 -
2.10 "Disability.................................................. - 2 -
2.11 "Eligible Employee........................................... - 2 -
2.12 "ERISA....................................................... - 3 -
2.13 "Exercise Date............................................... - 3 -
2.14 "Exchange Act................................................ - 3 -
2.15 "Fair Market Value........................................... - 3 -
2.16 "Grant Date.................................................. - 3 -
2.17 "Option...................................................... - 3 -
2.18 "Option Period............................................... - 3 -
2.19 "Option Price................................................ - 4 -
2.20 "Participant................................................. - 4 -
2.21 "Plan........................................................ - 4 -
2.22 "Plan Year................................................... - 4 -
2.23 "Representative.............................................. - 4 -
2.24 "Retirement.................................................. - 4 -
2.25 "Securities Act.............................................. - 4 -
2.26 "Subsidiary.................................................. - 4 -
2.27 "Termination of Employment................................... - 4 -
ARTICLE III ADMINISTRATION............................................... - 5 -
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
3.1 Committee Structure and Authority............................. - 5 -
ARTICLE IV STOCK PROVISIONS............................................. - 7 -
4.1 Number of Shares Subject to the Plan.......................... - 7 -
4.2 Release of Shares............................................. - 7 -
4.3 Restrictions on Shares........................................ - 8 -
4.4 Stockholder Rights............................................ - 8 -
4.5 Stock Valuation............................................... - 8 -
4.6 Custodian..................................................... - 8 -
ARTICLE V ELIGIBILITY; OPTION PROVISIONS................................ - 9 -
5.1 Eligibility................................................... - 9 -
5.2 Grant of Options.............................................. - 9 -
5.3 Option Period.................................................- 10 -
5.4 Option Price..................................................- 10 -
5.5 Contribution Rate.............................................- 10 -
5.6 Purchase of Shares............................................- 11 -
5.7 Cancellation of Options.......................................- 11 -
5.8 Terminated Employees..........................................- 11 -
5.9 Deceased Employees............................................- 12 -
5.10 Disabled or Retired Employees.................................- 12 -
5.11 Limitations...................................................- 12 -
5.12 Nonassignability..............................................- 12 -
ARTICLE VI GENERAL PROVISIONS APPLICABLE TO THE PLAN....................- 13 -
6.1 Termination of Plan...........................................- 13 -
6.2 Investment Representation.....................................- 13 -
6.3 Effect of Certain Changes.....................................- 13 -
6.4 Withholding...................................................- 16 -
6.5 No Company Obligation.........................................- 17 -
6.6 Committee Discretion..........................................- 17 -
ARTICLE VII MISCELLANEOUS...............................................- 17 -
7.1 Indemnification of the Board and Committee....................- 17 -
7.2 Mitigation of Excise Tax......................................- 17 -
7.3 Interpretation................................................- 18 -
7.4 Governing Law.................................................- 18 -
7.5 Limitations on Liability......................................- 18 -
7.6 Validity......................................................- 18 -
7.7 Assignment....................................................- 18 -
7.8 Captions......................................................- 18 -
7.9 Amendments....................................................- 19 -
7.10 Entire Agreement..............................................- 19 -
7.11 Rights with Respect to Continuance of Employment..............- 19 -
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
7.12 Options for Shares in Substitution for Stock Options Granted by Other
Corporations................................................- 19 -
7.13 Procedure for Adoption........................................- 19 -
7.14 Procedure for Withdrawal......................................- 19 -
7.15 Expenses......................................................- 20 -
</TABLE>
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<PAGE>
NOVAMED EYECARE, INC.
AMENDED AND RESTATED
1999 STOCK PURCHASE PLAN
ARTICLE I
---------
ESTABLISHMENT AND PURPOSE
-------------------------
1.1 Purpose. The NovaMed Eyecare, Inc. Amended and Restated 1999 Stock
Purchase Plan (the "Plan") is hereby established effective __________, 1999 by
NovaMed Eyecare, Inc. The adoption of the Plan is expressly conditioned upon
the Plan's approval by the stockholders of NovaMed Eyecare, Inc. within twelve
(12) months after the date the Plan is adopted. The purpose of the Plan is to
promote the overall financial objectives of the Company and its stockholders by
motivating participants in the Plan to achieve long-term growth in stockholder
equity in the Company. The Plan is intended as an "employee stock purchase
plan" within the meaning of Section 423 of the Code, and Options granted
hereunder are intended to constitute options granted under such a plan, and the
Plan document and all actions taken in connection with the Plan shall be
constructed consistently with such intent.
ARTICLE II
-----------
DEFINITIONS
-----------
The following sections of this Article II provide basic definitions of
terms used throughout the Plan, and whenever used therein in the capitalized
form, except as otherwise expressly provided, the terms shall be deemed to have
the following meanings:
2.1 "Account" shall mean the bookkeeping account established on behalf of
a Participant to which shall be credited all contributions paid for the purpose
of purchasing Common Stock under the Plan, and to which shall be charged all
purchases of Common Stock pursuant to the Plan. The Company shall have custody
of such Account.
2.2 "Agreement" or "Option Agreement" means, individually or collectively,
any enrollment and withholding agreement entered into pursuant to the Plan. An
Agreement shall be the right of the Company to withhold from payroll amounts to
be applied to purchase Common Stock.
2.3 "Board of Directors" or "Board" means the Board of Directors of the
Company.
2.4 "Code" or "Internal Revenue Code" means the Internal Revenue Code of
1986, as amended, and any subsequent Internal Revenue Code. If there is a
subsequent Internal Revenue
<PAGE>
Code, any references herein to Internal Revenue Code sections shall be deemed to
refer to comparable sections of any subsequent Internal Revenue Code.
2.5 "Committee" means the person or persons appointed by the Board of
Directors to administer the Plan, as further described in the Plan.
2.6 "Common Stock" means the shares of the Common Stock of the Company,
$1.00 par value per share, whether presently or hereafter issued, and any other
stock or security resulting from adjustment thereof as described in Section 6.3.
2.7 "Company" means NovaMed Eyecare, Inc. and includes any successor or
assignee corporation or corporations into which the Company may be merged,
changed or consolidated; any corporation for whose securities the securities of
the Company shall be exchanged; and any assignee of or successor to
substantially all of the assets of the Company.
2.8 "Continuous Service" shall mean, subject to modification by the
Committee, an Eligible Employee's number of full years and completed months of
continuous employment with the Company or a Subsidiary from his last hiring date
to his date of Termination of Employment for any reason. The Committee may
provide rules from time to time regarding the calculation of Continuous Service
and the method for crediting such service.
2.9 "Contribution Rate" means the rate determined under Section 5.5.
2.10 "Disability" means a mental or physical illness that entitles the
Participant to receive benefits under the long-term disability plan of the
Company or a Subsidiary, or if the Participant is not covered by such plan, a
mental or physical illness that renders a Participant permanently and totally
incapable of performing his duties as an employee of the Company or a
Subsidiary. Notwithstanding the foregoing, a Disability shall not qualify under
this Plan if it is the result of (a) a willfully self-inflicted injury or
willfully self-induced sickness; or (b) an injury or disease contracted,
suffered, or incurred, while participating in a criminal offense. The
determination of Disability shall be made by the Committee. The determination
of Disability for purposes of this Plan shall not be construed to be an
admission of disability for any other purpose.
2.11 "Eligible Employee" means each employee of the Company or a
Subsidiary (if the Subsidiary has adopted the Plan) on a Grant Date except that
the Committee in its sole discretion may exclude:
(a) any employee who has accrued less than a minimum period of Continuous
Service established by the Committee (but not to exceed 2 years).
(b) any employee whose customary employment is 20 hours or less per week;
-2-
<PAGE>
(c) any employee whose customary employment is for not more than 5 months
in any calendar year;
(d) any employee who would directly or indirectly own or hold (applying
the rules of Section 424(d) of the Code to determine stock ownership)
immediately following the grant of an Option hereunder an aggregate of five
percent (5%) or more of the total combined voting power or value of all
outstanding shares of all classes of stock of the Company or any Subsidiary; and
(e) any employee who is a highly compensated employee of the Company or
Subsidiary within the meaning of Section 414(q) of the Code.
Any period of service described in the preceding sentence may be decreased in
the discretion of the Committee.
2.12 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
2.13 "Exercise Date" means such one or more dates determined by the
Committee on which the accumulated value of the Account shall be applied to
purchase Common Stock. The Committee may accelerate an Exercise Date in order
to satisfy the employment period requirement of Section 423(a)(2).
2.14 "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
2.15 "Fair Market Value" means the value determined on the basis of
the good faith determination of the Committee pursuant to the applicable method
described in Section 4.5 and as adjusted, averaged or otherwise modified by the
Committee.
2.16 "Grant Date" means the date or dates established by the Committee
on which one or more Options are granted pursuant to the Plan. The Committee
may determine for any Plan Year that there shall be no Grant Date, in which case
no Options shall be granted for that Plan Year. The terms and conditions of any
Option granted on a particular Grant Date shall be independent of and have no
effect on the terms and conditions of any Option granted on another Grant Date.
2.17 "Option" means the right to purchase Common Stock pursuant to the
Plan and any Agreement.
2.18 "Option Period" means the period beginning on the Grant Date and
expiring on the Exercise Date as determined by the Committee, subject to the
limitations of Section 5.3.
-3-
<PAGE>
2.19 "Option Price" means the price at which the Company's Common
Stock granted as of a specific Grant Date may be purchased under an Option. The
price shall be subject to the limitation set forth in Section 5.4.
2.20 "Participant" means an Eligible Employee who satisfies the
eligibility conditions of the Plan and to whom an Option has been granted by the
Committee under the Plan, and in the event a Representative is appointed for a
Participant, then the term "Participant" shall mean such appointed
Representative, or successor Representative(s) appointed, as the case may be,
provided that "Termination of Employment" shall mean the Termination of
Employment of the Participant.
2.21 "Plan" means the NovaMed Eyecare, Inc. 1999 Stock Purchase Plan,
as herein set forth and as may be amended from time to time.
2.22 "Plan Year" means, for the first Plan Year, the period starting
on the effective Date of the Plan, and ending on December 31, 1999; and for all
subsequent Plan Years, the twelve (12) consecutive month period starting on
January 1 and ending on the following December 31. The Committee may at any
time in its discretion designate another period as the Plan Year.
2.23 "Representative" means (a) the person or entity acting as the
executor or administrator of a Participant's estate pursuant to the last will
and testament of a Participant or pursuant to the laws of the jurisdiction in
which the Participant had his primary residence at the date of the Participant's
death; (b) the person or entity acting as the guardian or temporary guardian of
a Participant's estate; or (c) the person or entity which is the beneficiary of
the Participant upon or following the Participant's death. A Participant may
file a written designation of his Representative with the Committee. Such
designation of his Representative may be changed by the Participant at any time
by written notice given in accordance with rules and procedures established by
the Committee.
2.24 "Retirement" means the Participant's Termination of Employment
after attaining either the normal retirement age or the early retirement age as
defined in the principal (as determined by the Committee) tax-qualified plan of
the Company or a Subsidiary, if the Participant is covered by such plan, and if
the Participant is not covered by such a plan, then age 65, or age 55 with the
accrual of 10 years of service.
2.25 "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated pursuant thereto.
2.26 "Subsidiary" means any corporation, as currently defined in
Section 424(f) of the Code. Unless otherwise indicated the term "Company" shall
hereinafter be deemed to include all Subsidiaries of the Company which have
adopted the Plan.
2.27 "Termination of Employment" means the latest date on which a
person ceases, for whatever reason, to be an employee of the Company or a
Subsidiary. For determining whether
-4-
<PAGE>
and when a Participant has incurred a Termination of Employment for cause,
"cause" shall mean any act or omission which permits the Company or a Subsidiary
to terminate the employment agreement or arrangement between the Participant and
the Company or a Subsidiary for cause as defined in such agreement or
arrangement, or in the event there is no such employment agreement or
arrangement or the agreement or arrangement does not define the term "cause,"
then "cause" shall mean (a) any act or omission which the Company or a
Subsidiary believes is of a criminal nature, and the result of which the Company
or a Subsidiary believes is detrimental to the interests of the Company or a
Subsidiary; (b) the material breach of a fiduciary duty owing to the Company or
a Subsidiary, including without limitation, fraud and embezzlement; or (c)
conduct or the omission of conduct on the part of the Participant which
constitutes a material breach of any statutory or common-law duty of loyalty to
the Company or a Subsidiary.
ARTICLE III
-----------
ADMINISTRATION
--------------
3.1 Committee Structure and Authority. The Plan shall be administered by
the Committee. The Committee shall be comprised of two or more disinterested
members of the Board of Directors selected by the Board. A majority of the
Committee shall constitute a quorum at any meeting thereof (including telephone
conference) and the acts of a majority of the members present, or acts
unanimously approved in writing by the entire Committee without a meeting, shall
be the acts of the Committee. A person shall be considered disinterested for
this purpose only if, at the time he exercises discretion in administering the
Plan, he is a "disinterested person" within the meaning of Rule 16b-3 under the
Exchange Act. The Board shall have the authority to remove, replace or fill any
vacancy of any member of the Committee upon notice to the Committee and the
affected member. Any member of the Committee may resign upon notice to the
President of the Company or to the Board. The Committee may allocate among one
or more of its members, or may delegate to one or more of its agents, such
duties and responsibilities as it determines. Subject to the provisions of this
Plan, the Committee shall have full and final authority in its discretion to:
(a) determine from time to time whether a person is an Eligible
Employee as of any Grant Date;
(b) determine the Option Price;
(c) determine the number of shares of Common Stock available as
of any Grant Date or subject to each Option;
(d) determine any Grant Date, Exercise Date and Option Period,
and provide for all aspects of payroll deduction, suspension or withdrawal;
-5-
<PAGE>
(e) determine, subject to the Plan, the time or times and the
manner when each Option shall be exercisable and the duration of the Option
Period;
(f) provide for the acceleration of the right to exercise an
Option (or portion thereof);
(g) prescribe additional terms, conditions and restrictions in
the Agreement and to provide for the forms of Agreement to be utilized in
connection with this Plan;
(h) determine whether a Participant has incurred a Disability;
(i) determine what securities laws requirements are applicable
to the Plan, Options, and the issuance of shares of Common Stock hereunder
and request of a Participant that appropriate action be taken;
(j) cancel, with the consent of the holder or as otherwise
provided in the Plan or an Agreement, outstanding Options;
(k) require as a condition of the exercise of an Option or the
issuance or transfer of a certificate of Common Stock, the withholding from
a Participant of the amount of any federal, state or local taxes as may be
necessary in order for the Company or Subsidiary to obtain a deduction and
as may be otherwise required by law;
(l) determine whether and for what reason an individual has
incurred a Termination of Employment or an authorized leave of absence;
(m) treat all or any portion of any period during which a
Participant is on an approved leave of absence as a period of employment
for purposes of accrual of his rights under an Option;
(n) determine whether the Company or any other person has a
right or obligation to purchase Common Stock from a Participant and, if so,
the terms and conditions on which such Common Stock is to be purchased;
(o) determine the restrictions or limitations on the transfer of
Common Stock issued upon exercise of an Option;
(p) determine whether an Option is to be adjusted, modified or
purchased, or become fully exercisable, under Section 6.3 of the Plan or
the terms of an Agreement;
-6-
<PAGE>
(q) adopt, amend and rescind such rules and regulations as, in
its opinion, may be advisable in the administration of this Plan;
(r) appoint and compensate agents, counsel, auditors or other
specialists to aid it in the discharge of its duties;
(s) correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any Agreement relating to an Option, in
such manner and to the extent the Committee shall determine in order to
carry out the purposes of the Plan; and
(t) construe and interpret this Plan, any Agreement, and take
all other actions, and make all other determinations and take all other
actions deemed necessary or advisable for the administration of this Plan.
In the absence of the appointment of a Committee, the two or more members
of the Board who have served the longest period of time as members of the Board
and who are disinterested persons within the meaning of Rule 16b-3 of the
Exchange Act shall be the Committee. No member of the Committee, while serving
as such, shall be eligible to receive any Option hereunder, although membership
on the Committee shall not affect or impair any such member's rights under any
Option granted to him at a time when he was not a member of the Committee. A
member of the Committee shall not exercise any discretion respecting himself
under the Plan.
ARTICLE IV
----------
STOCK PROVISIONS
----------------
4.1 Number of Shares Subject to the Plan. The stock subject to the
Options granted under this Plan shall be the Company's Common Stock. Unless
otherwise amended by the Board and approved by the stockholders of the Company
to the extent required by law, a maximum number of 400,000 shares of Common
Stock of the Company (or such number as may result following any adjustment
pursuant to Section 6.3) shall be reserved and available for Options granted
under the Plan. The shares issued with respect to Options under the Plan may be
authorized and unissued shares, or shares issued and reacquired by the Company.
4.2 Release of Shares. If any shares of Common Stock available for
subscription are unsubscribed, or if any Option granted hereunder shall be
canceled, forfeited, expire or terminate for any reason without having been
exercised or realized in full, any shares of Common Stock subject to
subscription or subject to such Option shall again be available and may
thereafter be granted or otherwise applied under this Plan.
-7-
<PAGE>
4.3 Restrictions on Shares. Shares of Common Stock issued upon exercise
of an Option shall be subject to the terms and conditions specified herein and
to such other terms, conditions and restrictions as the Committee in its
discretion may determine or provide in the Agreement. The Company shall not be
required to issue or deliver any certificates for shares of Common Stock prior
to (1) the listing of such shares on any stock exchange (or other public market)
on which the Common Stock may then be listed (or regularly traded), (2) the
completion of any registration or qualification of such shares under federal or
state law, or any ruling or regulation of any governmental body which the
Committee, in its sole discretion, determines to be necessary or advisable, and
(3) the tendering to the Company of such documents and/or payments as the
Committee may deem necessary, including documents the Committee deems necessary
to satisfy any applicable withholding obligation in order for the Company or
another entity to obtain a deduction on its federal, state or local tax return
with respect to the exercise of an Option. The Company may cause any certificate
for any share of Common Stock to be delivered to be properly marked with a
legend or other notation reflecting the limitations on transfer of such Common
Stock as provided in this Plan or as the Committee may otherwise require. The
Company has no obligation to register shares of Common Stock issued pursuant to
the Plan. Fractional shares shall not be delivered, but shall be rounded to the
next lower whole number of shares.
4.4 Stockholder Rights. No person shall have any rights of a stockholder
as to shares of Common Stock subject to an Option until, after proper exercise
of the Option or other action required, such shares shall have been recorded on
the Company's official stockholder records as having been issued or transferred.
No adjustment shall be made for cash dividends or other rights for which the
record date is prior to the date such shares are recorded as issued or
transferred in the Company's official stockholder records, except as provided in
Section 6.3.
4.5 Stock Valuation. If and when the value of Common Stock shall be
required to be determined, it shall be determined in accordance with the
following provisions by the Committee, as applicable:
(a) if the Common Stock is listed on a national securities exchange
or on the Nasdaq National Market ("NNM") the closing price of the Common
Stock on the relevant date, as reported on the composite tape or by NNM, as
the case may be;
(b) if the Common Stock is not listed on a national securities
exchange or quoted on NNM, but is traded in the over-the-counter market,
the average of the closing bid and asked prices for the Common Stock on the
relevant date, or the most recent preceding day for which such quotations
are available; and
(c) if, on the relevant date, the Common Stock is not publicly traded
or reported as described in (i) or (ii), on the basis of the good faith
determination of the Committee.
4.6 Custodian. Shares of Common Stock purchased pursuant to the Plan may
be delivered to and held in the custody of such investment or financial firm as
shall be appointed by
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the Committee. The custodian may hold in nominee or street name certificates for
shares purchased pursuant to the Plan, and may commingle shares in its custody
pursuant to the Plan in a single account without identification as to individual
Participants. By appropriate instructions to the custodian on forms to be
provided for the purpose, a Participant may from time to time obtain (a)
transfer into the Participant's own name or into the name of the Participant and
another individual as joint tenants with the right of survivorship of all or
part of the whole shares held by the custodian for the Participant's account and
delivery of such shares to the Participant; (b) transfer of all or part of the
whole shares held for the Participant's account by the custodian to a regular
individual brokerage account in the Participant's own name or in the name of the
Participant and another individual as joint tenants with the right of
survivorship, either with the firm then acting as custodian or with another
firm, or (c) sale of all or part of the whole shares held by the custodian for
the Participant's account at the market price at the time the order is executed
and remittance of the net proceeds of the sale to the Participant. Upon
termination of participation in the Plan, and upon receipt of instructions from
the Participant, the shares held by the custodian for the account of the
Participant will be transferred and delivered to the Participant in accordance
with (a) above, transferred to a brokerage account in accordance with (b), or
sold in accordance with (c), above.
ARTICLE V
---------
ELIGIBILITY; OPTION PROVISIONS
------------------------------
5.1 Eligibility. Except as herein provided, the persons who shall be
eligible to participate in the Plan as of any Grant Date shall be those persons
(and only those persons) who are Eligible Employees of the Company (including a
Subsidiary that has adopted the Plan) on a Grant Date. Employees of any entity
related to the Company other than a corporation shall not be eligible to
participate in the Plan.
5.2 Grant of Options. The Committee shall have authority to grant Options
under the Plan at any time or from time to time to all Eligible Employees as of
a Grant Date. (To the extent an Option is granted to any Eligible Employee of an
entity on a relevant date, all Eligible Employees of the entity shall be granted
an Option to the extent required by law.) An Option shall entitle the
Participant to receive shares of Common Stock at the conclusion of the Option
Period, subject to the Participant's satisfaction in full of any conditions,
restrictions or limitations imposed in accordance with the Plan or an Agreement,
including without limitation, payment of the Option Price. Each Option granted
under this Plan shall be evidenced by an Agreement, in a form approved by the
Committee, which shall embody the terms and conditions of such Option and which
shall be subject to the express terms and conditions set forth in this Plan and
to such other terms and conditions as the Committee may deem appropriate. The
grant and exercise of Options hereunder shall be subject to all applicable
federal, state and local laws, rules and regulations and to such approvals by
any governmental or regulatory agency as may be required. As of any Grant Date,
each Eligible Employee shall be granted Options with the same rights and
privileges as any
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other Eligible Employee on that Grant Date, except the amount of the Common
Stock which may be purchased by any Participant under any Option may bear a
uniform relationship to the total compensation, or the basic or regular rate of
compensation, (as determined by the Committee) of all Eligible Employees on that
Grant Date, and the Option may establish a maximum amount of Common Stock which
may be purchased.
5.3 Option Period. Each Agreement shall specify the period for which the
Option thereunder is granted, which shall be determined by the Committee. In no
event shall the Option Period extend beyond the period permitted under Section
423(b)(7) of the Code.
5.4 Option Price. Subject to the limits stated herein, the Option Price
per share at which shares of Common Stock may be acquired upon exercise of an
Option shall be determined by the Committee. Unless otherwise specified by the
Committee, with respect to any Exercise Date, the Option Price shall not be less
than the lesser of eighty-five percent (85%) of the Fair Market Value of a share
of Common Stock (averaged over such period as the Committee may determine and as
permitted by law) on the applicable Grant Date and eighty-five percent (85%) of
the Fair Market Value of a share of Common Stock (averaged over such period as
the Committee may determine and as permitted by law) on the applicable Exercise
Date. The Committee reserves the right to increase the Option Price by the
value of any accretion to the amounts credited to an Account if the Participant
is credited with such accretion regardless of the method of accounting for such
accretion.
5.5 Contribution Rate. If an Eligible Employee elects to participate, the
Participant shall file an Agreement with the Committee within the time period
designated by the Committee. The Committee may provide that the Agreement shall
specify a dollar amount determined by the Participant to be deducted each pay
period, or the Committee may permit only a specified amount. Such amount when
deducted shall be credited to the Account and shall be the Participant's
Contribution Rate. Such deductions shall begin as of the first regularly
scheduled payroll date on or after the later of the Grant Date and the date
specified by the Committee. The Committee may establish minimum and maximum
amounts to be contributed and a date by when such Agreement must be filed with
the Committee. Notwithstanding the foregoing, in no event may more than $20,000
(or such other amount as may be determined from time to time by the Committee)
be deducted from the Participant's compensation (as defined by the Committee)
for each Option Period and the maximum number of shares which can be purchased
by a Participant during the Option Period shall not exceed such amount divided
by eighty-five percent of the Fair Market Value of a share of Common Stock on
the applicable Grant Date (as determined under Section 5.4). Such contributions
will be held in the general funds of the Company, and no interest shall accrue
on any amounts held under this Plan, unless expressly determined by the
Committee. If payroll deductions are made by a Subsidiary, that corporation
will promptly remit the amount of the deduction to the Company. A Participant's
Contribution Rate, once established, shall remain in effect during the Option
Period unless the Committee decides, in its sole discretion, to allow
Participants to modify their Contribution Rate; provided, however, that
contributions shall be suspended or fully discontinued in order to comply with
Section 401(k) of the Code or for such
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other reasons as the Committee in its sole discretion may determine, or if the
Participant shall request suspension or discontinuance. If a Participant
requests to suspend payroll deductions, the Participant may do so at such times
and in such manner as the Committee may permit, and previously deducted amounts
shall be retained until the earlier of the Exercise Date and the date the
Participant totally discontinues payroll deductions and requests a distribution
of the Account. A Participant who has suspended contributions may recommence
payroll deductions at such time, if at all, as determined by the Committee. If a
Participant requests to totally discontinue payroll deductions, the Participant
may do so by providing written notice to the Committee. There shall be paid to
the Participant the value of the Participant's Account as soon as
administratively possible and the Participant shall not receive any shares as of
the Exercise Date.
5.6 Purchase of Shares. Subject to Sections 5.7, 5.8, 5.9, 5.10 and 5.11
on each Exercise Date, a Participant who has previously executed an Agreement
with respect to a specific Grant Date and made one or more payments described in
Section 5.5 shall be deemed to have exercised the Option to the extent of the
value of the Account, subject to the limit set forth in Section 5.5 with respect
to the Option being exercised, and shall be deemed to have purchased such number
of full shares of Common Stock as set forth below, subject to the limits of
Sections 423(b)(3) and 423(b)(8) of the Code. The number of shares of Common
Stock to be purchased as of any Exercise Date shall be determined by dividing
the Account value by the Option Price per share of the Common Stock and the
value of the shares so purchased shall be charged to the Account. If the total
number of shares to be purchased as of any Exercise Date by all Participants
exceeds the number of shares authorized under this Plan or made available by the
Committee as to any Exercise Date, a pro rata allocation of the available shares
will be made among all Participants authorizing such payroll deductions based on
their Account Value on the Exercise Date. The Company shall not be required to
issue any fractional share hereunder. Any value remaining in an Account of the
Participant shall be returned to the Participant and not applied to purchase
Common Stock. Certificates of Common Stock purchased hereunder may be held by
the custodian as provided in Section 4.6. Any Common Stock issued to the
Participant who is subject to reporting under Section 16 of the Exchange Act
must be held for six (6) months to the extent required by law to avoid liability
under the Exchange Act. The Committee may amend the Plan or any Agreement or
provide in operation for Participants to dispose of shares of Common Stock
received upon the Exercise Date on or immediately thereafter (which time may
include any period during which the Option is held) to the extent such change
would not result in liability under Section 16 of the Exchange Act.
5.7 Cancellation of Options. Except as otherwise provided in an
Agreement, an Option shall cease to be exercisable and shall be canceled on or
after the expiration of the Option Period.
5.8 Terminated Employees. Except as otherwise provided by the Committee
or in an Agreement, any Participant who incurs a Termination of Employment for
any reason, except death, Disability or Retirement, during the Option Period
shall cease to be a Participant, the Option shall be null and void on the date
of the Termination of Employment without notice to the
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Participant and the balance of the Account of the Participant shall be
distributed to him as soon as administratively possible.
5.9 Deceased Employees. If a Participant shall die during an Option
Period while an Eligible Employee, no further contributions by deduction from
regularly scheduled payments on behalf of the deceased Participant shall be
made, except that the Representative may make a single sum payment with respect
to the Option at any time on or before the Exercise Date equal to the amount the
Participant would have contributed as determined by the Committee for the
payroll periods remaining to the Exercise Date. The Representative may at any
time prior to the Exercise Date request a distribution of the Account. If the
Representative does not request a distribution, the balance accumulated in the
deceased Participant's Account shall be used to purchase shares of the Common
Stock on the previously mentioned Exercise Date.
5.10 Disabled or Retired Employees. If a Participant incurs a
Termination of Employment due to Disability, or if a Participant incurs a
Termination of Employment due to Retirement, during an Option Period, no further
contributions by deduction from regularly scheduled payments on behalf of the
disabled or retired Participant shall be made, except that the Participant may
make a single sum payment with respect to the Option at any time on or before
the Exercise Date equal to the amount the Participant would have contributed as
determined by the Committee for the payroll periods remaining to the Exercise
Date. The Participant may at any time prior to the Exercise Date request a
distribution of the Account. If the Participant does not request a distribution
of the Account, the balance accumulated in the disabled or retired Participant's
Account shall be used to purchase shares of the Common Stock on the previously
mentioned Exercise Date.
5.11 Limitations. Notwithstanding any other provision of this Plan,
in no event may a Participant (i) purchase under the Plan during a calendar year
Common Stock having a fair market value (determined at Grant Date) of more than
$25,000 or (ii) receive any rights to purchase stock hereunder if he or she
beneficially owns, immediately after such receipt, five percent (5%) or more of
the total voting power or value of all classes of stock of the Company.
5.12 Nonassignability. Neither the Option nor the Account shall be
assigned, transferred (except as herein provided), pledged, or hypothecated in
any way (whether by operation of law or otherwise), other than by will or the
laws of descent and distribution or pursuant to a domestic relations order which
would be a qualified domestic relations order as defined in the Code or ERISA
(if the Plan were described in the relevant Sections) but only to the extent
consistent with Section 423 of the Code. Except as provided herein, the Option
is exercisable during a Participant's lifetime only by the Participant or the
appointed guardian or legal representative of the Participant, and neither the
Option nor the Account shall be subject to execution, attachment, or similar
process. Any attempted assignment, transfer, pledge, hypothecation, or other
disposition contrary to the provisions hereof, and the levy of any attachment or
similar process upon the Option or the Account shall be null and void and
without effect. The Company shall have the right to terminate the Option or the
Account in the event of any such assignment,
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transfer, pledge, hypothecation, other disposition of the Option or the Account,
or levy of attachment or similar process, by notice to that effect to the person
then entitled to exercise the Option; provided, however, that termination of the
Option hereunder shall not prejudice any rights or remedies which the Company
may have under an Agreement or otherwise.
ARTICLE VI
-----------
GENERAL PROVISIONS APPLICABLE TO THE PLAN
-----------------------------------------
6.1 Termination of Plan. To the extent required by law, this Plan shall
terminate on the last day of the ten (10) year period commencing with the
effective date or at such earlier time as the Board may determine, and no
Options shall be granted under the Plan after that date. Any Options
outstanding under the Plan at the time of its termination shall remain in effect
until they shall have been exercised, expired or otherwise canceled, settled or
terminated as provided herein or in an Agreement, and such outstanding Options
shall not be affected by such termination of the Plan. The provisions of the
Plan in respect to the full and final authority of the Committee under the Plan,
other than the authority to grant Options, and in respect of a Participant's
obligations respecting shares of Common Stock received pursuant to the exercise
of an Option shall continue notwithstanding the termination of the Plan.
6.2 Investment Representation. In the event the disposition of Common
Stock acquired upon the exercise of any Option is not covered by a then current
registration statement under the Securities Act and is not otherwise exempt from
such registration, the Common Stock so acquired shall be restricted against
transfer to the extent required by the Securities Act or regulations thereunder,
and each Agreement shall contain a requirement that, upon demand by the Company
for such representation, the individual exercising an Option shall state in
writing, as a condition precedent to each exercise of the Option, in whole or in
part, that the Common Stock acquired by such exercise is acquired for investment
purposes only and not for resale or with a view to distribution. The Committee
may set forth in an Agreement such other terms and conditions relating to the
registration or qualification of the Common Stock under federal or state
securities laws as it desires, including, in its discretion, the imposition of
an obligation on the Company to cause the Common Stock issued to a Participant
to be registered under the Securities Act.
6.3 Effect of Certain Changes.
(a) Anti-Dilution. In the event of any Company stock dividend, stock
split, combination or exchange of shares, recapitalization or other change
in the capital structure of the Company, corporate separation or division
of the Company (including, but not limited to, a split-up, spin-off, split-
off or distribution to Company stockholders other than a normal cash
dividend), sale by the Company of all or a substantial portion of its
assets (as measured on either a stand-alone or consolidated basis),
reorganization, rights offering, partial or complete liquidation, or any
other corporate transaction or event involving the
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Company and having an effect similar to any of the foregoing, then the
Committee may adjust or substitute, as the case may be, the number of
shares of Common Stock available for Options under the Plan, the number of
shares of Common Stock covered by outstanding Options, the exercise price
per share of outstanding Options, and any other characteristics or terms of
the Options as the Committee shall deem necessary or appropriate to reflect
equitably the effects of such changes to the Participants; provided,
however, that any fractional shares resulting from such adjustment shall be
eliminated by rounding to the next lower whole number of shares with
appropriate payment for such fractional share as shall reasonably be
determined by the Committee.
(b) Change in Control. If there is a Change in Control of the Company
(as defined herein) or the Committee reasonably anticipates that a Change
in Control is likely to occur, then (1) the Committee may cause each Option
to be immediately exercised; (2) the Committee may provide that any Option
exercisable on the date of any such Change in Control may be purchased by
the Company in an amount equal to the excess, if any, of the aggregate fair
market value per share of Common Stock subject to the Option (or portion
thereof) over the aggregate Option Price of the shares subject to the
Option (or portion thereof) which the Committee determines to purchase; or
(3) the Company may provide for any combination of (1) and (2) above. For
purposes of this Section 6.3(b), the aggregate fair market value per share
of Common Stock subject to the Option that the Committee determines to
purchase shall be determined by the Committee by reference to the cash or
fair market value, determined by the Committee, of the securities,
property or other consideration receivable pursuant to the Change in
Control described in this Section 6.3(b). The aggregate Option Price of
the Common Stock shall be determined by multiplying the number of such
shares by the Option Price. If the event of a Change in Control described
in Section 6(c)(iii), and if the Option is unexercised and the Committee
does not exercise its discretion hereunder to purchase the Option, then the
Option shall be regarded as the right to receive the securities, property,
cash or other consideration receivable by stockholders of the Company
immediately prior to the Change in Control described in Section 6(c)(iii).
The provisions of this Section 6.3(b) shall be construed consistently with
the terms or conditions of any regulation or ruling respecting the status
of Options under Section 423 of the Code and the receipt of cash or other
consideration coincident with the cancellation of such Options, and in
order to provide the Participant the economic benefit of the Option without
incurring liability under Section 16(b) of the Exchange Act.
(c) "Change in Control" shall be deemed to have occurred on the first
to occur of any of the following events:
(i) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of fifty percent (50%) or more of
either (A) the then outstanding
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shares of common stock of the Company (the "Outstanding Company Common
Stock") or (B) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not
constitute a Change in Control of the Company: (1) any acquisition
directly from the Company (excluding an acquisition by virtue of the
exercise of a conversion privilege unless such convertible securities
were acquired directly from the Company), (2) any acquisition by the
Company, (3) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation
controlled by the Company, or (4) any acquisition by any corporation
pursuant to a reorganization, merger or consolidation, if, following
such reorganization, merger or consolidation, the conditions described
in clauses (A) and (B) of subsection (iii) of this Section are
satisfied; or
(ii) Individuals who, as of the effective date of this Plan,
constitute the Board of Directors of the Company (the "Incumbent Board
of the Company") cease for any reason to constitute at least a
majority of the Board of Directors of the Company; provided, however,
that any individual becoming a director subsequent to the date hereof
whose election, or nomination for election by the Company's
stockholders, was recommended or approved by a vote of at least a
majority of the directors then comprising the Incumbent Board of the
Company shall be considered as though such individual were a member of
the Incumbent Board of the Company, but excluding, for this purpose,
any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as
contemplated by Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board of Directors
of the Company; or
(iii) The consummation by the Company of a reorganization,
merger or consolidation, in each case, unless, following such
reorganization, merger or consolidation, (A) more than fifty percent
(50%) of, respectively, the then outstanding shares of common stock of
the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their
ownership, immediately prior to such reorganization, merger or
consolidation, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, and (B) at least a
majority of the members of the board of directors of the
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corporation resulting from such reorganization, merger or
consolidation were members of the Board of Directors of the Company at
the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(iv) The consummation by the Company of the sale or other
disposition of all or substantially all of the assets of the Company,
other than to a corporation with respect to which, following such sale
or other disposition, (A) more than fifty percent (50%) of,
respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case
may be, and (B) at least a majority of the members of the board of
directors of such corporation were members of the Board of Directors
of the Company at the time of the execution of the initial agreement
or action of the Board providing for such sale or other disposition of
assets of the Company.
(d) The Committee may, in its discretion, grant to the Participant,
in exchange for the surrender and cancellation of the Option, a new Option
on such terms and conditions as may be determined by the Committee in
accordance with the Plan.
6.4 Withholding. Notwithstanding any other provision hereof, as a
condition of delivery or transfer of shares of Common Stock, the Committee in
its sole discretion may require the Participant to pay to the Company, or the
Committee may at its election withhold from any wages, salary, or stock to be
issued to a Participant pursuant to the exercise of an Option, or other payment
due to the Participant, an amount sufficient to satisfy all present or estimated
future federal, state and local withholding tax requirements related thereto.
The Participant may satisfy any requirement under the Plan or an Agreement with
respect to the Company's federal, state or local tax withholding obligation by
requesting that the Committee withhold and not transfer or issue shares of
Common Stock with a Fair Market Value equal to such withholding obligation,
otherwise issuable or transferable to him pursuant to the exercise of that
portion of the Option. An Agreement may provide for shares of Common Stock to be
delivered or withheld having a Fair Market Value in excess of the minimum amount
required to be withheld, but not in excess of the amount determined by applying
the Participant's maximum marginal tax rate. Any right or election of the
Participant under this Section 6.4 shall be subject to the approval of the
Committee and shall be in compliance with Section 16 of the Exchange Act. The
amount of required withholding shall, at the election of the Participant, be at
a specified rate not less than the statutory minimum federal and state
withholding rate and not greater than the maximum federal, state and
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local marginal tax rate applicable to the Participant and to the particular
option exercise transaction.
6.5 No Company Obligation. The Company shall have no duty or obligation
to affirmatively disclose to a record or beneficial holder of an Option, and
such holder shall have no right to be advised of, any material information
regarding the Company at any time prior to, upon or in connection with the
exercise of an Option.
6.6 Committee Discretion. The Committee may in its sole discretion
include in any Agreement an obligation that the Company purchase a Participant's
shares of Common Stock received upon the exercise of an Option (including the
repurchase of any unexercised Options which have not expired), or may obligate a
Participant to sell shares of Common Stock to the Company upon such terms and
conditions as the Committee may determine and set forth in an Agreement. The
provisions of this Article VI shall be construed by the Committee in its sole
discretion, and shall be subject to such other terms and conditions as the
Committee may from time to time determine.
ARTICLE VII
-----------
MISCELLANEOUS
-------------
7.1 Indemnification of the Board and Committee. In addition to such other
rights of indemnification as they may have and to the extent permitted by law,
the Company shall indemnify, defend and hold harmless the Board, the Committee,
the members of the Committee, the officers of the Company, and any agent or
representative selected by the Board or Committee (collectively "indemnified
party") against the reasonable expenses, including, without limitation,
attorneys' fees, actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or any threat thereof, or in
connection with any appeal therein, to which they or any of them may be a party
by reason of any act or omission in connection with the Plan or any Option
granted thereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by legal counsel selected by the Company)
or paid by them in satisfaction of a judgment in any action, suit or proceeding,
except in relation to matters as to which it shall be adjudged in such action,
suit or proceeding that such indemnified party is liable for gross negligence or
gross misconduct in the performance of his duties; provided that within sixty
(60) days after institution of any such action, suit or proceeding the
indemnified party may in writing elect to defend the same at its sole expense,
and if such election is made, the Company shall have no further liability or
obligations to the indemnified party under this Section. The provisions of this
Section 7.1 shall in no way limit any other obligation or arrangements the
Company may have with regard to indemnifying an indemnified party.
7.2 Mitigation of Excise Tax. Subject to any agreement with a
Participant, if any payment or right accruing to a Participant under this Plan
(without the application of this Section
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7.2), either alone or together with other payments or rights accruing to the
Participant from the Company or an Affiliate ("Total Payments") would constitute
a "parachute payment" (as defined in Section 280G of the Code and regulations
thereunder), such payment or right shall be reduced to the largest amount or
greatest right that will result in no portion of the amount payable or right
accruing under the Plan being subject to an excise tax under Section 4999 of the
Code or being disallowed as a deduction under Section 280G of the Code. The
determination of whether any reduction in the rights or payments under this Plan
is to apply shall be made by the Committee in good faith after consultation with
the Participant, and such determination will be conclusive and binding on the
Participant. The Participant shall cooperate in good faith with the Committee in
making such determination and providing the necessary information for this
purpose. The provisions of this Section 7.2 shall apply with respect to any
Participant only if, after reduction for any applicable federal excise tax
imposed by Section 4999 of the Code and other federal income tax imposed by the
Code, the Total Payments accruing to such Participant would be less than the
amount of the Total Payments as reduced (i) if applicable, pursuant to the
provisions of this Section 7.2 and any similar provisions under any other plans
of the Company or any Affiliate to mitigate the applicable federal excise tax,
and (ii) by federal income taxes (other than such excise tax).
7.3 Interpretation. Whenever necessary or appropriate in this Plan and
where the context so requires, the singular term and the related pronouns shall
include the plural and the masculine and feminine gender.
7.4 Governing Law. The Plan and any Agreement shall be governed by the
laws of the State of Delaware (other than its laws respecting choice of law).
7.5 Limitations on Liability. No liability whatever shall attach to or be
incurred by any past, present or future stockholders, officers or directors,
merely as such, of the Company under or by reason of any of the terms,
conditions or agreements contained in this Plan, in an Agreement or implied from
either thereof, and any and all liabilities of, and any and all rights and
claims against the Company, or any shareholder, officer or director, merely as
such, whether arising at common law or in equity or created by statute or
constitution or otherwise, pertaining to this Plan or to an Agreement, are
hereby expressly waived and released by every Participant as a part of the
consideration for any benefits provided by the Company under this Plan. A
person who shall claim a right or benefit under this Plan shall be entitled only
to claim against the Company for such benefit.
7.6 Validity. If any provision of this Plan shall for any reason be held
to be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision hereof, and this Plan shall be construed as if such
invalid or unenforceable provision were omitted.
7.7 Assignment. This Plan shall inure to the benefit of and be binding
upon the parties hereof and their respective successors and permitted assigns.
-18-
<PAGE>
7.8 Captions. The captions and headings to this Plan are for convenience
of reference only and in no way define, limit or describe the scope or the
intent of this Plan or any part hereof, nor in any way affect this Plan or any
part hereof.
7.9 Amendments. The Board of Directors may at any time amend, waive,
discharge or terminate the Plan even with prejudice to a Participant. The Board
or the Committee may amend, waive, discharge, terminate, modify, extend, replace
or renew an outstanding Option Agreement even with prejudice to a Participant;
provided such a change does not cause the Plan to fail to be a plan as described
in Section 423 of the Code.
7.10 Entire Agreement. This Plan and the Agreement constitute the entire
agreement with respect to the subject matter hereof and thereof, provided that
in the event of any inconsistency between the Plan and the Agreement, the terms
and conditions of this Plan shall control.
7.11 Rights with Respect to Continuance of Employment. Nothing contained
herein or in an Agreement shall be deemed to alter the at-will employment
relationship between the Company or a Subsidiary and a Participant. Nothing
contained herein or in an Agreement shall be construed to constitute a contract
of employment between the Company or a Subsidiary and a Participant. The Company
or, as applicable, the Subsidiary and the Participant each continue to have the
right to terminate the employment relationship at any time for any reason. The
company or Subsidiary shall have no obligation to retain the Participant in its
employ as a result of this Plan. There shall be no inference as to the length of
employment hereby, and the Company or Subsidiary reserves the same rights to
terminate the Participant's employment as existed prior to the individual
becoming a Participant in this Plan.
7.12 Options for Shares in Substitution for Stock Options Granted by Other
Corporations. Options may be granted under the Plan from time to time in
substitution for stock options or stock appreciation rights held by employees,
directors or service providers of other corporations who are about to become
employees of the Company or a Subsidiary as the result of a merger or
consolidation of the employing corporation with the Company or a Subsidiary, or
the acquisition by the Company or a Subsidiary of the assets of the employing
corporation, or the acquisition by the Company or a Subsidiary of the stock of
the employing corporation, as the result of which it becomes a designated
employer under the Plan. The terms and conditions of the Options so granted may
vary from the terms and conditions set forth in this Plan at the time of such
grant as the majority of the members of the Committee may deem appropriate to
conform, in whole or in part, to the provisions of the Options in substitution
for which they are granted.
7.13 Procedure for Adoption. Any Subsidiary of the Company may by
resolution of such Subsidiary's board of directors, with the consent of the
Board of Directors and subject to such conditions as may be imposed by the Board
of Directors, adopt the Plan for the benefit of its employees as of the date
specified in the board resolution. The Board shall have the power to make such
designation before or after the Plan is approved by stockholders.
-19-
<PAGE>
7.14 Procedure for Withdrawal. Any Subsidiary which has adopted the
Plan may, by resolution of the board of directors of such Subsidiary, with the
consent of the Board of Directors and subject to such conditions as may be
imposed by the Board of Directors, terminate its adoption of the Plan; provided
such termination of adoption does not cause the Plan to fail to be a plan
described in Section 423 of the Code.
7.15 Expenses. Expenses of the Plan, including the fees or expenses
incurred by the transfer agent in connection with the transfer of Common Stock
and brokerage fees or expenses incurred in connection with the acquisition of
Common Stock in connection with the Plan or transfer to the Participant, shall
be paid by the Company. Any expense or fee associated with the Common Stock,
including, for example, fees or commissions in connection with the disposition
of shares or the withdrawal of such shares from the custodian, shall be borne by
the Participant.
Executed and effective as of the date first written above.
NOVAMED EYECARE, INC.
By: _____________________________________
Title: _____________________________________
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<PAGE>
Summit Technology
===========================================================================
NovaMed Agreement
- ------------------------------------------------------------------------
An Opportunity for Rapid Expansion into the
Business of Laser Vision Correction
CONFIDENTIAL INFORMATION
- ---------------------------------------------
<PAGE>
NovaMed/Summit Agreement as originally adopted October 2, 1998, as amended April
2, 1999, as further amended May 21, 1999, and as amended and restated July 7,
1999.
- --------------------------------------------------------------------------------
The following proposal will allow NovaMed rapid expansion into the exciting
expanding field of Laser Vision Correction * .
- --------------------------------------------------------------------------------
As discussed on previous occasions, Summit Technology extends this
extraordinary offer to NovaMed because of our strong belief that NovaMed
has developed an excellent record of accomplishment in the business of
Ophthalmology. NovaMed's local and regional posture in the marketplace
has proven successful and we believe that you are well positioned to
provide Laser Vision Correction to your markets and patient base. We
strongly believe that, * , you have chosen a Medical Director of
Refractive Surgery who can help orchestrate this important strategic
initiative.
However, you can not do it alone. You need a strong partner who shares
your vision and your drive to succeed. Summit Technology has:
> An approved laser platform that is technologically advanced and
yields superior results, * .
> A financially secure company that is committed to be a total
refractive resource to its customers - as previously stated, Summit
is exploring many opportunities that will allow us to deliver
additional products and services to our customers. We expect to go
well beyond being "just a laser company".
> A core competency in Education - Physician, Laser Center, Optometric
CoManagement and Staff Training at all levels.
- --------------------
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
Finally, and most importantly you are partnering with our people. Our field
management and home office management and staff are highly skilled in the area
of Refractive Surgery and can offer NovaMed a level of expertise and commitment
you will not find in any other company. We know this business and we know how
to help you create and capture your desired share of the marketplace.
- --------------------------------------------------------------------------------
The Financial Agreement
- --------------------------------------------------------------------------------
A second laser for the *
Summit Technology will place a second Apex Plus Examiner laser in the *
practice on a * for an Omnicard fee of * . We will also
include * during the term of the relevant Omnicard Plus Agreement to
be executed in connection with the purchase of such laser (the form of
Omnicard Plus Agreement to be executed by the parties is attached hereto as
Exhibit A (the "Omnicard Agreement")). Summit agrees to continuously
maintain the software on these lasers * such that the software is
always consistent with the highest level of software relevant and legally
available for such lasers (including, without limitation, any software
necessary to perform clinical studies work), which standards shall be, at a
minimum, those standards necessary for the laser to perform (i) to
manufacturer warranty specifications, (ii) future FDA-approved procedures,
when approved, and (iii) any FDA approved clinical studies work, including
such work contemplated in that certain letter agreement dated September 29,
1998 between a NovaMed affiliated physician and Summit Technology, Inc.
(the "Letter Agreement"). The fees set forth herein are * . This
Agreement contemplates that, except for the Omnicard fees, the * in
connection with the leasing, operation and maintenance (as per our Gold
Standard Service Agreement) of the lasers will be for * . Summit is
not responsible for any consumable or disposable products not normally
supplied by Summit.
In addition to the second laser for this site, Summit will allow NovaMed to
add up to * additional Apex Plus lasers in the * . NovaMed has
elected to place one of the * additional * . The terms and
conditions of this first * will be at the same * , and on the
same terms and conditions as above. In the event NovaMed elects at any
time to
- --------------------
* Confidential portions omitted and filed separately with the Commission.
2
<PAGE>
add another laser * , then the per procedure fee will be
* following NovaMed's acceptance of such laser; * .
In the event NovaMed elects to place one of the * , then the *
following NovaMed's acceptance of such laser; * .
Lasers in other localities
The following lasers may be ordered at the discretion of NovaMed at any
time through 1999 (those lasers set forth in Tier One, Tier Two and the
Special Considerations) and nothing herein shall be construed as requiring
NovaMed to order any such lasers. The relevant economics under each
category will apply to any laser in such category, irrespective of whether
or not all lasers contemplated in the category are ordered by NovaMed.
Each of these lasers will * during the term of the relevant Omnicard
Plus Agreement to be executed in connection with each purchased laser.
Summit agrees to continuously maintain the software on these lasers *
such that the software is always consistent with the highest level of
software relevant and legally available for such lasers (including, without
limitation, any software necessary to perform clinical studies work), which
standards shall be, at a minimum, those standards necessary for the laser
to perform (i) to manufacturer warranty specifications, (ii) future FDA-
approved procedures, when approved, and (ii) any FDA approved clinical
studies work, * . The fees set forth herein are inclusive of * .
This Agreement contemplates that except for the * , the only * in
connection with the leasing, operation and maintenance of the lasers (as
per our Gold Standard Service Agreement) * . Summit is not responsible
for any consumable or disposable products not normally supplied by Summit
as per its standard practice.
As contemplated herein (including the fees set forth above for the
additional laser placed in * , the Omnicard fees will be a * . As
used herein, the term "Procedure" means any ophthalmic procedure performed
with the Equipment, the purpose or effect of which is to alter refraction,
but does not include (a) bona fide retreatments or enhancements as
permitted under Summit's Retreatment Policy (Exhibit E) or (b) procedures
performed on Leasing Party's staff or on other physicians and optometrists.
- --------------------
* Confidential portions omitted and filed separately with the Commission.
3
<PAGE>
With respect to maintenance, the parties hereto acknowledge and agree that
the Gold Standard Service Agreement is attached for informational purposes
to describe the general terms of maintenance services to be provided by
Summit. Nothing therein or herein is intended to require any additional
payments or obligations to be made by NovaMed in excess of the Omnicard
payments described herein, other than for after hours service, If
requested. Further, the parties acknowledge that, notwithstanding anything
contained in the Gold Standard Service Agreement: (i) Summit's service
obligations are not limited by the number of pulses performed; (ii) the
term of Summit's service obligations are as set forth in this agreement and
not as set forth in the Gold Standard Service Agreement (iii) the Omnicard
payments included herein include * ; (iv) the assignment limitations of
the Gold Standard Service Agreement are superseded by those contained in
the Omnicard Plus Agreement; (v) the invoicing and integration (i.e. entire
agreement) provisions of the Gold Standard Service Agreement are not
applicable; (vi) there will be no additional charge for after hours service
on the systems in place at * or any other system that averages at
least * over a consecutive * period; and (vii) "maintenance"
shall mean all maintenance on the lasers which is necessary for them to
perform (a) to manufacturer warranty specifications, (b) future FDA-
approved procedures, when approved, and (c) any FDA-approved clinical
studies work, including, without limitation, such work contemplated in the
Letter Agreement. The parties agree that this paragraph regarding
maintenance shall apply to all lasers covered in this Agreement.
Tier One-Apex Plus Laser placements 1 and 2
Procedures *
Procedures *
Procedure *
We propose a * for each laser. An initial * "ramp up" time,
where * is required, is followed by a scheduled * . This period
will require staged * as follows: months * ; months * ; months
* ; months * ; months * . Any purchases in a given month which
are in excess of the * will be credited towards * (i.e. NovaMed is
satisfying the * so long it is * on a rolling methodology).
Upon completion of * procedures, NovaMed has the option to continue
using the laser at the reduced cost of * (with * ), renegotiating
the agreement or terminating the
- --------------------
* Confidential portions omitted and filed separately with the Commission.
4
<PAGE>
agreement, all as set forth in the relevant Omnicard Plus Agreement. Unless
NovaMed is in default under the relevant Omnicard Plus Agreement, Summit
may not terminate, or elect not to renew, such agreement.
Tier Two-For Apex Plus Laser placements 3, 4, 5, 6, 7 and 8 to be
installed at the discretion of NovaMed, Summit will extend the following
discounted schedule for each laser:
Procedures * @ *
Procedures * @ *
Procedures * @ *
There will be an * for each laser. The schedule for such * will be as
follows:
Months * *
Months * *
Months * *
Months * *
Months * *
Any purchases in a given month that are * towards future months (i.e.
NovaMed is * so long as it is * on a rolling methodology).
Upon completion of * procedures, NovaMed has the option to * ,
renegotiating the agreement or terminating the agreement, all as set forth
in the relevant Omnicard Plus Agreement. Unless NovaMed is in default
under the relevant Omnicard Plus Agreement, Summit may not terminate, or
elect not to renew, such agreement.
Special Considerations: *
*
- --------------------
* Confidential portions omitted and filed separately with the Commission.
5
<PAGE>
In exchange for a payment of approximately * to be made, Summit would
like to propose the following:
A * commitment to Summit for * at the reduced * rate of *
Procedure *
The * preformed through September 1998 on the Summit Laser (Serial
No. * ) will be included toward the overall * .
Here we propose an * for the laser (Serial No. * ). An initial *
"ramp up" time, where * is required, is followed by a scheduled monthly
* . This period will require staged * as follows: months * ;
months * ; months * ; months * ; months * . Any purchases in
a given month which are in excess of the * will be credited towards
future months (i.e. NovaMed is satisfying the * so long it is achieving
* )
Upon completion of * procedures, NovaMed has the option to continue
using the laser at the reduced cost of * , with * , renegotiating
the agreement or terminating the agreement, all as set forth in the
relevant Omnicard Agreement. Unless NovaMed is in default under the
relevant Omnicard Agreement, Summit may not terminate, or elect to not
renew, the Omnicard Agreement
*
In consideration of the current lease agreement Summit would like to
propose the following:
A * commitment to Summit for * at the reduced * price of
* .
Procedures * .
The * procedures performed through September 1998 on the Summit Laser
(Serial No. * ) will be included toward the total procedural * .
Here we propose an * for the laser (Serial No. * ). An initial *
"ramp up" time, where * is required, is followed by a scheduled
monthly * . This period will require staged * as follows: months
* ; months * ; months * ; months * ; months
- --------------------
* Confidential treatment requested.
6
<PAGE>
* . Any purchases in a given month which are in excess of the * will be
credited towards * (i.e. NovaMed is satisfying the * so long it is
achieving * on a rolling methodology).
Upon completion of * procedures, NovaMed has the option to continue using
the laser at the reduced cost of * per procedure, with * , renegotiating
the agreement or terminating the agreement, all as set forth in the
relevant Omnicard Agreement. Unless NovaMed is in default under the
relevant Omnicard Agreement, Summit may not terminate, or elect to not
renew, the Omnicard Agreement.
Additional Agreements
1. Termination of Omnicard Plus Agreement. With respect to any lasers
procured by NovaMed under the Agreement, NovaMed will have the right to
terminate immediately, without penalty, any Omnicard Plus Agreement
relating to such lasers if the FDA withdraws or materially restricts its
approval of the Apex Plus excimer laser for use in the manner currently
permitted as of the date of this Second Amendment; provided, however, that
in the event of such a termination, NovaMed shall continue to be
responsible for any remaining lease payments under the applicable Lease
Agreement with HealthCapital Financial Group LLC ("HealthCapital Lease")
affecting such lasers. Notwithstanding the foregoing, nothing in this
Paragraph 1 shall be construed to apply to any future or pending FDA
approvals not yet obtained by Summit as of the date of this Second
Amendment.
2. Replacement of Lasers. This Paragraph 2 is subject to the terms and
conditions of Paragraph 3 hereof. The parties hereto acknowledge and agree
that NovaMed desires to be in a position to continuously adapt to new and
progressive technologies in the laser vision correction industry.
Accordingly, at any time during the term of any Omnicard Plus Agreement and
HealthCapital Lease, NovaMed shall have right to * . Upon NovaMed
tendering such an election, any * (including any * contemplated in the
Agreement, Omnicard Plus Agreement and HealthCapital Lease with r espect to
the original laser (the "Original Laser Agreements") * , and the parties
contemplate that comparable agreements will be executed by the parties with
respect to the * ; provided, however, that, notwithstanding the foregoing,
NovaMed will continue to be responsible for any remaining lease payments
under the applicable HealthCapital Lease * , with any remaining * either
being, at NovaMed's election, * ; provided further, that NovaMed may *
through HealthCapital * as contemplated in the foregoing proviso
- --------------------
* Confidential portions omitted and filed separately with the Commission.
7
<PAGE>
(ii) * . The terms and conditions of the * will be on terms substantially
similar in nature as the terms and conditions of the * , including,
without limitation, those terms and conditions relating to term,
maintenance (hardware and software) and supplies; provided, however, that
the parties hereto acknowledge and agree that:
(a) Pricing. * .
(b) * . * .
3. Commercial Reasonableness/Good Faith. * . Accordingly, each party
hereto shall use all commercially reasonable efforts and shall negotiate in
good faith to effect the restructuring contemplated in Paragraph 2 hereof,
after taking into account any differing pricing mechanics between the old
and new lasers. If the parties shall fail to reach an agreement after
expending such commercially reasonable efforts and negotiating in good
faith, then the Original Laser Agreement will remain in place. In the event
of a restructuring pursuant to Paragraph 2 hereof, the parties further
acknowledge and agree that notwithstanding any other provision hereof
(including Paragraph 2) all systems subject to the Original Laser
Agreements remain subject to the applicable Summit Laser Patent License
associated with such system. NovaMed will not use or transfer any such
system other than in full compliance with the terms of such Laser Patent
License.
4. Applicability. The terms and conditions of Paragraphs 1-3 immediately
preceding this Paragraph 4 shall apply to all lasers procured by NovaMed
under the Agreement, including, without limitation, those lasers procured
prior to July 7, 1999.
5. Summit Installations. Except as otherwise expressly indicated below,
the following will apply with respect to all existing and future lasers
procured by NovaMed under the Agreement:
(a) NovaMed, * , may elect to require Summit to install its
* on any * (including, without limitation, * at a * ;
(b) * , NovaMed, * , may elect to require Summit to * on
any future laser procured by NovaMed under the Agreement after the date of
this Second Amendment. Notwithstanding Section 5(a) hereof, the parties
hereto agree that * currently located in *;
- --------------------
* Confidential portions omitted and filed separately with the Commission.
8
<PAGE>
(c) At NovaMed's election, Summit will * ;
(d) As soon as available, Summit will install the * on the two
existing Summit lasers located * at a * ; and
(e) At NovaMed's election, Summit will install the * on any
laser at a * .
All of the foregoing contained in subparagraphs (a) through (e) of this
Paragraph 5 will be installed by Summit as soon as commercially
practicable.
Miscellaneous Considerations:
* . When the * lasers purchased from Summit at NovaMed locations
* , Summit will * . When the * in all NovaMed locations * ,
Summit will * .
NovaMed/Summit Research Program. The Letter Agreement details a
comprehensive research initiative that includes * separate IDE studies
for NovaMed participation * .
The terms and conditions set forth in the Letter Agreement relating to
NovaMed shall be incorporated herein. * .
NovaMed Staff Training. Summit will confirm to a * , three-day
orientation and training session for the staff members in each NovaMed
laser practice. They will also be available for telephone follow up and
consultation for those practices. After one month, they will return to the
practice to audit, critique and mentor these individuals. To the extent
necessary, Summit will also provide during the term at * the
necessary technical support and training with respect to any upgrades in
the equipment or software provided herein.
NovaMed Market Development. As your strategic partner, Summit Technology
will help in the future market development of NovaMed by looking for
appropriate partners for your
- --------------------
9
<PAGE>
enterprise. We will attempt to aid in the NovaMed outreach in core
locations as well as help identify new regional opportunities.
Upon the request of NovaMed, Summit will provide to NovaMed financial
statements of Summit on a quarterly basis (the quarterly 10k), which
financial statements shall be substantially similar to those required to be
furnished in accordance with The Securities Exchange Act of 1934, as
amended.
Each laser shipped under this agreement will be subject to the Omnicard
Plus Agreement in the form of Exhibit A, Summit Laser Patent License, and a
Lease Agreement with HealthCapital Financial Group, LLC (the form of which
is attached hereto as Exhibit C (the "HealthCapital Lease") (except that no
Lease Agreements will required in connection with the lasers described
herein under * and * sections herein). * . From the
Omnicard fee proceeds collected by Summit under the Omnicard Agreements,
Summit on behalf of NovaMed, and subject in every instance to timely
receipt of all payments due from NovaMed, will then forward to
HealthCapital all payments under the HealthCapital Lease to satisfy
NovaMed's obligations thereunder.
The terms and conditions set forth in the Terms and Conditions of Software
License and Sale (Exhibit D) are incorporated herein by reference.
NovaMed acknowledges, represents and warrants that it has leased the
Equipment based on its professional judgment and expressly disclaims any
reliance upon any statements made by Summit or any agent of Summit unless
provided herein or otherwise stated in Summits Equipment documentation.
Summit warrants that the Equipment will function within the operating
parameters described in the User's Manual when operated by properly trained
individuals and serviced only by Summit personnel. Except as expressly
stated herein, and subject to Summit's service and maintenance obligations
described above, Summit has made no representation or warranty regarding
the Equipment and its liability hereunder is expressly limited to repair or
replacement of the Equipment, at Summit's election. Notwithstanding the
foregoing, and without in any way admitting liability, nothing herein
contained is intended to prevent NovaMed from taking such legal action
against Summit as it deems appropriate in the event any NovaMed or any
NovaMed practice is sued by a patient alleging personal injury as a result
of treatment on a Summit laser. SUMMIT MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING,
- --------------------
* Confidential portions omitted and filed separately with the Commission.
10
<PAGE>
WITHOUT LIMITATION, THE DESIGN OR CONDITION OF THE EQUIPMENT, ITS
MERCHANTABILITY OR ITS FITNESS OR CAPACITY OR DURABILITY FOR ANY PARTICULAR
PURPOSE, THE QUALITY OF THE MATERIAL OR THE WORKMANSHIP OF THE EQUIPMENT.
IN NO EVENT WILL SUMMIT BE LIABLE FOR LOST PROFIT, INJURY TO GOODWILL OR
ANY OTHER SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
Emphasis Discs are for NovaMed use only and are not permitted for resale or
use elsewhere. Please see the emphasis(R) disc package insert for
additional terms, conditions, and warranty information applicable to the
emphasis(R) disc product, all of which are incorporated herein by
reference. Purchase of emphasis(R) discs does not constitute any actual or
implied license to use the laser disc in any country other than the country
of original delivery and does not constitute any actual or implied license
to use any Summit laser system or other Summit product, emphasis(R) discs
may not be resold without the express written consent of Summit Technology,
Inc.
Except as may be otherwise expressly provided herein concerning future
transactions which may be consummated at NovaMed's election, this agreement
constitutes a binding commitment to perform the transactions and make
payments contemplated hereunder including the minimum procedure
requirements referenced herein.
By Summit Technology Accepted By
/s/ Maria Leone /s/ Stephen J. Winjum
- --------------- ---------------------
Maria Leone, Marketing and Sales Manager Stephen J. Winjum,
President
NovaMed Eyecare Mgmt., LLC
/s/ Edward P. Devnew, Jr.
- -------------------------
Edward P. Devnew, Jr., Director of Sales
/s/ P. Bernard Haffey
- ---------------------
P. Bernard Haffey
V.P. Marketing & Sales
Summit Technology, Inc.
11
<PAGE>
LIST OF EXHIBITS
A. Form of OmniCard Plus Agreement
B. Form of Gold Standard Service Agreement
C. Form of Health Capital Lease
D. Terms and Conditions of Software License and Sale
E. Summit Retreatment Credit Policy
<PAGE>
EXHIBIT A
---------
OMNICARD PLUS AGREEMENT
This Agreement is entered into on October 2, 1998 between Summit Technology,
Inc., a Massachusetts Corporation having its principal offices at 21 Hickory
Drive, Waltham, MA 02451 ("Summit") and NovaMed Holdings, Inc. having its
principal offices at 980 North Michigan Ave, Suite 1620, Chicago, IL 60611
("Customer").
1. DUTIES OF CUSTOMER
a. Customer agrees to purchase from Summit during the term of this
Agreement, for each (both) laser systems referenced on Schedule "A" the minimum
quantity of Omnicards at the purchase price pursuant to Schedule "A", a copy of
which is attached hereto and made a part hereof.
b. Customer agrees to pay for the Omnicards within thirty (30) days of
the invoice date at the total prices listed in Schedule "A". If Customer fails
to make such payments within ten (10) days after written notice from Summit
specifying such failure, then Summit may discontinue shipments of Omnicards and
make further sales of Omnicards to Customer on a C.O.D. basis.
c. Customer agrees to meet all terms and conditions contained in the
lease contract with HealthCapital Financial Group, LLC ("HealthCapital") (Lease
numbers H239, H240 & H241) for the equipment described therein (the
"HealthCapital Lease").
2. DUTIES OF SUMMIT
Summit agrees to forward to HealthCapital, or its successors and assigns,
on a timely basis as provided in the HealthCapital Lease, the monthly lease
payment collected by Summit through Omnicard financing premiums included in the
Omnicard prices in Schedule "A", on a monthly basis, under such HealthCapital
Lease identified in Section 1.c, provided the Customer fully performs the duties
described in Section 1(a) and (b) above. Summit shall make such HealthCapital
Lease payments as required under said lease on Customer's behalf and with
Customer's full permission under the terms and conditions of HealthCapital's
Lease and HealthCapital shall accept same from Summit. Customer shall receive
written notice that each such monthly payment from Summit to HealthCapital has
been made. Notwithstanding Summit's duties set forth in the preceding
sentences, Customer acknowledges and agrees that the HealthCapital Lease
document is a separate and distinct agreement between Customer and HealthCapital
and nothing herein is intended or should be construed as a guaranty of any of
Customer's obligations thereunder or as otherwise obligating Summit thereunder
in any way, it being acknowledged that Summit's sole obligation is to timely
forward the lease payments received from Customer to HealthCapital subject to
Summit's timely receipt of the corresponding payment from Customer. Customer
further acknowledges, that provided Customer is in compliance with the
provisions of this Agreement, it is solely responsible for the financial
liability (other than the lease payments to be made by Summit and paid on
Customer's behalf to HealthCapital hereunder), and for all UCC filing fees,
insurance charges, property taxes, sales taxes and any other expenses required
by the HealthCapital Lease. Notwithstanding the foregoing, in the event that
Summit shall fail to make any payment to HealthCapital (despite having received
the corresponding payment from Customer) under the terms of the HealthCapital
Lease, and Customer makes such payment directly to HealthCapital, Customer shall
have the right to setoff the amount of such payment against any subsequent
amounts due and owing Summit under this Agreement.
3. RELEASE OF OBLIGATIONS/TERMINATION OF AGREEMENT
a. Customer may release itself from its obligations to fully perform the
duties described in Section 1 above by either: (i) purchasing all Omnicards
specified in Schedule "A" (e.g., the aggregate minimum purchase obligation due),
or (ii) completely paying off all remaining financial liabilities to
HealthCapital under the HealthCapital Lease identified In Section 1.c above,
plus immediately pay to Summit the difference between the aforesaid
HealthCapital payoff and the aggregate unpaid minimum Omnicard purchase
obligation.
b. The parties agree that if Customer fails to fully perform the duties
described in Section 1(a) or (b) above or if Customer is in default of the
HealthCapital Lease (provided that Customer shall have the opportunity to cure
any such failure to perform or default within thirty (30) days following
Customer's receipt of written notice from Summit specifying the nature of such
failure to perform or default), Summit may, at its sole discretion: (i)
terminate this Agreement with thirty (30) days prior written notice and (ii)
immediately demand payment from the Customer for the remaining aggregate unpaid
minimum purchase obligation due hereunder.
<PAGE>
4. TERM
Unless either party terminates this Agreement pursuant to Section 3 above,
or as set forth in this Paragraph 4, the term of this Agreement shall be for a
period of * from the date of Summit's signature below (the "Initial Term").
The Initial Term and any Renewal Term (as defined below) shall automatically be
renewed and extended on the same terms and conditions contained herein for
consecutive one-year periods (each a "Renewal Term"), unless Customer shall give
written notice to Summit electing to terminate this Agreement not less than
sixty (60) days prior to the end of the Initial Term or any Renewal Term. In
addition, Customer may terminate this Agreement as follows: (i) at any time upon
attaining the minimum purchasing requirements as specified in Schedule "A" (the
"Purchasing Criteria"); (ii) upon thirty (30) days' written notice to Summit at
any time after (A) satisfying the Purchasing Criteria or (B) the Initial Term,
provided all the Purchasing Criteria have been satisfied; or (iii) the
bankruptcy, dissolution or liquidation of Summit; provided further, that if
Customer terminates this Agreement in accordance with the foregoing prior to the
expiration of the HealthCapital Lease, Summit acknowledges and agrees that it
will be obligated to pay, on Customer's behalf, all remaining payments due and
owing under the HealthCapital Lease, provided Customer shall have made all
required minimum payments to Summit hereunder. Summit may only terminate this
Agreement pursuant to Section 3 above.
5. MISCELLANEOUS
a. Entire Agreement. This Agreement is the entire Agreement between the
parties, and all prior negotiations, representations or agreements between the
parties are merged into this Agreement, except for the executed NovaMed-Summit
Agreement entitled "An Opportunity for Rapid Expansion in the Business of Laser
Vision Correction" (hereinafter referred to as the "NovaMed Agreement"), the
Summit Laser Patent License and all other documents and agreements referenced
herein or in the NovaMed Agreement. In the event of any conflict between the
NovaMed Agreement and this Agreement, the terms and conditions of the NovaMed
Agreement shall govern and control.
b. Amendments. This Agreement may be amended in whole or in part only by
an agreement in writing signed by Customer and Summit.
c. Governing Law. This Agreement and the rights of the parties hereunder
shall be governed by and construed in accordance with the laws of the State of
Massachusetts including all matters of construction, validity, performance and
enforcement and without giving effect to principles or conflict of laws.
d. Waiver. The waiver of either party of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach by any party.
e. Assignment. Customer shall not assign or transfer this Agreement
without the prior written consent of Summit provided, however, that Customer
will have the right to assign its rights, duties and obligations hereunder,
without Summit's consent: (i) in connection with and in contemplation of a
reorganization, merger, consolidation or sale of all or substantially all of the
capital stock or assets of Customer (or any other transaction substantially
similar in effect); provided in each instance that NovaMed is not then in
default hereunder (the parties hereto acknowledge and agree that the
contemplation or consummation of the transaction described in this Section
5(e)(i) will not constitute such a default) and that such proposed assignee has
agreed to fully perform NovaMed's obligations hereunder and under all related
agreements, including the Summit Laser Patent License and, in the reasonable
judgment of Summit (such judgement to not be unreasonably withheld or delayed)
has the financial capability to so perform, or (ii) to any affiliate (as
hereinafter defined) of Customer (subject to such affiliate agreeing to be bound
as aforesaid). As used herein "affiliate" shall mean any person, firm or entity
which directly or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with, any person, firm or entity, and
shall include, without limitation, any direct or indirect subsidiary of NovaMed
Holdings, Inc. Any attempt to assign any rights, duties or obligations which
arise hereunder without such permission shall be void.
f. Attorneys' Fees. The prevailing party shall be awarded its reasonable
attorneys' fees, costs and disbursements to be paid by the non-prevailing party
in any action on or concerning this Agreement.
g. Notices. Any notice, request, demand or other communication given
pursuant to the terms of this Agreement shall be in writing and shall be served
by personal service or by mail at the address of the receiving party set forth
in this Agreement (or at such other address as such party shall in writing have
advised the other party). All notices or demands by mail shall be certified or
registered mail, return receipt requested, and shall be deemed complete upon
mailing.
- ---------------------
* Confidential portions omitted and filed separately with the Commisssion.
<PAGE>
h. Severability. In the event any one or more of the provisions in this
Agreement shall for any reason be held to be void, invalid, illegal or
unenforceable in any respect, such shall not affect any other provisions hereof,
but this Agreement shall be construed as if such void, invalid, illegal or
unenforceable provision had never been contained herein and the remainder of
this Agreement shall continue in full force and effect.
i. Ambiguities. Ambiguities, if any, in this Agreement shall not be
construed against either party, irrespective of which party may be deemed to
have authored the ambiguous provision.
CUSTOMER: NOVAMED HOLDINGS, INC. SUMMIT TECHNOLOGY, INC.
BY:(X) BY:(X)
-------------------------- --------------------------
Name: Name:
--------------------------- ---------------------------
Title: Title:
-------------------------- ---------------------------
Date: Date:
-------------------------- ---------------------------
Agreed and accepted:
HEALTHCAPITAL FINANCIAL GROUP, LLC
BY:(X)
--------------------------
Name:
---------------------------
Title:
--------------------------
Date:
---------------------------
<PAGE>
Schedule "A"
Purchasing Criteria
-------------------
Location #1: * (Serial Number *)
<TABLE>
<CAPTION>
Omnicard Purchase
Months Price *
- ------ ----------------- -------
<S> <C> <C>
* * *
* * *
* * *
* * *
* * *
* * *
</TABLE>
* Upon Customer completing * , the Omnicard Purchase Price shall be * and
any * in excess of * will be * .
** Once * are completed and paid for, the Omnicard Purchase Price shall
be * .
Location #2: * (Serial Number *)
<TABLE>
<CAPTION>
Omnicard Purchase
Months Price *
- ------ ----------------- -------
<S> <C> <C>
* * *
* * *
</TABLE>
* A commitment of * is the * for the two Summit lasers at this location.
Location 3: * (Serial Number *)
<TABLE>
<CAPTION>
Omnicard Purchase
Months Price *
- ------ ----------------- -------
<S> <C> <C>
* * *
* * *
* * *
* * *
* * *
* * *
</TABLE>
* Upon Customer completing * , the Omnicard Purchase Price shall be * and
any * in excess of * will be * .
** Once * are completed and paid for, the Omnicard Purchase Price shall
be * .
- -------------------------------------------------------------------------------
As it relates to all locations referenced above, any * in a given month
which are * will be * (i.e. NovaMed is satisfying the * so long
as it is * for each individual location). These schedules will commence
contemporaneous with the commencement date of the relevant HealthCapital Lease.
- ------------------
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
EXHIBIT B
---------
SUMMIT TECHNOLOGY, INC.
GOLD STANDARD/TM/ SERVICE AGREEMENT (DOMESTIC)
Customer: System Model and Serial No.:
------------------------- ---------------
Customer Contact: Installation Site:
----------------- -------------------------
Billing Address:
------------------ -------------------------
Effective Date:
------------------- -------------------------
Telephone: Term: [ ] One Year [ ] Three Years
------------------------ [ ] Customer Initials
Fax:
------------------------
This Service Agreement by and between Summit Technology, Inc. ("Summit") and
_____________ ("Customer") shall commence on the Effective Date referred to
above and shall remain in force until the earlier of (check one) [ ] twelve
months after the Effective Date or 600,000 laser pulses, whichever comes first,
or [ ] thirty-six months after the Effective Date or 1,800,000 laser pulses,
whichever comes first.
For each Laser System listed above, Summit hereby agrees to provide to Customer
the maintenance services described below, and Customer agrees to pay for such
services, in each instance subject to and in accordance with the terms and
conditions of this Agreement. Please see reverse for additional terms and
conditions.
A. Schedule of Services:
1. Preventative Maintenance. Summit will provide Customer with four
scheduled preventative maintenance visits during the term of this
Agreement. At each preventative maintenance visit, Summit will:
replace ArFl gas bottle and filter, check energy output, clean cooling
system and heat exchanger grill, verify full operation of your system,
replace connectors, gaskets and filters as needed, verify high voltage
output, check cooling oil level, align laser, leak-test bottle, check
valve connections, check vacuum system, check multi-power supply,
clean instrument panel, align HeNe aiming laser, clean or replace all
optics as necessary and check printer and printer paper operation.
2. Unscheduled Service. During the term of this Agreement, Summit will
provide unscheduled service visits, at no additional cost, between the
hours of 8:00 am. and 5:00 p.m., Monday through Friday. In most
instances, Summit will provide an on-site technician within 48 hours
(see reverse for details). Any service visits that you authorize
outside of these hours or on weekends will be separately billed at the
rate set forth below.
3. Parts and Labor. Summit will provide all parts (including ArFl gas,
printer paper and beam profile cards) and labor (during the hours
specified above) necessary to service and maintain your laser
according to Summit's published operating specifications at no
additional charge. Except as specified above, all disposables,
consumables and software upgrades arc excluded.
4. Emergency Telephone Consultation. Summit will provide emergency
telephone consultation 24 hours per day, seven days per week.
B. Schedule of Charges:
1. Covered Services. For each Laser System listed above, Customer will
pay Summit an annual service fee, payable either in twelve equal
consecutive monthly installments of $__________ each or in a single
lump sum payment, due on or before the Effective Date, of
$___________. If this is a three year Agreement, the service fee will
be _____________.
2. After Hours Services. If Customer requests a service visit before 8:00
a.m., after 5:00 p.m. or on weekends, Customer will pay Summit at the
rate of $105 per hour per technician. Parts remain covered at no
additional charge as provided herein.
<PAGE>
This Service Maintenance Agreement shall replace any previous service agreements
or warranties between Summit and the Customer and shall cover only the System
bearing the serial number indicated above.
EXECUTED this ____ day of ______________________, 19___.
CUSTOMER: SUMMIT TECHNOLOGY, INC.
By:
- --------------------------- ------------------------
<PAGE>
ADDITIONAL TERMS AND CONDITIONS
-------------------------------
1. Summit Responsibilities. During the term of this Agreement, Summit will
provide the services ("Agreement Services") listed on the facing page under
the heading "Schedule of Services." The following shall be applicable to
the Agreement Services:
(a) Preventative Maintenance. Summit will contact Customer quarterly to
schedule preventative maintenance visits on mutually convenient
weekdays between the hours of 8:00 a.m. and 5:00 p.m.
(b) Unscheduled Service. Summit will use best efforts (within reason) to
have a service technician on site within the time period set forth in
the facing page of this Agreement under "Schedule of Services" (or as
soon as practicable thereafter). Customer acknowledges that Summit
cannot and does not absolutely guarantee response time to service
calls.
(c) Modifications for Safety or Reliability. If Summit determines that a
modification to the System (whether hardware or software) is necessary
to address safety or reliability concerns identified by Summit, then
Summit will install the modification in the System as soon as
practical.
(d) System Verification. Summit reserves the right to verify the condition
of Customer's System prior to becoming obligated hereunder if
Customer's System has ever been serviced by someone other than a
Summit authorized service representative, or if Customer's System has
not been serviced by Summit for more than 45 days prior to the
Effective Date.
2. Customer Obligations. Customer's obligations are as follows:
(a) Payments. Customer will pay all Summit invoices within 30 days.
(b) Tests. Customer will conduct such tests of the System and submit the
results in such format at such times as Summit reasonably requests.
(c) Conformity With Manuals. Customer will comply in all material respects
with the manuals and instruction materials provided by Summit
regarding this System, its use and its maintenance.
(d) Cooperation. Customer will cooperate with Summit in performing its
duties including the scheduling of service calls and providing access
to the System, an acceptable work environment for Summit personnel at
the Installation Site, and adequate space for storage of spare parts,
tools and the like. Customer bears the risk of loss for spare parts
stored at the Installation Site.
(e) Installation Site. Customer will maintain the Installation Site in
accordance with Summit's recommendations and will not move, permit the
movement of or tamper with the System without Summit's prior knowledge
and direct participation.
(f) No Outside Services. Customer will not permit anyone other than
Summit's service representative to perform maintenance, to repair or
to adjust the System.
(g) No Unapproved Parts or Gas. Customer will use only Summit approved
parts and gas in the System and only Summit approved disposables with
the System.
(h) Customer Presence. For the safety of Summit's personnel, Customer or
one of its representatives will be present at the Installation Site at
all times when a Summit person is servicing the System.
3. Exclusions. Unless this is a Platinum Standard/TM/ Agreement, repairs or
service required after the System has fired the maximum number of pulses
set forth on the facing page of this Agreement are not covered. Further,
this Agreement does not entitle Customer to, or obligate Summit to provide,
any service or products not specifically identified in paragraph 1 hereof.
Without limitation, the Agreement Services donot include: (a) any repairs
or service attributable to Customer's failure to comply with any of its
obligations under Paragraph 2 or to accidents, casualty loss, other acts of
God; (b) any disposable products, consumable supplies (other than gas,
printer paper and beam profile cards, which are included), halogen filters
or accessories; or (c) services associated with relocation, installation
(such as site preparation) or removal of the System. Services or products
not included in the Agreement Services may be purchased from Summit on a
case by case basis at Summit's then current charges if such services are
then available from Summit.
4. Charges and Invoicing. If Customer has elected monthly payments, Summit
will invoice Customer for the Agreement Services on a monthly basis, in
advance, one month prior to the start of each month. If this is a three
year Agreement, and Customer has not paid in full as of the Effective Date,
Summit will invoice Customer periodically, as agreed by Customer and
Summit. Summit will invoice Customer for other services as incurred. All
invoices must be paid in full within 30 days. After 30 days, interest on
the unpaid balance will accrue at 1% per month. Prices are quoted exclusive
of taxes. Customer will pay (or reimburse Summit for) all taxes except
those based on Summit's income.
5. Term and Termination. If this is a one year Agreement, this Agreement shall
have a term of one year commencing on the Effective Date. If this is a
three year Agreement, this Agreement shall have a term of three years
commencing on the Effective Date. Each twelve month period following the
Effective Date is referred to as an "Agreement Year." Customer may elect to
convert a one year Agreement to a three year Agreement at any time during
the term, in which case the price adjustment will be prorated over the
balance of the three year term. This Agreement may be terminated by either
party immediately upon written notice to the other if the other breaches
one or more of its obligations hereunder.
6. Limited Warranty, Force Majeure and Limitation of Liability. Summit
warrants that the services provided hereunder will be performed in a
workmanlike manner in accordance with reasonable commercial standards.
Summit does not warrant that the operation of the System will be
uninterrupted or error free. THE WARRANTY STATED IN THE FIRST LINE OF THIS
SECTION AND REMEDIES SET FORTH HEREUNDER ARE EXCLUSIVE AND IN LIEU OF ALL
OTHERS, ORAL OR WRITTEN, EXPRESS, IMPLIED OR STATUTORY, RESPECTING THIS
AGREEMENT, AND THE MAINTENANCE SERVICES AND PARTS PROVIDED HEREUNDER,
SUMMIT MAKES NO OTHER REPRESENTATIONS, WARRANTIES OR INDEMNIFICATION
INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE RESPECTING THIS AGREEMENT OR THE SERVICES
AND PRODUCTS PROVIDED HEREUNDER.
7. Limitation of Liability. Summit will neither be deemed in default of any
obligation hereunder nor will Summit be liable for any failure or delay in
performance which results directly or indirectly from "Acts of God," acts
of civil or military authorities, civil disturbance, war, strikes, fire,
theft or vandalism or other causes beyond Summit's reasonable control. IN
NO EVENT SHALL SUMMIT BE LIABLE TO CUSTOMER FOR (A) ANY SPECIAL,
INCIDENTAL, OR CONSEQUENTIAL DAMAGES, EVEN IF SUMMIT HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES OR (B) ANY DAMAGES RESULTING FROM LOSS OF
USE, PATIENTS OR PROFITS, OR ANY DEFECT IN THE SYSTEM, WHETHER IN AGREEMENT
OR TORT ACTION, INCLUDING NEGLIGENCE. IN NO EVENT SHALL SUMMIT'S LIABILITY
EXCEED THE TOTAL MAINTENANCE CHARGES PAID OR PAYABLE WITH RESPECT TO THE
SYSTEM DURING THE TWELVE MONTHS IMMEDIATELY PRECEDING THE DATE OF THE
DAMAGE. Customer acknowledges that the charges which apply to the Agreement
Services are based in part upon the limited warranty and limitation of
liabilities and remedies set forth in this Agreement.
8. Right to Subcontract. Summit reserves the right to subcontract the services
to be provided hereunder to qualified third parties. In such
<PAGE>
event, the rights and obligations of Summit and Customer will not be
diminished.
9. Refurbished Parts. Summit reserves the right to use refurbished parts in
performing its obligations hereunder provided such parts meet all
specifications and are covered by the same warranty as new parts. All parts
removed from the System for replacement become the property of Summit.
10. Non-Assignment. Customer may not assign any of its obligations, rights or
remedies under this Agreement and any attempted such assignment shall be
null and void.
11. Non-Waiver. The failure or delay of either party to exercise any right or
remedy provided for herein shall not be deemed a waiver of that right or
remedy or of any other rights or remedies available hereunder.
12. Entire Agreement. This Agreement, including all the schedules hereto,
contains the entire understanding of Customer and Summit with respect to the
services provided hereunder and supersedes all prior oral or written
communications with respect to the subject matter hereof. This Agreement
and the rights and obligations of the parties hereunder shall be governed by
and construed in accordance with the laws of the Commonwealth of
Massachusetts.
13. Severability. If any provision or portion of this Agreement is held to be
unenforceable or invalid, the remaining provisions and portions thereof
shall nevertheless be given full force and effect, and the parties agree to
negotiate, in good faith, a substitute valid provision which most nearly
effects the parties' intent in entering this Agreement. Without limiting the
foregoing, it is expressly understood and agreed that each and every
provision of this Agreement which provides for a limitation of liability,
disclaimer of warranty or exclusion of damages is intended by the parties to
be survivable and independent of any other provisions. Further, in the
event that any remedy hereunder is determined to have failed of its
essential purpose, all limitations of liability and exclusions of damages
shall remain in effect.
14. Notices. All notices hereunder shall be in writing and shall be deemed to
have been duly given when delivered in hand, when sent by registered or
certified mail, return receipt requested, or when sent by commercial
overnight courier (such as Federal Express), to the address stated herein.
From time to time, either party may designate a different address by giving
notice of change of address in the manner herein provided.
<PAGE>
EXHIBIT C
---------
- --------------------------------------------------------------------------------
LESSOR: LEASE AGREEMENT NUMBER: ____
HEALTH CAPITAL FINANCIAL GROUP, LLC
1077 BRIDGEPORT AVENUE
SHELTON, CT 06484
- --------------------------------------------------------------------------------
FULL LEGAL NAME AND ADDRESS OF LESSEE: SUPPLIER OF EQUIPMENT:
SUMMIT TECHNOLOGY, INC.
21 HICKORY DRIVE
WALTHAM, MA 02154
- --------------------------------------------------------------------------------
QTY LEASED EQUIPMENT DESCRIPTION, MODEL #, CATALOG #, SERIAL # OR OTHER
IDENTIFICATION
- --------------------------------------------------------------------------------
SUMMIT APEX PLUS
LASER
- --------------------------------------------------------------------------------
EQUIPMENT LOCATION: STREET ADDRESS:
(if different from above) City: State: Zip Code:
- --------------------------------------------------------------------------------
AMOUNT OF EACH PAYMENT (PLUS SALES TAX, IF APPLICABLE) INITIAL TERM
ADVANCED PAYMENTS
TERMS:
- --------------------------------------------------------------------------------
TERMS AND CONDITIONS OF LEASE AGREEMENT
1. LEASE AGREEMENT. Lessee hereby leases from Lessor, and Lessor leases to
Lessee, the personal property described above, together with any replacement
parts, additions, repairs or accessories now or hereafter incorporated in or
affixed to it (hereinafter referred to as the "Equipment").
2. ACCEPTANCE OF EQUIPMENT. Lessee agrees to inspect the Equipment and to
execute a Certificate of Acceptance, as provided by Lessor, after the Equipment
has been delivered and installed and is operable in accordance with manufacturer
specifications. Lessee hereby authorized Lessor to insert in this Lease
Agreement serial numbers or other identifying data with respect to the
Equipment. Copies of the Lease Agreement, as modified, will be delivered to
Lessee by Lessor.
3. DISCLAIMER OF WARRANTIES AND CLAIMS; LIMITATION OF REMEDIES. THERE ARE NO
WARRANTIES BY OR ON BEHALF OF LESSOR. Lessor acknowledges and agrees by his
signature below as follows:
(a) LESSOR MAKES NO WARRANTIES EITHER EXPRESS OR IMPLIED AS TO THE CONDITION OF
THE EQUIPMENT, ITS MERCHANTABILITY, ITS FITNESS OR SUITABILITY FOR ANY
PARTICULAR PURPOSE, ITS DESIGN, ITS CAPACITY, ITS QUALITY OR WITH RESPECT TO ANY
CHARACTERISTICS OF THE EQUIPMENT.
(b) Lessee has fully inspected the Equipment which it has requested Lessor to
acquire and lease to Lessee, and the Equipment is in good condition and to
Lessee's complete satisfaction;
(c) Lessee leases the equipment "as is" and with all faults;
(d) Lessee specifically acknowledges that the Equipment is leased to Lessee
solely for commercial or business purposes and not for personal, family,
household or agricultural purposes;
(e) If the Equipment is not properly installed, does not operate as represented
or warranted by the supplier or manufacturer, or is unsatisfactory for any
reason, regardless of cause or consequence, Customer's only remedy, if any,
shall be against the supplier or manufacturer of the Equipment and not against
Lessor.
The person signing below certifies that (1) he/she is a corporate officer,
partner or proprietor of the Lessee said is authorized to sign this Lease
Agreement and bind the Lessee and (2) the Lessee agrees to all terms on the from
and reverse aides. This document contains the entire agreement between the
Lessee and the Lessor, and no other oral or written agreements are in effect.
<PAGE>
<TABLE>
<CAPTION>
Lessee: NovaMed Eyecare Management, LLC Lessor: Health Capital Financial Group, LLC
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
(X) Date: (X) Date:
- ------------------------------------------------------------------------------------
Name: Title: Name: Title:
- ------------------------------------------------------------------------------------
</TABLE>
(f) Provided Lessee is not in default under the Lease, Lessor assigns to Lessee
any warranties made by the supplier or manufacturer of the Equipment.
(g) LESSEE SHALL HAVE NO REMEDY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES AGAINST
LESSOR; and
(h) NO DEFECT, DAMAGE OR UNFITNESS OF THE EQUIPMENT FOR ANY PURPOSE SHALL
RELIEVE LESSEE OF THE OBLIGATION TO PAY RENT OR RELIEVE LESSEE OF ANY OTHER
OBLIGATION UNDER THIS LEASE AGREEMENT. The parties have specifically
negotiated and agreed to the foregoing paragraph.
LESSEE ALSO UNDERSTANDS AND ACKNOWLEDGES THAT NO BROKER OR SUPPLIER, NOT ANY
SALESMAN, BROKER, OR AGENT OF ANY BROKER OR SUPPLIER, IS AN AGENT OF LESSOR. NO
BROKER OR SUPPLIER, NOR ANY SALESMAN, BROKER OR AGENT OF ANY BROKER OR SUPPLIER
IS AUTHORIZED TO WAIVE OR ALTER ANY TERM OR CONDITION OF THIS LEASE AGREEMENT,
AND NO REPRESENTATION AS TO THE EQUIPMENT OR ANY OTHER MATTER BY THE BROKER OR
SUPPLIER, NOR ANY SALESMAN, BROKER OR AGENT OF ANY BROKER OR SUPPLIER, SHALL IN
ANY WAY AFFECT CUSTOMER'S DUTY TO PAY THE RENTALS AND TO PERFORM CUSTOMER'S
OBLIGATIONS SET FORTH IN THIS LEASE AGREEMENT.
4. ASSIGNMENT BY LESSEE PROHIBITED. WITHOUT LESSOR'S PRIOR WRITTEN CONSENT,
LESSEE SHALL NOT ASSIGN THIS LEASE AGREEMENT OR SUBLEASE THE EQUIPMENT OR ANY
INTEREST THEREIN, OR PLEDGE OR TRANSFER THIS LEASE AGREEMENT, OR OTHERWISE
DISPOSE OF THE EQUIPMENT COVERED HEREBY. PROVIDED, HOWEVER, THAT LESSEE SHALL
HAVE THE RIGHT TO ASSIGN ITS RIGHTS, DUTIES AND OBLIGATIONS HEREUNDER, WITHOUT
LESSOR'S CONSENT: (i) IN CONNECTION WITH AND IN CONTEMPLATION OF A
REORGANIZATION, MERGER, CONSOLIDATION OR SALE OF ALL OR SUBSTANTIALLY ALL OF THE
CAPITAL STOCK OR ASSETS OF LESSEE (OR ANY OTHER TRANSACTION SUBSTANTIALLY
SIMILAR IN EFFECT) PROVIDED SUCH SUCCESSOR CORPORATION IS OF A CREDIT WORTHINESS
AND FINANCIAL CONDITION REASONABLE UNDER THE CIRCUMSTANCES; OR (ii) TO ANY
AFFILIATE (AS HEREIN AFTER DEFINED) OF LESSEE AS USED HEREIN "AFFILIATE" SHALL
MEAN ANY PERSON, FIRM OR ENTITY WHICH DIRECTLY OR INDIRECTLY, THROUGH ONE OR
MORE INTERMEDIARIES, CONTROLS OR IS CONTROLLED BY, OR IS UNDER COMMON CONTROL
WITH, ANY OTHER PERSON, FIRM OR ENTITY, AND SHALL INCLUDE, WITHOUT LIMITATION,
ANY DIRECT OR INDIRECT SUBSIDIARY OR NOVAMED HOLDINGS INC.
5. EXPENSE OF ENFORCEMENT AND SEVERABILITY. In the event of any legal action
with respect to this Lease Agreement, the prevailing party in any such action
shall be entitled to reasonable attorney fees, together with all costs and
expenses incurred in pursuit thereof. This Lease Agreement is intended to
constitute a valid and enforceable legal instrument and no provision of this
Lease Agreement that may be deemed unenforceable shall in any way invalidate any
other provision or provisions hereof, all of which shall remain in full force
and effect. Only "Counterpart No. 1" hereof shall be deemed an original for
chattel paper purposes.
6. LEASE PAYMENTS. Lessee agrees to pay the total Lease equal to the "Amount
of Each Payment" multiplied by the number of payments specified in "Initial
Term." Payments will be made in advance and periodically as specified in
"Terms" above. Payments shall be made by Lessee at Lessor's address set forth
above, or as otherwise directed by Lessor. Lessee shall not abate, set off,
deduct any amount or reduce any payment for any reason. The first payment shall
be due on the date of acceptance of the Equipment by Lessee, and subsequent
payments shall be due on the same day of each succeeding month throughout the
term of the Lease Agreement. THIS LEASE AGREEMENT IS NOT CANCELABLE OR
TERMINABLE BY LESSEE EXCEPT AS PROVIDED IN PARAGRAPH 8 BELOW. In the event
Lessor shall not receive any payment to be made on behalf of Lessee under this
Lease in accordance with its terms, Lessor shall deliver written notice to
Lessee specifying the nature of such failure.
7. CHOICE OF LAW. This Lease Agreement shall not be effective until signed by
Lessor at its principal office listed above. This Lease Agreement shall be
considered to have been made in the state of Lessor's principal place of
business listed above and shall be interpreted in accordance with the laws and
regulations of the state of Lessor's principal place of business listed above.
Lessee agrees to jurisdiction in the state of Lessor's principal place of
business listed above in any action, suit or proceeding regarding this Lease
Agreement and concedes that it, and each of them, transacted business in the
state of Lessor's principal place of business listed above by entering into this
Lease Agreement. In the event of any legal action with regard to this Lease
Agreement or the Equipment covered hereby, Lessee agrees that venue may be laid
in the County of Lessor's principal place of business.
<PAGE>
8. COMMENCEMENT, EXPIRATION AND RENEWAL. This Lease Agreement shall commence
upon Lessor's acceptance of it and Lessee's execution of a Certificate of
Acceptance provided by Lessor. Lessor shall have no obligation to Lessee under
this Lease Agreement if the Equipment, for whatever reason, is not delivered to
Lessee within 45 days after Lessee signs this Lease Agreement. Lessor shall have
no obligation to Lessee under this Lease Agreement if Lessee fails to execute
and deliver to Lessor a Certificate of Acceptance for the Equipment within 15
days after the Equipment is delivered to Lessee. Unless earlier terminated or
canceled by Lessor, this Lease Agreement shall expire upon the expiration of the
number of months (following Lessee's acceptance of the Equipment) set forth in
"Initial Term". This Lease Agreement shall be automatically continued and
renewed on a yearly basis for successive yearly terms, unless and until
otherwise terminated as hereinafter provided. Lessor or Lessee may terminate
this Agreement at the end of the initial fixed term or at the end of any renewal
period by giving written notice to the Lessor at least sixty (60) days prior to
the end of said initial fixed term or (as applicable) the anniversary date of
the annual automatic renewal period.
9. NO ORAL MODIFICATIONS; NO WAIVER. No provision of this Lease Agreement
shall be modified or rescinded unless in writing signed by a duly authorized
representative of Lessor. Waiver by Lessor of any provision hereof in one
instance shall not constitute a waiver as to any other instance.
10. LIMITED PREARRANGED AMENDMENTS; SPECIFIC POWER OF ATTORNEY. In the event
it is necessary to amend the terms of this Lease Agreement to reflect a change
in one or more of the following conditions: (a) Lessor's actual cost of
procuring the Equipment, or (b) Lessor's actual cost of providing the Equipment
to Lessee, or (c) A change in rental payments as a result of (a) or (b), above,
or (d) Description of the Equipment. Lessee agrees that any such amendment
shall be described in a letter from Lessor to Lessee, and unless 15 days after
the date of such letter Lessee objects in writing to Lessor, this Lease
Agreement shall be deemed amended and such amendments shall be incorporated in
this Lease Agreement herein as if originally set forth. A copy of such amended
lease will be delivered to Lessee promptly. Lessee grants to Lessor a specific
power of attorney for Lessor to use as follows: (1) Lessor may sign and file on
Lessee's behalf any document Lessor deems necessary to perfect or protect
Lessor's interest in the Equipment or pursuant to the Uniform Commercial Code;
and (2) Lessor may sign, endorse or negotiate for Lessor's benefit any
instrument representing proceeds from any policy of insurance covering the
Equipment to the extent that Lessee is in default under this Lease.
11. LOCATION. The Equipment shall be kept at the location specified above or,
if none is specified, at Lessee's address as set forth above and shall not be
moved without Lessor's prior written consent.
12. USE. Lessee shall use the Equipment in a careful manner, shall comply with
all laws relating to its possession, use, or maintenance, and shall not make any
alterations, additions, or improvement to the Equipment without Lessor's prior
written consent. All additions, repairs or improvements made to the Equipment
shall belong to Lessor.
13. OWNERSHIP; PERSONALITY. The Equipment is, and shall remain, the property
of Lessor, and Lessee shall have no right, title, or interest in the Equipment
except as expressly set forth in this Lease Agreement. The Equipment shall
remain personal property even though installed in or attached to real property.
14. SURRENDER. By this Lease, Lessee acquires no ownership rights in the
Equipment, and has no option to purchase same unless stated in Paragraph 24 or
by addendum to this Lease Agreement. Upon the expiration, or earlier
termination or cancellation of this Lease, or in the event of a default under
Paragraph 21, hereof, Lessee, at its expense, shall return the Equipment in good
repair, ordinary wear and tear resulting from property use thereof alone
excepted, by delivering it, packed and ready for shipment, to such place or
carrier in the continental United States as Lessor may specify.
15. LOSS AND DAMAGE. Lessee shall at all times after signing this Lease
Agreement bear the entire risk of loss, theft, damage or destruction of the
Equipment from any cause whatsoever, and no loss, theft, damage or destruction
of the Equipment shall relieve Lessee of the obligation to pay lease or to
comply with any other obligation under this Lease Agreement. In the event of
damage to any part of the Equipment, Lessee shall immediately place the same in
good repair at Lessee's expense. If Lessor determines that any part of the
Equipment is lost, stolen, destroyed, or damaged beyond repair, Lessee shall, at
Lessee's option, do one of the following: (a) Replace the same with like
equipment in good repair, acceptable to Lessor, or (b) Pay Lessor in cash the
following: (i) all amounts due by Lessee to Lessor under this Lease Agreement up
to the date of the loss; (ii) the accelerated balance of the total amounts due
for the remaining term of this Lease Agreement attributable to said item,
discounted to the present value at a discount rate of 5% as of the date of loss;
provided, however, that, if at the time of such loss or damage beyond repair,
Lessee is not in default hereunder, the determination of whether to proceed
under clause (a) or (b) hereof shall be made by Lessor and Lessee jointly. Upon
Lessor's receipt of payment as set forth above, Lessee shall be entitled to
title to the Equipment without any warranties. If insurance proceeds are used
to fully comply with this subparagraph, the balance of any such proceeds shall
go to Lessee to compensate for loss of use of the Equipment for the remaining
term of the Lease Agreement.
16. INSURANCE, LIENS; TAXES. Lessee shall provide and maintain insurance
against loss, theft, damage, or destruction of the Equipment in an amount not
less than the full replacement value of the Equipment, with loss payable to
Lessor subject to Section 15.
<PAGE>
Lessee also shall provide and maintain comprehensive general all-risk liability
insurance including but not limited to product liability coverage, insuring
Lessor and Lessee with severability of interest endorsement, or its equivalent,
against any and all loss or liability for all damages, either to persons or
property or otherwise, which might result from or happen in connection with the
condition, use or operation of the Equipment, with such limits and with an
insurer satisfactory to Lessor. Each policy shall expressly provide that said
insurance as to Lessor and its assigns shall not be invalidated by any act,
omission, or neglect of Lessee and cannot be canceled without 30 days prior
written notice to Lessor. As to each policy Lessee shall furnish to Lessor a
certificate of insurance from the insurer, which certificate shall evidence the
insurance coverage required by this paragraph. Lessor shall have no obligation
to ascertain the existence of or provide any insurance coverage for the
Equipment or for Lessee's benefit. If Lessee fails to provide such insurance,
Lessor will have the right but no obligation after 10 business days' notice to
Lessee, to have such insurance protecting Lessor placed at Lessee's expense.
Such placement will result in an increase in Lessee's periodic payments, such
increase being attributed to costs of such insurance. Lessee shall keep the
Equipment free and clear of all levies, liens and encumbrances. Lessee shall pay
all charges and taxes (local, state, and federal) which may now or hereafter be
imposed upon the ownership, leasing, rental, sale, purchase, possession, or use
of the Equipment, excluding, however, all taxes on or measured by Lessor's net
income. If Lessee fails to pay said charges or taxes, Lessor shall have the
right, but shall not be obligated, to pay such charges or taxes, unless the same
are being disputed by Lessee pursuant to a proceeding commenced in good faith
and which diligently is being pursued and provided reserves with respect thereto
have been placed on the books of Lessee in accordance with GAAP. In that event,
Lessor shall notify Lessee of such payment and Lessee shall repay to Lessor the
cost thereof within 15 days after such notice is mailed to Lessee.
17. INDEMNITY. Lessee shall indemnify Lessor against any claims, actions,
damages, or liabilities including all attorney fees, arising out of or connected
with Equipment, except for any claims, actions, damages or liabilities which are
the result of any action by Lessor or its agents which constitutes gross
negligence or willful or wanton misconduct. Such indemnification shall survive
the expiration, cancellation, or termination of this Lease Agreement. Lessee
waives any immunity Lessee may have under any industrial insurance act, with
regard to indemnification of Lessor.
18. ASSIGNMENT BY LESSOR. Any assignee of Lessor shall have all of the rights
but none of the obligations of Lessor under this Lease Agreement. Lessee shall
recognize and hereby consents to any assignment of this Lease Agreement by
Lessor, and shall not assert against the assignee any defense, counterclaim, or
setoff that Lessee may have against Lessor. Subject to the foregoing, this
Lease Agreement inures to the benefit of and is binding upon the heirs,
devisees, personal representatives, survivors, successors in interest, and
assigns of the parties hereto. Lessor shall promptly notify Lessee of any such
assignment.
19. SERVICE CHARGES; INTEREST. If Lessee shall fail to make any payment
required by this Lease Agreement within 10 days of the due date thereof, Lessee
shall pay to Lessor a service charge of 5% of the amount due; provided, however,
that not more than one such service charge shall be made on any delinquent
payment, regardless of the length of the delinquency. In addition, Lessee shall
pay to Lessor any actual additional expenses incurred by Lessor in collection
efforts, including but not limited to long-distance telephone charges and travel
expenses. Lessee shall pay to Lessor interest on any delinquent payment or
amount due under this Lease Agreement from the due date thereof until paid, at
the lesser of the maximum rate of interest allowed by law or 18% per annum.
20. TIME OF ESSENCE. Time is of the essence of this Lease, and this provision
shall not be implied waived by the acceptance on occasion of late or defective
performance.
21. DEFAULT. Lessee shall be in default if: (a) Lessee shall fail to make any
payment due under the terms of this Lease Agreement for a period of 10 days from
the due date thereof; provided, that Lessee shall have an opportunity to cure
such failure within ten (10) days after written notice from Lessor specifying
such failure, or (b) Lessee shall fail to observe, keep, or perform any
provision of this Lease, and such failure shall continue for a period of 10
days; provided, that Lessee shall have an opportunity to cure such failure
within ten (10) days after written notice from Lessor specifying such failure,
or (c) Lessee has made any misleading or false statement in connection with
application for or performance of this Lease Agreement, or (d) The Equipment or
any part thereof shall be subject to any lien, levy, seizure, assignment,
transfer, bulk transfer, encumbrance, application, attachment, execution,
sublease, or sale without prior written consent of Lessor, or (e) Lessee dies or
ceases to exist, or (f) Lessee defaults on any other agreement it has with
Lessor and Lessor notifies Lessee that such default is a default hereunder, or
(g) Any guarantor of this Lease Agreement defaults on any obligation to Lessor
or any of the above listed events of default occur with respect to any guarantor
or Lessee or any such guarantor files or has filed against it a petition under
the bankruptcy laws.
22. REMEDIES. If Lessee is in default, Lessor, with or without notice to
Lessee, shall have the right to exercise any one or more of the following
remedies, concurrently or separately, and without any election of remedies being
deemed to have been made: (a) Lessor may enter upon Lessee's premises and
without any court order or other process of law may repossess and remove the
Equipment, or render the Equipment unusable without removal, either with or
without notice to Lessee. Lessee hereby waives any trespass or right of action
for damages by reason of such entry, removal or disabling. Any such
repossession shall not constitute a termination of this Lease Agreement unless
Lessor so notifies Lessee in writing; (b) Lessor may require Lessee, at its
expense, to return the Equipment in good repair, ordinary wear and tear
resulting from proper use thereof alone excepted, by delivering it, packed and
ready for shipment to such place or carrier as Lessor may specify; (c) Lessor
may cancel or terminate this Lease Agreement and
<PAGE>
may retain any and all prior payments paid by Lessee; (d) Lessor may declare all
sums due and to become due under this Lease Agreement immediately due and
payable, including as to any or all items of Equipment, without notice or demand
to Lessee; (e) Lessor may release the Equipment, without notice to Lessee, to
any third party, upon such terms and conditions as Lessor alone shall determine,
or may sell the Equipment, without notice to Lessee, at private or public sale,
at which sale Lessor may be the purchaser; (f) Lessor may sue for and recover
from Lessee the sum of all unpaid leases and other payments due under this Lease
Agreement then accrued, all accelerated future payments due under this Lease
Agreement discounted to their present value at a discount rate of 5% as of the
date of default, plus Lessor's estimate at the time this Lease Agreement was
entered into of Lessor's residual interest in the Equipment, reduced to present
value at a discount rate of 5% as of the date of default, less the net proceeds
of disposition, if any, of the Equipment; (g) To pursue any other remedy
available at law, by statute or in equity. No right or remedy herein conferred
upon or reserved to Lessor is exclusive of any other right or remedy herein, or
by law or by equity provided or permitted, but each shall be cumulative of every
other right or remedy given herein or now or hereafter existing by law or equity
or by statute or otherwise, and may be enforced concurrently therewith or from
time to time. No single or partial exercise by Lessor of any right or remedy
hereunder shall preclude any other or further exercise of any other right or
remedy. If Lessor shall exercise any of the remedies set forth in clause (e),
the amount owing by Lessee hereunder shall be reduced by the net proceeds
received by Lessor as a result thereof.
23. MULTIPLE LESSEES. Lessor may, with the consent of any one of the Lessees
hereunder, modify, extend or change any of the terms hereof without consent or
knowledge of the others, without in any way releasing, waiving or impairing any
right granted to Lessor against the others. Lessees are jointly and severally
responsible and liable to Lessor under this Lease Agreement.
24. ADDITIONAL TERMS AND CONDITIONS. Provided it is not in default under
the terms and conditions of the above Lease, Lessee shall * .
/*/ Confidential portions omitted and filed separately with the Commission.
<PAGE>
EXHIBIT D
---------
TERMS AND CONDITIONS OF SOFTWARE LICENSE AND SALE
-------------------------------------------------
1. (a) The goods to be shipped to you will include a copy of computer
software on a microchip (the "Copy"). This software (the "Software") is
protected under copyrights, trade secret rights and other proprietary rights
owned by or licensed to Seller (collectively, the "Seller Rights").
(b) Seller licenses the Copy to Buyer and, to the extent that it has the
right and power to do so, grants buyer the non-exclusive right and license under
the Seller Rights to use the Copy solely for the purpose of using the goods
supplied hereunder to perform phototherapeutic keratectomy, photorefractive
keratectomy, or any other procedures which Seller authorizes Buyer in writing to
use such goods to perform. Notwithstanding any other provision of this
Agreement, as between Seller and Buyer, Seller retains title to and ownership of
the Copy and of all Seller Rights.
(c) Except as expressly provided in Section 1(b), Seller does not grant
Buyer any right or license under the Seller Rights, including without limitation
any right or license to copy, create derivative works based on, distribute, or
publicly display or perform the Software or Copy, except that Seller grants
Buyer a non-exclusive license to create copies of the Software (or parts
thereof) in Random Access Memory to the extent that doing so is a necessary step
in using the Copy for the purposes authorized under paragraph 1(b) (the "RAM
Copy License"). The RAM Copy License may not be assigned, sublicensed or
otherwise transferred without Seller's prior written consent, which will not be
unreasonably withheld provided that such transfer is in connection with a
transfer of the goods acquired under this Agreement to a person or entity whose
use or anticipated use of such goods is reasonably acceptable to Seller.
(d) The term of the rights and licenses granted to Buyer under Sections
1(b) and 1(c) shall commence upon shipment of the goods and shall continue
thereafter in perpetuity, unless terminated as provided in this Section 1(d).
Such licenses and rights shall automatically terminate, without notice, upon any
breach by Buyer of this Agreement or any infringement or misappropriation by
Buyer of any Seller Rights.
2. All sales are subject to the terms and conditions hereof. No modifications
or additions hereto shall be binding on Seller unless consented to in writing
signed by Seller's duly authorized representative.
3. Goods shall be shipped to Buyer "FOB Waltham". Risk of loss and/or damage
to the goods shall pass to Buyer at such time as the goods are shipped to the
ship-to location on page one (1) of the contract ("Risk of Loss Date").
4. All Sales, use, VAT, duties, customs and similar taxes and charges which
the Seller may be required to pay or collect with respect to the goods covered
by this order shall be charged to Buyer, except as otherwise required by law.
5. Shipping, delivery and installation dates are approximate and are based
upon prompt receipt of all necessary information. If any shipment, delivery, or
installation hereunder shall be delayed through any act or neglect of the
carrier or any other person, including sub-contractors and suppliers, or by any
other labor difficulties, shortages of or inability to obtain shipping space or
transportation, fire, accident, government seizure or requisition, force
majeure, or by reason of any other cause whatsoever, whether domestic or
foreign, whether direct or indirect beyond the reasonable control of Seller.
Seller shall not be responsible therefor, and shipment, delivery, or
installation may be postponed or cancelled by Seller at its option without
liability hereunder.
<PAGE>
6. In the event of a breach by Seller of any of the terms, provisions, or
warranties under this agreement, or a violation of any representation hereunder,
Seller's sole and exclusive liability and Buyer's sole and exclusive remedy
shall be limited to either (a) repair or replacement of any goods which are the
subject of any such breach, default or violation or (b) refund of the purchase
price of such goods, at Seller's option. Any claims shall be subject to the
provisions of Paragraph 5 above, and IN NO EVENT SHALL SELLER BE LIABLE FOR LOST
PROFIT, INJURY TO GOOD WILL OR ANY OTHER SPECIAL, INCIDENTAL OR CONSEQUENTIAL
DAMAGES.
7. This contract and any dispute arising thereunder, unless otherwise
stipulated or agreed to in writing, shall be construed according to and governed
by the laws of the Commonwealth of Massachusetts, USA without regard to the U.N.
Convention on Contracts for International Sales of Goods which otherwise might
form a part of such laws. THE PARTIES CONSENT TO THE SOLE JURISDICTION OF THE
COURTS OF THE COMMONWEALTH OF MASSACHUSETTS FOR THE RESOLUTION OF ALL DISPUTES.
8. If any item or condition or part thereof contained is held invalid, the
remaining terms and conditions of this contract shall not be affected thereby.
9. No claim or right arising out of a breach of this contract can be
discharged in whole or in part by a waiver or renunication of the claim or right
unless the waiver or renunication is in writing signed by the aggrieved party.
10. Any deposits and/or down payments made or paid hereunder are non-
refundable.
<PAGE>
TERMS AND CONDITIONS OF SOFTWARE LICENSE AND SALE (DOMESTIC)
------------------------------------------------------------
1. Satisfaction by Buyer of the requirements set forth in the attached "How to
Place an Order" shall constitute Buyer's commitment to purchase the goods
indicated on the front and license the Software (defined below) on the terms and
conditions specified herein. Seller reserves the right to reject all orders
prior to shipment in its sole discretion.
2. (a) The goods to be shipped to you will include a copy of computer
software on a microchip (the "Copy"). This software (the "Software") is
protected under copyrights, trade secret rights and other proprietary rights
owned by or licensed to Seller (collectively, the "Seller Rights").
(b) Seller licenses the Copy to Buyer and, to the extent that it has the
right and power to do so, grants buyer the non-exclusive right and license under
the Seller Rights to use the Copy solely for the purpose of using the goods
supplied hereunder to perform phototherapeutic keratectomy, photorefractive
keratectomy, or any other procedures which Seller authorizes Buyer in writing to
use such goods to perform. Notwithstanding any other provision of this
Agreement, as between Seller and Buyer, Seller retains title to and ownership of
the Copy and of all Seller Rights.
(c) Except as expressly provided in Section 20(b), Seller does not grant
Buyer any right or license under the Seller Rights, including without limitation
any right or license to copy, create derivative works based on, distribute, or
publicly display or perform the Software or Copy, except that Seller grants
Buyer a non-exclusive license to create copies of the Software (or parts
thereof0 in Random Access Memory to the extent that doing so is a necessary step
in using the Copy for the purposes authorized under paragraph 2(b) (the "RAM
Copy License"). The RAM Copy License may not be assigned, sublicensed or
otherwise transferred without Seller's prior written consent, which will not be
unreasonably withheld provided that such transfer is in connection with a
transfer of the goods acquired under this Agreement to a person or entity whose
use or anticipated use of such goods is reasonably acceptable to Seller.
(d) The term of the rights and licenses granted to Buyer under Sections
2(b) and 2(c) shall commence upon shipment of the goods and shall continue
hereafter in perpetuity, unless terminated as provided in this Section 2(d).
Such licenses and rights shall automatically terminate, without notice, upon any
breach by Buyer of this Agreement or any infringement or misappropriation by
Buyer of any Seller Rights.
3. Unless Buyer notifies Seller to the contrary in writing prior to shipment,
the goods shall be shipped by Seller to Buyer at the address set forth on the
front hereof.
4. All sales are subject to the terms and conditions hereof. No modifications
or additions hereto shall be binding on Seller unless consented to in writing
signed by Seller' duly authorized representative.
5. SELLER RESERVES THE RIGHT TO REJECT ALL ORDERS PRIOR TO SHIPMENT IN ITS
SOLE DISCRETION, EXCEPT AS SET FORTH IN THE ATTACHED "STATEMENT OF LIMITED
WARRANTIES," ALL WARRANTIES OF ANY NATURE, EXPRESS OR IMPLIED, INCLUDING ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, ARE EXCLUDED
AND DISCLAIMED.
6. To secure payment, title to the goods to be sold hereunder shall pass to
Buyer at such time as all amounts due to Seller hereunder are paid in full by
Buyer.
<PAGE>
7. Goods shall be shipper to Buyer "FOB Destination". Risk of loss and/or
damage to the goods shall pass to Buyer at such time as the goods are delivered
to the ship-to location on page one (1) of the contract ("Risk of Loss Date").
8. All Sales use, VAT, duties, customs and similar taxes and charges which the
Seller may be required to pay or collect with respect to the goods covered by
this order shall be charged to the Buyer, except as otherwise required by law.
9. Shipping, delivery and installation dates are approximate and are based
upon prompt receipt of all necessary information. If any shipment, delivery or
installation hereunder shall be delayed through any act or neglect of the
carrier or any other person, including sub-contractors and suppliers, or by any
other labor difficulties, shortages of or inability to obtain shipping space or
transportation, fire, accident, government seizure or requisition, force
majeure, or by reason of any other cause whatsoever, whether domestic or
foreign, whether direct or indirect beyond the reasonable control of Seller,
Seller shall not be responsible therefor, and shipment, delivery or installation
may be postponed or canceled by Seller at its option without liability
hereunder.
10. All claims of the Buyer arising under this contract shall be in writing and
notification thereof shall be delivered to the Seller no later than seven (7)
days after delivery to Buyer of the goods in question. Seller's representatives
shall be given the opportunity to investigate such claims. If the Buyer fails
to comply with the provisions of this paragraph, Buyer shall be deemed to have
approval and accepted the goods shipped or delivered under this contract. If
any goods delivered to Buyer are not in accordance with contract specifications,
Seller shall have the right, in its discretion, either to replace such non-
conforming goods or to refund the purchase price application thereto. No goods
shall be returned to Seller without Seller's written consent. No suit or legal
proceeding arising under this contract shall in any event be maintainable
against Seller unless commenced or made against Seller within one (1) year after
the expiration of the applicable warranty period and the lapse of such period
shall be complete bar to any recovery in any such suit or proceeding.
11. In the event of a breach by Seller of any of the terms, provisions, or
warranties under this agreement, or a violation of any representation hereunder,
Seller's sole and exclusive liability and Buyer's sole and exclusive remedy
shall be limited to either (a) repair ro replacement of any goods which are the
subject of any such breach, default or violation or (b) refund of the purchase
price of such goods, at Seller's option. Any claims shall be subject to the
provisions of Paragraph 9 above, and IN NO EVENT SHALL SELLER BE LIABLE FOR LOST
PROFIT, INJURY TO GOOD WILL OR ANY OTHER SPECIAL INCIDENTAL OR CONSEQUENTIAL
DAMAGES.
12. If Buyer becomes insolvent or proceedings are instituted to declare Buyer
bankrupt, or a receiver is appointed Buyer in any court, Seller may, at its
option, terminate this contract, and upon such termination by Seller, any or all
claims or demands against Buyer held by Seller shall immediately become due and
payable. The Buyer represents to the Seller that he is financially solvent as of
the date of signing this Contract of Sale.
13. This contract and any dispute arising thereunder, unless otherwise
stipulated or agreed to in writing, shall be construed according to and governed
by the laws of the Commonwealth of Massachusetts, USA without regard to the U.N.
Convention on Contracts for International Sales of Goods which otherwise might
form a part of such laws. THE PARTIES CONSENT TO THE SOLE JURISDICTION OF THE
COURTS OF THE COMMONWEALTH OF MASSACHUSETTS FOR THE RESOLUTION OF ALL DISPUTES.
14. If any item or condition or part thereof contained is held invalid, the
remaining terms and conditions of this contract shall not be affected thereby.
15. This writing is intended by the parties as a final expression of their
agreement and is intended also as a complete and exclusive statement of the
terms of their agreement. No course of prior dealings between the parties
<PAGE>
and no usage of the trade shall be relevant to supplement or explain any term
used in this contract. Whenever a term defined by the Uniform Commercial Code is
used in this contract the definition contained in the Code is to control, except
that the term "ex works" shall have the meaning ascribed to by the International
Chamber of Commerce as an incoterm.
16. No claim or right arising out of a breach of this contract can be
discharged in whole or in part y a waiver or renunciation of the claim or right
unless the waiver or renunciation is in writing signed by the aggrieved party.
17. Any deposits and/or down payments made or paid hereunder are non-
refundable.
18. Buyer hereby grants Seller a security interest in the goods and in the
proceeds and products thereof, to the fullest extent a security interest therein
is available under applicable law. Said security interest shall remain in
effect until the goods have been paid in full. Buyer agrees to sign such
separate security agreements, financing statements, or other documents which
(s)he may deem necessary to protect Seller's security interest or ownership from
the claims of third parties.
<PAGE>
EXHIBIT E
---------
Summit Number: F440
Technology FORM/DATA SHEET Rev. B ECO#3410
Title: OMNICARD RETREATMENT CREDIT REQUEST Page 1 of 2
Summit Technology, Inc.
Retreatment Policy
1. For the purposes hereof, the term "Retreatment" shall mean the performance
of a refractive procedure with a licensed Summit excimer laser system on
the same human eye by reason of the ineffectiveness in whole or in part of
the initial refractive procedure performed on that eye with the same
licensed Summit excimer laser system; provided that the retreatment so
performed after the initial procedure is within two (2) years from the date
of the initial procedure and by the same practitioner who performed the
initial procedure.
2. Each Licensee under a Summit Laser Patent License shall be entitled to
obtain a credit under its Summit Patent License for any bona fide
Retreatment upon submitting to Summit a written application in the form
provided by Summit for this purpose from time to time, accompanied by
documentation in form and substance satisfactory to Summit evidencing that
the refractive procedure with respect to which such credit is applied for
is in fact a bona fide Retreatment.
3. Summit reserves the right to reject any application for a credit hereunder
for any reason and to amend this policy in any and all respects.
4. Each Licensee shall keep such records of all Retreatments and in such
detail as may be as required from time to time by Summit.
<PAGE>
Summit Number: F440
Technology FORM/DATA SHEET Rev. B ECO#3410
Title: OMNICARD RETREATMENT CREDIT REQUEST Page 2 of 2
APPLICATION FOR RETREATMENT CENTER
Instructions: Please complete this form, sign it and fax or mail it to:
Summit Technology, Inc., Omnicard Department, 21 Hickory Drive, Waltham, MA
02154, Fax No. (781) 672-0328.
1. Patient name and/or I.D. number:
-----------------------------------------
2. Original refractive procedure treatment date:
----------------------------
3. Original attempted correction: diopters
-----------------------------------------
CYL: SPH:
--------------------------------------------
4. Retreatment date:
--------------------------------------------------------
5. Reason for Retreatment:
--------------------------------------------------
6. Attempted correction for Retreatment diopters
-------------------------------------
CYL: SPH:
--------------------------------------------
The undersigned confirm that (a) the information set forth above is true
and correct, and (b) they will, if requested, cooperate with Summit in verifying
the foregoing information by making available to Summit relevant records and
patient files.
LICENSEE
- --------------------------------
Signature and print name
TREATING PHYSICIAN CONTACT NAME
- -------------------------------- ---------------------------------
Signature and print name
PHONE NUMBER
Date:--------------------------- ---------------------------------
Laser Serial Number: Omnicard # Used for
----------- Retreatment:
--------------------
<PAGE>
EXHIBIT 10.9
AMENDED AND RESTATED
MANAGEMENT SERVICES AGREEMENT
BY AND BETWEEN
NOVAMED EYECARE MANAGEMENT, LLC,
a Delaware limited liability company
AND
AMERICAN EYE INSTITUTE, P.C.,
an Indiana professional corporation
AMENDED AND RESTATED
EFFECTIVE as of SEPTEMBER 24, 1998
<PAGE>
AMENDED AND RESTATED
MANAGEMENT SERVICES AGREEMENT
THIS AMENDED AND RESTATED MANAGEMENT SERVICES AGREEMENT is made and entered
into effective as of September 24, 1998 (the "Effective Date"), by and between
NovaMed Eyecare Management, LLC, a Delaware limited liability company ("Business
Manager"), and American Eye Institute, P.C., an Indiana professional corporation
("Practice"), and amends, restates and replaces in its entirety that certain
Management Services agreement previously made and entered into effective as of
May 1, 1997 (the "Original Date"), by and between Business Manager and Practice.
RECITALS
This Management Services Agreement is made with reference to the following
facts:
A. Practice is a validly existing Indiana professional corporation, formed
for and engaged in the conduct of a medical practice and the provision of
medical services to the general public in and around the Louisville metropolitan
area through individual physicians who are licensed to practice medicine in the
State of Indiana and who are employed or otherwise retained by Practice.
B. Business Manager is a validly existing Delaware limited liability
company which is in the business of providing physician practice management
services to medical practices.
C. Business Manager and Practice have entered into a Management Services
Agreement dated as of May 1, 1997, as amended by an Amendment to Management
Services Agreement dated August 6, 1997 ("Original Management Services
Agreement").
D. Practice desires to expand its scope of services by providing certain
optometric services and engaging in the business of selling prescription and
non-prescription eyewear, contact lenses and other related optical products
(hereinafter collectively defined as the "Non-Ophthalmic Business").
E. Each of Practice and Business Manager have acquired certain assets
relating to the Non-Ophthalmic Business, with Business Manager acquiring such
assets for purposes of providing to Practice the management services set forth
herein.
F. Practice desires to focus its energies, expertise and time on the
practice of medicine and on the delivery of medical services to patients, and
desires to delegate the business functions of its medical practice and Non-
Ophthalmic Business to persons with business expertise.
G. Practice desires to engage Business Manager to provide all management,
administrative and business services as are necessary or appropriate for the
day-to-day administration of the nonmedical aspects of Practice's medical
practice and Non-Ophthalmic
<PAGE>
Business, including the provision of all non-medical assets necessary or
appropriate for the operator of Practice's medical practice and Non-Ophthalmic
Business, and Business Manager desires to provide such services upon the terms
and conditions hereinafter set forth.
H. Practice and Business Manager have determined a fair market value for
the services to be rendered by Business Manager and, based on this fair market
value, have developed a formula for compensating Business Manager that will
allow the parties to establish a relationship permitting each party to devote
its skills and expertise to the appropriate responsibilities and functions.
I. Business Manager is willing to commit significant resources to Practice
based upon the representation and warranty of Practice that the current
shareholders of Practice will continue to practice medicine for Practice in the
Practice Territory (as hereinafter defined) during the term of this Management
Services Agreement pursuant to employment agreements between Practice and each
Physician-Shareholder (the "Employment Agreements").
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
When used in this Management Services Agreement, the following terms shall
have the meanings set forth below.
1.1 Adjustments. The term "Adjustments" shall mean any adjustments on
-----------
an accrual basis in accordance with GAAP for uncollectible accounts, Medicare,
Medicaid and other payor contractual adjustments, discounts, worker's
compensation adjustments, professional courtesies and other reductions in
collectible revenue.
1.2 Affiliate. The term "Affiliate" shall mean any person, firm or
---------
entity which directly or indirectly, through one or more intermediaries,
controls or is controlled by, or is under common control with, any other person
(including members of such person's family), firm or entity.
1.3 Ancillary Revenue. The term "Ancillary Revenue" shall mean all
-----------------
other revenue of Practice, Physicians and Optometrists actually recorded each
month (net of Adjustments) which is not Professional Services Revenue or Non-
Ophthalmic Business Revenue and shall include, without limitation, any revenues
of Practice or its Physicians and Optometrists which are derived from
professionally related activities such as expert witness fees, and any
royalties, honoraria or the like from authored documents or speeches.
2
<PAGE>
1.4 Budget. The term "Budget" shall mean an operating budget and
------
capital expenditure budget for each fiscal year for each of the Non-Ophthalmic
Business and the Principal Services, as prepared by Business Manager and adopted
by Practice in accordance with Section 4.10 hereof. Each such Budget shall be
attached hereto and incorporated herein as Exhibit 1.4. Each succeeding Budget
subsequently adopted pursuant to Section 4.10 hereof shall also be incorporated
herein.
1.5 Business Manager. The term "Business Manager" shall mean NovaMed
----------------
Eyecare Management, LLC, a Delaware limited liability company, or any successor
in interest.
1.6 Business Manager Consent. The term "Business Manager Consent" shall
------------------------
mean the consent granted by any of Business Manager's representatives to the
Policy Board. When any provision of this Management Services Agreement requires
Business Manager Consent, such consent shall not be unreasonably withheld or
delayed and shall be binding on Business Manager.
1.7 Business Manager Expense. The term "Business Manager Expense" shall
------------------------
mean any expense or cost incurred by Business Manager which does not relate
directly to the provision of services to Practice. Such expenses or costs shall
include, without limitation:
(a) all salaries, benefits and other direct costs (including payroll
and other withholding taxes) of executive officers and management personnel
of Business Manager or employees of Business Manager who devote
substantially all of their time and effort to the operations of Business
Manager in the aggregate rather than the operations of any particular
practice affiliated with Business Manager;
(b) the expense of using, leasing, maintaining or repairing the
offices of Business Manager;
(c) the cost of capital to finance the general business obligations of
Business Manager, and any costs associated with raising such capital; and
(d) the costs of any consultants or advisors who provide services for
Business Manager in connection with its business operations, such as
accounting, financial and legal services, other than those services which
constitute Office Expense pursuant to Section 1.34 hereof.
1.8 Capitation/Case Rate Revenues. The term "Capitation/Case Rate
-----------------------------
Revenues" shall mean all revenues from managed care organizations, third party
payors or employers in which payments are based on a per member, case rate or
other similar basis (i.e., all payments which are not based on a fee-for-service
payment methodology or discounted fee-for-service reimbursement methodology) for
the medical needs of a subscribing patient. Capitation/Case Rate revenues shall
include any associated plan payments received such as patient co-payments,
incentive bonuses or incentive fund penalties. All Capitation/Case Rate
Revenues shall be allocated in good faith on an actuarial basis as follows:
3
<PAGE>
(a) Non-Ophthalmic Business Capitation. The portion, if any, of
----------------------------------
payments designated for Non-Ophthalmic Business goods or services sold by
Practice; Non-Ophthalmic Business Capitation shall be Non-Ophthalmic
Business Revenue;
(b) Professional Services Capitation . The portion of payments
--------------------------------
designated for physician services currently performed by Practice;
Professional Services Capitation shall be Professional Services Revenues;
and
(c) Subcontractor Capitation Revenues. The portion of payments
---------------------------------
designated for physicians, optometrists or other medical or optometric
services that will be Subcontractor Costs (e.g., reinsurance,
hospitalization, surgical facility fees, etc.), including incentive bonuses
or penalties, and an estimate for incurred but not reported claims;
Subcontractor Capitation Revenues shall not be Professional Services
Revenues.
Subject to the approval of the Policy Board, Business Manager shall develop and
implement an appropriate allocation methodology for each Capitation/Case Rate
Revenues and subject to reasonable and consistent allocations standards.
1.9 Confidential Information. The term "Confidential Information" shall
------------------------
mean any and all financial, technical, commercial or other information of
Business Manager or Practice, as appropriate (whether written or oral),
including, without limitation, all information, notes, studies, patient lists
and records, reports, analyses, financial statements, compilations, studies,
forms, business or management methods, marketing data, fee schedules, peer
review information, credentialing information, quality assurance and utilization
review information, interpretations, information technology systems and
programs, projections, forecasts or trade secrets of Business Manager or of
Practice, as applicable, whether or not such Confidential Information is
disclosed or otherwise made available to one party by the other party pursuant
to this Management Services Agreement. Confidential Information shall also
include the terms and provisions of this Management Services Agreement and any
transactions consummated or documents executed by the parties pursuant to this
Management Services Agreement. Confidential Information does not include any
information that (i) is or becomes generally available to and known by the
public (other than as a result of an unpermitted disclosure directly or
indirectly by the receiving party or its affiliates, advisors or
Representatives); (ii) is or becomes available to the receiving party on a
nonconfidential basis from a source other than the furnishing party or its
affiliates, advisors or Representatives, provided that such source is not and
was not bound by a confidentiality agreement with or other obligation of secrecy
to the furnishing party of which the receiving party has knowledge at the time
of such disclosure; or (iii) has already been developed, or is hereafter
independently acquired or developed, by the receiving party without violating
any confidentiality agreement with or other obligation of secrecy to the
furnishing party.
1.10 Contribution and Exchange Agreement. The term "Contribution and
-----------------------------------
Exchange Agreement" shall mean that certain Asset Contribution and Exchange
Agreement of even date herewith by and among Business Manager, Practice and
Physician-Shareholder.
4
<PAGE>
1.11 Depository Account. The term "Depository Account" shall mean the
------------------
bank account referred to in Section 4.8 hereof.
1.12 Designated Allied Health Professionals. The term "Designated
--------------------------------------
Allied Health Professionals" shall mean those medical professionals other than
Physicians and Optometrists whose services must be rendered "incident to" a
Physician's services in order to be billable under the Medicare program.
1.13 Dispensary Business. The term "Dispensary Business" shall mean the
-------------------
business of selling prescription and non-prescription eyewear, contact lenses
and other related optical products.
1.14 GAAP. The term "GAAP" shall mean generally accepted accounting
----
principles set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants,
statements and pronouncements of the Financial Accounting Standards Board, or
other statements, practices and procedures as may be approved by a significant
segment of the accounting profession, which are applicable to the circumstances
as of the date of the determination.
1.15 Managed Care Contract. The term "Managed Care Contract" shall
---------------------
include any Capitation/Case Rate Revenues contract, or any contracts based on a
fee-for-service payment methodology or discounted fee-for-service reimbursement
methodology and other agreements with third party payors, alternative delivery
systems or other purchasers of group health care services.
1.16 Management Fee. The term "Management Fee" shall mean the amount
--------------
determined pursuant to Section 6.1 hereof.
1.17 Management Services. The term "Management Services" shall mean the
-------------------
business, administrative and management services to be provided for Practice
including, without limitation, the provision of equipment, supplies, support
services, nonphysician personnel, office space, management, administration,
financial recordkeeping and reporting, information systems and all other
business office services necessary for the nonmedical operations of Practice.
1.18 Management Services Agreement. The term "Management Services
-----------------------------
Agreement" shall mean this Amended and Restated Management Services Agreement by
and between Practice and Business Manager and any amendments hereto, which
amends, restates and replaces in its entirety the Original Management Services
Agreement.
1.19 Medical Advisory Board. The term "Medical Advisory Board" shall
----------------------
have the meaning set forth in Section 5.9 hereof.
1.20 Medical Services. The term "Medical Services" shall mean ophthalmic
----------------
and optometric services as provided by Practice through Physicians or
Optometrists, as the case may be, but any such services by Optometrists shall be
limited to those services performed at the
5
<PAGE>
locations listed on Schedule 1.20 (all optometric services performed by
-------------
Optometrists at any other location of Practice shall be deemed part of the
Optometric Business (as hereinafter defined).
1.21 Monthly Office Expense. The term "Monthly Office Expense" shall
----------------------
have the meaning set forth in Section 6.1 hereof.
1.22 Monthly Practice Expense. The term "Monthly Practice Expense" shall
------------------------
have the meaning set forth in Section 6.1 hereof.
1.23 Non-Ophthalmic Business. The term "Non-Ophthalmic Business" shall
-----------------------
mean the Optometric Business and Dispensary Business, collectively.
1.24 Non-Ophthalmic Business Budgeted Office Expense. The term
-----------------------------------------------
"Non-Ophthalmic Business Budgeted Office Expense" shall have the meaning set
forth in Section 6.1 hereof.
1.25 Non-Ophthalmic Business Budgeted Practice Expense. The term
-------------------------------------------------
"Non-Ophthalmic Business Budgeted Practice Expense" shall have the meaning set
forth in Section 6.1 hereof.
1.26 Non-Ophthalmic Business Budgeted Revenue. The term "Non-Ophthalmic
----------------------------------------
Business Budgeted Revenue" shall have the meaning set forth in Section 6.1
hereof.
1.27 Non-Ophthalmic Business Management Fee. The term "Non-Ophthalmic
--------------------------------------
Business Management Fee" shall have the meaning set forth in Section 6.1 hereof.
1.28 Non-Ophthalmic Business Monthly Fee. The term "Non-Ophthalmic
------------------------------------
Business Monthly Fee" shall have the meaning set forth in Section 6.1 hereof.
1.29 Non-Ophthalmic Business Monthly Office Expense. The term
----------------------------------------------
"Non-Ophthalmic Business Monthly Office Expense" shall have the meaning set
forth in Section 6.1 hereof.
1.30 Non-Ophthalmic Business Monthly Practice Expense. The term
------------------------------------------------
"Non-Ophthalmic Business Monthly Practice Expense" shall have the meaning set
forth in Section 6.1 hereof.
1.31 Non-Ophthalmic Business Office Expense. The term "Non-Ophthalmic
--------------------------------------
Business Monthly Office Expense" shall have the meaning set forth in Section 6.1
hereof.
1.32 Non-Ophthalmic Business Revenue. The term "Non-Ophthalmic
-------------------------------
Business Revenue" shall mean all revenues of the Non-Ophthalmic Business of the
Practice recorded on an accrual basis under GAAP (net of Adjustments).
6
<PAGE>
1.33 Office. The term "Office" shall mean any office space, clinic,
------
facility or satellite facilities that Business Manager owns, leases or otherwise
procures for the exclusive use of Practice.
1.34 Office Expense. The term "Office Expense" shall mean all expenses
--------------
incurred by Business Manager or Practice in the provision of services to
Practice. Except as specifically enumerated below, Office Expense shall not
include any state or federal income tax liability of Practice or Physician-
Shareholders, or any other expense that is a Practice Expense or a Business
Manager Expense. Without limitation, Office Expense shall include:
(a) the salaries, benefits and other direct costs (including payroll
taxes) of all employees of Business Manager who are either located at,
devote substantially all of their time and effort to, or upon Practice
Consent or as set forth in the Budget, for which time is allocated
specifically for a function to support, Practice;
(b) the salaries, benefits and other direct costs (including payroll
and other withholding taxes) of all Physician-Employees and Optometrists,
but excluding the salaries, benefits and other direct costs (including
payroll and other withholding taxes) of all Physician-Shareholders;
provided, however, that in the event any Physician-Shareholder shall fail,
for any reason, to work full time in the performance of his or her duties
as described in such Physician-Shareholder's Employment Agreement for a
period exceeding two (2) consecutive months, whether or not such failure
(i) gives rise to termination rights pursuant to such Employment Agreement
or (ii) occurs prior to or after the termination of the Initial Term (as
such term is defined in Section 4.1 of such Employment Agreement), then the
expenses described in this Section 1.34(b) shall thereafter be categorized
as a Practice Expense;
(c) the direct or reasonably allocated costs of providing locum tenens
coverage with respect to any Optometrists and Physician-Employees as may be
necessary pursuant to Section 5.4 hereof, which costs shall include,
without limitation, the salaries, benefits and other direct costs of any
Optometrists and Physician-Employees retained by Practice for such
purposes;
(d) upon Practice Consent or as set forth in the Budget, the direct or
reasonably allocated costs of any employee or consultant that provides
services at the direction of Business Manager for improved performance of
Practice, such as management, billings and collections, business office
consultation, training, and accounting and legal services;
(e) reasonable recruitment costs and out-of-pocket expenses of
Business Manager or Practice associated with the recruitment of additional
Physician-Employees and Optometrists of Practice;
7
<PAGE>
(f) all reasonable and customary business insurance expenses of
Practice, Physicians, Optometrists, Designated Allied Health Professionals
and the Office, including, without limitation, professional and general
liability insurance;
(g) without duplication of expenses included pursuant to any other
subparagraph of this Section 1.34, the expense of using, leasing,
maintaining, repairing, purchasing or otherwise procuring the Office and
related equipment (including any leasehold improvements), including,
without limitation, any depreciation expense and any and all expenses
relating to the equipment listed on Exhibit 1.34(g) attached hereto and
---------------
incorporated herein, but excluding (i) any Preexisting Obligation Payments
and (ii) any amortization of goodwill and any other intangibles arising out
of the consummation of the transaction contemplated by the Contribution and
Exchange Agreement;
(h) without duplication of expenses included pursuant to any other
subparagraph of this Section 1.34, the cost of capital, whether as actual
interest on indebtedness incurred on behalf of Practice or as reasonable
imputed interest on capital advanced by Business Manager to finance or
refinance obligations of Practice, purchase medical or nonmedical
equipment, renovate the Office, or finance new ventures of Practice, but
excluding any Preexisting Obligation Payments and any cost of capital on
any debt to finance or refinance the purchase of Practice (including the
assets and LLC interests) pursuant to the terms of the Contribution and
Exchange Agreement;
(i) the Management Fee;
(j) upon Practice Consent or as set forth in the Budget, the direct or
reasonably allocated costs relating to sales or marketing activities or
materials, including, without limitation, brochures, pamphlets, displays,
direct mail, promotional materials, patient screening, network directories,
signs, video and audio tapes, equipment, media, development costs and
consulting services;
(k) upon Practice Consent or as set forth in the Budget, the direct or
reasonably allocated costs of obtaining, maintaining and supporting Managed
Care Contracts;
(l) the direct or reasonably allocated costs relating to any third
party service agreements for the general day-to-day operations of Office
and Practice, which services shall include, without limitation,
maintenance, patient transportation, janitorial, answering services,
landscaping, snow removal and uniform rental;
(m) the direct or reasonably allocated travel expenses of Business
Manager employees associated with attending meetings, conferences or
seminars primarily benefiting Practice or any travel to or from Practice;
provided, however, that if such travel expenses relate to individuals other
than Business Manager employees whose salaries are Office Expenses pursuant
to Section 1.34(a) hereof, then such expenses shall be an Office Expense
only upon Practice Consent;
8
<PAGE>
(n) the cost of medical supplies (including, without limitation,
drugs, pharmaceuticals, products, substances or medical devices), office
supplies, inventory (including, without limitation, inventory for the Non-
Ophthalmic Business) and utilities;
(o) direct costs, not to exceed budgeted allowances as set forth in
the Budget, for professional dues, subscriptions, continuing medical
education expenses and travel costs for continuing medical education or
other business travel of Practice employees; and
(p) all direct or reasonably allocated costs relating to the operation
of the Offices, including without limitation, expenses relating to
utilities; and
(q) a licensing and access fee for each Windows terminal to cover
expenses relating to capital equipment and maintenance, system installation
and training, telecommunications and wide area networking, installation and
support of software provided by Business Manager, and support and system
administration; provided, however, that capital equipment and support fees
-------- -------
will be adjusted accordingly to the extent PCs and/or notebooks are
utilized in lieu of Windows terminals; provided further that Business
-------- -------
Manager shall have the discretion to adjust this fee annually provided that
such adjustments are consistently applied by Business Manager on a company-
wide basis.
1.35 Operating Board. The term "Operating Board" shall mean the operating
---------------
board, or board of directors of the managing member, as the case may be, of
Business Manager.
1.36 Optometric Business. The term "Optometric Business" shall be
-------------------
comprised of all professional services performed by, on behalf of, or under the
direction and/or supervision of, all Optometrists employed by Practice,
including, without limitation, any professional fitting fees relating to contact
lenses, and any visual field tests performed by a certified technician employed
by Practice at the location of such Optometrists; provided, however, that
-------- -------
Optometric Business shall not include any services performed by Optometrists at
locations listed on Schedule 1.20 (which services shall be a component of
-------------
Principal Services).
1.37 Optometrist. The term "Optometrist" shall mean each individually
-----------
licensed doctor of optometry who is employed or otherwise retained by or
associated with Practice, each of whom shall meet at all times the
qualifications described in Sections 5.2 and 5.3 hereof.
1.38 Physician. The term "Physician" shall mean each individual
---------
licensed to practice medicine in the State of Indiana who is employed or
otherwise retained by or associated with Practice, each of whom shall meet at
all times the qualifications described in Sections 5.2 and 5.3 hereof.
1.39 Physician Discretionary Expenses. The term "Physician
--------------------------------
Discretionary Expenses" shall mean any expenses or debt obligations of Practice
or Physicians which are not included in the Budget or approved by Business
Manager and shall include, without limitation, the following: accounting,
consulting or legal expenses incurred by Practice without coordinating such
9
<PAGE>
engagement through Business Manager; professional dues, subscriptions,
continuing medical education expenses and travel costs for continuing medical
education in excess of budgeted allowances for such items and any equipment
obtained by Practice without the approval of the Policy Board as set forth in
Section 4.1(d) hereof; and other discretionary business expenses incurred
directly by Physicians or Practice.
1.40 Physician-Employee. The term "Physician-Employee" shall mean any
------------------
Physician employed by Practice, but shall not include Physician-Shareholders.
1.41 Physician-Shareholder. The term "Physician-Shareholder" shall mean
---------------------
any Physician who is employed by, and a shareholder of, Practice.
1.42 Policy Board. The term "Policy Board" shall refer to the body
------------
responsible for developing and implementing management and administrative
policies for the overall operation of the Regional Practices.
1.43 Practice. The term "Practice" is defined in the introductory
--------
paragraph of this Management Services Agreement.
1.44 Practice Consent. The term "Practice Consent" shall mean the
----------------
consent granted by any of Practice's authorized Representatives who is not an
officer or employee of Business Manager. When any provision of this Management
Services Agreement requires Practice Consent, such consent shall not be
unreasonably withheld or delayed and shall be binding on Practice.
1.45 Practice Expense. The term "Practice Expense" shall mean an
----------------
expense incurred by Business Manager or Practice and for which Practice, and not
Business Manager, is financially liable. Practice Expense shall include,
without limitation, such items as Preexisting Obligation Payments, Physician
Discretionary Expenses, salaries, benefits and other direct costs of all
Physician-Shareholders, any costs of providing locum tenens coverage for
Physician-Shareholders pursuant to Section 5.4 hereof, and any other expenses
incurred by Practice or Physicians which are not in the Budget or are in excess
of budgeted allowances if expended by Practice personnel without Business
Manager Consent.
1.46 Practice Territory. The term "Practice Territory" shall mean the
------------------
geographic area within a twelve and one-half (12-1/2) mile radius of any present
and future locations of an Office of Practice.
1.47 Preexisting Obligation Payments. The term "Preexisting Obligation
-------------------------------
Payments" shall mean (i) the expense for principal and interest amortization of
debt obligations of Practice or any Physician-Shareholder relating to the
operation of Practice which existed prior to the execution of this Management
Services Agreement and (ii) lease payments and other costs relating to any
outstanding debt, obligations or liabilities of Practice or any Physician-
Shareholder relating to the operation of Practice which existed prior to the
execution of this Management Services
10
<PAGE>
Agreement, and which include, without limitation, the items set forth on Exhibit
-------
1.45 attached hereto and incorporated herein; excluding, however, the leases
- ----
set forth on Schedule 1.33(g).
----------------
1.48 Principal Services. The term "Principal Services" shall mean all
------------------
services performed by or on behalf of Practice which generate Professional
Services Revenues or Ancillary Revenues.
1.49 Principal Services Budgeted Office Expense. The term "Principal
------------------------------------------
Services Budgeted Office Expense" shall have the meaning set forth in Section
6.1 hereof.
1.50 Principal Services Budgeted Practice Expense. The term "Principal
---------------------------------------------
Services Budgeted Practice Expense" shall have the meaning set forth in Section
6.1 hereof.
1.51 Principal Services Budgeted Revenue. The term "Principal Services
-----------------------------------
Budgeted Revenue" shall have the meaning set forth in Section 6.1 hereof.
1.52 Principal Services Management Fee. The term "Principal Services
----------------------------------
Management Fee" shall have the meaning set forth in Section 6.1 hereof.
1.53 Principal Services Monthly Fee. The term "Principal Services
------------------------------
Monthly Fee" shall have the meaning set forth in Section 6.1 hereof.
1.54 Principal Services Monthly Office Expense. The term "Principal
-----------------------------------------
Services Monthly Office Expense" shall have the meaning set forth in Section 6.1
hereof.
1.55 Principal Services Monthly Practice Expense. The term "Principal
-------------------------------------------
Services Monthly Practice Expense" shall have the meaning set forth in Section
6.1 hereof.
1.56 Principal Services Office Expense. The term "Principal Services
---------------------------------
Office Expense" shall have the meaning set forth in Section 6.1 hereof.
1.57 Principal Services Revenue. The term "Principal Services Revenue"
--------------------------
shall mean the sum of Professional Services Revenue and Ancillary Revenue.
1.58 Professional Services Revenues. The term "Professional Services
------------------------------
Revenues" shall mean the sum of (i) all professional fees actually recorded each
month on an accrual basis under GAAP (net of Adjustments) as a result of Medical
Services and related health care services rendered by Physicians, the
Optometrists to the extent such services are performed at the locations listed
in Schedule 1.20, and Designated Allied Health Professionals, whether rendered
in an outpatient or inpatient setting, as well as customary professional fees
for the fitting of contact lenses by the Physicians or the Optometrists to the
extent such fittings are performed at the locations listed on Schedule 1.20, and
(ii) Professional Services Capitation allocated to Professional Service
Revenues.
11
<PAGE>
1.59 Regional Practices. The term "Regional Practices" is defined in
------------------
Section 3.1(a) hereof.
1.60 Representatives. The term "Representatives" shall mean a party's
----------------
officers, directors, employees, or other agents or representatives.
1.61 Stark Act. The term "Stark Act" shall refer to Section 1877 of the
---------
Social Security Act.
1.62 Subcontractor Costs. The term "Subcontractor Costs" shall mean the
-------------------
amounts payable to third parties for providing goods or medical services for
Capitation/Case Rate Revenues contracts.
1.63 Term. The term "Term" shall mean the initial term and any renewal
----
terms of this Management Services Agreement as described in Section 7.1 hereof.
ARTICLE II
APPOINTMENT AND AUTHORITY OF BUSINESS MANAGER
2.1 Appointment. Practice hereby appoints Business Manager as its sole
-----------
and exclusive agent for the management and administration of the business
functions and business affairs of Practice, including, without limitation, the
Non-Ophthalmic Business of Practice, and Business Manager hereby accepts such
appointment, subject at all times to the terms and conditions of this Management
Services Agreement.
2.2 Authority. Consistent with the provisions of this Management
---------
Services Agreement, Business Manager shall have the responsibility and
commensurate authority to provide Management Services to Practice. Subject to
the terms and conditions of this Management Services Agreement, Practice
expressly authorizes Business Manager to provide the Management Services in any
manner Business Manager reasonably deems appropriate to meet the day-to-day
requirements of the business functions of Practice. In connection with Business
Manager's provision of Management Services, Practice also expressly authorizes
Business Manager to negotiate and execute on behalf of Practice any and all
contracts related to the provision of such Management Services; provided,
however that, subject to Section 4.7 hereof, Business Manager shall have no
authority to negotiate and execute on behalf of Practice contracts that relate
specifically to the provision of Medical Services. The parties acknowledge and
agree that Practice, through its Physicians, shall be responsible for and shall
have complete authority, responsibility, supervision and control over the
provision of all Medical Services and other professional health care services
performed for patients, and that all diagnoses, treatments, procedures and other
professional health care services shall be provided and performed exclusively by
or under the supervision of Physicians in such manner as such Physicians, in
their sole discretion, deem appropriate. Practice, through its Physicians,
shall also be responsible for
12
<PAGE>
establishing the professional fees for the provision of Medical Services.
Business Manager shall have and exercise absolutely no control or supervision
over the provision of Medical Services. Except as provided in Section 4.7
hereof, with respect to any agreement relating specifically to Medical Services,
and subject to the approval of the Policy Board pursuant to Section 3.2(d),
Practice shall give Business Manager and the Policy Board thirty (30) days'
prior notice of Practice's intent to execute any such agreement obligating
Practice to perform Medical Services or otherwise creating a binding legal
obligation on Practice to perform Medical Services.
2.3 Patient Referrals. Business Manager and Practice agree that the
-----------------
benefits afforded either party hereunder are not payment for, and are not in any
way contingent upon the referral, admission or any other arrangement for, the
provision of any item or service offered by Business Manager or Practice.
2.4 Internal Practice Matters. Except as otherwise provided herein and
-------------------------
subject to Section 1.34(b), matters involving the internal governance, control
or finances of Practice, including specifically the allocation of professional
income among Physician-Shareholders, Physician-Employees and Optometrists of
Practice, and tax and investment planning, shall remain the sole responsibility
of Practice, Physician-Shareholders, Physician-Employees and Optometrists.
2.5 Practice of Medicine. The parties acknowledge that Business
--------------------
Manager is not authorized or qualified to engage in any activity that may be
construed or deemed to constitute the practice of medicine. To the extent that
any act or service required to be performed by Business Manager hereunder should
be construed by a court of competent jurisdiction or by the Board of Medical
Examiners of the State of Indiana to constitute the practice of medicine,
Business Manager's requirement to perform that act or service shall be deemed
waived and unenforceable.
ARTICLE III
RESPONSIBILITIES OF THE POLICY BOARD
3.1 Formation and Operation of the Policy Board.
-------------------------------------------
(a) Structure of Policy Board. Practice hereby acknowledges that
-------------------------
it is one of a group of ophthalmology practices located in the Louisville
metropolitan area which is affiliated with Business Manager (Practice and
such other practices shall be collectively referred to herein as "Regional
Practices"). The Regional Practices and Business Manager shall establish a
Policy Board which shall be responsible for overseeing the overall
operations of the nonmedical aspects of each Regional Practice's facilities
and, subject to Section 3.3 hereof, certain medical issues. The Policy
Board shall consist of four (4) members, each of whom shall serve a one-
year term. Business Manager shall designate, in its sole discretion, two
(2) members of the Policy Board, and the Regional Practices shall
collectively designate two (2) members of the Policy Board; provided,
however, that
13
<PAGE>
Practice shall have the sole and exclusive right to appoint one of the two
Regional Practice members during the Term. The Policy Board members
designated by the Regional Practices shall be Physician-Shareholders of a
Regional Practice and one such member shall always be a designee of
Practice. Except as otherwise expressly provided herein, the act of a
majority of the members of the Policy Board shall be the act of the Policy
Board.
(b) Appointment of Members. The initial Policy Board shall consist
----------------------
of the members set forth on Exhibit 3.1 attached hereto and incorporated
-----------
herein. Thereafter, annually and at least thirty (30) days prior to the
commencement of each fiscal year of Business Manager, each of Business
Manager and the Regional Practices shall deliver to the Operating Board of
Business Manager a list of two (2) designees to the Policy Board to serve
as members of the Policy Board for the upcoming fiscal year. In the event
that either Business Manager or the Regional Practices fail to deliver the
list of designees by the required date, then such party's representatives
on the Policy Board shall remain the same for the upcoming fiscal year.
Any vacancies created, whether by death, incapacity or resignation of a
designee, shall be filled by the party which appointed such designee by no
later than fifteen (15) business days after the date of receipt by all of
the Regional Practices of notice from Business Manager that such vacancy
exists and must be filled. If the applicable party shall fail to designate
a replacement member to the Policy Board within the required time period,
then the other party shall have the right to designate the replacement
member and such replacement member shall serve on the Policy Board until
his or her successor is duly appointed pursuant to this Section 3.1(b). In
any case in which the Regional Practices shall be required to designate a
member or members to the Policy Board, a previously appointed designee of
the Regional Practices shall convene a meeting or collect the written votes
of the Representatives of the Regional Practices to select such designee or
designees. Each Regional Practice shall be entitled to one vote per
designee to be appointed and those designees receiving a plurality of the
votes shall serve as the representatives of the Regional Practices on the
Policy Board.
(c) Actions of the Policy Board. The Policy Board meetings shall
---------------------------
be held as mutually agreed, but at least semiannually, in New Albany,
Indiana. Meetings may be called by any two (2) members of the Policy Board
upon notice to Business Manager. Notice of each such meeting, stating the
place, date and hour of the meeting, shall then be delivered by Business
Manager to each member of the Policy Board not less than seventy-two (72)
hours prior to such meeting. Meetings shall be open to any Physician-
Shareholder and any officer, director or employee (as designated by
Business Manager) of Business Manager. Members of the Policy Board may
participate in a meeting by means of conference telephone. Attendance at
any meeting in person or by proxy, or participation in a meeting by means
of conference telephone, shall constitute a waiver of notice thereof. Any
action required to be taken at a meeting of the Policy Board may be taken
without a meeting and without a vote if a consent in writing, setting forth
the action to be taken, is signed by all of the members of the Policy
Board, unless such action is medical in nature, in which case such consent
need be signed only by all of the Physician members of the Policy Board.
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(d) Interim Membership. Notwithstanding the foregoing, until
------------------
Business Manager affiliates with another Regional Practice in the
Louisville metropolitan area, the Policy Board shall be comprised of two
members, one of whom shall be designated by Business Manager and the other
of whom shall be designated by Practice.
3.2 Duties and Responsibilities of the Policy Board. The Policy Board
-----------------------------------------------
shall have the following duties, obligations and authority:
(a) Capital Improvements and Expansion. Subject to the items
----------------------------------
specifically enumerated in the Budget as determined in accordance with
Section 4.10(a) hereof, any renovation and expansion plans, and capital
expenditures in excess of $5,000 with respect to the Office, or the
priority of such capital expenditures, shall be reviewed and approved by
the Policy Board and shall be based upon economic feasibility, physician
support, productivity and then-current market conditions.
(b) Marketing and Advertising. The Policy Board shall explore
-------------------------
potential joint marketing and other advertising of the services performed
at the Regional Practices' facilities.
(c) Collection Policies. As a part of the annual operating budget,
-------------------
in consultation with Practice and Business Manager, the Policy Board shall
review and approve the collection policies for the Non-Ophthalmic Business
of, and for all Medical Services and ancillary services provided by,
Practice.
(d) Provider and Payor Relationships. Subject to Sections 4.7 and
--------------------------------
4.8 hereof, decisions regarding the establishment or maintenance of
relationships with institutional health care providers and third party
payors shall be approved by the Policy Board in consultation with Practice
and Business Manager. The Policy Board shall review and approve such
discounted fee schedules, including capitated fee arrangements, and shall
approve allocations of Capitation/Case Rate Revenues, and shall develop
managed care strategy for the Louisville metropolitan area.
(e) Strategic Planning. In consultation with Business Manager and
------------------
Practice, the Policy Board shall recommend long-term strategic planning
objectives for Practice; provided, however, that the Policy Board shall not
engage in recommending any horizontal market allocations between practices.
(f) Physician and Optometrist Hiring. Subject to the items
--------------------------------
specifically enumerated in the Budget as determined in accordance with
Section 4.10(a) hereof, the Policy Board shall recommend to Practice the
number and type of Physicians and Optometrists required for the efficient
operation of Practice's facilities. Practice shall have the right to
accept or reject any recommendation of the Policy Board on this matter and
Practice shall retain the number and type of Physicians and Optometrists as
it shall deem
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necessary in its sole discretion. The Policy Board shall review and approve
any variations to the restrictive covenants in any Employment Agreement.
(g) Fee Dispute Resolution. Upon written submission by Practice of
----------------------
a dispute concerning Management Fees, the Policy Board shall consider,
develop and attempt to implement a resolution of such dispute, and members
of the Policy Board shall use commercially reasonable efforts to resolve
such dispute within thirty (30) days following its receipt of such written
submission.
(h) Employee Relations. Upon submission by Practice or any
------------------
Physician or Optometrist of a written complaint or concern regarding any
employee of Business Manager performing services for Practice hereunder,
the Policy Board shall consider, develop and attempt to implement a
resolution of such complaint or concern.
(i) Grievance Referrals. The Policy Board shall consider and make
-------------------
recommendations to Practice regarding any disputes pertaining to matters
not specifically addressed in this Management Services Agreement as
referred to it by Practice.
3.3 Medical Decisions. Notwithstanding anything to the contrary
-----------------
contained in Section 3.2 above, all medical decisions addressed by the Policy
Board will be made solely by Physician members of the Policy Board.
ARTICLE IV
COVENANTS AND RESPONSIBILITIES OF BUSINESS MANAGER
During the Term, Business Manager shall provide all Management Services
which are necessary or appropriate for the day-to-day administration of the
nonmedical aspects of Practice's operations (including the Non-Ophthalmic
Business), including, without limitation, those services set forth in this
Article IV in accordance with all laws, rules, regulations and guidelines
applicable to the provision of Management Services.
4.1 Office and Equipment.
--------------------
(a) Subject to Section 4.1(b) hereof, as necessary or appropriate, the
terms and conditions of the applicable Lease, and after taking into
consideration the professional concerns of Practice, Business Manager shall
lease, acquire or otherwise procure an Office in the following locations:
(i) 519 State Street, New Albany, Indiana 47150; 1700 S. Green River Road,
Evansville, Indiana 47715; 735 Main Street, Ferdinand, Indiana 47532; 555
Lincoln Trail Blvd., Radcliff, Kentucky 40160 or (ii) any future location
or locations reasonably acceptable to Practice and shall permit Practice to
use the Office. Any Office procured by Business Manager for use by
Practice shall be procured at commercially reasonable rates.
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(b) In the event Practice is the lessee of the Office under a lease
with an unrelated and nonaffiliated lessor, Practice shall assign such
lease to Business Manager, and, in such event, Business Manager shall
assume Practice's obligations thereunder from and after the date of such
assignment. Practice shall use its best efforts to assist in obtaining the
lessor's consent to the assignment. Upon request, Practice shall execute
any instruments and shall take any acts that Business Manager deems
necessary to accomplish the assignment of the lease. Any expenses incurred
in effectuating the assignment shall be an Office Expense. Moreover,
except as set forth on Schedule 1.45, all lease payments arising under such
-------------
leases relating to an Office shall be Office Expenses irrespective of
whether Business Manager assumes Practice's obligations thereunder or
consent to such assumption is not obtained.
(c) In a reasonably timely manner, Business Manager shall provide all
nonmedical equipment, fixtures, office supplies, furniture and furnishings
reasonably deemed necessary by Business Manager for the operation of the
Office, for the provision of Medical Services and for the operation of the
Non-Ophthalmic Business including all replacements and upgrades thereof at
the discretion of Business Manager. Without limiting the foregoing, with
respect to information systems, Practice acknowledges and agrees that
Business Manager will have the discretion to determine the timing and
extent of the upgrade and/or replacement of Practice's information systems
from time to time during the Term.
(d) Business Manager shall provide or cause to be provided (including
financing arrangements with respect thereto) in a reasonably timely manner
all medical equipment reasonably required by Practice.
(e) Business Manager shall be responsible for all necessary repair and
maintenance of the Office as an Office Expense, consistent with Business
Manager's responsibilities under the terms of any lease or other use
arrangement. Business Manager shall also be responsible for all necessary
repair, maintenance and replacement of all equipment relating to the
Office, except for any such repairs, maintenance and replacement
necessitated by the negligence or willful misconduct of Practice, its
Physicians or other personnel employed by Practice, in which event any such
repair or replacement shall be a Practice Expense and not an Office
Expense.
4.2 Medical Supplies. Business Manager shall order, procure, purchase
----------------
and provide on behalf of, and as agent for, Practice all necessary and
reasonably desirable medical supplies and optical dispensary supplies and
inventory unless otherwise prohibited by federal and/or state law, and shall
appropriately respond to any reasonable inquiries or requests by Practice's
Medical Director and Physicians for the need to order or repair such supplies.
Business Manager shall ensure that the Office is adequately stocked at all times
with medical supplies that are reasonably necessary or appropriate for the
operation of Practice and required for the provision of Medical Services and
optical dispensary supplies and inventory that are reasonably necessary or
appropriate for the operation of the Non-Ophthalmic Business. The ultimate
oversight, supervision and
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ownership of all medical supplies is and shall remain the sole responsibility of
Practice. As used in this Section 4.2, the term "medical supplies" shall mean
all drugs, pharmaceuticals, products, substances, items or devices whose
purchase, possession, maintenance, administration, prescription or security
requires the authorization or order of a licensed health care provider or
requires a permit, registration, certification or other governmental
authorization held by a licensed health care provider as specified under any
federal and/or state law.
4.3 Support Services. Business Manager shall provide or arrange for
----------------
all printing, stationery, telephone, facsimile, office supplies, forms, postage,
duplication or photocopying services, and other support services as are
reasonably necessary or appropriate for the operation of the Office and the
provision of Medical Services and the operation of the Non-Ophthalmic Business
therein.
4.4 Quality Assurance, Risk Management, and Utilization Review.
----------------------------------------------------------
Business Manager shall assist Practice in Practice's establishment and
implementation of procedures to ensure the consistency, quality, appropriateness
and medical necessity of Medical Services provided by Practice, and shall
provide administrative support for Practice's overall quality assurance, risk
management and utilization review programs. Business Manager shall use its
commercially reasonable efforts to perform these tasks in a manner to ensure the
confidentiality of, and the privileged status afforded to, these programs and
procedures to the fullest extent allowable under state and federal law.
4.5 Licenses and Permits. Business Manager shall, on behalf of and in
--------------------
the name of Practice, coordinate all development and planning processes, and
assist in the application for, and use reasonable efforts to assist Practice in
obtaining and maintaining, all federal, state and local licenses, certifications
and regulatory permits required for, or in connection with, the operation of
Practice, the equipment located at the Office, and any ambulatory surgical
treatment center, laboratory and optical dispensary of Business Manager, other
than those relating to the provision of Medical Services or the administration
of drugs by Physicians.
4.6 Personnel. Except as specifically provided in Section 5.2(b)
---------
hereof, Business Manager shall, consistent with the Budget, employ or otherwise
retain and shall be responsible for selecting, hiring, training, supervising and
terminating, all nonphysician personnel as Business Manager reasonably deems
necessary and appropriate for Business Manager's performance of its duties and
obligations under this Management Services Agreement. Business Manager shall,
to the extent practicable, consult with, and solicit the input of, Practice and
Physician-Shareholder in connection with any such employment decisions.
Moreover, Physician-Shareholder shall have the right to accept or reject any
candidate proposed by Business Manager for the role of center administrator of
Practice. Business Manager shall have sole responsibility for determining the
salaries, providing employee benefits, and for withholding any sums for income
tax, unemployment insurance, worker's compensation coverage, social security or
any other withholding required by applicable law or governmental requirement.
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4.7 Contract Negotiations. Business Manager shall advise Practice with
---------------------
respect to seek out and negotiate, either directly or on Practice's behalf, as
appropriate, all contractual arrangements with third parties as are reasonably
necessary and appropriate for Practice's provision of Medical Services and for
Practice's operation of the Non-Ophthalmic Business, including, without
limitation, Managed Care Contracts. Subject to the second to last sentence of
this Section 4.7, Practice hereby constitutes and appoints Business Manager as
Practice's agent for the purpose of negotiating and executing on behalf of
Practice and its Physicians any Managed Care Contract approved by the Policy
Board, as well as any modifications, extensions and renewals of such Managed
Care Contracts. Practice also designates Business Manager as Practice's agent
for the further purpose of giving and receiving notices required or permitted to
be given and received under such Managed Care Contracts. Any notice received by
Business Manager on behalf of Practice shall be transmitted to Practice as soon
as practicable. Business Manager may engage such consultants as Business
Manager deems necessary and appropriate to pursue and negotiate Managed Care
Contracts for Practice, and Practice authorizes Business Manager to negotiate,
for approval by the Policy Board, agreements for Subcontractor Costs.
Notwithstanding the foregoing, upon approval of the Policy Board of any Managed
Care Contract, Business Manager shall deliver a copy of such contract to
Practice for its review and approval. Practice may accept or reject any Managed
Care Contract by delivering written notice to Business Manager within ten (10)
days of its receipt of such contract. Practice's failure to respond within such
ten-day period shall be deemed an acceptance of the Managed Care Contract for
all purposes.
4.8 Billing and Collection. On behalf of and for the account of
----------------------
Practice, Business Manager shall (i) establish and maintain credit, billing and
collection policies and procedures, (ii) timely bill and collect all
professional and other fees for all billable Medical Services provided by
Practice, Physicians or Optometrists and for all goods and services sold or
performed by Practice in connection with the Non-Ophthalmic Business, all for
application solely in accordance with the Budget, and (iii) perform all cash
management services on behalf of Practice which Business Manager shall deem
commercially reasonable. Business Manager shall advise and consult with
Practice regarding the fees for Medical Services and ancillary services provided
by Practice; it being understood, however, that (x) Practice shall establish the
fees to be charged for Medical Services and that Business Manager shall have no
authority whatsoever with respect to the establishment of such fees and (y) no
new ancillary services shall be provided in the Office without Practice Consent.
In connection with the billing, collection and cash management services to be
provided hereunder, and throughout the Term (and thereafter as provided in
Section 7.3 hereof), Practice hereby grants to Business Manager an exclusive
special power of attorney and appoints Business Manager as Practice's exclusive
true and lawful agent and attorney-in-fact, and Business Manager hereby accepts
such special power of attorney and appointment, for the following purposes:
(a) To bill Practice's patients, in Practice's name and on Practice's
behalf, for all billable Medical Services provided or arranged by Practice
to patients and for all goods and services sold by Practice in connection
with the Non-Ophthalmic Business, unless such billing would cause Practice
to be in violation of the Stark Act, any state referral ban or any other
applicable federal, state or local law or regulation;
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(b) To bill, in Practice's name and on Practice's behalf, all claims
for payment, reimbursement or indemnification from Blue Cross/Blue Shield,
insurance companies, Medicare, Medicaid and all other third-party payors or
fiscal intermediaries for all covered billable Medical Services provided or
arranged by Practice to patients and for all goods and services sold by
Practice in connection with the Non-Ophthalmic Business, unless such
billing would cause Practice to be in violation of the Stark Act, any state
referral ban or any other applicable federal, state or local law or
regulation;
(c) Subject to applicable law, and excluding accounts receivable for
Medicare and Medicaid services, to collect and receive, as the agent of
Practice in Business Manager's name and for Business Manager's account, all
accounts receivable of Practice purchased by Business Manager, including,
without limitation, the Purchased Receivables (as defined in Section 6.5
hereof), and to deposit such collections in an account selected by Business
Manager and maintained in Business Manager's name;
(d) Subject to subparagraph (e) below, to collect and receive, in
Practice's name and on Practice's behalf, all accounts receivable generated
by such billings and claims for reimbursement that have not been purchased
by Business Manager, and to administer such accounts at its reasonable
discretion on Practice's behalf, which administration shall include,
without limitation, (i) extending the time of payment of any such accounts
for cash, credit or otherwise; (ii) with Practice Consent, discharging or
releasing the obligors of any such accounts; (iii) with Practice Consent,
suing, assigning or selling at a discount such accounts to collection
agencies; or (iv) with Practice Consent, taking other measures to require
the payment of any such accounts.
(e) To collect all government program accounts receivable after such
amounts have been received and deposited into an account maintained in
Practice's name and over which Practice has sole control (the "Depository
Account"). Once deposited in such accounts, Practice hereby authorizes the
government program accounts receivable to be automatically swept into the
Depository Account.
(f) To deposit all amounts collected into the Depository Account which
shall be in the name of Business Manager, but in which Business Manager
shall account for such funds on a separate and distinct basis from any
other funds deposited into such account by other Regional Practices;
moreover, Practice shall retain all rights in and to such deposited funds
irrespective of their deposit into the Depository Account. The parties
hereto acknowledge and agree that Business Manager is performing cash
management services on behalf of Practice by collecting all such amounts in
the Depository Account and making any distributions, withdrawals and
payments therefrom as required in this Management Services Agreement. The
parties further acknowledge and agree that in performing such services for
Practice, Business Manager is acting as Practice's agent pursuant to the
power of attorney set forth in this Section 4.8, and, except as expressly
provided herein, all rights to such funds shall remain with Practice.
Practice covenants to transfer and deliver to Business Manager for deposit
into Depository Account, or covenants that Practice itself
20
<PAGE>
will make such deposit of, all funds received by Practice from patients or
third party payors for Medical Services provided on or after the Effective
Date and for goods and services sold by Practice in connection with the
Non-Ophthalmic Business after the Effective Date. Upon receipt by Business
Manager of any funds from patients or third party payors or from Practice
pursuant hereto for Medical Services provided on or after the Effective
Date or for goods and services sold by Practice in connection with the Non-
Ophthalmic Business after the Effective Date, Business Manager shall
deposit same into the Depository Account as soon as commercially
practicable. In the manner set forth in Section 4.9 hereof, Business
Manager shall disburse such deposited funds to creditors and other persons
on behalf of Practice, maintaining records of such receipt and disbursement
of funds.
(g) To take possession of, and endorse in the name of Practice, solely
for deposit into the Depository Account, any notes, checks, money orders,
insurance payments and any other instruments received as payment for
Medical Services, ancillary services and for all goods and services sold by
Practice in connection with the Non-Ophthalmic Business.
(h) To sign checks, drafts, bank notes or other instruments on behalf
of Practice, and to make withdrawals from the Depository Account for
payments specified in this Management Services Agreement or as requested
from time to time by Practice.
Throughout the Term (and as provided in Section 7.3 hereof), Practice hereby
grants to Business Manager an exclusive special power of attorney for the
purposes stated herein and appoints Business Manager as Practice's exclusive
true and lawful agent and attorney-in-fact, and Business Manager hereby accepts
such special power of attorney and appointment, to deposit into the Depository
Account as and when received all funds, fees and revenues generated from
Practice's provision of Medical Services and ancillary services on or after the
Effective Date and collected by Business Manager and for all goods and services
sold by Practice in connection with the Non-Ophthalmic Business on or after the
Effective Date and collected by the Business Manager, and to make withdrawals
from Depository Account solely for payments specified in this Management
Services Agreement, including any Preexisting Obligation Payments directly
affecting property used in or relating to the Office, and/or as requested from
time to time by Practice. Upon request of Business Manager, Practice shall
execute and deliver to the financial institution where the Depository Account is
maintained, such additional documents or instruments as may be necessary to
evidence or effect the special and limited power of attorney granted to Business
Manager by Practice pursuant to this Section 4.8. The special and limited power
of attorney granted herein shall be coupled with an interest and shall be
irrevocable during the term hereof, except with Business Manager Consent. The
irrevocable power of attorney shall expire on the later of the termination of
this Management Services Agreement, the collection, sale or release of all
accounts receivable purchased by Business Manager, and the payment of all
Management Fees due to Business Manager as of such date pursuant to Section 6.2
hereof. If Business Manager assigns this Management Services Agreement in
accordance with its terms, then Practice shall execute a power of attorney in
favor of the assignee and in the form of Exhibit 4.8 attached hereto.
-----------
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4.9 Priority of Payments. As of the Effective Date, all revenue of
--------------------
Practice derived from Medical Services and ancillary services provided on and
after the Effective Date and from sales of all goods or services sold by
Practice in connection with the Non-Ophthalmic Business on or after the
Effective Date (collectively, "Post-Effective Date Revenues") shall be deposited
into the Depository Account (or, in the alternative, identified or segregated in
such a manner as to permit the Post-Effective Date Revenues to be deposited into
the Depository Account when and as directed by Business Manager) for
distribution in accordance with this Section 4.9. From and after the Effective
Date, each month Business Manager shall apply, or retain on behalf of Practice,
funds that are in the Depository Account in the following order of priority:
(a) to Business Manager, in satisfaction of Office Expense, except the
Management Fee;
(b) as directed by Practice, in satisfaction of Monthly Practice
Expense; and
(c) to Business Manager, in satisfaction of the Management Fee.
4.10 Fiscal Matters.
--------------
(a) Annual Budget.
-------------
(i) Initial Budget. The initial Budget shall be agreed upon
by the parties before the execution of this Management Services
Agreement and shall be attached hereto and made a part hereof.
(ii) Process for Succeeding Budgets. Annually and at least
forty-five (45) days prior to the commencement of each fiscal year of
Business Manager, Business Manager, in consultation with the Policy
Board, shall prepare and deliver to Practice for its approval a
proposed Budget, setting forth an estimate of Practice's revenues and
expenses for the upcoming fiscal year (including, without limitation,
the Non-Ophthalmic Business Budgeted Practice Expense, the Principal
Services Budgeted Practice Expense, the Non-Ophthalmic Business
Monthly Fee and the Principal Services Monthly Fee). Practice shall
review the proposed Budget and either approve the proposed Budget or
request any changes within fifteen (15) days after receiving the
proposed Budget. The Budget shall be adopted upon mutual agreement of
Business Manager and Practice after reasonable review and comment and
may be revised or modified only in consultation with Business Manager.
Once approved by both Business Manager and Practice, each succeeding
Budget shall be attached hereto and made a part hereof.
(iii) Deadlock. In the event the parties are unable to agree on
--------
a Budget by the beginning of the fiscal year (a "Deadlock"), then until an
agreement is reached, the Budget for the prior year shall be deemed to be
adopted as the Budget for the current year. Notwithstanding the foregoing,
the Policy Board, in its judgment, may impose reductions
22
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on a consistent basis to each of Principal Services Budgeted Practice
Expense and the Principal Services Monthly Fee in the event that the Policy
Board makes a determination that general economic conditions and/or
regulatory developments adversely affecting the Medical Services provided
by Practice render the present levels of the Principal Services Budgeted
Practice Expense and the Principal Services Monthly Fee impractical. For
purposes of illustration only, and without limitation, such general
economic conditions and/or regulatory developments could include proposed
or actual cuts in Medicare/Medicaid reimbursement for procedures that are a
material component of the Medical Services performed by Practice. Following
resolution of any Deadlock, Principal Services Budgeted Practice Expense
and the Principal Services Monthly Fee (and the corresponding Principal
Services Monthly Practice Expense and Principal Services Management Fee as
calculated in Article VI hereof) shall be recomputed retroactive to the
beginning of the fiscal year based upon the parameters agreed to in the new
Budget, and appropriate adjustments in payments owing to Practice and/or
Business Manager, as the case may be, resulting from such recomputation
shall be made promptly. Notwithstanding the foregoing, if after six months
the parties are still unable to agree on a Budget, then the dispute shall
be submitted to arbitration in accordance with Section 8.6 hereof. Until
the arbitrator renders a judgment or the dispute is otherwise resolved, the
adjustments described in this Section 4.10(a)(iii) shall continue to apply.
Notwithstanding anything to the contrary contained herein, nothing in this
Section 4.10(a)(iii) shall affect the payment of Office Expense, which
shall be paid in full in accordance with the provisions of this Agreement.
For purposes of Section 4.10(iii) and (iv), "Budgeted Practice Expense" and
"Monthly Fee" shall refer to either Principal Services or the Non-
Ophthalmic Business.
(iv) Modifications to Budget. The Budget may be modified at any
time by mutual agreement of Practice and Business Manager, which
modifications may include, without limitation, modifications to the
Principal Services Monthly Fee and Principal Services Budgeted Practice
Expense in the event that additional Physicians or Optometrists become
affiliated with Practice during the calendar year.
(b) Accounting and Financial Records. Business Manager shall
--------------------------------
establish and administer adequate accounting procedures, controls and systems
for the development, preparation and safekeeping of administrative and financial
records in connection with the performance of its duties and responsibilities
hereunder, all of which shall be prepared and maintained in accordance with GAAP
and applicable laws and regulations. Business Manager shall provide Practice
with the following:
(i) Monthly Reports. As soon as practicable, and in any event
no later than fifteen (15) days after the end of each calendar month,
Business Manager shall furnish to Practice a monthly statement
reflecting the computation for the Non-Ophthalmic Business Monthly
Practice Expense, Principal Services Monthly Practice Expense, the
Non-Ophthalmic Business Management Fee and the Principal Services
Management Fee. Within forty-five (45) days after the end of each
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month, Business Manager shall provide Practice with a monthly
statement reflecting the accounting activity for Practice prepared in
accordance with GAAP.
(ii) Annual Financial Statements. As soon as practicable, and
in any event no later than one hundred twenty (120) days after the end
of each calendar year, Business Manager shall furnish to Practice
audited financial statements of Business Manager, consisting of a
balance sheet and related statements of income, changes in members'
equity and cash flow, all of which (taken as a whole) shall reflect
the financial status of Business Manager as of the end of such
calendar year, and shall be prepared in accordance with GAAP
consistently applied.
(c) Review of Fiscal Matters. A Representative of Practice shall
------------------------
have the right to review all fiscal matters related to the operation of
Practice, including, without limitation, all billings, collections and
expenditures, but Practice shall not have the power to prohibit or
invalidate any expenditure that is consistent with the Budget.
(d) Tax Matters. Business Manager and Practice acknowledge and
-----------
agree that, to the extent that any of the services to be provided by
Business Manager hereunder may be subject to any state sales and use taxes,
Business Manager may have a legal obligation to collect such taxes from
Practice and to remit same to the appropriate tax collection authorities.
Practice agrees to pay, in addition to the payment of the Management Fee
and as an Office Expense, the applicable state sales and use taxes in
respect of the portion of the Management Fees attributable to such
services. In the event that the services provided hereunder by Business
Manager are ever subject to any sales or use tax, then the parties agree to
negotiate in good faith a new service arrangement or basis for compensation
for the services furnished pursuant to this Management Services Agreement
that eliminates or reduces any potential tax and approximates as closely as
possible the economic position of the parties prior to the change;
provided, however, that nothing in this Section 4.10(d) shall be construed
as tax avoidance and the parties hereto shall only be obligated to
negotiate new arrangements which are in conformance with law and which
would not subject either party to any risk of civil penalty or criminal
prosecution.
4.11 Reports and Records.
-------------------
(a) Medical Records. Business Manager shall advise and assist
---------------
Practice as to the establishment, monitoring and maintenance of procedures
and policies for the timely creation, preparation, filing and retrieval of
all medical records generated by Practice in connection with Practice's
provision of Medical Services; and, subject to applicable law, shall ensure
that medical records are promptly available to Physicians and any other
appropriate persons. All such medical records shall be retained and
maintained in accordance with all applicable state and federal laws. All
medical records are, and will remain, the property and Confidential
Information of Practice and its patients.
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(b) Other Reports and Records. Business Manager shall create,
-------------------------
prepare and file such additional reports and records as are reasonably
necessary or appropriate for Practice's provision of Medical Services, and
shall be prepared to analyze and interpret such reports and records upon
the request of Practice.
4.12 Recruitment of Physicians and Optometrists. Upon Practice's
------------------------------------------
request, Business Manager shall perform all administrative services reasonably
necessary or appropriate to recruit potential Physicians and Optometrists to
become employees of Practice. Business Manager shall provide Practice with
model agreements to document Practice's employment, retention or other service
arrangements with such individuals. It is and will remain the sole and complete
responsibility of Practice to interview, select, contract with, supervise,
control and terminate all Physicians and Optometrists performing Medical
Services or other professional services, and Business Manager shall have no
authority whatsoever with respect to such activities.
4.13 Confidential and Proprietary Information.
----------------------------------------
(a) Business Manager will not disclose any Confidential Information of
Practice to other persons without Practice Consent. Business Manager will
not, directly or indirectly, use such Confidential Information in a manner
detrimental to Practice, and Business Manager will keep such Confidential
Information confidential and will ensure that its affiliates and advisors
who have access to such Confidential Information comply with these
nondisclosure obligations. Notwithstanding the foregoing, Business Manager
may disclose Confidential Information to those of its Representatives who
need to know Confidential Information for the purposes of this Management
Services Agreement, it being understood and agreed to by Business Manager
that such Representatives will be informed of the confidential nature of
the Confidential Information, will agree to be bound by this Section 4.13,
and will be directed by Business Manager not to disclose to any other
person any Confidential Information. Business Manager shall be responsible
for any breach of this Section 4.13 by its affiliates, advisors or
Representatives. If Business Manager is required (by interrogatories,
requests for information or documents, subpoenas, civil investigative
demands or similar legal processes) to disclose or produce any Confidential
Information furnished in the course of its dealings with Practice or its
affiliates, advisors or Representatives, Business Manager will (i) provide
Practice with prompt prior notice thereof and copies, if possible, and, if
not, a description, of the request and the Confidential Information
requested or required to be produced so that Practice may seek an
appropriate protective order or other protections to enforce the provisions
of this Section 4.13, or, alternatively, waive compliance with the
provisions of this Section 4.13, and (ii) consult with Practice as to
whether Practice should attempt to resist or narrow such request. If
Business Manager is compelled to disclose or produce Confidential
Information concerning Practice or, in the alternative, be liable for
contempt or suffer other censure or penalty, Business Manager may disclose
or produce such Confidential Information without liability hereunder;
provided, however, that Business Manager shall give Practice written notice
of the Confidential Information to be so disclosed or produced, and a copy
of the request therefor, as far in advance of its
25
<PAGE>
disclosure or production as is reasonably practicable and shall use its
commercially reasonable efforts to obtain, to the greatest extent
practicable, an order or other reliable assurance that confidential
treatment will be accorded to such Confidential Information so required to
be disclosed or produced.
(b) Notwithstanding clause (a) above, Business Manager may share,
subject to the restrictions of this Section 4.13(b), with other
professional corporations, associations, medical practices or health care
delivery entities, the statistics of Practice, including utilization review
data, quality assurance data, cost data, outcomes data or other Practice
data. Business Manager may disclose such statistics to other medical
groups with whom Business Manager has a management relationship, to managed
care providers or other third party payors for the purpose of obtaining or
maintaining third party payor contracts, or to financial analysts and
underwriters. In addition, Business Manager may disclose all Practice-
related information necessary or desirable in connection with any public or
private offering of any security of Business Manager, but no such data will
disclose or divulge patient identifying information.
26
<PAGE>
4.14 Business Manager's Insurance.
----------------------------
(a) Business Manager's Insurance. Throughout the Term, Business
----------------------------
Manager shall, as an Office Expense, obtain and maintain with commercial
carriers, through self-insurance or some combination thereof and in a
manner consistent with good business practice, appropriate workers'
compensation coverage for Business Manager's employed personnel provided to
Practice pursuant to this Management Services Agreement, and professional,
casualty and comprehensive general and vicarious liability insurance
covering Business Manager, the Office, Business Manager's personnel and all
of Business Manager's equipment in such amounts, on such basis and upon
such terms and conditions as Business Manager deems appropriate. Upon the
request of Practice, Business Manager shall provide Practice with a
certificate evidencing such insurance coverage and Business Manager shall
use commercially reasonable efforts to list Practice as an additional
insured. Business Manager may carry, as an Office Expense, some form of
business interruption insurance in amounts determined reasonable and
sufficient by Business Manager, listing Practice as the insured. Business
Manager may also, in its reasonable discretion, carry key person life and
disability insurance on any Physician in amounts determined reasonable and
sufficient by Business Manager, the expense of which shall be (i) a
Business Manager Expense if Business Manager is the beneficiary or, (ii)
with Practice Consent, an Office Expense if Practice is the beneficiary.
The cost of any insurance procured by Business Manager pursuant to this
Section 4.14(a) shall be an Office Expense only to the extent it relates to
Practice, the Office or Business Manager's performance of its duties
pursuant to the terms and conditions of this Management Services Agreement.
(b) Professional and General Liability Insurance of Practice.
--------------------------------------------------------
Business Manager shall obtain and maintain, on behalf of Practice and as an
Office Expense, professional and comprehensive general liability insurance
covering Practice and each of Physicians and Optometrists. The
comprehensive general liability coverage shall be in the minimum amount of
One Million dollars ($1,000,000) for each occurrence and Two Million
dollars ($2,000,000) annual aggregate; and professional liability coverage
shall be in the minimum amount of One Hundred Thousand dollars ($100,000)
for each occurrence and Three Hundred Thousand dollars ($300,000) annual
aggregate, or any other higher minimum coverage requirements established by
law. The insurance policy or policies shall provide for at least (30)
days' advance written notice to Business Manager and Practice from the
insurer as to any alteration of coverage, cancellation or proposed
cancellation for any cause. Business Manager shall cause to be issued to
Practice a certificate of such insurer or insurers reflecting such coverage
and either party hereunder shall provide written notice to the other party
promptly upon receipt of any notice canceling or proposing to cancel the
insurance coverage of Practice, or any Physician or Optometrist for any
reason. Upon the termination of this Management Services Agreement for any
reason, Practice shall obtain and maintain as a Practice Expense "tail"
professional liability coverage, in the amounts specified in this Section
4.14(b) for an extended reporting period of ten years, and Practice shall
be responsible for paying all premiums for "tail" insurance coverage.
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<PAGE>
(c) Health Insurance. Business Manager shall, to the extent such
----------------
coverage `is available from Business Manager's current insurance carrier,
make available to, and accessible by, Physicians and Optometrists health
benefits under any health benefit program maintained by Business Manager.
If any Physician or Optometrist elects such coverage, subject to Section
1.34(b), the cost of such coverage shall be deemed an Office Expense for
any Physician-Employee or Optometrist, and a Practice Expense for any
Physician-Shareholder.
4.15 No Warranty. Practice acknowledges that Business Manager has not
-----------
made and will not make any express or implied warranties or representations that
the services provided by Business Manager will result in any particular amount
or level of revenue or income to Practice.
4.16 Acquisition of Dr. Bizer's VisionWorld. During the Term, Business
--------------------------------------
Manager hereby agrees that it will not, without Practice Consent, enter into any
acquisition, merger, consolidation or affiliation similar in nature to Business
Manager's affiliation with Practice with Dr. Bizer's VisionWorld ("VisionWorld")
in the Louisville metropolitan area. The parties acknowledge and agree that the
foregoing covenant of Business Manager is unique and exclusive to VisionWorld
and shall not be interpreted as applying to any other physician, optometrist,
person, practice or other type of business in the Louisville metropolitan area.
The parties hereto further acknowledge and agree that Business Manager is a
physician practice management company in the business of affiliating with and
managing physician and optometric practices and, therefore, Business Manager
shall have the sole discretion to affiliate with and/or manage any physician,
optometrist, person, practice or other type of business as it deems fit.
4.17 Practice Development. Business Manager shall assist Practice in
--------------------
its practice development and efficiency. Practice and Physician-Shareholder
believe that they have the capacity to perform substantially more surgeries than
are presently being done. Business Manager shall develop and implement
marketing and practice development strategies with the intent of increasing the
number of surgeries performed by Practice and Physician-Shareholder.
4.18 Acquisitions and Affiliations. Business Manager shall actively
-----------------------------
pursue physician and optometric affiliations and acquisitions, all in
conjunction with market strategies which are appropriate in NovaMed's reasonable
discretion, with the intent of increasing the number of Practice's and
Physician-Shareholder's patients and the number of surgeries performed by
Practice and Physician-Shareholder.
4.19 Access to Personnel. Practice shall have reasonable access to T.
-------------------
Trent Roark for assistance with practice development and efficiency, Robert G.
Goettling for assistance with optometric affiliations, Thomas J. Chirillo for
assistance with physician affiliations, and James A. Brocato for assistance with
managed care contracts, or, in lieu of any of the aforementioned individuals,
any replacements, successors or other similarly qualified individuals.
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<PAGE>
4.20 Funding. Business Manager shall provide sufficient funds to allow
-------
the purchase of equipment and to provide sufficient working capital for the
efficient operation of the Practice in accordance with the terms and conditions
of this Management Services Agreement.
4.21 Allocation of Expenses. To the extent not addressed in the
----------------------
Budget, Practice and Business Manager shall mutually agree upon the reasonable
allocation of expenses between the operation of Practice and the operation of
the ambulatory surgery center. In addition, to the extent not addressed in the
Budget, Practice and Business Manager shall agree upon the reasonable allocation
of any expenses between the operation of Practice and the operation of any other
practices that Business Manager is the business manager thereof.
4.22 Reasonable Best Efforts. Business Manager shall use its
-----------------------
reasonable best efforts in performing its duties hereunder.
ARTICLE V
COVENANTS AND RESPONSIBILITY OF PRACTICE
5.1 Organization and Operation. Practice, as a continuing condition of
--------------------------
Business Manager's obligations under this Management Services Agreement, shall
at all times during the Term be and remain legally organized and operated to
provide Medical Services in a manner consistent with all state and federal laws.
(a) Employment of Physicians.
------------------------
(i) Practice shall operate and maintain within the Practice
Territory a full-time practice of medicine specializing in the
provision of Medical Services, and shall maintain and enforce
employment agreements in the form of Exhibit 5.1 (the "Employment
-----------
Agreements") with Physician-Shareholders, including, without
limitation, the initial Physician-Shareholders identified in Exhibit
-------
5.1A. Practice shall not amend the Employment Agreements in any
----
material manner or waive any material rights of Practice thereunder
without the prior written approval of Business Manager. Recognizing
that Business Manager would not have entered into this Management
Services Agreement but for Practice's covenant to maintain Employment
Agreements with Physician-Shareholders, and subject to subparagraph
(ii) below, Practice shall pay to Business Manager, in addition to the
Management Fee, any damages, compensation, payment or settlement
received by Practice from a Physician who terminates his or her
Employment Agreement without Physician Cause (as defined in the
Employment Agreement) or whose Employment Agreement is terminated by
Practice for Practice Cause (as defined in the Employment Agreement)
or for any other material breaches of the Employment Agreements (such
damages being collectively referred to herein as the "Business Manager
Damages").
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(ii) Notwithstanding the provisions of Section 5.1(a)(i) above,
or any other provision to the contrary contained herein, Practice
shall have a period of not less than forty-five (45) days following
the occurrence of any event described in Section 5.1(a)(i) above that
entitles Business Manager to receive Business Manager Damages to take
such actions to cure the breach of any Employment Agreement by a
Physician-Shareholder (which actions to cure may, without limitation,
include retention of additional Physicians to replace the levels of
revenue and income previously generated by the Physician causing such
breach); provided, however, that the determination of whether or not
such breach has been cured shall be made by Business Manager in its
good faith discretion, and provided further, that Practice shall in no
event be permitted to cure any breach that results from a breach by a
Physician-Shareholder of any non-competition provision contained in
any Employment Agreement. Without limiting the rights of Business
Manager set forth herein, and notwithstanding the fact that Business
Manager is entitled in limited circumstances to certain damages from
Practice which arise from breaches of an Employment Agreement with any
Physician-Shareholder, NovaMed shall not be construed as being a third
party beneficiary to the Employment Agreement.
(b) Corporate Governance. Throughout the Term of this Management
--------------------
Services Agreement, Practice shall maintain and enforce written Buy-Sell
Agreements with Physician-Shareholders specified in Exhibit 5.1A, and shall
------------
cause all new shareholders of Practice to execute such agreements prior to
becoming a shareholder in Practice. Within ninety (90) days following the
Original Date, the Physician-Shareholder shall execute a new Buy-Sell
Agreement which addresses the concepts set forth on Exhibit 5.1B to the
------------
satisfaction of Business Manager, Practice and each of their respective
counsel. Practice will also maintain its articles of incorporation and by-
laws in accordance with applicable law, including, without limitation, any
laws governing the transferability of shares from disqualified shareholders
to qualified shareholders. Throughout the Term of this Management Services
Agreement, Practice shall not, without the prior written consent of
Business Manager, amend such documents or waive any rights thereunder in
any manner.
5.2 Practice Personnel.
------------------
(a) Physician Personnel and Optometrists. Practice shall retain
------------------------------------
the number of Physicians and Optometrists as is reasonably necessary and
appropriate in the sole discretion of Practice for the provision of Medical
Services. Each Physician shall hold and maintain a valid and unrestricted
license to practice medicine in the state of Indiana, shall be certified by
the American Board of Ophthalmology, and shall be competent, in the
reasonable opinion of Practice, in the practice of ophthalmology. Each
Optometrist shall hold and maintain a valid and unrestricted license to
practice optometry in the state of Indiana, and shall be competent, in the
reasonable opinion of Practice, in such practice. Practice shall enter
into and maintain with each such retained Physician and Optometrist a
written employment agreement substantially in the form of either Exhibit
-------
5.1 for
---
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Physician-Shareholders or Exhibit 5.2A for any Physician-Employees not
------------
employed by Practice as of the Original Date. Practice will neither commit
nor permit to remain outstanding any breach of such employment agreement
that would allow any Physician or Optometrist to terminate for cause.
Regardless of whether the compensation is a Practice Expense or Office
Expense, Practice shall be responsible for paying the compensation and
benefits, as applicable, for all Physicians, Optometrists, and any other
physician personnel or other contracted or affiliated physicians, and for
withholding any sums for income tax, unemployment insurance, social
security or any other withholding required by applicable law. If requested,
Business Manager shall, on behalf and at the direction of Practice,
administer the compensation with respect to such individuals in accordance
with the written agreement between Practice and each Physician or
Optometrist. Business Manager shall neither control nor direct any
Physician or Optometrist in the performance of Medical Services for
patients.
(b) Nonphysician Personnel. Business Manager shall retain all
----------------------
nonphysician personnel necessary for the operation of Practice and such
nonphysician personnel shall be under Business Manager's control,
supervision and direction in the performance of their duties, except for
(i) Designated Allied Health Professionals, who shall perform their duties
under the supervision and control of Practice's Medical Director,
consistent with the requirements necessary to meet the "incident to"
provisions of the Medicare program, and (ii) opticians and others providing
services in Practice's Non-Ophthalmic Business, who shall perform their
duties under the supervision and control of Physicians and Optometrists.
Business Manager shall consult with, solicit the input of, and reasonably
cooperate with, Medical Director of Practice in the hiring and scheduling
of Designated Allied Health Professionals.
5.3 Professional Standards. As a continuing condition of Business
----------------------
Manager's obligations hereunder, each Physician, Optometrist and any other
physician personnel retained by Practice to provide Medical Services must comply
with, be controlled and governed by, and otherwise provide Medical Services in
accordance with, all applicable federal, State and municipal laws, rules,
regulations, ordinances and orders, and the ethical standards and standards of
care of the medical community wherein the principal office of each Physician or
Optometrist is located. In addition, each Physician and any other physician
personnel retained by Practice to provide Medical Services must obtain and
retain appropriate admitting privileges at local area hospitals or health care
facilities which are reasonably adequate for Physician to perform Medical
Services. Procurement of temporary staff privileges pending the completion of
the medical staff approval process shall satisfy this provision, provided
Physician actively pursues full admitting privileges and actually receives full
admitting privileges within a reasonable time.
5.4 Medical Services. Practice shall use reasonable efforts to ensure
----------------
that Physicians and Optometrists are available to provide Medical Services to
patients. In the event that Physicians or Optometrists are not available to
provide the relevant Medical Services coverage, Practice shall engage and retain
locum tenens coverage. Physicians and Optometrists retained on a locum tenens
basis shall meet all of the requirements of Section 5.3 hereof. The cost of
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<PAGE>
providing locum tenens coverage for any Optometrists and Physician-Employees
shall be an Office Expense, and the cost of providing locum tenens coverage for
any Physician-Shareholder shall be a Practice Expense. With the assistance of
Business Manager, the Medical Director of Practice shall be responsible for
scheduling the relevant coverage of all medical and eye-related procedures.
Practice shall use its best efforts to develop and promote Practice.
5.5 Peer Review/Quality Assurance. Practice shall adopt a peer
-----------------------------
review/quality assurance program to monitor and evaluate the quality and cost-
effectiveness of Medical Services provided by Physicians and Optometrists of
Practice. Upon request of Practice, Business Manager shall provide
administrative assistance to Practice in performing its peer review/quality
assurance activities, but only if such assistance can be provided in a manner
consistent with maintaining the confidentiality and privileged status of the
processes and actions of the peer review/quality assurance process of Practice.
5.6 Confidential and Proprietary Information. Practice will not
----------------------------------------
disclose any Confidential Information of Business Manager without Business
Manager's express written authorization. Such Confidential Information will not
be used in any way directly or indirectly detrimental to Business Manager, and
Practice will keep such Confidential Information confidential and will ensure
that its affiliates and advisors who have access to such Confidential
Information comply with these nondisclosure obligations. Notwithstanding the
foregoing, Practice may disclose Confidential Information to those of its
Representatives who need to know Confidential Information for the purposes of
this Management Services Agreement, it being understood and agreed to by
Practice that such Representatives will be informed of the confidential nature
of the Confidential Information, will agree to be bound by this Section 5.6, and
will be directed by Practice not to disclose to any other person any
Confidential Information. Practice shall be responsible for any breach of this
Section 5.6 by its affiliates, advisors or Representatives. If Practice is
required (by interrogatories, requests for information or documents, subpoenas,
civil investigative demands or similar processes) to disclose or produce any
Confidential Information furnished in the course of its dealings with Business
Manager or its affiliates, advisors or Representatives, Practice will (i)
provide Business Manager with prompt prior notice thereof and copies, if
possible, and, if not, a description, of the request and the Confidential
Information requested or required to be produced so that Business Manager may
seek an appropriate protective order or other protections to enforce the
provisions of this Section 5.6, or, alternatively, waive compliance with the
provisions of this Section 5.6 and (ii) consult with Business Manager as to the
advisability of Business Manager's taking of legally available steps to resist
or narrow such request. Practice further agrees that if, in the absence of a
protective order or the receipt of a waiver hereunder, Practice is nonetheless,
in the written opinion of its legal counsel, compelled to disclose or produce
Confidential Information concerning Business Manager to any tribunal or to stand
liable for contempt or suffer other censure or penalty, Practice may disclose or
produce such Confidential Information to such tribunal legally authorized to
request and receive such Confidential Information without liability hereunder;
provided, however, that Practice shall give Business Manager written notice of
the Confidential Information to be so disclosed or produced, and a copy of the
request therefor, as far in advance of its disclosure or production as is
practicable and shall use its best efforts to obtain, to the greatest extent
32
<PAGE>
practicable, an order or other reliable assurance that confidential treatment
will be accorded to such Confidential Information so required to be disclosed or
produced.
5.7 Noncompetition. Practice hereby recognizes and acknowledges that
--------------
Business Manager will incur substantial costs in providing the equipment,
support services, personnel, management, administration, and other items and
services that are the subject matter of this Management Services Agreement and
that in the process of providing services under this Management Services
Agreement, Practice will be privy to financial and Confidential Information of
Business Manager and other Regional Practices, to which Practice would not
otherwise be exposed. The parties also recognize that the services to be
provided by Business Manager will be feasible only if Practice operates an
active practice to which Physicians associated with Practice devote their full
professional time and attention. Practice agrees and acknowledges that the
noncompetition covenants described hereunder are necessary for the protection of
Business Manager, and that Business Manager would not have entered into this
Management Services Agreement without the following covenants:
(a) During the Term of this Management Services Agreement and except
for the performance of Medical Services and ancillary services at the
Office as contemplated by this Management Services Agreement or as
expressly agreed to by Business Manager in writing, Practice shall not
establish, operate or provide Medical Services at a medical office, clinic
or other health care facility anywhere. During the Term of this Management
Services Agreement and except for the operation of the Non-Ophthalmic
Business at Offices contemplated by, or subject to, this Management
Services Agreement or as expressly agreed to by Business Manager in
writing, Practice shall not establish, operate or engage in a Non-
Ophthalmic Business at a medical office, clinic or other health care
facility.
(b) Except as specifically agreed to by Business Manager in writing,
Practice commits and agrees that during the Term of this Management
Services Agreement and for a period of five (5) years from the termination
date of this Management Services Agreement, except in the event Practice
terminates this Management Services Agreement for cause pursuant to Section
7.2(b) hereof (in which event this Section 5.7 shall not apply), Practice
shall not directly or indirectly own (excluding ownership of less five
percent (5%) of the equity of any publicly traded entity), manage, operate,
control, or otherwise be associated with, lend funds to, lend its name to,
or maintain any interest whatsoever in any enterprise (i) having to do with
the provision, distribution, promotion or advertising of any type of
management or administrative services or products to third parties in
competition with Business Manager; and/or (ii) offering any type of service
or product in the Practice Territory to third parties similar to those
offered by Business Manager to Practice. Notwithstanding the above
restriction, nothing herein shall prohibit Practice or any of its holders
from providing management and administrative services to its or their own
medical practices after the termination of this Management Services
Agreement.
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(c) The written Employment Agreements described in Section 5.1 hereof
shall contain covenants of Physician-Shareholder whereby they agree not to
compete with Practice within the Practice Territory for one (1) year after
termination of the employment agreement, except in the event Physician
terminates such agreement for Physician Cause or certain buyout rights are
exercised.
(d) With respect to Physician-Employees employed by Practice as of
the Original Date, Practice shall enforce the current written agreements
with Physician Employees and Optometrists. With respect to any Physician
Employees commencing employment with Practice from and after the Original
Date, Practice shall enforce formal written agreements with Physician
Employees and Optometrists in the form of Exhibit 5.2A, pursuant to which
------------
the employees agree not to compete with Practice with the Practice
Territory for one (1) year after termination of the Employment Agreement,
except in the event Physician terminates such agreement for Physician
Cause.
(e) Practice understands and acknowledges that the provisions in
Section 5.6 hereof and this Section 5.7 are designed to preserve the
goodwill of Business Manager and the goodwill of the individual Physicians
and Optometrists of Practice. Accordingly, if Practice breaches any
obligation of Section 5.6 hereof or this Section 5.7, in addition to any
other remedies available under this Management Services Agreement at law or
in equity, Business Manager shall be entitled to enforce this Management
Services Agreement by injunctive relief and by specific performance of the
Management Services Agreement, such relief to be without the necessity of
posting a bond, cash or otherwise. Additionally, nothing in this paragraph
shall limit Business Manager's right to recover any other damages to which
it is entitled as a result of Practice's breach. If any provision of the
covenants herein is held by a court of competent jurisdiction to be
unenforceable due to an excessive time period, geographic area or
restricted activity, the covenant shall be reformed to comply with such
time period, geographic area or restricted activity that would be held
enforceable.
5.8 Names, Trademark. Practice represents and warrants that Practice
----------------
conducts its professional practice under the name of, and only under the name of
"American Eye Institute," that such name is the name of Practice under state
law, and that Practice is the licensee of such name under the Contribution and
Exchange Agreement. Business Manager hereby grants to Practice a paid-up, non-
transferrable license to use, during the term of this Management Services
Agreeement, the names of the optometric practices listed in Schedule 5.8.
------------
Practice represents and warrants that, subject to the foregoing license,
Practice is legally entitled to conducts its professional practice or its Non-
Ophthalmic Business under the names listed in Schedule 5.8 hereof and that
------------
Practice is legally allowed to use and practice under such names under state
law. Practice covenants and promises that, without the prior written consent of
Business Manager, Practice will not:
(a) take any action or omit to take any action that would result in
the change or loss of any of the foregoing described names;
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<PAGE>
(b) license, sell, give or otherwise transfer the names, or the right
to use the names, to any medical practice, physician, professional
corporation or any other entity; or
(c) cease conducting the professional practice of Practice under any
of the names.
5.9 Medical Advisory Board. The Operating Board of Business Manager has
----------------------
appointed a medical advisory board (the "Medical Advisory Board") to provide a
general forum for review and analysis of medical and clinical issues affecting
the Regional Practices and all other medical practices with which Business
Manager has entered into a Management Services Agreement or similar agreement.
The Medical Advisory Board consists of at least three Doctors of Ophthalmology,
one of whom is designated as the "Medical Director," and may include, at the
discretion of the Operating Board of Business Manager, one or more Doctors of
Optometry, Registered Nurses or other health care professionals. The Vice
President Clinical Operations of Business Manager, and/or such other designee as
Business Manager shall select, attends meetings of the Medical Advisory Board on
a consulting basis. Members of the Medical Advisory Board serve for one-year
terms and are appointed or re-appointed for such term during the first meeting
of the Operating Board of Business Manager held for each calendar year. The
Operating Board of Business Manager may name additional members, remove any
member, or fill any vacancy created by the resignation, death or disability of
any member, of the Medical Advisory Board during any duly called meeting of such
Operating Board. Notwithstanding anything to the contrary contained herein, the
Medical Advisory Board will serve in a solely advisory capacity and the ultimate
authority over medical decisions affecting Practice shall reside with Practice's
Physician-Shareholders.
5.10 Indemnification of Business Manager. Practice shall hold Business
-----------------------------------
Manager, its Affiliates, Representatives, successors and assigns and each of
them harmless from and against any and all losses, damages, fines, costs,
claims, judgments, proceedings, expenses or liabilities (including, without
limitation, reasonable attorneys' fees, paralegal fees, and costs and expenses
thereof) arising out of, or attributable to, or which result from any claim of a
third party with respect to, (a) the operation of the Dispensary Business or the
performance of Medical Services (including, without limitation, malpractice
claims) or the performance of any intentional acts, or gross
negligent acts or omissions by Practice and/or its members, employees and/or
independent contractors (other than Business Manager) and (b) any miscoding or
other error in medical service or optical dispensary documentation by Practice
or its Physicians or Optometrists resulting in false or inaccurate billings.
5.11 Indemnification of Practice. Business Manager shall hold Practice,
---------------------------
its Affiliates, Representatives, successors and assigns and each of them
harmless from and against any and all losses, damages, fines, costs, claims,
judgments, proceedings, expenses or liabilities (including, without limitation,
reasonable attorneys' fees, paralegal fees, and costs and expenses thereof)
arising out of, or attributable to, or which result from, any claim of a third
party with respect to, (a) the performance of Management Services or the
performance of any intentional acts, or gross
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<PAGE>
negligent acts or omissions by Business Manager and/or its shareholders,
officers, employees and/or independent contractors (other than Practice), and
(b) any miscoding or other error in medical service documentation by Business
Manager or its employees resulting in false or inaccurate billings.
ARTICLE VI
FINANCIAL ARRANGEMENT
6.1 Definitions. For purposes of this Article VI, capitalized terms
-----------
used herein shall have the meanings ascribed as follows:
(a) Management Fee. The term "Management Fee" shall mean, for any
--------------
month, the sum of the Non-Ophthalmic Business Management Fee for such month and
the Principal Services Management Fee for such month.
(b) Monthly Office Expense. The term "Monthly Office Expense" shall
----------------------
mean, for any month, the sum of the Non-Ophthalmic Business Monthly Office
Expense for such month and the Principal Services Monthly Office Expense for
such month.
(c) Monthly Practice Expense. The term "Monthly Practice Expense"
------------------------
shall mean, for any month, the sum of the Non-Ophthalmic Business Monthly
Practice Expense for such month and the Principal Services Monthly Practice
Expense for such month.
(d) Non-Ophthalmic Business Budgeted Office Expense. The term "Non-
-----------------------------------------------
Ophthalmic Business Budgeted Office Expense" shall mean, for any month, the Non-
Ophthalmic Business Office Expense (other than the Non-Ophthalmic Business
Management Fee) established in the Budget for such month.
(e) Non-Ophthalmic Business Budgeted Practice Expense. The term "Non-
-------------------------------------------------
Ophthalmic Business Budgeted Practice Expense" shall mean, for any month, the
Non-Ophthalmic Business Practice Expense (as defined in the Budget) established
in the Budget for such month.
(f) Non-Ophthalmic Business Budgeted Revenue. The term "Non-
----------------------------------------
Ophthalmic Business Budgeted Revenue" shall mean, for any month, the Non-
Ophthalmic Business Revenue established in the Budget for such month.
(g) Non-Ophthalmic Business Management Fee. The term "Non-Ophthalmic
--------------------------------------
Business Management Fee" shall be, for any month, the * , except in the
event that either (i)
- ----------
* Confidential portions omitted and filed separately with the commission.
36
<PAGE>
* or (ii) * for such month, in which case the "Non-Ophthalmic Business
Management Fee" for such month shall be * .
(h) Non-Ophthalmic Business Monthly Fee. The term "Non-Ophthalmic
-----------------------------------
Business Monthly Fee" shall be for any month, the * for such month.
(i) Non-Ophthalmic Business Monthly Office Expense. The term "Non-
----------------------------------------------
Ophthalmic Business Monthly Office Expense" for any month shall mean the amount
of Non-Ophthalmic Business Budgeted Office Expense for such month, plus or minus
any difference between (i) the actual Non-Ophthalmic Business Office Expense
incurred by or on behalf of Practice for the previous month (other than the Non-
Ophthalmic Business Management Fee) and (ii) Non-Ophthalmic Business Budgeted
Office Expense for the previous month.
(j) Non-Ophthalmic Business Monthly Practice Expense. The term "Non-
------------------------------------------------
Ophthalmic Business Monthly Practice Expense" shall mean, for any month, the
* for such month, except in the event that either (i) * or (ii) *
, in which case the term "Non-Ophthalmic Business Monthly Practice Expense" for
such month shall mean * .
(k) Non-Ophthalmic Business Office Expense. The term "Non-Ophthalmic
--------------------------------------
Business Office Expense" shall mean all Office Expenses, operating and non-
operating, which constitute direct expenses to produce Non-Ophthalmic Business
Revenue, as determined consistent with the Budget; provided that any
disagreement over whether an expense constitutes a direct expense to produce
Non-Ophthalmic Business Revenue shall be resolved by the Policy Board.
(l) Principal Services Budgeted Office Expense. The term "Principal
------------------------------------------
Services Budgeted Office Expense" shall mean, for any month, the Principal
Services Office Expense (other than the Principal Services Management Fee)
established in the Budget for such month; provided, however, that such monthly
amount shall not include any lease payments of Practice related to the equipment
lease described in Schedule 6.1 attached hereto (the "Equipment Lease").
------------
(m) Principal Services Budgeted Practice Expense. The term "Principal
--------------------------------------------
Services Budgeted Practice Expense" shall mean, for any month, the Principal
Services Practice Expense (as defined in the Budget) established in the Budget
for such month.
(n) Principal Services Budgeted Revenue. The term "Principal
-----------------------------------
Services Budgeted Revenue" shall mean, for any month, the amount of Principal
Services Revenue established in the Budget for such month.
(o) Principal Services Management Fee. The term "Principal Services
---------------------------------
Management Fee" shall be, for any month, the * , except in the event that
either (i) * , in which case the "Principal Services Management Fee" for
such month shall be * .
- ----------
* Confidential portions omitted and filed separately with the commission.
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(p) Principal Services Monthly Fee. The term "Principal Services
------------------------------
Monthly Fee" shall mean, for any month, the * for such month.
(q) Principal Services Monthly Office Expense. The term "Principal
-----------------------------------------
Services Monthly Office Expense" shall mean, for any month, the amount of
Principal Services Budgeted Office Expense for such month, plus or minus any
difference between (i) the actual Principal Services Office Expense incurred by
or on behalf of Practice for [such] month (other than the Principal Services
Management Fee) and (ii) Principal Services Budgeted Office Expense for such
month.
(r) Principal Services Monthly Practice Expense. The term "Principal
-------------------------------------------
Services Monthly Practice Expense" shall mean, for any month, the * for
such month, except in the event that either (i) * or (ii) * , in
which case the term "Principal Services Monthly Practice Expense" for such month
shall mean * .
(s) Principal Services Office Expense. The term "Principal Services
---------------------------------
Office Expense" for any month shall mean all Office Expenses for such month
other than Non-Ophthalmic Business Office Expenses for such month.
6.2 Management Fee. Practice and Business Manager agree to the
--------------
compensation set forth herein as being paid to Business Manager in consideration
of a substantial commitment made by Business Manager hereunder and that such
fees are fair and reasonable. Each month, in the priority established by
Section 4.9 hereof, Business Manager will be paid the following:
(a) the amount of all Office Expense (other than the Non-Ophthalmic
Business Management Fee and the Principal Services Management Fee) for the
previous month, paid on behalf of Practice; and
(b) the Management Fee for the previous month.
6.3 Reasonable Value. Payment of the Management Fee is not intended
----------------
to be and shall not be interpreted or applied as permitting Business Manager to
share in Practice's fees for Medical Services or any other services, but is
acknowledged as the parties' negotiated agreement as to the reasonable fair
market value of the equipment, contract analysis and support, other support
services, purchasing, personnel, office space, management, administration,
strategic management and other items and services furnished by Business Manager
pursuant to this Management Services Agreement, after giving effect to the
nature and volume of the services required and the risks assumed by Business
Manager. The parties agree that it is appropriate to calculate and apply
separate fees for the management of the Non-Ophthalmic Business and Principal
Services, due to (i) the amount of Business Manager Expense incurred by
Business Manager in connection with the management of the operations of the Non-
Ophthalmic Business,
- ----------
* Confidential portions omitted and filed separately with the commission.
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(ii) the fair market value of the management services provided by Business
Manager with respect to each of the Non-Ophthalmic Business and financial
services and (iii) the nature and volume of the services required and the risks
assumed by Business Manager with respect to each of the Non-Ophthalmic Business
and Principal Services.
6.4 Payment of Management Fee.
-------------------------
(a) To facilitate the payment of the Management Fee as provided in
Section 6.2 hereof, and subject to the priority of payment methodology set
forth in Section 4.9 hereof, Practice hereby expressly authorizes Business
Manager to make withdrawals of the Management Fee from the Depository
Account as such fee becomes due and payable during the Term and thereafter
as provided in Section 7.3 hereof.
(b) In calculating the Management Fee pursuant to this Article VI,
Business Manager agrees to calculate the contractual adjustment for
refractive procedures separate and apart from the contractual adjustments
for other procedures performed by Practice on a monthly basis.
(c) At the end of each calendar quarter, Business Manager agrees to
reconcile the actual collections of Principal Services Revenue and Non-
Ophthalmic Business Revenue against the amount of projected Principal
Services Revenue and Non-Ophthalmic Business Revenue based on contractual
adjustments during such calendar quarter and, following such
reconciliation, Business Manager shall then credit or debit the account of
Business Manager and Practice accordingly.
(d) In the manner set forth in Section 4.9 and as calculated pursuant
to Article VI hereof, and by the tenth business day of each month, Business
Manager agrees to make available to Practice in a bank account designated
by Practice the amount of funds constituting Practice Expense for the
immediately preceding month.
6.5 Accounts Receivable. Unless otherwise prohibited by law, to assure
-------------------
that Practice receives the entire amount of professional fees for its services
and to assist Practice in maintaining reasonable cash flow for the payment of
Office Expense, Practice hereby agrees to sell, and Business Manager hereby
agrees to purchase, with respect to any month during the Term and with recourse
to Practice for the amount of the purchase, accounts receivable of Practice (the
"Purchased Receivables") (i) in an amount equal to the difference, if any,
between (A) the sum of the Monthly Office Expense and the Monthly Practice
Expense paid or accrued by Business Manager for such month and (B) the amount of
cash collections deposited into the Depository Account during such month and
used to pay all or any portion of the Office Expenses and the Monthly Practice
Expense, by transferring such amount into the Depository Account, and (ii) in an
amount equal to the difference, if any, between the Management Fee and the
amount of cash collections deposited into the Depository Account during such
month and used to pay all or any portion of the Management Fee, in satisfaction
of Practice's obligation to pay Business Manager the Management Fee. The
consideration paid to Business Manager for the purchase shall be an
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amount equal to the Principal Services Revenue and Non-Ophthalmic Business
Revenue with respect to the Purchased Receivables, computed in accordance with
GAAP on an accrual basis net of Adjustments. Although it is the intention of the
parties that Business Manager purchase and thereby become the owner of the
Purchased Receivables of Practice, in the event such purchase shall be
ineffective for any reason, Practice is concurrently granting to Business
Manager a security interest in the Purchased Receivables, and Practice shall
cooperate with Business Manager and shall execute all documents in connection
with the pledge of the Purchased Receivables to Business Manager. All
collections in respect to the Purchased Receivables by Business Manager shall be
received by Business Manager as the agent of Practice and shall be endorsed to
Business Manager and deposited in a bank account at a bank designated by
Business Manager. To the extent Practice comes into possession of any payments
in respect of the Purchased Receivables, Practice shall direct such payments to
Business Manager for deposit in bank accounts designated by Business Manager.
6.6 Disputes Regarding Fees.
-----------------------
(a) It is the parties' intent that any disputes regarding Business
Manager's performance hereunder shall be resolved to the extent possible by
good faith negotiations. To that end, the parties agree that if Practice
in good faith believes that Business Manager has failed to perform its
obligations, and that as a result of such failure, Practice is entitled to
a set-off or reduction in its Management Fees, Practice shall give Business
Manager notice of the perceived failure and request in the notice a set-off
or reduction in Management Fees. Business Manager and Practice shall then
negotiate the dispute in good faith, and if an agreement is reached, the
parties shall implement the resolution without further action.
(b) If the parties cannot reach a resolution within thirty (30) days,
and the amount at issue is $25,000 or less, then the dispute shall be
submitted to the Policy Board. The Policy Board shall then consider,
develop and implement a resolution of such dispute which shall be final and
binding upon Practice and Business Manager.
(c) If the amount in dispute is greater than $25,000, and Business
Manager and Practice fail to resolve the dispute, then such dispute shall
be submitted by either party to binding arbitration as described by Article
X of the Contribution and Exchange Agreement.
ARTICLE VII
TERM AND TERMINATION
7.1 Initial and Renewal Term. The Term of this Management Services
------------------------
Agreement will be for an initial period of forty (40) years after the Original
Date, and shall be automatically renewed for successive five (5) year periods
thereafter, provided that neither Business Manager
40
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nor Practice shall have given notice of termination of this Management Services
Agreement at least one hundred twenty (120) days before the end of the initial
term or any renewal term, or unless otherwise terminated as provided in Section
7.2 hereof.
7.2 Termination.
-----------
(a) Termination By Business Manager. Business Manager may
-------------------------------
terminate this Management Services Agreement upon the occurrence of any one
of the following events which shall be deemed to be "for cause:"
(i) The suspension, restriction, revocation or cancellation of
any Physician-Shareholder license to practice medicine in the state of
Indiana (excluding, however, any suspension, restriction, revocation
or cancellation due to the death or disability of any Physician-
Shareholder;
(ii) Practice's loss or suspension of its Medicare or Medicaid
provider number, and/or Practice's restriction from treating patients
of the Medicare or Medicaid programs;
(iii) The dissolution of Practice or the filing by Practice of a
petition in voluntary bankruptcy, an assignment for the benefit of
creditors, or other action taken voluntarily under any state or
federal statute for the protection of debtors;
(iv) The filing against Practice of an involuntary petition
under any bankruptcy statute, or the appointment of a custodian,
receiver, trustee or assignee for the benefit of creditors, and such
condition shall continue undischarged or undismissed for sixty (60)
days; and
(v) Practice materially defaults in the performance of any of
its material duties or obligations hereunder, and shall fail to cure
such default within sixty (60) days after Practice receives notice
from Business Manager specifying the nature of such default.
(b) Termination By Practice. Practice may terminate this
-----------------------
Management Services Agreement upon any of the following occurrences which
shall be deemed to be "for cause":
(i) In the event that an arbitrator pursuant to Section 8.6
hereof makes a final determination that Business Manager has
materially breached a fiduciary duty owed to Practice, Practice may
terminate this Management Services Agreement upon ten (10) days'
notice to Business Manager;
(ii) With ten (10) days' written notice to Business Manager, in
the event Business Manager (A) intentionally and in bad faith
misappropriates Practice's
41
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funds, or (B) fails to properly account Practice's funds and fails to
correct such accounting error within thirty (30) days of receipt of
notice from Practice describing with particularity the error; or
(iii) Business Manager materially defaults in the performance of
any of its material duties or obligations hereunder and shall fail to
cure such default within ninety (90) days after Business Manager
receives written notice from Practice specifying the nature of such
default in sufficient detail; provided, however that in the event such
breach is of a nature that it cannot reasonably be cured within such
ninety (90) day period, then such default shall arise only if Business
Manager shall fail to commence to cure such default within such ninety
(90) day period and thereafter to proceed diligently to cure such
default; provided, further, that irrespective of Business Manager's
diligent efforts to cure such default, then such default shall arise
if Business Manager fails to cure such default within one hundred
twenty (120) days after Business Manager received the original notice
from Practice specifying the nature of such default.
(iv) Upon an Event of Default (as defined in the Notes, which in
turn is defined in the Contribution and Exchange Agreement) under the
terms and conditions of the Notes issued by Business Manager to
Practice pursuant to the Contribution and Exchange Agreement, and
Business Manager shall fail to cure such Event of Default within ten
(10) business days after receipt of written notice from Practice
specifying the nature of such Event of Default; provided, however,
that this subparagraph (iv) shall not apply to any Notes issued
pursuant to Section 4 or 6 of the Notes.
(v) In the event Practice delivers the Practice Redemption
Notice (as defined in the Note) to Business Manager pursuant to the
terms and conditions of the Note, and Business Manager does not pay
the entire amount of principal then outstanding under the Notes,
together with any accrued and unpaid interest thereon through such
date, in full within thirty (30) business days of Business Manager's
receipt of the Practice Redemption Notice; provided, however, that
this subparagraph (v) shall not apply to any Notes issued pursuant to
Section 4 or 6 of the Notes.
(vi) The filing by Business Manager (or any of its affiliates)
of a petition in voluntary bankruptcy, an assignment for the benefit
of creditors, or other actions taken voluntarily under any state or
federal statute for the protection of debtors prior to the earlier of
(A) the issuance of the Automatic Exchange Shares (as defined in the
Notes) under the Exchange Formula (as defined in the Notes) to
Practice, pursuant to Section 2 of the Notes issued by Business
Manager to Practice or (B) the payment of the entire amount of
principal outstanding under the Notes or any note or notes issued in
renewal, restatement, extension modification or replacement thereof
(excluding, however, any Notes issued pursuant to Section
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4 or 6 of the Notes), together with any accrued and unpaid interest
thereon, through such date in full within thirty (30) business days of
receipt of Practice Redemption Notice.
(vii) The filing against Business Manager (or any of its
affiliates) of an involuntary petition under any bankruptcy statute or
the appointment of a custodian, receiver, trustee or assignee for the
benefit of creditors and such condition shall continue undischarged or
undismissed for sixty (60) days prior to the earlier of (A) the
issuance of the Automatic Exchange Shares under the Exchange Formula
to Practice, pursuant to Section 2 of the notes issued by Business
Manager to Practice or (B) the payment of the entire amount of
principal outstanding under the Notes or any note or notes issued in
renewal, restatement, extension modification or replacement thereof
(excluding, however, any Notes issued pursuant to Section 4 or 6 of
the Notes), together with any accrued and unpaid interest thereon
through such date in full within thirty (30) business days of receipt
of Practice Redemption Notice.
(c) Termination by Agreement. In the event Practice and Business
------------------------
Manager shall mutually agree in writing, this Management Services Agreement
may be terminated on the date specified in such written agreement.
(d) Legislative, Regulatory or Administrative Change. In the event
------------------------------------------------
there shall be a change in the Medicare or Medicaid statutes, state or
federal statutes, case law, regulations or general instructions, the
interpretation of any of the foregoing, the adoption of new federal or
state legislation, or a change in any third-party reimbursement system, any
of which are reasonably likely to materially and adversely affect the
manner in which either party may perform or be compensated for its services
under this Management Services Agreement or which shall make this
Management Services Agreement unlawful, the parties shall immediately enter
into good faith negotiations regarding a new service arrangement or basis
for compensation for the services furnished pursuant to this Management
Services Agreement that complies with the law, regulation or policy and
that approximates as closely as possible the economic position of the
parties prior to the change. If good faith negotiations cannot resolve the
matter, it shall be submitted to arbitration as referenced in Section 8.6
hereof. If a court of competent jurisdiction compels or requires a party
hereto to refrain from performing its duties and obligations hereunder, or
a party's performance hereunder shall be directly violative of a court
order directed at such party, then, to the extent necessary to comply with
such court order, this Management Services Agreement shall be deemed
suspended. In no event shall such suspension be construed to relieve
either party's obligation under this Section 7.2(d) and the parties will
immediately commence good faith negotiations regarding a new service
arrangement or compensation structure that is in compliance with any such
court order, which arrangement or structure will allocate the economic
aspects of the relationship between the parties in a manner as nearly as
possible as that intended by this Management Services Agreement.
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7.3 Effects of Termination. Upon termination of this Management
----------------------
Services Agreement, as heretofore provided, neither party shall have any further
obligations hereunder except for (i) obligations accruing prior to the date of
termination, including, without limitation, payment of the Management Fees,
Office Expense and Practice Expense relating to services provided prior to the
termination of this Management Services Agreement, (ii) obligations, promises or
covenants set forth herein that are expressly set forth herein to extend beyond
the Term under the circumstances giving rise to such termination, including,
without limitation, indemnity, confidentiality and noncompetition provisions,
which provisions shall survive the expiration or termination of this Management
Services Agreement by Business Manager for cause, and (iii) the applicable
obligations of Practice and Business Manager described in Section 7.4 or 7.5
hereof. In effectuating the provisions of this Section 7.3, Practice
specifically acknowledges and agrees that Business Manager shall continue to
collect and receive on behalf of Practice all cash collections from accounts
receivable in existence at the time this Management Services Agreement is
terminated, it being understood that such cash collections will be applied in
accordance with Section 4.9 hereof, and will represent, in part, compensation to
Business Manager for management services already rendered and compensation on
accounts receivable purchased by Business Manager. Upon the expiration or
termination of this Management Services Agreement for any reason or cause
whatsoever, Business Manager shall surrender to Practice all books and records
pertaining to Practice's medical practice.
7.4 Repurchase Obligation. Upon termination of this Management
---------------------
Services Agreement by Business Manager for cause or by Practice without cause,
Business Manager shall have the right, but not the obligation, to require
Practice to comply with the terms and conditions of this Section 7.4. In the
event Business Manager exercises such right by delivering written notice to
Practice within sixty (60) days of such termination, then Practice shall be
required to:
(a) Purchase from Business Manager at the greater of book or fair
market value the intangible assets, deferred charges and all other amounts
on the books of Business Manager relating to the Management Services
Agreement as adjusted, through the last day of the month most recently
ended prior to the date of such termination in accordance with GAAP to
reflect amortization or depreciation of the intangible assets, deferred
charges or covenants;
(b) Purchase from Business Manager any real estate owned by Business
Manager and used as an Office at the greater of the appraised fair market
value thereof or the then book value thereof. In the event of any
repurchase of real property, the appraised value shall be determined by
Business Manager and Practice, each selecting a duly qualified appraiser,
who in turn will agree on a third appraiser. This agreed-upon appraiser
shall perform the appraisal which shall be binding on both parties. In the
event either party fails to select an appraiser within fifteen (15) days of
the selection of an appraiser by the other party, the appraiser selected by
the other party shall make the selection of the third-party appraiser;
44
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(c) Purchase at the greater of book or fair market value all
improvements, additions, or leasehold improvements that have been made by
Business Manager at any Office and that relate solely to the performance of
Business Manager's obligations under this Management Services Agreement;
(d) Assume all debt and all contracts, payables and leases that are
obligations of Business Manager and that would be characterized as an
Office Expense hereunder relating to the performance of Business Manager's
obligations under this Management Services Agreement or the properties
leased or subleased hereunder as an Office by Business Manager, provided,
however, that Practice shall only be required to assume those payables in
excess of the accounts receivable of Practice in existence at the time this
Management Services Agreement is terminated and from which funds are
available after satisfying any previous shortfalls applied in accordance
with Section 4.9 hereof; and
(e) Purchase from Business Manager at the greater of book or fair
market value all of the equipment listed in the Contribution and Exchange
Agreement or an exhibit thereto, including all replacements and additions
thereto made by Business Manager pursuant to the performance of its
obligations under this Management Services Agreement, and all other assets,
including inventory and supplies, and tangibles and intangibles, set forth
on the books of Business Manager as adjusted through the last day of the
month most recently ended prior to the date of such termination in
accordance with GAAP to reflect operations of the Office, depreciation,
amortization and other adjustments of assets shown on the books of Business
Manager.
In the event Business Manager exercises its rights pursuant to this Section 7.4,
Practice shall have the obligation to purchase all, and not less than all, of
the items listed in subparagraphs (a) through (e) above. In no event, however,
shall this Section 7.4 be construed as enabling Practice to repurchase any
assets acquired from Practice pursuant to the Contribution and Exchange
Agreement, which relate directly or indirectly to the ambulatory surgical
treatment center owned and operated by Practice immediately prior to the
Original Date of the Contribution and Exchange Agreement (the "ASC Assets").
The ASC Assets are expressly excluded from the assets enumerated in
subparagraphs (a) through (e) above and Practice shall have no right to
repurchase the ASC Assets under this Section 7.4 unless Business Manager shall
so elect in writing, in which case Practice shall be required to repurchase the
ASC Assets at the greater of the then book or fair market value. For purposes
of this Article VII, "fair market value" of a particular item shall be an amount
mutually agreed upon by Practice and Business Manager. If Practice and Business
Manager are unable to reach agreement on such value after ten (10) days of
deliberations, then such fair market value shall be determined by an
independent, duly qualified appraiser mutually agreed upon by Practice and
Business Manager. If Practice and Business Manager cannot agree upon an
appraiser within ten (10) days, then each party shall select a duly qualified
appraiser, who in turn will select a third appraiser. This agreed-upon
appraiser shall perform the appraisal which shall be binding upon both parties.
All expenses of such appraisal shall be borne fifty percent (50%) by Business
Manager and fifty percent (50%) by Practice. In no event shall the price to be
repaid by Practice pursuant to this Section 7.4 exceed the aggregate purchase
price paid to
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Practice (excluding the ambulatory surgery center) by NovaMed pursuant to the
terms and conditions of the Contribution and Exchange Agreement.
7.5 Repurchase Option. Upon termination of this Management Services
-----------------
Agreement by Practice for cause pursuant to Section 7.2(b) hereof, Practice
shall have the right, but not the obligation, to:
(a) Purchase from Business Manager at the greater of book or fair
market value the intangible assets, deferred charges and all other amounts
on the books of Business Manager relating to the Management Services
Agreement as adjusted, through the last day of the month most recently
ended prior to the date of such termination in accordance with GAAP to
reflect amortization or depreciation of the intangible assets, deferred
charges or covenants;
(b) Purchase from Business Manager any real estate owned by Business
Manager and used as an Office at the greater of the appraised fair market
value or then book value thereof. In the event of any repurchase of real
property, the appraised value shall be determined in accordance with the
appraisal mechanism described in Section 7.4 hereof;
(c) Purchase at the greater of book or fair market value all
improvements, additions or leasehold improvements that have been made by
Business Manager at any Office and that relate solely to the performance of
Business Manager's obligations under this Management Services Agreement;
(d) Assume all debt and all contracts, payables and leases that are
obligations of Business Manager that would be characterized as an Office
Expense hereunder relating to the performance of Business Manager's
obligations under this Management Services Agreement or the properties
leased or subleased by Business Manager; provided, however, that Practice
shall only be required to assume those payables in excess of the accounts
receivable of Practice in existence at the time this Management Services
Agreement is terminated and from which funds are available after satisfying
any previous shortfalls applied in accordance with Section 4.9 hereof; and
(e) Purchase from Business Manager at the greater of book or fair
market value all of the equipment listed in the Contribution and Exchange
Agreement or an exhibit thereto, including all replacements and additions
thereto made by Business Manager pursuant to the performance of its
obligations under this Management Services Agreement, and all other
tangible assets, including inventory and supplies, set forth on the books
of Business Manager as adjusted through the last day of the month most
recently ended prior to the date of such termination in accordance with
GAAP to reflect operations of the Office, depreciation, amortization and
other adjustments of assets shown on the books of Business Manager.
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(f) Acquire the name, American Eye Institute, from Business Manager.
In the event Practice exercises its rights pursuant to this Section 7.5,
Practice shall have the obligation to purchase all, and not less than all, of
the items listed in subparagraphs (a) through (f). In no event, however, shall
this Section 7.5 be construed as enabling Practice to repurchase any assets
acquired from Practice pursuant to the Contribution and Exchange Agreement,
which relate directly or indirectly to the ASC Assets. The ASC Assets are
expressly excluded from the assets enumerated in subparagraphs (a) through (f)
above and Practice shall have no right to repurchase the ASC Assets under this
Section 7.5 unless Business Manager shall so elect in writing, in which case
Practice shall be required to repurchase the ASC Assets at the greater of the
then book or fair market value. In lieu of paying cash for the items described
in this Section 7.5, Practice shall have the option of: (i) offsetting the cash
amount required pursuant to this Section 7.5 against the outstanding balance due
and owing under the Note (as such term is defined in the Contribution and
Exchange Agreement); or (ii) contributing to Business Manager that number of
Exchange Shares (as such term is defined in the Contribution and Exchange
Agreement) which, based on the then fair market value of such shares (determined
in accordance with a consistent application of the valuation procedure
established under Section 7.01(d) of the Contribution and Exchange Agreement),
equals the cash amount required pursuant to this Section 7.5. In no event shall
the price to be repaid by Practice pursuant to this Section 7.5 exceed the
aggregate purchase price paid to Practice (excluding the ambulatory surgery
center) by NovaMed pursuant to the terms and conditions of the Contribution and
Exchange Agreement.
7.6 Closing of Repurchase. Except as expressly provided in Section
---------------------
7.5 hereof, Practice shall pay cash for the repurchased assets. The amount of
the purchase price shall be reduced by the amount of debt and liabilities of
Business Manager, if any, assumed by Practice. Practice and, if required by
law, any Physician associated with Practice, shall execute such documents as may
be required, (i) for Practice to assume the liabilities set forth in Section
7.4(d) or 7.5(d) hereof, as applicable, and (ii) for Practice to indemnify or
remove Business Manager from any liability with respect to such repurchased
asset and with respect to any property leased or subleased by Business Manager.
Business Manager shall execute such documents as may be required to convey the
assets, free and clear of all liens (except for those liens assumed by
Practice). The closing date for the repurchase shall be determined by mutual
agreement of Practice and Business Manager but shall in no event occur later
than sixty (60) days from the date of the notice of termination. The
termination of this Management Services Agreement shall become effective upon
the closing of the sale of the assets under Section 7.4 or 7.5 hereof, as the
case may be, and all parties shall be released from any restrictive covenants
provided for in Section 5.7 hereof on such closing date. From and after any
termination, each party shall provide the other party with reasonable access to
the books and records then owned by it to permit such requesting party to
satisfy reporting and contractual obligations that may be required of it.
7.7 Rights and Remedies. In the event of a material breach of this
-------------------
Management Services Agreement by either party hereunder, the nonbreaching party
shall have, in addition to any other rights and remedies contained in this
Management Services Agreement, all rights and remedies available to such party
at law or equity. Without limiting the generality of the
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foregoing, the parties acknowledge and agree that the parties have entered into
this Management Services Agreement with the understanding that the Term of this
Management Services Agreement would be forty years. In the event of a material
breach hereunder by either party, the parties acknowledge and agree that the
actual damages to be suffered by a party will be difficult to ascertain. Each
party recognizes that, in the event a party shall fail to materially perform,
observe or discharge any of its duties, obligations or liabilities under this
Management Services Agreement, any remedy at law may prove to be inadequate
relief to such other party. Therefore, the parties agree that, if a party so
elects and in addition to any other remedies available at law or equity, such
party shall be entitled to temporary and permanent injunctive relief in any such
case without the necessity of proving actual damages, or to specific performance
of any provision hereof. In addition to all other remedies of Business Manager
for any material breach hereunder by Practice, and without limiting any and all
rights set forth herein, Business Manager may set-off any and all amounts which
are due or which Business Manager reasonably believes will become due and owing
to Business Manager under this Agreement, against any and all amounts which are
due and owing under the Note. Such rights of set-off shall be governed by the
terms and conditions set forth in the Note.
7.8 Interpretation. The purpose and intent of this Article VII is to
--------------
establish the limited instances in which a party may terminate this Management
Services Agreement. Unless the parties mutually agree to terminate this
Management Services Agreement, neither party shall be entitled to terminate this
Management Services Agreement prior to the expiration of the Term unless a
party's breach gives rise to a termination "for cause" pursuant to Section
7.2(a) or (b) hereof, as the case may be. Nothing in this Agreement (including
Section 7.4 hereof) shall be construed as permitting Practice to terminate this
Agreement without cause.
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ARTICLE VIII
MISCELLANEOUS
8.1 Administrative Services Only. Nothing in this Management
----------------------------
Services Agreement is intended or shall be construed to allow Business Manager
to exercise control or direction over the manner or method by which Practice and
its Physicians and Optometrists perform Medical Services or other professional
health care services. The rendition of all Medical Services, including, but not
limited to, the prescription or administration of medicine and drugs shall be
the sole responsibility of Practice and its Physicians and Optometrists, and
Business Manager shall not interfere in any manner or to any extent therewith.
Nothing contained herein shall be construed to permit Business Manager to engage
in the practice of medicine, it being the sole intention of the parties hereto
that the services to be rendered to Practice by Business Manager are solely for
the purpose of providing nonmedical management and administrative services to
Practice to enable Practice to devote its full time and energies to the
professional conduct of its medical practice and provision of Medical Services
to its patients and not to administration or practice management. Practice,
through the Physicians and Optometrists, shall be responsible for and shall have
complete authority, responsibility, supervision and control over the opticians
and other employees of Business Manager providing services in connection with
the Non-Ophthalmic Business, consistent with the requirements necessary to
satisfy the "in-office ancillary service exception" to the Stark Act.
8.2 Status of Contractor. It is expressly acknowledged that the
--------------------
parties hereto are "independent contractors," and nothing in this Management
Services Agreement is intended and nothing shall be construed to allow either
party to exercise control or direction over the manner or method by which the
other party performs the services that are the subject matter of this Management
Services Agreement; provided that the services to be provided hereunder shall be
furnished in a manner consistent with the standards governing such services and
the provisions of this Management Services Agreement. Each party understands
and agrees that (i) neither party will withhold on behalf of the other party any
sums for income tax, unemployment insurance, social security or any other
withholding pursuant to any law or requirement of any governmental body or make
available any of the benefits afforded to its employees, (ii) all of such
payments, withholdings and benefits, if any, are the sole responsibility of the
party incurring the liability, and (iii) each party will indemnify and hold the
other harmless from any and all loss or liability arising with respect to such
payments, withholdings and benefits, if any.
8.3 Notices. Any notice, demand or communication required, permitted
-------
or desired to be given hereunder shall be in writing and shall be served on the
parties at the following respective addresses:
49
<PAGE>
Practice:
American Eye Institute, P.C.
519 State Street
New Albany, Indiana 47150
Facsimile: (812) 948-0616
Attention: Timothy E. Schmitt, M.D.
John M. Schmitt
with a copy to:
Lowe Gray Steele & Darko
Bank One Tower
111 Monument Circle, Suite 4600
Indianapolis, Indiana 46204-5148
Facsimile: (317) 236-6472
Attention: Robert J. Milford, Esq.
Business Manager:
NovaMed Eyecare Management, LLC
980 North Michigan Avenue, Suite 1620
Chicago, Illinois 60611
Facsimile: (312) 664-4250
Attention: Stephen J. Winjum
John W. Lawrence, Jr.
with a copy to:
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661
Facsimile: (312) 902-1061
Attention: Steven V. Napolitano, Esq.
or to such other address, or to the attention of such other person or officer,
as any party may by written notice designate. Any notice, demand, or
communication required, permitted or desired to be given hereunder shall be sent
either (a) by hand delivery, in which case notice shall be deemed received when
actually delivered, (b) by prepaid certified or registered first class mail,
return receipt requested, in which case notice shall be deemed received five
calendar days after deposit, postage prepaid in the United States Mail, (c) by
facsimile if also delivered by hand, or deposited in the United States Mail,
postage prepaid, registered or certified mail, on or before two (2) business
days after its delivery by facsimile, in which case notice shall be deemed
received one (1) business day after the facsimile transmission, or (d) by a
nationally recognized overnight
50
<PAGE>
courier, in which case notice shall be deemed received one business day after
prepaid deposit with such courier.
8.4 Governing Law and Consent to Jurisdiction. This Management
-----------------------------------------
Services Agreement shall be governed by the laws of the State of Illinois
applicable to agreements to be performed wholly within the State of Illinois.
8.5 Assignment. Except as may be herein specifically provided to the
----------
contrary, this Management Services Agreement shall inure to the benefit of, and
be binding upon, the parties hereto and their respective legal representatives,
successors and permitted assigns; provided, however, Practice may not assign
this Management Services Agreement without the prior written consent of Business
Manager, which consent may be withheld in Business Manager's discretion. The
sale, transfer, pledge or assignment of any of the voting shares of Practice
held by any shareholder of Practice or the issuance by Practice of common or
other voting shares to any other person, or any combination of such transactions
within a period of one (1) year, such that the existing shareholders in Practice
immediately prior to such transactions or the beginning of the one-year period,
as applicable, fail to maintain a majority of the voting interests in Practice
shall be deemed an attempted assignment by Practice, and shall be null and void
unless consented to in writing by Business Manager prior to any such transfer or
issuance. Any breach of this provision, whether or not void or voidable, shall
constitute a material breach of this Management Services Agreement, and in the
event of such breach, Business Manager may terminate this Management Services
Agreement upon twenty-four (24) hours' notice to Practice. The rights and
obligations of Business Manager under this Management Services Agreement shall
not be assignable without Practice Consent; provided, however, that Business
Manager shall have the right to assign its rights, duties and obligations
hereunder, without Practice Consent: (i) to any Affiliate of Business Manager
(provided Business Manager remains primarily liable hereunder) or (ii) in
connection with and in contemplation of a reorganization, merger, consolidation
or sale of all or substantially all of the capital stock or assets of Business
Manager (or any other transaction substantially similar in effect) (provided
assignee agrees to assume all obligations hereunder). Moreover, Business
Manager shall have the right to collaterally assign its interest in this
Management Services Agreement and its other rights hereunder to any financial
institution or other third party without Practice Consent.
8.6 Arbitration. Except as expressly provided in Section 6.6 hereof,
-----------
the parties shall negotiate in good faith to resolve any controversy, dispute or
disagreement arising out of or relating to this Management Services Agreement or
the breach of this Management Services Agreement. Any matter not resolved by
negotiation shall be submitted to binding arbitration and such arbitration shall
be governed by the terms of Article XII of the Contribution and Exchange
Agreement, which, as it applies to the parties hereto, is incorporated herein by
reference in its entirety; provided, however, that nothing contained in this
Section 8.6 shall prevent either party hereto from pursuing any right or remedy
afforded it under Section 7.7 hereof.
51
<PAGE>
8.7 Waiver of Breach. The waiver by either party of a breach or
----------------
violation of any provision of this Management Services Agreement shall not
operate as, or be construed to constitute, a waiver of any subsequent breach of
the same or another provision hereof.
8.8 Enforcement. In the event either party resorts to legal action
-----------
to enforce or interpret any provision of this Management Services Agreement, the
prevailing party shall be entitled to recover the costs and expenses of such
action so incurred, including, without limitation, reasonable attorneys' fees.
8.9 Gender and Number. Whenever the context of this Management
-----------------
Services Agreement requires, the gender of all words herein shall include the
masculine, feminine and neuter, and the number of all words herein shall include
the singular and plural.
8.10 Additional Assurances. Except as may be specifically provided
---------------------
herein to the contrary, the provisions of this Management Services Agreement
shall be self-operative and shall not require further agreement by the parties;
provided, however, at the request of either party, the other party shall execute
such additional instruments and take such additional acts as are reasonable, and
as the requesting party may reasonably deem necessary, to effectuate this
Management Services Agreement.
8.11 Consents, Approvals, and Exercise of Discretion. Whenever this
-----------------------------------------------
Management Services Agreement requires any consent or approval to be given by
either party, or either party must or may exercise discretion, and except where
specifically set forth to the contrary, the parties agree that such consent or
approval shall not be unreasonably withheld or delayed, and that such discretion
shall be reasonably exercised.
8.12 Force Majeure. Neither party shall be liable or deemed to be in
-------------
default for any delay or failure in performance under this Management Services
Agreement or other interruption of service deemed to result, directly or
indirectly, from acts of God, civil or military authority, acts of public enemy,
war, accidents, explosions, earthquakes, floods, failure of transportation,
strikes or other work interruptions by either party's employees, or any other
similar cause beyond the reasonable control of either party unless such delay or
failure in performance is expressly addressed elsewhere in this Management
Services Agreement.
8.13 Severability. The parties hereto have negotiated and prepared
------------
the terms of this Management Services Agreement in good faith with the intent
that each and every one of the terms, covenants and conditions herein be binding
upon and inure to the benefit of the respective parties. Accordingly, if any
one or more of the terms, provisions, promises, covenants or conditions of this
Management Services Agreement or the application thereof to any person or
circumstance shall be adjudged to any extent invalid, unenforceable, void or
voidable for any reason whatsoever by a court of competent jurisdiction or an
arbitration tribunal, such provision shall be as narrowly construed as possible,
and each and all of the remaining terms, provisions, promises, covenants and
conditions of this Management Services Agreement or their application to other
persons or circumstances shall not be affected thereby and shall be valid and
enforceable
52
<PAGE>
to the fullest extent permitted by law. To the extent this Management Services
Agreement is in violation of applicable law, then the parties agree to negotiate
in good faith to amend the Management Services Agreement, to the extent possible
consistent with its purposes, to conform to law.
8.14 Divisions and Headings. The divisions of this Management
----------------------
Services Agreement into articles, sections and subsections, and the use of
captions and headings in connection therewith is solely for convenience and
shall not affect in any way the meaning or interpretation of this Management
Services Agreement.
8.15 Amendments and Management Services Agreement Execution. This
------------------------------------------------------
Management Services Agreement and amendments hereto shall be in writing and
executed in multiple copies on behalf of Practice and Business Manager by their
respective duly authorized officers. Each multiple copy shall be deemed an
original, but all multiple copies together shall constitute one and the same
instrument.
8.16 Entire Management Services Agreement. With respect to the
------------------------------------
subject matter of this Management Services Agreement, this Management Services
Agreement supersedes all previous contracts and constitutes the entire agreement
between the parties. Neither party shall be entitled to benefits other than
those specified herein. No prior oral statements or contemporaneous
negotiations or understandings or prior written material not specifically
incorporated herein shall be of any force and effect, and no changes in or
additions to this Management Services Agreement shall be recognized unless
incorporated herein by amendment as provided herein, such amendment to become
effective on the date stipulated in such amendment. The parties specifically
acknowledge that, in entering into and executing this Management Services
Agreement, the parties rely solely upon the representations and agreements
contained in this Management Services Agreement and no others.
* * *
53
<PAGE>
IN WITNESS WHEREOF, Practice and Business Manager have caused this
Management Services Agreement to be executed by their duly authorized
representatives, all as of the Effective Date.
PRACTICE:
AMERICAN EYE INSTITUTE, P.C.,
an Indiana professional corporation
By: /s/ Timothy E. Schmitt, M.D.
------------------------------------
Name: Timothy E. Schmitt, M.D.
------------------------------------
Title: President
------------------------------------
BUSINESS MANAGER:
NOVAMED EYECARE MANAGEMENT, LLC,
a Delaware limited liability company
By: /s/ Stephen J. Winjum
------------------------------------
Stephen J. Winjum,
President and Chief Executive Officer
54
<PAGE>
EXHIBIT 1.4
BUDGET
See attached.
<PAGE>
<TABLE>
<CAPTION>
American Eye Institute (Louisville Optical overlay)
- ------------------------------------------------------------------------------------------------------------
1998 MSA Budget (Fourth Quarter)
Description Oct Nov Dec Total 1998 %
- ---------------------------------- ----------------- -------------------
<S> <C> <C> <C> <C><C> <C><C><C>
Non-Ophthalmic Business * * * * * * * *
Revenue * * * * * * * *
- ------- * * * * * * * *
Optometric revenue * * * * * * * *
ASC facility revenue * * * * * * * *
Optical revenue - glasses * * * * * * * *
Optical revenue - contacts * * * * * * * *
Optometric revenue * * * * * * * *
Other revenue * * * * * * * *
Contractual adjustments * * * * * * * *
* * * * * * * *
Other Revenue * * * * * * * *
* * * * * * * *
Non-Ophthalmic Business Budgeted Revenue * * * * * * * *
* * * * * * * *
Expenses * * * * * * * *
- -------- * * * * * * * *
Salaries and Wages: * * * * * * * *
Center Staff Salaries: * * * * * * * *
----------------------
Administration * * * * * * * *
Technician * * * * * * * *
Nurses * * * * * * * *
Other salaries * * * * * * * *
Overtime pay * * * * * * * *
* * * * * * * *
Payroll Taxes & Benefits * * * * * * * *
------------------------
Vacation & leave pay * * * * * * * *
Bonuses * * * * * * * *
Incentive compensation * * * * * * * *
FICA Tax * * * * * * * *
SUI * * * * * * * *
FUI * * * * * * * *
Other payroll taxes * * * * * * * *
Labor allocation * * * * * * * *
401k Match * * * * * * * *
Life & Disability ins. * * * * * * * *
Employee Health ins. * * * * * * * *
* * * * * * * *
Benefits % * * * * * * * *
Total Salaries & Wages * * * * * * * *
* * * * * * * *
MD/OD Compensation * * * * * * * *
* * * * * * * *
* * * * * * * *
Pharmaceuticals and supplies: * * * * * * * *
Optometric supplies * * * * * * * *
ASC - general * * * * * * * *
ASC - refractive * * * * * * * *
Pillar point fees * * * * * * * *
Optical COS - glasses * * * * * * * *
Optical COS - contacts * * * * * * * *
Optometric supplies * * * * * * * *
Total Pharmac. & Supplies * * * * * * * *
Non-Ophthalmic Business * * * * * * * *
G&A expenses: * * * * * * * *
* * * * * * * *
</TABLE>
*Confidential portions omitted and filed separately with the commission.
21
<PAGE>
<TABLE>
<CAPTION>
American Eye Institute (Louisville Optical overlay)
- ------------------------------------------------------------------------------------------------------------
1998 MSA Budget (Fourth Quarter)
Description Oct Nov Dec Total 1998 %
- ---------------------------------- ----------------- -------------------
<S> <C> <C> <C> <C><C> <C><C><C>
Office & Administrative: * * * * * * * *
Office Supplies * * * * * * * *
---------------
Office supplies * * * * * * * *
Software/computer expense * * * * * * * *
Food service * * * * * * * *
Bank charges * * * * * * * *
Credit card fees * * * * * * * *
* * * * * * * *
Postage & freight * * * * * * * *
Employee & patient programs * * * * * * * *
Continuing education * * * * * * * *
Dues and subscriptions * * * * * * * *
Telephone * * * * * * * *
Utilities * * * * * * * *
Printing * * * * * * * *
Misc. office expense * * * * * * * *
Total Office & Admin. Expenses * * * * * * * *
* * * * * * * *
* * * * * * * *
Marketing: * * * * * * * *
Advertising * * * * * * * *
Marketing - Other * * * * * * * *
Total Marketing * * * * * * * *
* * * * * * * *
* * * * * * * *
Professional and Service Fees: * * * * * * * *
Legal * * * * * * * *
Accounting * * * * * * * *
Other prof. consulting * * * * * * * *
Collection fees * * * * * * * *
Answering service * * * * * * * *
Linens & uniforms * * * * * * * *
Other services * * * * * * * *
Temporary services * * * * * * * *
Total Professional Fees * * * * * * * *
* * * * * * * *
* * * * * * * *
Rental Expense: * * * * * * * *
Building rent * * * * * * * *
Other office rent & parking * * * * * * * *
Equipment leases * * * * * * * *
Optical equipment rent * * * * * * * *
Total Rent Expense * * * * * * * *
* * * * * * * *
* * * * * * * *
Repairs & Maintenance: * * * * * * * *
Building maintenance * * * * * * * *
Repairs - equipment * * * * * * * *
Non-capitalized tools * * * * * * * *
Total Repairs & Maint. * * * * * * * *
Non-Ophthalmic Business * * * * * * * *
* * * * * * * *
Taxes and Insurance: * * * * * * * *
MalOptometric * * * * * * * *
Liability & casualty * * * * * * * *
Workers' compensation ins. * * * * * * * *
</TABLE>
* Confidential portions omitted and filed separately with the commission.
22
<PAGE>
<TABLE>
<CAPTION>
American Eye Institute (Louisville Optical overlay)
- ------------------------------------------------------------------------------------------------------------
1998 MSA Budget (Fourth Quarter)
Description Oct Nov Dec Total 1998 %
- ---------------------------------- ----------------- -------------------
<S> <C> <C> <C> <C><C> <C><C><C>
D&O * * * * * * * *
Key Man Life * * * * * * * *
Other insurance * * * * * * * *
Property tax * * * * * * * *
Sales & Use tax * * * * * * * *
Property tax * * * * * * * *
Other taxes * * * * * * * *
Total Taxes & Ins. * * * * * * * *
* * * * * * * *
* * * * * * * *
Other Expenses: * * * * * * * *
Travel & entertainment * * * * * * * *
Recruitment & relocation * * * * * * * *
Auto & Van * * * * * * * *
Contracted patient transport. * * * * * * * *
Donations and gifts * * * * * * * *
Allocated IT/Computing costs * * * * * * * *
Other * * * * * * * *
Total Other Expense * * * * * * * *
* * * * * * * *
Total G&A expenses * * * * * * * *
* * * * * * * *
* * * * * * * *
Depreciation & Amortization: * * * * * * * *
Building depreciation * * * * * * * *
Equipment depreciation * * * * * * * *
Goodwill amortization * * * * * * * *
Other intangible amortization * * * * * * * *
Amortization of deferred charges * * * * * * * *
* * * * * * * *
Total Depr. and Amortization * * * * * * * *
* * * * * * * *
* * * * * * * *
Interest (income) and expense: * * * * * * * *
Depository Interest * * * * * * * *
Investment Income * * * * * * * *
Bank Line Interest Expense * * * * * * * *
Cap. Lease Interest Expense * * * * * * * *
Other Interest Expense * * * * * * * *
* * * * * * * *
Total Interest (income)/expense * * * * * * * *
* * * * * * * *
* * * * * * * *
Non-Ophthalmic Business Budgeted
Office Expense * * * * * * * *
* * * * * * * *
Non-Ophthalmic Business * * * * * * * *
Non-Ophthalmic Business Budgeted * * * * * * * *
Practice Expense * * * * * * * *
* * * * * * * *
Non-Ophthalmic Business Monthly Fee * * * * * * * *
</TABLE>
* Confidential portions omitted and filed separately with the commission.
23
<PAGE>
EXHIBIT 1.33(g)
EQUIPMENT
<TABLE>
<CAPTION>
Approximate
Monthly
Equipment Lessor Payments ($)
- ----------------------------------------------- -------------------------- ----------------
<S> <C> <C>
Excimer PNC Leasing 7,800.00
Excimer Upgrade PNC Leasing 2,051.00
Evansville Equipment PNC Leasing 1,233.00
Retina Lease 1 PNC Leasing 3,400.00
Retina Lane Equip. PNC Leasing 2,180.00
Voice Mail System* Tech. Credit 271.00
A-Scan Copelco 250.00
Motor Vehicle Lease** (1996 Taurus) FMCC 493.70
Pagers 91.00
Scale and Postage Machine 90.00
</TABLE>
* Fifty percent of lease cost will be allocated to the ambulatory surgery
center operations of NovaMed Eye Surgery Center of New Albany, LLC.
** This expense will become a Practice Expense upon either: (i) Dr. Lazarus
terminating his employment or (ii) the lease expense no longer being
deducted from Dr. Lazarus' salary.
<PAGE>
EXHIBIT 1.20
OPTOMETRISTS EXCLUDED FROM DEFINITION OF
NON-OPHTHALMIC BUSINESS REVENUE
.519 State Street, New Albany, Indiana 47150
.1700 South Green River Road, Evansville, Indiana 47715
.735 Main Street, Ferdinand, Indiana 47532
.6440 Dutchman's Parkway, Louisville, Kentucky 40205
<PAGE>
EXHIBIT 1.45
PREEXISTING OBLIGATION PAYMENTS
Subject to a letter agreement between the parties, a Lease Agreement with PNC
Leasing (Lease No. 23691) regarding Retinal Operating Room Equipment at Floyd
Memorial Hospital:
Lease Agreement with Federal Leasing Corp. re: Optical Edger
Motor Vehicle Lease Agreement with Raceway Ford re: Ford Explorer
<PAGE>
EXHIBIT 3.1
MEMBERS OF INITIAL POLICY BOARD
Timothy E. Schmitt, M.D.
E. Michele Vickery
<PAGE>
EXHIBIT 4.8
POWER OF ATTORNEY
See tab 14.
<PAGE>
EXHIBIT 5.1
FORM OF EMPLOYMENT AGREEMENT (SHAREHOLDERS)
See tab 3.
<PAGE>
EXHIBIT 5.1A
LIST OF INITIAL PHYSICIAN-SHAREHOLDER
Timothy E. Schmitt, M.D.
<PAGE>
EXHIBIT 5.1B
FORM OF BUY-SELL AGREEMENT
The Buy-Sell Agreement referenced in Section 5.1(b) will address the following
concepts to the satisfaction of Business Manager and its counsel:
Applicable state statutes generally require that the shares of a
professional corporation held by a physician-shareholder be transferred to
a person qualified to render professional medical services if (i) such
shareholder dies, (ii) such shareholder becomes a disqualified person, or
(iii) the shares of a professional corporation are transferred by operation
of law or court decree to a disqualified person. Illinois law requires
that the articles of incorporation, by-laws or a separate agreement provide
for the purchase or redemption of the shares of any shareholder upon death
or disqualification. Accordingly, the Buy-Sell Agreement must contain a
provision providing for (i) redemption, (ii) cross-purchase, or (iii) a
combination thereof, in the case of a shareholder's death or
disqualification. In addition, the transfer of shares to disqualified
persons must be specifically prohibited.
A provision must also be included which governs succession in the case of
death or disqualification of the last remaining shareholder of the
professional corporation. Business Manager and Practice will work together
to structure an arrangement mutually acceptable to both parties.
Specifically, the Buy-Sell Agreement will incorporate the provisions set
forth on Schedule 1 attached to this Exhibit 5.1B.
<PAGE>
SCHEDULE 1
TO
EXHIBIT 5.1B
Definitions.
- -----------
"Act" means the [applicable state Medical Corporation Act or Professional
Corporation Act].
"NovaMed" means NovaMed Eyecare Management, LLC, a Delaware limited
liability company.
"NovaMed Agreement" means that certain ___________ Agreement dated as of
_________ __, 199_, by and among the Corporation, the Shareholders and NovaMed.
["Partnership" means the limited partnership formed pursuant to that
certain Limited Partnership Agreement by and between __________ and __________,
dated ______________.] [If applicable]
"Selling Shareholder" means a Shareholder affected by a Triggering Event
other than a Final Triggering Event.
"Shares" means the shares of common stock of the Corporation, and any
shares of any other class of stock, presently authorized and issued or which the
Corporation may hereafter authorize and issue, including subscription and other
purchase rights relative to any such shares of stock and all securities and
obligations convertible into such shares of stock, in each case whether now or
hereafter issued.
"Transfer" means any sale, gift, bequest, distribution, disposition,
assignment, pledge or any other voluntary or involuntary transfer, disposition
or encumbrance, including any disposition by operation of law.
"Triggering Event" means any of the following events:
(a) the death of a Shareholder;
(b) the disability of a Shareholder (which is defined as a
Shareholder's inability to engage in the practice of medicine for ninety
(90) days within any period of one hundred eighty (180) consecutive days);
(c) the disqualification of a Shareholder from the practice of
medicine;
(d) the termination of a Shareholder's employment or active
involvement with the Corporation for any reason; or
<PAGE>
(e) the voluntary or involuntary transfer, transfer by operation of
law (including without limitation a transfer in connection with a divorce
or bankruptcy), or any other transfer or attempted transfer of Shares or
any right or interest therein in violation of this Agreement.
Restriction On Transfer.
- -----------------------
Each Shareholder agrees not to make any Transfer of Shares that he or she
now owns or may hereafter own, outright or beneficially, except in accordance
with and as expressly permitted in this Agreement. Except as expressly
permitted in this Agreement, no Transfer of Shares may be made by any
Shareholder without the prior written consent of the remaining Shareholders, and
no such Transfer shall be effective unless and until the Transferee agrees in
writing to be subject to and bound by all of the terms, conditions and
restrictions of this Agreement and the NovaMed Agreement by signing a
counterpart hereof and thereof. Any Transfer of Shares not in strict compliance
with this Agreement shall be null and void ab initio.
Additional Shareholders.
- -----------------------
The parties hereto acknowledge and agree that from time to time other
physicians may acquire Shares in the Corporation. Notwithstanding the
foregoing, the Corporation shall not issue any Shares to another person unless
such person agrees in writing to be subject to and bound by all of the terms,
conditions and restrictions of this Agreement and the NovaMed Agreement by
signing a counterpart hereof and thereof.
Licensing Requirement.
- ---------------------
Under no circumstances shall any Transfer or issuance of Shares of the
Corporation to an additional shareholder be valid unless the proposed new or
additional shareholder is a licensed physician in good standing under the laws
of the State of Missouri, except as otherwise permitted under the Act.
Final Triggering Event.
- ----------------------
(a) Application. Upon the occurrence of a Triggering Event affecting all
-----------
Shareholders simultaneously or affecting the last remaining Shareholder(s)
(each, a "Final Triggering Event"), the following provisions shall apply and
shall supersede any other provision contained in this Agreement relating to
cross-purchases or redemptions of a Selling Shareholder's Shares.
(b) Repurchase of Shares. Promptly upon the occurrence of a Final
--------------------
Triggering Event, but in any event not later than within three (3) days, the
Shareholder(s) to whom such Final Triggering Event relates and any Selling
Shareholder with respect to whom this Section ___ supersedes the application of
any other provision of this Agreement pursuant to subsection (a) above, and/or
such Shareholders' estates, transferees or other representatives (all such
Shareholders or such Shareholders' estates, transferees or other
representatives, as the case may be, hereinafter referred to as "Terminating
Shareholders") shall notify NovaMed's Medical Director of the occurrence of such
Final Triggering Event, and NovaMed's Medical Director shall have the right to
purchase Shares in accordance with subsection (c) below or to designate a New
<PAGE>
Shareholder in accordance with the provisions of the NovaMed Agreement. Upon
such designation, the Terminating Shareholders shall (i) sell to the
Corporation, and the Corporation shall purchase from each such Terminating
Shareholder, ninety-nine percent (99%) of all Shares then held by each such
Terminating Shareholder, and (ii) sell to NovaMed's Medical Director or the New
Shareholder (as defined in the NovaMed Agreement), as the case may be, and
NovaMed's Medical Director or such New Shareholder, as the case may be, shall
purchase from each such Terminating Shareholder, the remainder of the Shares
then held by each such Terminating Shareholder, in accordance with the
provisions of this Section ___.
(c) Purchase Price. The purchase price to be paid for each Terminating
--------------
Shareholder's Shares (the "Purchase Price") shall be as follows:
(i) The Purchase Price for the Shares to be purchased by the
Corporation shall consist of each Terminating Shareholder's pro rata share
of the [Partnership] interests held by the Corporation.
(ii) The Purchase Price for the Shares to be purchased by NovaMed's
Medical Director or the New Shareholder, as the case may be, shall be an
amount equal to ______________________________________.
(d) Closing. The closing of any purchase and sale pursuant to this Section
-------
___ (the "Closing") shall take place within [thirty (30)] days after the Final
Triggering Event at the principal office of the Corporation or at such other
place as the parties to such purchase and sale may mutually agree. At the
Closing, each Terminating Shareholder shall deliver certificates for the Shares
to be purchased, duly endorsed in blank, and such Shares shall be conveyed (i)
to the Corporation effective as of the close of business of the day of the Final
Triggering Event, and (ii) to NovaMed's Medical Director or the New Shareholder,
as the case may be, effective as of the opening of business on the day after the
Final Triggering Event, in each case free and clear of all claims, liens,
encumbrances and other rights of third parties, and the Corporation and
NovaMed's Medical Director or the New Shareholder, as the case may be, shall
deliver the Purchase Price in the form of instruments of transfer, in form and
substance satisfactory to the Terminating Shareholders, assigning and
transferring to the Terminating Shareholders, effective as of the date of the
Final Triggering Event, each Terminating Shareholder's share of the
[Partnership] interests and all of the Corporation's right, title and interest
therein, free and clear of all claims, liens, encumbrances and other rights of
third parties, or in immediately available funds, as applicable.
(e) Taxable Year. The Corporation's taxable year shall be closed as of the
------------
close of business of the day of the Final Triggering Event.
(f) Violation of Law. In the event that the consummation of the purchase
----------------
and sale of Shares as contemplated under this Section ___ violates applicable
law, the Terminating Shareholders and NovaMed's Medical Director shall in good
faith negotiate and consummate an alternative transaction structure, including
without limitation, the purchase of the Corporation's assets and assumption of
the Corporation's liabilities by NovaMed's Medical Director or his designee,
which will allow (i) the continuation of the Corporation's business by the
Corporation or a successor entity, (ii) the continued performance by the
Corporation or a successor entity and
<PAGE>
NovaMed of their respective obligations under that certain Management Services
Agreement by and between NovaMed and the Corporation, dated as of _______ __,
199_, and (iii) the transfer of the [Partnership] interests held by the
Corporation to the Terminating Shareholders.
(g) NovaMed's Failure to Designate New Shareholder. In the event that
----------------------------------------------
NovaMed's Medical Director fails to elect to purchase Shares or to designate a
New Shareholder as required pursuant to the NovaMed Agreement, the provisions of
this Section ___ shall not be binding on the Corporation or the Terminating
Shareholders.
Legend on Certificates.
- ----------------------
The certificates representing all Shares now or hereafter owned by the
Shareholders shall be subject to the terms of this Agreement, and shall bear the
following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A SHAREHOLDERS'
AGREEMENT, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE
CORPORATION. THE SHARES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED,
HYPOTHECATED, OR OTHERWISE DISPOSED OF EXCEPT IN STRICT ACCORDANCE WITH THE
TERMS OF THE SHAREHOLDERS' AGREEMENT. BY ACCEPTING THE SHARES OF STOCK
EVIDENCED BY THIS CERTIFICATE, THE HOLDER AGREES TO BE BOUND BY THE
SHAREHOLDERS' AGREEMENT.
Termination.
- -----------
This Agreement and all restrictions on the transfer of Shares created
hereby shall terminate upon the bankruptcy or receivership of the Corporation or
the execution by all parties hereto of a written instrument terminating this
Agreement. Termination of this Agreement for any reason shall not affect any
right or remedy existing hereunder prior to the effective date of termination.
Binding Effect.
- --------------
This Agreement is binding upon, and shall inure to the benefit of, the
Corporation, its successors, and assigns and to the Shareholders and their
respective heirs, personal representatives, successors, and assigns.
<PAGE>
EXHIBIT 5.2A
FORM OF EMPLOYMENT AGREEMENT (NONSHAREHOLDERS)
See attached.
<PAGE>
EXHIBIT 5.8
NAMES
.Louisville Optical
.Doctors Eyecare
.Advantage Optical
<PAGE>
EXHIBIT 6.1
EQUIPMENT LEASE
See tab 17.
<PAGE>
Exhibit 10.10
MANAGEMENT SERVICES AGREEMENT
BY AND BETWEEN
NOVAMED EYECARE MANAGEMENT, LLC,
a Delaware limited liability company,
AND
DOMINION EYE ASSOCIATES, P.C.,
a Virginia professional corporation
EFFECTIVE January 1, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
ARTICLE I............................................................. 2
1.1 Adjusted Gross Revenue....................................... 2
1.2 Adjustments.................................................. 2
1.3 Affiliate.................................................... 2
1.4 Ancillary Revenue............................................ 2
1.5 Base Management Fee.......................................... 2
1.6 Budget....................................................... 2
1.9 Budgeted Practice Expense.................................... 3
1.10 Business Manager............................................ 3
1.11 Business Manager Consent.................................... 3
1.12 Business Manager Expense.................................... 3
1.13 Capitation/Case Rate Revenues............................... 3
1.14 Confidential Information.................................... 4
1.17 Designated Allied Health Professionals...................... 4
1.18 GAAP........................................................ 4
1.20 Management Fee.............................................. 5
1.21 Management Services......................................... 5
1.22 Management Services Agreement............................... 5
1.24 Medical Advisory Board...................................... 5
1.25 Medical Services............................................ 5
1.29 Office...................................................... 5
1.30 Office Expense.............................................. 5
1.31 Operating Board............................................. 7
1.32 Optometrist................................................. 7
1.33 Physician................................................... 7
1.34 Physician Discretionary Expenses............................ 7
1.35 Physician-Employee.......................................... 8
1.36 Physician-Shareholder....................................... 8
1.37 Policy Board................................................ 8
1.38 Practice.................................................... 8
1.39 Practice Consent............................................ 8
1.40 Practice Expense............................................ 8
</TABLE>
<PAGE>
<TABLE>
<S> <C>
1.41 Practice Territory.......................................... 8
1.42 Preexisting Obligation Payments............................. 8
1.43 Professional Services Revenues.............................. 8
1.44 Regional Practices.......................................... 9
1.45 Representatives............................................. 9
1.46 Stark Act................................................... 9
1.48 Subcontractor Costs......................................... 9
1.49 Term........................................................ 9
ARTICLE II............................................................ 9
2.1 Appointment.................................................. 9
2.2 Authority.................................................... 9
2.3 Patient Referrals............................................ 10
2.4 Internal Practice Matters.................................... 10
2.5 Practice of Medicine......................................... 10
ARTICLE III........................................................... 10
3.1 Formation and Operation of the Policy Board.................. 10
3.2 Duties and Responsibilities of the Policy Board.............. 11
3.3 Medical Decisions............................................ 12
ARTICLE IV............................................................ 12
4.1 Office and Equipment......................................... 13
4.2 Medical Supplies............................................. 13
4.3 Support Services............................................. 13
4.4 Quality Assurance, Risk Management, and Utilization Review... 14
4.5 Licenses and Permits......................................... 14
4.6 Personnel.................................................... 14
4.7 Contract Negotiations........................................ 14
4.8 Billing and Collection....................................... 15
4.9 Priority of Payments......................................... 17
4.11 Reports and Records......................................... 19
4.12 Recruitment of Physicians and Optometrists.................. 19
4.13 Confidential and Proprietary Information.................... 19
4.14 Business Manager's Insurance................................ 20
4.15 No Warranty................................................. 21
ARTICLE V............................................................. 21
5.1 Organization and Operation................................... 21
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.2 Practice Personnel........................................... 22
5.3 Professional Standards....................................... 23
5.4 Medical Services............................................. 23
5.5 Peer Review/Quality Assurance................................ 24
5.7 Confidential and Proprietary Information..................... 24
5.8 Noncompetition............................................... 24
5.9 Name, Trademark.............................................. 26
5.10 Medical Advisory Board...................................... 26
5.11 Indemnification of Business Manager......................... 27
ARTICLE VI............................................................ 27
6.1 Definitions.................................................. 27
6.2 Monthly Practice Expense..................................... 28
6.3 Management Fee............................................... 28
6.4 Reasonable Value............................................. 28
6.5 Payment of Management Fee.................................... 29
6.6 Accounts Receivable.......................................... 29
6.7 Disputes Regarding Fees...................................... 29
ARTICLE VII........................................................... 30
7.1 Initial and Renewal Term..................................... 30
7.2 Termination.................................................. 30
7.3 Effects of Termination....................................... 31
7.4 Repurchase Obligation........................................ 32
7.5 Repurchase Option............................................ 33
7.6 Closing of Repurchase........................................ 34
7.7 Rights and Remedies.......................................... 35
7.8 Interpretation............................................... 35
ARTICLE VIII.......................................................... 35
8.1 Administrative Services Only................................. 36
8.2 Status of Contractor......................................... 36
8.3 Notices...................................................... 36
8.4 Governing Law and Consent to Jurisdiction.................... 37
8.5 Assignment................................................... 37
8.6 Arbitration.................................................. 38
8.7 Waiver of Breach............................................. 38
8.8 Enforcement.................................................. 38
8.9 Gender and Number............................................ 38
</TABLE>
<PAGE>
<TABLE>
<S> <C>
8.10 Additional Assurances....................................... 38
8.11 Consents, Approvals, and Exercise of Discretion............. 38
8.12 Force Majeure............................................... 38
8.13 Severability................................................ 39
8.14 Divisions and Headings...................................... 39
8.15 Amendments and Management Services Agreement Execution...... 39
8.16 Entire Management Services Agreement........................ 39
</TABLE>
<PAGE>
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT is made and entered into effective as of
January 1, 1997 (the "Effective Date"), by and among NovaMed Eyecare Management,
LLC, a Delaware limited liability company ("NovaMed LLC"), and Dominion Eye
Associates, P.C., a Virginia professional corporation ("Practice").
RECITALS
This Management Services Agreement is made with reference to the following
facts:
A. Business Manager is a validly existing Delaware limited liability
company which is in the business of providing physician practice management
services to medical practices.
B. Business Manager is an indirect, wholly owned subsidiary of NovaMed
Holdings Inc. ("Holdings"). In performing services hereunder, Business Manager
may utilize various resources, personnel and assets of Holdings and NovaMed of
Richmond, Inc., another wholly owned subsidiary of Holdings.
C. Practice is a validly existing Virginia professional corporation,
formed for and engaged in the conduct of a medical practice and the provision of
medical services to the general public in and around the Richmond metropolitan
area through individual physicians who are licensed to practice medicine in the
Commonwealth of Virginia and who are employed or otherwise retained by Practice.
D. Practice desires to focus its energies, expertise and time on the
practice of medicine and on the delivery of medical services to patients, and
desires to delegate the business functions of its medical practice to persons
with business expertise.
E. Practice desires to engage Business Manager to provide all management,
administrative and business services as are necessary or appropriate for the
day-to-day administration of the nonmedical aspects of Practice's medical
practice, and Business Manager desires to provide such services upon the terms
and conditions hereinafter set forth.
<PAGE>
F. Practice and Business Manager have determined a fair market value for
the services to be rendered by Business Manager and, based on this fair market
value, have developed a formula for compensating Business Manager that will
allow the parties to establish a relationship permitting each party to devote
its skills and expertise to the appropriate responsibilities and functions.
G. Business Manager is willing to commit significant resources to
Practice based upon the representation and warranty of Practice that the current
shareholder of Practice will continue to practice medicine for Practice in the
Practice Territory (as hereinafter defined) during the term of this Management
Services Agreement pursuant to an employment agreements (the "Employment
Agreements") between Practice and Physician-Shareholder (as hereinafter
defined).
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
When used in this Management Services Agreement, the following terms shall
have the meanings set forth below.
1.1 Adjusted Gross Revenue. The term "Adjusted Gross Revenue" shall mean
----------------------
the sum of Professional Services Revenue and Ancillary Revenue.
1.2 Adjustments. The term "Adjustments" shall mean any adjustments on an
-----------
accrual basis in accordance with GAAP for uncollectible accounts, Medicare,
Medicaid and other payor contractual adjustments, discounts, worker's
compensation adjustments, professional courtesies and other reductions in
collectible revenue.
1.3 Affiliate. The term "Affiliate" shall mean any person, firm or entity
---------
which directly or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with, any other person (including
members of such person's family), firm or entity.
1.4 Ancillary Revenue. The term "Ancillary Revenue" shall mean all other
-----------------
revenue of Practice, Physicians and Optometrists actually recorded each month
(net of Adjustments) which is not Professional Services Revenue and shall
include, without limitation, any revenues of Practice or its Physicians and
Optometrists which are derived from Ancillary Services (as hereinafter defined);
provided, however, that Ancillary Revenue shall not include any non-Professional
Services Revenue of Stephan C. Volk, M.D. until the aggregate amount of such
revenues exceed $20,000 in any calendar year, at which time any revenues in
excess of such amount shall be deemed Ancillary Revenues.
1.4A Ancillary Services. The term "Ancillary Services" shall mean
------------------
services, other than Medical Services, related to professionally related
activities such as expert witness fees, and any royalties, honoraria or the like
from authored documents or speeches.
<PAGE>
1.5 Base Management Fee. The term "Base Management Fee" shall mean the
-------------------
amount determined pursuant to Section 6.1 hereof.
1.6 Budget. The term "Budget" shall mean an operating budget and capital
------
expenditure budget for each fiscal year as prepared by Business Manager and
adopted by Practice in accordance with Section 4.10 hereof. The initial Budget
shall be attached hereto and incorporated herein as Exhibit 1.6. Each succeeding
-----------
Budget subsequently adopted pursuant to Section 4.10 hereof shall also be
incorporated herein.
1.7 Budgeted Adjusted Gross Revenue. The term "Budgeted Adjusted Gross
-------------------------------
Revenue" shall have the meaning set forth in Section 6.1 hereof.
1.8 Budgeted Office Expense. The term "Budgeted Office Expense" shall
-----------------------
have the meaning set forth in Section 6.1 hereof.
1.9 Budgeted Practice Expense. The term "Budgeted Practice Expense" shall
-------------------------
have the meaning set forth in Section 6.1 hereof.
1.10 Business Manager. The term "Business Manager" shall have the meaning
----------------
described in the introductory paragraph and the recitals to this Management
Services Agreement, or any successor in interest.
1.11 Business Manager Consent. The term "Business Manager Consent" shall
------------------------
mean the consent granted by any of Business Manager's representatives to the
Policy Board. When any provision of this Management Services Agreement requires
Business Manager Consent, such consent shall not be unreasonably withheld,
conditioned or delayed and shall be binding on Business Manager.
1.12 Business Manager Expense. The term "Business Manager Expense" shall
------------------------
mean any expense or cost incurred by Business Manager which does not relate
directly to the provision of services to Practice. Such expenses or costs shall
include, without limitation:
(a) all salaries, benefits and other direct costs (including payroll
and other withholding taxes) of executive officers and management personnel of
Business Manager or employees of Business Manager who devote substantially all
of their time and effort to the operations of Business Manager rather than the
operations of Practice;
(b) the expense of using, leasing, maintaining or repairing the
offices of Business Manager;
(c) the cost of capital to finance the general business obligations
of Business Manager, and any costs associated with raising such capital;
(d) the costs of any consultants or advisors who provide services for
Business Manager in connection with its business operations, such as accounting,
financial and legal services, other than those services which constitute Office
Expense pursuant to Section 1.30 hereof; and
3
<PAGE>
(e) all income taxes relating to the general business operations of
Business Manager
1.13 Capitation/Case Rate Revenues . The term "Capitation/Case Rate
-----------------------------
Revenues" shall mean all revenues from managed care organizations, third party
payors or employers in which payments are based on a per member, case rate or
other similar basis (i.e., all payments which are not based on a fee-for-service
payment methodology or discounted fee-for-service reimbursement methodology) for
the medical needs of a subscribing patient. Capitation/Case Rate revenues shall
include any associated plan payments received such as patient co-payments,
incentive bonuses or incentive fund penalties. All Capitation/Case Rate
Revenues shall be allocated in good faith on an actuarial basis as follows:
(a) Professional Services Capitation. The portion of payments
--------------------------------
designated for physician services currently performed by Practice; Professional
Services Capitation shall be Professional Services Revenues; and
(b) Subcontractor Capitation Revenues. The portion of payments
---------------------------------
designated for physicians, optometrists or other medical or optometric services
that will be Subcontractor Costs (e.g., reinsurance, hospitalization, surgical
facility fees, optical dispensary services, etc.), including incentive bonuses
or penalties, and an estimate for incurred but not reported claims;
Subcontractor Capitation Revenues shall not be Professional Services Revenues.
Subject to the approval of the Policy Board, Business Manager shall develop and
implement an appropriate allocation methodology for each Capitation/Case Rate
Revenues contract.
1.14 Confidential Information. The term "Confidential Information"
------------------------
shall mean any and all financial, technical, commercial or other information of
Business Manager or Practice, as appropriate (whether written or oral),
including, without limitation, all information, notes, studies, patient lists
and records, reports, analyses, financial statements, compilations, studies,
forms, business or management methods, marketing data, fee schedules, peer
review information, credentialing information, quality assurance and utilization
review information, interpretations, projections, forecasts or trade secrets of
Business Manager or of Practice, as applicable, whether or not such Confidential
Information is disclosed or otherwise made available to one party by the other
party pursuant to this Management Services Agreement. Confidential Information
shall also include the terms and provisions of this Management Services
Agreement and any transactions consummated or documents executed by the parties
pursuant to this Management Services Agreement. Confidential Information does
not include any information that (i) is or becomes generally available to and
known by the public (other than as a result of an unpermitted disclosure
directly or indirectly by the receiving party or its affiliates, advisors or
Representatives); (ii) is or becomes available to the receiving party on a
nonconfidential basis from a source other than the furnishing party or its
affiliates, advisors or Representatives, provided that such source is not and
was not bound by a confidentiality agreement with or other obligation of secrecy
to the furnishing party of which the receiving party has knowledge at the time
of such disclosure; or (iii) has already been developed, or is hereafter
independently acquired or developed, by the receiving party without violating
any confidentiality agreement with or other obligation of secrecy to the
furnishing party.
1.15 Intentionally deleted.
---------------------
4
<PAGE>
1.16 Depository Account. The term "Depository Account" shall mean the
------------------
bank account referred to in Section 4.8 hereof.
1.17 Designated Allied Health Professionals. The term "Designated Allied
--------------------------------------
Health Professionals" shall mean those medical professionals other than
Physicians and Optometrists whose services must be rendered "incident to" a
Physician's services in order to be billable under the Medicare program.
1.18 GAAP. The term "GAAP" shall mean generally accepted accounting
----
principles set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants,
statements and pronouncements of the Financial Accounting Standards Board, or
other statements, practices and procedures as may be approved by a significant
segment of the accounting profession, which are applicable to the circumstances
as of the date of the determination.
1.19 Managed Care Contract. The term "Managed Care Contract" shall
---------------------
include any Capitation/Case Rate Revenues contract, or any contracts based on a
fee-for-service payment methodology or discounted fee-for-service reimbursement
methodology and other agreements with third party payors, alternative delivery
systems or other purchasers of group health care services.
1.20 Management Fee. The term "Management Fee" shall mean Business
--------------
Manager's compensation as described in Article VI hereof.
1.21 Management Services. The term "Management Services" shall mean the
-------------------
business, administrative and management services to be provided for Practice
including, without limitation, the provision of equipment, supplies, support
services, nonphysician personnel, office space, management, administration,
financial recordkeeping and reporting, information systems and all other
business office services necessary for the nonmedical operations of Practice.
1.22 Management Services Agreement. The term "Management Services
-----------------------------
Agreement" shall mean this Management Services Agreement by and between Practice
and Business Manager and any amendments hereto.
1.23 Intentionally deleted.
---------------------
1.24 Medical Advisory Board. The term "Medical Advisory Board" shall have
----------------------
the meaning set forth in Section 5.9 hereof.
1.25 Medical Services. The term "Medical Services" shall mean the
----------------
practice of ophthalmology, optometry and other related eye care services as
provided by Practice through Physicians and Optometrists, as the case may be.
1.26 Monthly Fee. The term "Monthly Fee" shall have the meaning set forth
-----------
in Section 6.1 hereof.
1.27 Monthly Office Expense. The term "Monthly Office Expense" shall have
----------------------
the meaning set forth in Section 6.1 hereof.
5
<PAGE>
1.28 Monthly Practice Expense. The term "Monthly Practice Expense" shall
------------------------
have the meaning set forth in Section 6.1 hereof.
1.29 Office. The term "Office" shall mean any office space, clinic,
------
facility or satellite facilities that Business Manager owns, leases or otherwise
procures for the exclusive use of Practice.
1.30 Office Expense. The term "Office Expense" shall mean all expenses
--------------
incurred by Business Manager or Practice in the provision of services to
Practice in accordance with the general categories of expenses set forth in the
Budget. Except as specifically enumerated below, Office Expense shall not
include any state or federal income tax liability of Practice or Physician-
Shareholders, or any other expense that is a Practice Expense or a Business
Manager Expense. Without limitation, Office Expense shall include:
(a) the salaries, benefits and other direct costs (including payroll
and other withholding taxes) of all employees of Business Manager who are either
located at, devote substantially all of their time and effort to, or for which
time is allocated specifically for a function to support, Practice;
(b) the salaries, benefits and other direct costs (including payroll
and other withholding taxes) of all Physician-Employees and Optometrists, but
excluding the salaries, benefits and payroll and other withholding taxes of
Physician-Shareholders; provided, however, that in the event any Physician-
Shareholder shall fail, for any reason, to work full-time in the performance of
his or her duties as described in such Physician-Shareholder's Employment
Agreement for a period exceeding two (2) consecutive months, whether or not such
failure (i) gives rise to termination rights pursuant to such Employment
Agreement or (ii) occurs prior to or after the termination of the Initial Term
(as such term is defined in Section 4.1 of such Employment Agreement), then the
expenses described in this Section 1.30(b) shall thereafter be categorized as
Practice Expense;
(c) except as otherwise provided in Section 5.4 hereof, the direct or
reasonably allocated costs of providing such locum tenens coverage as may be
----- ------
necessary pursuant to Section 5.4 hereof, which costs shall include, without
limitation, the salaries, benefits and other direct costs of any Physicians or
Optometrists retained by Practice for such purposes;
(d) the direct or reasonably allocated costs of any employee or
consultant that provides services at the direction of Business Manager with
Practice Consent for improved performance of Practice, such as management,
billings and collections, business office consultation, training, and accounting
and legal services;
(e) reasonable recruitment costs and out-of-pocket expenses of
Business Manager or Practice associated with the recruitment, at the direction
of Practice, of additional Physician-Employees and Optometrists of Practice;
(f) all reasonable and customary business insurance expenses of
Practice, Physicians, Optometrists, Designated Allied Health Professionals and
the Office, including, without limitation, professional and general liability
insurance;
(g) without duplication of expenses included pursuant to any other
subparagraph
6
<PAGE>
of this Section 1.30 and subject to the Budget, the expense of using, leasing,
maintaining, repairing, purchasing or otherwise procuring the Office and related
equipment (including any leasehold improvements), including, without limitation,
any depreciation expense and any and all expenses relating to the equipment
listed on Exhibit 1.30(g) attached hereto and incorporated herein, but excluding
---------------
any Preexisting Obligation Payments;
(h) without duplication of expenses included pursuant to any other
subparagraph of this Section 1.30, the cost of capital, whether as actual
interest on indebtedness incurred on behalf of Practice or as reasonable imputed
interest on capital advanced by Business Manager to finance or refinance
obligations of Practice, purchase medical or nonmedical equipment, renovate the
Office, or finance new ventures of Practice, but excluding any Preexisting
Obligation Payments;
(i) the Base Management Fee;
(j) the direct, or with Practice Consent, reasonably allocated,
costs relating to sales or marketing activities or materials, including, without
limitation, brochures, pamphlets, displays, direct mail, promotional materials,
patient screening, network directories, signs, video and audio tapes, equipment,
media, development costs and consulting services;
(k) the direct, or with Practice Consent, reasonably allocated,
costs of obtaining, maintaining and supporting Managed Care Contracts;
(l) the direct, or with Practice Consent, reasonably allocated,
costs relating to any third party service agreements for the general day-to-day
operations of Office and Practice, which services shall include, without
limitation, maintenance, patient transportation, janitorial, answering services,
landscaping, snow removal and uniform rental;
(m) the direct, or with Practice Consent, reasonably allocated,
travel expenses of Business Manager associated with attending meetings,
conferences or seminars primarily benefiting Practice;
(n) the cost of medical supplies (including, without limitation,
drugs, pharmaceuticals, products, substances or medical devices), office
supplies, inventory and utilities for Practice; and
(o) direct costs, not to exceed budgeted allowances, for
professional dues, subscriptions, continuing medical education expenses and
travel costs for continuing medical education or other business travel of
Practice employees.
1.31 Operating Board. The term "Operating Board" shall mean the
---------------
operating board or board of directors, as the case may be, of Business Manager.
1.32 Optometrist. The term "Optometrist" shall mean each individually
-----------
licensed doctor of optometry who is employed or otherwise retained by or
associated with Practice, each of whom shall meet at all times the
qualifications described in Sections 5.2 and 5.3 hereof.
1.33 Physician. The term "Physician" shall mean each individual
---------
licensed to practice
7
<PAGE>
medicine in the Commonwealth of Virginia and certified by the American Academy
of Ophthalmology who is employed or otherwise retained by or associated with
Practice, each of whom shall meet at all times the qualifications described in
Sections 5.2 and 5.3 hereof.
1.34 Physician Discretionary Expenses. The term "Physician Discretionary
--------------------------------
Expenses" shall mean any expenses or debt obligations of Practice or Physicians
which are not included in the Budget or approved by Business Manager and shall
include, without limitation, the following: accounting, consulting or legal
expenses incurred by Practice without coordinating such engagement through
Business Manager; professional dues, subscriptions, continuing medical education
expenses and travel costs for continuing medical education in excess of budgeted
allowances for such items and any equipment obtained by Practice without the
approval of the Policy Board as set forth in Section 4.1(d) hereof; and other
discretionary business expenses incurred directly by Physicians or Practice
which are not included in the Budget or approved by Business Manager.
1.35 Physician-Employee. The term "Physician-Employee" shall mean any
------------------
Physician employed by Practice, but shall not include Physician-Shareholders.
1.36 Physician-Shareholder. The term "Physician-Shareholder" shall mean
---------------------
any Physician who is employed by, and a shareholder of, Practice.
1.37 Policy Board. The term "Policy Board" shall refer to the body
------------
responsible for developing and implementing management and administrative
policies for the overall operation of the Regional Practices.
1.38 Practice. The term "Practice" is defined in the introductory
--------
paragraph of this Management Services Agreement.
1.39 Practice Consent. The term "Practice Consent" shall mean the consent
----------------
granted by any of Practice's authorized Representatives who is not an officer or
employee of Business Manager. When any provision of this Management Services
Agreement requires Practice Consent, such consent shall not be unreasonably
withheld, conditioned or delayed and shall be binding on Practice.
1.40 Practice Expense. The term "Practice Expense" shall mean an expense
----------------
incurred by Business Manager or Practice and for which Practice, and not
Business Manager, is financially liable. Practice Expenses will be limited to
such items as Preexisting Obligation Payments, Physician Discretionary Expenses,
salaries, benefits and other direct costs of Physician-Shareholders, any costs
of providing locum tenens coverage designated as a Practice Expense pursuant to
----- ------
Section 5.4 hereof, and any other expenses incurred by Practice and Physician-
Shareholders which are not in the Budget or are in excess of budgeted
allowances.
1.41 Practice Territory. The term "Practice Territory" shall mean the
------------------
geographic area within a ten-mile radius of any present or future Office of
Practice.
1.42 Predecessor Professional Corporation. The term "Predecessor
------------------------------------
Professional Corporation" shall mean Stephan C. Volk, M.D., P.C., predecessor-
in-interest to Practice.
1.43 Preexisting Obligation Payments. The term "Preexisting Obligation
-------------------------------
Payments" shall mean (i) the expense for principal and interest amortization of
debt obligations of Practice or any
8
<PAGE>
Physician-Shareholder relating to the operation of Practice which existed prior
to the execution of this Management Services Agreement and (ii) lease payments
and other costs relating to any outstanding debt, obligations or liabilities of
Practice or any Physician-Shareholder relating to the operation of Practice
which existed prior to the execution of this Management Services Agreement, and
which include, without limitation, the items set forth on Exhibit 1.43 attached
------------
hereto and incorporated herein.
1.44 Professional Services Revenues. The term "Professional Services
------------------------------
Revenues" shall mean the sum of (i) all professional fees actually recorded each
month on an accrual basis under GAAP (net of Adjustments) as a result of Medical
Services and related health care services rendered by Physicians, Optometrists
and Designated Allied Health Professionals, whether rendered in an outpatient or
inpatient setting, which fees shall include any revenue relating to the sale of
prescription and non-prescription eyewear, contact lenses and other related
optical products as well as customary professional fees for the fitting of
contact lenses, and (ii) Professional Services Capitation allocated to
Professional Service Revenues.
1.45 Regional Practices. The term "Regional Practices" is defined in
------------------
Section 3.1(a) hereof.
1.46 Representatives. The term "Representatives" shall mean a party's
----------------
officers, directors, employees, or other agents or representatives.
1.47 Stark Act. The term "Stark Act" shall refer to Section 1877 of the
---------
Social Security Act.
1.48 Stock Purchase Agreement. The term "Stock Purchase Agreement" shall
------------------------
mean the Stock Purchase Agreement by and between Business Manager and Stephan C.
Volk, M.D.
1.49 Subcontractor Costs. The term "Subcontractor Costs" shall mean the
-------------------
amounts payable to third parties for providing medical services for
Capitation/Case Rate Revenues contracts.
1.50 Term. The term "Term" shall mean the initial term and any renewal
----
terms of this Management Services Agreement as described in Section 7.1 hereof.
ARTICLE II
APPOINTMENT AND AUTHORITY OF BUSINESS MANAGER
2.1 Appointment. Practice hereby appoints Business Manager as its sole
-----------
and exclusive agent for the management and administration of the business
functions and business affairs of Practice, and Business Manager hereby accepts
such appointment, subject at all times to the terms and conditions of this
Management Services Agreement.
2.2 Authority. Consistent with the provisions of this Management
---------
Services Agreement, Business Manager shall have the responsibility and
commensurate authority to provide Management Services to Practice. Subject to
the terms and conditions of this Management Services Agreement, Practice
expressly authorizes Business Manager to provide the Management Services deemed
by
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Business Manager to be reasonably appropriate to meet the day-to-day
requirements of the business functions of Practice. In connection with Business
Manager's provision of Management Services, Practice also expressly authorizes
Business Manager to negotiate and execute on behalf of Practice any and all
contracts related to the provision of such Management Services; provided,
however that, subject to Section 4.7 hereof, Business Manager shall have no
authority to negotiate and execute on behalf of Practice contracts that relate
specifically to the provision of Medical Services. The parties acknowledge and
agree that Practice, through its Physicians, shall be responsible for and shall
have complete authority, responsibility, supervision and control over the
provision of all Medical Services and other professional health care services
performed for patients, and that all diagnoses, treatments, procedures and other
professional health care services shall be provided and performed exclusively by
or under the supervision of Physicians in such manner as such Physicians, in
their sole discretion, deem appropriate. Business Manager shall have and
exercise absolutely no control or supervision over the provision of Medical
Services. Except as provided in Section 4.7 hereof, with respect to any
agreement relating specifically to Medical Services, and subject to the approval
of the Policy Board pursuant to Section 3.2(e), Practice shall give Business
Manager and the Policy Board thirty (30) days' prior notice of Practice's intent
to execute any such agreement obligating Practice to perform Medical Services or
otherwise creating a binding legal obligation on Practice to perform Medical
Services.
2.3 Patient Referrals. Business Manager and Practice agree that the
-----------------
benefits afforded either party hereunder are not payment for, and are not in any
way contingent upon the referral, admission or any other arrangement for, the
provision of any item or service offered by Business Manager or Practice.
2.4 Internal Practice Matters. Except as otherwise provided herein,
-------------------------
matters involving the internal governance, control or finances of Practice,
including specifically the allocation of professional income among Physician-
Shareholders, Physician-Employees and Optometrists of Practice, and tax and
investment planning, shall remain the sole responsibility of Practice,
Physician-Shareholders, Physician-Employees and Optometrists.
2.5 Practice of Medicine. The parties acknowledge that Business Manager
--------------------
is not authorized or qualified to engage in any activity that may be construed
or deemed to constitute the practice of medicine. To the extent that any act or
service required to be performed by Business Manager hereunder should be
construed by a court of competent jurisdiction or by the Board of Medical
Examiners of the Commonwealth of Virginia to constitute the practice of
medicine, Business Manager's requirement to perform that act or service shall be
deemed waived and unenforceable.
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ARTICLE III
RESPONSIBILITIES OF THE POLICY BOARD
3.1 Formation and Operation of the Policy Board.
-------------------------------------------
(a) Structure of Policy Board. Practice hereby acknowledges that it
-------------------------
is one of a group of ophthalmology practices located in the Richmond
metropolitan area which is affiliated with Business Manager (Practice and such
other practices shall be collectively referred to herein as "Regional
Practices"). The Regional Practices and Business Manager shall establish a
Policy Board which shall be responsible for overseeing the overall operations of
the nonmedical aspects of each Regional Practice's facilities and, subject to
Section 3.3 hereof, certain medical issues. The Policy Board shall consist of
four (4) members, each of whom shall serve a one-year term. Business Manager
shall designate, in its sole discretion, two (2) members of the Policy Board,
and the Regional Practices shall collectively designate two (2) members of the
Policy Board. The Policy Board members designated by the Regional Practices
shall be Physician-Shareholders of a Regional Practice. Except as otherwise
expressly provided herein, the act of a majority of the members of the Policy
Board shall be the act of the Policy Board.
(b) Appointment of Members. The initial Policy Board shall consist of
----------------------
the members set forth on Exhibit 3.1 attached hereto and incorporated herein.
-----------
Thereafter, annually and at least thirty (30) days prior to the commencement of
each fiscal year of Business Manager, each of Business Manager and the Regional
Practices shall deliver to the Operating Board of Business Manager a list of two
(2) designees to the Policy Board to serve as members of the Policy Board for
the upcoming fiscal year. In the event that either Business Manager or the
Regional Practices fail to deliver the list of designees by the required date,
then such party's representatives on the Policy Board shall remain the same for
the upcoming fiscal year. Any vacancies created, whether by death, incapacity
or resignation of a designee, shall be filled by the party which appointed such
designee by no later than fifteen (15) business days after the date of receipt
by all of the Regional Practices of notice from Business Manager that such
vacancy exists and must be filled. If the applicable party shall fail to
designate a replacement member to the Policy Board within the required time
period, then the other party shall have the right to designate the replacement
member and such replacement member shall serve on the Policy Board until his or
her successor is duly appointed pursuant to this Section 3.1(b). In any case in
which the Regional Practices shall be required to designate a member or members
to the Policy Board, a previously appointed designee of the Regional Practices
shall convene a meeting or collect the written votes of the Representatives of
the Regional Practices to select such designee or designees. Each Regional
Practice shall be entitled to one vote per designee to be appointed and those
designees receiving a plurality of the votes shall serve as the representatives
of the Regional Practices on the Policy Board.
(c) Actions of the Policy Board. The Policy Board meetings shall be
---------------------------
held as mutually agreed, but at least semiannually, in Richmond, Virginia.
Meetings may be called by any two (2) members of the Policy Board upon notice to
Business Manager. Notice of each such meeting, stating the place, date and hour
of the meeting, shall then be delivered by Business Manager to each member of
the Policy Board not less than seventy-two (72) hours prior to such meeting.
Meetings shall be open to any Physician-Shareholder and any officer, director or
employee (as designated by Business Manager) of Business Manager. Members of
the Policy Board may participate in a meeting by means of conference telephone.
Attendance at any meeting in person
11
<PAGE>
or by proxy, or participation in a meeting by means of conference telephone,
shall constitute a waiver of notice thereof. Any action required to be taken at
a meeting of the Policy Board may be taken without a meeting and without a vote
if a consent in writing, setting forth the action to be taken, is signed by all
of the members of the Policy Board, unless such action is medical in nature, in
which case such consent need be signed only by all of the Physician members of
the Policy Board.
3.2 Duties and Responsibilities of the Policy Board. The Policy Board
-----------------------------------------------
shall have the following duties, obligations and authority:
(a) Capital Improvements and Expansion. Subject to the items
----------------------------------
specifically enumerated in the Budget as determined in accordance with Section
4.10(a) hereof, any renovation and expansion plans and capital expenditures with
respect to the Office, or the priority of such capital expenditures, shall be
reviewed and approved by the Policy Board and shall be based upon economic
feasibility, physician support, productivity and then-current market conditions.
(b) Marketing and Advertising. Subject to professional standards and
-------------------------
the canons of professional ethics, the Policy Board shall explore potential
joint marketing and other advertising of the services performed at the Regional
Practices' facilities.
(c) Collection Policies. As a part of the annual operating budget, in
-------------------
consultation with Practice and Business Manager, the Policy Board shall review
and approve the collection policies for all Medical Services and Ancillary
Services provided by Practice.
(d) Provider and Payor Relationships. Subject to Sections 4.7 and 4.8
--------------------------------
hereof, decisions regarding the establishment or maintenance of relationships
with institutional health care providers and third party payors shall be
approved by the Policy Board in consultation with Practice and Business Manager.
The Policy Board shall review and approve such discounted fee schedules,
including capitated fee arrangements, and shall approve allocations of
Capitation/Case Rate Revenues.
(e) Strategic Planning. The Policy Board shall recommend long-term
------------------
strategic planning objectives for Practice; provided, however, that the Policy
Board shall not engage in recommending any horizontal market allocations between
practices.
(f) Physician and Optometrist Hiring. Subject to the items
--------------------------------
specifically enumerated in the Budget as determined in accordance with Section
4.10(a) hereof, the Policy Board shall recommend to Practice the number and type
of Physicians and Optometrists required for the efficient operation of
Practice's facilities. Practice shall have the right to accept or reject any
recommendation of the Policy Board on this matter and Practice shall retain the
number and type of Physicians and Optometrists as it shall deem necessary in its
sole discretion. Although the Policy Board shall review any material variations
to the restrictive covenants in any Employment Agreement with a Physician-
Employee or Optometrist, Practice shall have the discretion to negotiate in good
faith reasonable variations to such restrictive covenants.
(g) Fee Dispute Resolution. Upon written submission by Practice of a
----------------------
dispute concerning Management Fees, the Policy Board shall consider, develop and
attempt to implement
12
<PAGE>
a resolution of such dispute.
(h) Employee Relations. Upon submission by Practice or any Physician
------------------
or Optometrist of a written complaint or concern regarding any employee of
Business Manager performing services for Practice hereunder, the Policy Board
shall consider, develop and attempt to implement a resolution of such complaint
or concern.
(i) Grievance Referrals. The Policy Board shall consider and make
-------------------
recommendations to Practice regarding any disputes pertaining to matters not
specifically addressed in this Management Services Agreement as referred to it
by Practice.
3.3 Medical Decisions. Notwithstanding anything to the contrary
-----------------
contained in Section 3.2 above, all medical decisions addressed by the Policy
Board will be made solely by Physician members of the Policy Board.
ARTICLE IV
COVENANTS AND RESPONSIBILITIES OF BUSINESS MANAGER
During the Term, Business Manager shall provide all Management Services
which are necessary or appropriate for the day-to-day administration of the
nonmedical aspects of Practice's operations, including, without limitation,
those services set forth in this Article IV in accordance with all laws, rules,
regulations and guidelines applicable to the provision of Management Services.
4.1 Office and Equipment.
--------------------
(a) Subject to Section 4.1(b) hereof, as necessary or appropriate, and
after taking into consideration the professional concerns of Practice, Business
Manager shall lease, acquire or otherwise procure an Office in a location or
locations reasonably acceptable to Practice and shall permit Practice to use the
Office. Any Office procured by Business Manager for use by Practice shall be
procured at commercially reasonable rates.
(b) In the event Practice is the lessee of the Office under a lease
with an unrelated and nonaffiliated lessor, Business Manager may require
Practice to assign such lease to Business Manager upon receipt of consent from
the lessor, and, in such event, Business Manager shall assume Practice's
obligations thereunder from and after the date of such assignment. Practice
shall use its best efforts to assist in obtaining the lessor's consent to the
assignment. Upon request, Practice shall execute any instruments and shall take
any acts that Business Manager deems necessary to accomplish the assignment of
the lease. Any expenses incurred in effectuating the assignment shall be an
Office Expense.
(c) Business Manager shall provide all nonmedical equipment, fixtures,
office supplies, furniture and furnishings reasonably deemed necessary by
Business Manager for the operation of the Office and for the provision of
Medical Services.
(d) Business Manager shall provide or cause to be provided to Practice
(including financing arrangements with respect thereto) all necessary medical
equipment.
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<PAGE>
(e) Business Manager shall be responsible for all necessary repair and
maintenance of the Office as an Office Expense, consistent with Business
Manager's responsibilities under the terms of any lease or other use
arrangement. Business Manager shall also be responsible for all necessary
repair, maintenance and replacement of all equipment relating to the Office,
except for any such repairs, maintenance and replacement necessitated by the
negligence or willful misconduct of Practice, its Physicians or other personnel
employed by Practice, in which event any such repair or replacement shall be a
Practice Expense and not an Office Expense.
4.2 Medical Supplies. Business Manager shall order, procure, purchase
----------------
and provide on behalf of, and as agent for, Practice all necessary or reasonably
required medical supplies unless otherwise prohibited by federal and/or state
law, and shall appropriately respond to any reasonable inquiries or requests by
Physicians for the need to order or repair such supplies. Business Manager
shall ensure that the Office is adequately stocked at all times with medical
supplies that are reasonably necessary or appropriate for the operation of
Practice and required by Practice for the provision of Medical Services. The
ultimate oversight, supervision, selection and ownership of all medical supplies
is and shall remain the sole responsibility of Practice. As used in this
Section 4.2, the term "medical supplies" shall mean all drugs, pharmaceuticals,
products, substances, items or devices whose purchase, possession, maintenance,
administration, prescription or security requires the authorization or order of
a licensed health care provider or requires a permit, registration,
certification or other governmental authorization held by a licensed health care
provider as specified under any federal and/or state law.
4.3 Support Services. Business Manager shall provide or arrange for all
----------------
printing, stationery, telephone, facsimile, office supplies, forms, postage,
duplication or photocopying services, and other support services as are
reasonably necessary or appropriate for the operation of the Office and the
provision of Medical Services therein.
4.4 Quality Assurance, Risk Management, and Utilization Review. Business
----------------------------------------------------------
Manager shall assist Practice in Practice's establishment and implementation of
procedures to ensure the consistency, quality, appropriateness and medical
necessity of Medical Services provided by Practice, and shall provide
administrative support for Practice's overall quality assurance, risk management
and utilization review programs. Business Manager shall use its commercially
reasonable efforts to perform these tasks in a manner to ensure the
confidentiality of, and the privileged status afforded to, these programs and
procedures to the fullest extent allowable under state and federal law.
4.5 Licenses and Permits. Business Manager shall, on behalf of and in
--------------------
the name of Practice, coordinate all development and planning processes, and
assist in the application for, and use reasonable efforts to assist Practice in
obtaining and maintaining, all federal, state and local licenses, certifications
and regulatory permits required for, or in connection with, the operation of
Practice, the equipment located at the Office, and any ambulatory surgical
treatment center, laboratory and optical dispensary of Business Manager, other
than those relating to the provision of Medical Services or the administration
of drugs by Physicians.
4.6 Personnel. Except as specifically provided in Section 5.2(b) hereof,
---------
Business Manager shall, consistent with the Budget, employ or otherwise retain
and shall be responsible for selecting, hiring, training, supervising and
terminating, all nonphysician personnel as Business
14
<PAGE>
Manager reasonably deems necessary and appropriate for Business Manager's
performance of its duties and obligations under this Management Services
Agreement. Business Manager shall, as practicable, consult with, and solicit the
input of, Practice and Physician-Shareholders in connection with any such
employment decisions. With respect to nonphysician personnel, Business Manager
shall have sole responsibility for determining the salaries, providing employee
benefits, and for withholding any sums for income tax, unemployment insurance,
worker's compensation coverage, social security or any other withholding
required by applicable law or governmental requirement.
4.7 Contract Negotiations. Business Manager shall advise Practice with
---------------------
respect to and negotiate, either directly or on Practice's behalf, as
appropriate, all contractual arrangements with third parties as are reasonably
necessary and appropriate for Practice's provision of Medical Services,
including, without limitation, Managed Care Contracts. Business Manager shall,
to the extent practicable, use commercially reasonable efforts to involve
Practice and Physician-Shareholders in its efforts to procure and negotiate
Managed Care Contracts on behalf of Practice. Practice hereby constitutes and
appoints Business Manager as Practice's agent for the purpose of negotiating and
executing on behalf of Practice and its Physicians any Managed Care Contract
approved by the Policy Board, as well as any modifications, extensions and
renewals of such Managed Care Contracts. Practice also designates Business
Manager as Practice's agent for the further purpose of giving and receiving
notices required or permitted to be given and received under such Managed Care
Contracts. Any notice received by Business Manager on behalf of Practice shall
be transmitted to Practice as soon as practicable. Business Manager may engage
such consultants as Business Manager deems reasonably necessary and appropriate
to pursue and negotiate Managed Care Contracts for Practice, and Practice
authorizes Business Manager to negotiate, for approval by the Policy Board,
agreements for Subcontractor Costs. Notwithstanding the foregoing, upon
approval of the Policy Board of any Managed Care Contract, Business Manager
shall deliver a copy of such contract to Practice for its review and approval.
Practice may accept or reject any Managed Care Contract by delivering written
notice to Business Manager within five (5) business days of its receipt of such
contract (or such greater time as may be given to any other Regional Practice).
Practice's failure to respond within such period shall be deemed an acceptance
of the Managed Care Contract for all purposes.
4.8 Billing and Collection. Subject to Practice's ability to establish
----------------------
its fee schedules, on behalf of and for the account of Practice, Business
Manager shall (i) establish and maintain credit, billing and collection policies
and procedures, (ii) timely bill and collect all professional and other fees for
all billable Medical Services provided by Practice, Physicians or Optometrists
for application solely in accordance with the Budget, and (iii) perform all cash
management services on behalf of Practice which Business Manager shall deem
commercially reasonable. Business Manager shall advise and consult with
Practice regarding the fees for Medical Services and Ancillary Services provided
by Practice; it being understood, however, that Practice shall establish the
fees to be charged for Medical Services and that Business Manager shall have no
authority whatsoever with respect to the establishment of such fees. In
connection with the billing, collection and cash management services to be
provided hereunder, and throughout the Term (and thereafter as provided in
Section 7.3 hereof), Practice hereby grants to Business Manager an exclusive
special power of attorney and appoints Business Manager as Practice's exclusive
true and lawful agent and attorney-in-fact, and Business Manager hereby accepts
such special power of attorney and appointment, for the following purposes:
15
<PAGE>
(a) To bill Practice's patients, in Practice's name and on Practice's
behalf, for all billable Medical Services provided or arranged by Practice to
patients, unless such billing would cause Practice to be in violation of the
Stark Act, any state referral ban or any other applicable federal, state or
local law or regulation;
(b) To bill, in Practice's name and on Practice's behalf, all claims
for payment, reimbursement or indemnification from Blue Cross/Blue Shield,
insurance companies, Medicare, Medicaid and all other third-party payors or
fiscal intermediaries for all covered billable Medical Services provided or
arranged by Practice to patients, unless such billing would cause Practice to be
in violation of the Stark Act, any state referral ban or any other applicable
federal, state or local law or regulation;
(c) Subject to applicable law, and excluding receivables for Medicare
and Medicaid services, to collect and receive in Business Manager's name and for
Business Manager's account all accounts receivable of Practice purchased by
Business Manager, and to deposit such collections in an account selected by
Business Manager and maintained in Business Manager's name;
(d) Subject to subparagraph (e) below, to collect and receive, in
Practice's name and on Practice's behalf, all accounts receivable generated by
such billings and claims for reimbursement that have not been purchased by
Business Manager, and to administer such accounts at its reasonable discretion
on Practice's behalf, which administration shall include, without limitation,
(i) extending the time of payment of any such accounts for cash, credit or
otherwise; (ii) with Practice Consent, discharging or releasing the obligors of
any such accounts; (iii) with Practice Consent, suing, assigning or selling at a
discount such accounts to collection agencies; or (iv) with Practice Consent,
taking other measures to require the payment of any such accounts.
(e) To collect all government program receivables after such amounts
have been received and deposited into an account maintained in Practice's name
and over which Practice has sole control. Once deposited in such account,
Practice hereby authorizes the government receivables to be automatically swept
into the Depository Account.
(f) To deposit all amounts collected into the Depository Account which
shall be in the name of Business Manager, but in which Business Manager shall
account for such funds on a separate and distinct basis from any other funds
deposited into such account by other Regional Practices; moreover, Practice
shall retain all rights in and to such deposited funds irrespective of their
deposit into the Depository Account. The parties hereto acknowledge and agree
that Business Manager is performing cash management services on behalf of
Practice by collecting all such amounts in the Depository Account and making any
distributions, withdrawals and payments therefrom as required in this Management
Services Agreement. The parties further acknowledge and agree that in
performing such services for Practice, Business Manager is acting as Practice's
agent pursuant to the power of attorney set forth in this Section 4.8, and,
except as expressly provided herein, all rights to such funds shall remain with
Practice. Practice covenants to transfer and deliver to Business Manager for
deposit into Depository Account, or covenants that Practice itself will make
such deposit of, all funds received by Practice from patients or third party
payors for Medical Services provided on or after the Effective Date. Upon
receipt by Business Manager of any funds from patients or third party payors or
from Practice pursuant hereto for Medical Services provided on or after the
Effective Date, Business Manager shall deposit same into the
16
<PAGE>
Depository Account as soon as commercially practicable. In the manner set forth
in Section 4.9 hereof, Business Manager shall disburse such deposited funds to
creditors and other persons on behalf of Practice, maintaining records of such
receipt and disbursement of funds.
(g) To take possession of, and endorse in the name of Practice, solely
for deposit into the Depository Account, any notes, checks, money orders,
insurance payments and any other instruments received as payment for Medical
Services and Ancillary Services.
(h) To sign checks, drafts, bank notes or other instruments on behalf
of Practice, and to make withdrawals from the Depository Account for payments
specified in this Management Services Agreement or as requested from time to
time by Practice.
Throughout the Term (and as provided in Section 7.3 hereof), Practice hereby
grants to Business Manager an exclusive special power of attorney for the
purposes stated herein and appoints Business Manager as Practice's exclusive
true and lawful agent and attorney-in-fact, and Business Manager hereby accepts
such special power of attorney and appointment, to deposit into the Depository
Account as and when received all funds, fees and revenues generated from
Practice's provision of Medical Services and Ancillary Services on or after the
Effective Date and collected by Business Manager, and to make withdrawals from
Depository Account solely for payments specified in this Management Services
Agreement, including any Preexisting Obligation Payments directly affecting
property used in or relating to the Office, and/or as requested from time to
time by Practice. Upon request of Business Manager, Practice shall execute and
deliver to the financial institution where the Depository Account is maintained,
such additional documents or instruments as may be necessary to evidence or
effect the special and limited power of attorney granted to Business Manager by
Practice pursuant to this Section 4.8. The special and limited power of attorney
granted herein shall be coupled with an interest and shall be irrevocable during
the term hereof, except with Business Manager Consent. The irrevocable power of
attorney shall expire on the later of the termination of this Management
Services Agreement, the collection, sale or release of all accounts receivable
purchased by Business Manager, and the payment of all Management Fees due to
Business Manager as of such date pursuant to Section 6.3 hereof. If Business
Manager assigns this Management Services Agreement in accordance with its terms,
then Practice shall execute a power of attorney in favor of the assignee and in
the form of Exhibit 4.8 attached hereto.
-----------
4.9 Priority of Payments. As of the Effective Date, all revenue of
--------------------
Practice derived from Medical Services and Ancillary Services provided on and
after the Effective Date ("Post-Effective Date Revenues") shall be deposited
into the Depository Account (or, in the alternative, identified or segregated in
such a manner as to permit the Post-Effective Date Revenues to be deposited into
the Depository Account when and as directed by Business Manager) for
distribution in accordance with this Section 4.9. From and after the Effective
Date, each month Business Manager shall apply, or retain on behalf of Practice,
funds that are in the Depository Account in the following order of priority:
(a) to Business Manager, in satisfaction of Office Expense,
except the Base Management Fee;
(b) as directed by Practice, in satisfaction of Monthly Practice
Expense; and
17
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(c) to Business Manager, in satisfaction of the Base Management
Fee.
4.10 Fiscal Matters.
--------------
(a) Annual Budget.
-------------
(i) Initial Budget. The initial Budget shall be agreed upon by
--------------
the parties before the execution of this Management Services Agreement and
shall be attached hereto and made a part hereof.
(ii) Process for Succeeding Budgets. Annually and at least
------------------------------
forty-five (45) days prior to the commencement of each fiscal year of
Business Manager, Business Manager, in consultation with the Policy Board,
shall prepare and deliver to Practice for Practice's approval a proposed
Budget, setting forth an estimate of Practice's revenues and expenses for
the upcoming fiscal year (including, without limitation, the Budgeted
Practice Expense and the Monthly Fee). Practice shall review the proposed
Budget and either approve the proposed Budget or request any changes within
fifteen (15) days after receiving the proposed Budget. The Budget shall be
adopted upon mutual agreement of Business Manager and Practice after
reasonable review and comment, and may be revised or modified only in
consultation with Business Manager. Once approved by both Business Manager
and Practice, each succeeding Budget shall be attached hereto and made a
part hereof.
(iii) Deadlock. In the event the parties are unable to agree on
--------
any item in a Budget by the beginning of the fiscal year (a "Deadlock"),
then until an agreement is reached, the Budget for the prior year shall be
deemed to be adopted as the Budget for the current year. Notwithstanding
the foregoing, the Policy Board, in its judgment, may impose reductions on
a consistent basis to each of Budgeted Practice Expense and the Monthly Fee
in the event that the Policy Board makes a determination that general
economic conditions and/or regulatory developments adversely affecting the
Medical Services provided by Practice render the present levels of the
Budgeted Practice Expense and the Monthly Fee impractical. For purposes of
illustration only, and without limitation, such general economic conditions
and/or regulatory developments could include proposed or actual cuts in
Medicare/Medicaid reimbursement for procedures that are a material
component of the Medical Services performed by Practice. Following
resolution of any Deadlock, Budgeted Practice Expense and the Monthly Fee
(and the corresponding Monthly Practice Expense and Base Management Fee as
calculated in Article VI hereof) shall be recomputed retroactive to the
beginning of the fiscal year based upon the parameters agreed to in the new
Budget, and appropriate adjustments in payments owing to Practice and/or
Business Manager, as the case may be, resulting from such recomputation
shall be made promptly. Notwithstanding the foregoing, if after six months
the parties are still unable to agree on a Budget, then the dispute shall
be submitted to arbitration in accordance with Section 8.6 hereof. Until
the arbitrator renders a judgment or the dispute is otherwise resolved, the
adjustments described in this Section 4.10(a)(iii) shall continue to apply.
Notwithstanding anything to the contrary contained herein, nothing in this
Section 4.10(a)(iii) shall affect the payment of Office Expense, which
shall be paid in full in accordance with the provisions of this Agreement.
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(iv) Modifications to Budget. The Budget may be modified at any
-----------------------
time by mutual agreement of Practice and Business Manager, which
modifications may include, without limitation, modifications to the Monthly
Fee and Budgeted Practice Expense in the event that additional Physicians
or Optometrists become affiliated with Practice during the calendar year.
(b) Accounting and Financial Records. Business Manager shall
--------------------------------
establish and administer adequate accounting procedures, controls and systems
for the development, preparation and safekeeping of administrative and financial
records in connection with the performance of its duties and responsibilities
hereunder, all of which shall be prepared and maintained in accordance with GAAP
and applicable laws and regulations. Business Manager shall provide Practice
with the following:
(i) Monthly Reports. As soon as practicable, and in any event
---------------
no later than thirty (30) days after the end of each calendar month,
Business Manager shall furnish to Practice a monthly statement reflecting
the activity in the Depository Account for the preceding month. The monthly
statement will set forth the amount of Office Expense (excluding the Base
Management Fee), Monthly Practice Expense and Base Management Fee for such
month.
(ii) Annual Financial Statements. As soon as practicable, and in
---------------------------
any event no later than one hundred twenty (120) days after the end of each
calendar year, Business Manager shall furnish to Practice audited financial
statements, consisting of a balance sheet and related statements of income,
changes in members' equity and cash flow, all of which (taken as a whole)
shall reflect the financial status of Business Manager as of the end of
such calendar year, and shall be prepared in accordance with GAAP
consistently applied.
(c) Review of Expenditures. A Representative of Practice shall have
----------------------
the right to review all expenditures related to the operation of Practice, but
Practice shall not have the power to prohibit or invalidate any expenditure that
is consistent with the Budget.
(d) Tax Matters. Business Manager and Practice acknowledge and agree
-----------
that, to the extent that any of the services to be provided by Business Manager
hereunder may be subject to any state sales and use taxes, Business Manager may
have a legal obligation to collect such taxes from Practice and to remit same to
the appropriate tax collection authorities. Practice agrees to pay, as an
Office Expense and in addition to the payment of the Management Fee, the
applicable state sales and use taxes in respect of the portion of the Management
Fees attributable to such services.
4.11 Reports and Records.
-------------------
(a) Medical Records. Business Manager shall advise and assist
---------------
Practice as to the establishment, monitoring and maintenance of procedures and
policies for the timely creation, preparation, filing and retrieval of all
medical records generated by Practice in connection with Practice's provision of
Medical Services; and, subject to applicable law, shall ensure that medical
records are promptly available to Physicians and any other appropriate persons.
All such medical
19
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records shall be retained and maintained in accordance with all applicable state
and federal laws. All medical records are, and will remain, the property and
Confidential Information of Practice and its patients.
(b) Other Reports and Records. Business Manager shall create, prepare
-------------------------
and file such additional reports and records as are reasonably necessary or
appropriate for Practice's provision of Medical Services, and shall be prepared
to analyze and interpret such reports and records upon the request of Practice.
4.12 Recruitment of Physicians and Optometrists. Upon Practice's
------------------------------------------
request, Business Manager shall perform all administrative services reasonably
necessary or appropriate to recruit potential Physicians and Optometrists to
become employees of Practice. Business Manager shall provide Practice with
model agreements to document Practice's employment, retention or other service
arrangements with such individuals. It is and will remain the sole and complete
responsibility of Practice to interview, select, contract with, supervise,
control and terminate all Physicians and Optometrists performing Medical
Services or other professional services, and Business Manager shall have no
authority whatsoever with respect to such activities.
4.13 Confidential and Proprietary Information.
----------------------------------------
(a) Business Manager will not disclose any Confidential Information of
Practice to other persons without Practice Consent. Business Manager will not,
directly or indirectly, use such Confidential Information in a manner
detrimental to Practice, and Business Manager will keep such Confidential
Information confidential and will ensure that its affiliates and advisors who
have access to such Confidential Information comply with these nondisclosure
obligations. Notwithstanding the foregoing, Business Manager may disclose
Confidential Information to those of its Representatives who need to know
Confidential Information for the purposes of this Management Services Agreement,
it being understood and agreed to by Business Manager that such Representatives
will be informed of the confidential nature of the Confidential Information,
will agree to be bound by this Section 4.13, and will be directed by Business
Manager not to disclose to any other person any Confidential Information.
Business Manager shall be responsible for any breach of this Section 4.13 by its
affiliates, advisors or Representatives. If Business Manager is required (by
interrogatories, requests for information or documents, subpoenas, civil
investigative demands or similar legal processes) to disclose or produce any
Confidential Information furnished in the course of its dealings with Practice
or its affiliates, advisors or Representatives, Business Manager will (i)
provide Practice with prompt prior notice thereof and copies, if possible, and,
if not, a description, of the request and the Confidential Information requested
or required to be produced so that Practice may seek an appropriate protective
order or other protections to enforce the provisions of this Section 4.13, or,
alternatively, waive compliance with the provisions of this Section 4.13, and
(ii) consult with Practice as to whether Practice should attempt to resist or
narrow such request. If Business Manager is compelled by law to disclose or
produce Confidential Information concerning Practice or, in the alternative, be
liable for contempt or suffer other censure or penalty, Business Manager may
disclose or produce such Confidential Information without liability hereunder;
provided, however, that Business Manager shall give Practice written notice of
the Confidential Information to be so disclosed or produced, and a copy of the
request therefor, as far in advance of its disclosure or production as is
reasonably practicable and shall use its commercially reasonable efforts to
obtain, to the greatest extent practicable, an order or other
20
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reliable assurance that confidential treatment will be accorded to such
Confidential Information so required to be disclosed or produced.
(b) Notwithstanding clause (a) above, Business Manager may share,
subject to the restrictions of this Section 4.13(b), with other professional
corporations, associations, medical practices or health care delivery entities,
the statistics of Practice, including utilization review data, quality assurance
data, outcomes data or other Practice data to the extent reasonably necessary to
Business Manager's efforts to procure and negotiate Managed Care Contracts.
Business Manager may disclose such statistics to other medical groups with whom
Business Manager has a management relationship, to managed care providers or
other third party payors for the purpose of obtaining or maintaining third party
payor contracts, or to financial analysts and underwriters. In addition,
Business Manager may disclose all Practice-related information necessary or
desirable in connection with any public or private offering of any security of
Business Manager, but no such data will disclose or divulge patient identifying
information. Notwithstanding anything to the contrary contained herein,
Business Manager will not disclose or divulge any cost data of Practice to any
other medical practice.
4.14 Insurance.
---------
(a) Business Manager's Insurance. Throughout the Term, Business
----------------------------
Manager shall, as an Office Expense, obtain and maintain with commercial
carriers, through self-insurance or some combination thereof and in a manner
consistent with good business practice, appropriate workers' compensation
coverage for Business Manager's employed personnel provided to Practice pursuant
to this Management Services Agreement, and professional, casualty and
comprehensive general and vicarious liability insurance covering Business
Manager, the Office, Business Manager's personnel and all of Business Manager's
equipment in such amounts, on such basis and upon such terms and conditions as
Business Manager deems appropriate. Upon the request of Practice, Business
Manager shall provide Practice with a certificate evidencing such insurance
coverage and Business Manager shall use commercially reasonable efforts to list
Practice and, in the case of comprehensive general liability coverage,
Physician-Shareholder, as an additional insured. Business Manager may also
carry, as an Office Expense, key person life and disability insurance on any
Physician in amounts determined reasonable and sufficient by Business Manager.
Business Manager shall be the owner and beneficiary of any such insurance.
(b) Professional and General Liability Insurance of Practice.
--------------------------------------------------------
Business Manager shall obtain and maintain, on behalf of Practice and as an
Office Expense, professional and comprehensive general liability insurance
covering Practice and each of Physicians and Optometrists. The comprehensive
general liability coverage shall be in the minimum amount of one million dollars
($1,000,000) for each occurrence and two million dollars ($2,000,000) annual
aggregate; and professional liability coverage shall be in the minimum amount of
one million dollars ($1,000,000) for each occurrence and three million dollars
($3,000,000) annual aggregate, or any other higher minimum coverage requirements
established by law. The insurance policy or policies shall provide for at least
(30) days' advance written notice to Business Manager and Practice from the
insurer as to any alteration of coverage, cancellation or proposed cancellation
for any cause. Business Manager shall cause to be issued to Practice a
certificate of such insurer or insurers reflecting such coverage and either
party hereunder shall provide written notice to the other party promptly upon
receipt of any notice canceling or proposing to cancel the insurance coverage of
21
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Practice, or any Physician or Optometrist for any reason. Upon the termination
of this Management Services Agreement for any reason, Practice shall obtain and
maintain as a Practice Expense "tail" professional liability coverage, in the
amounts specified in this Section 4.14(b) for an extended reporting period of
two years, and Practice shall be responsible for paying all premiums for "tail"
insurance coverage.
(c) Health Insurance. Business Manager shall, to the extent such
----------------
coverage is available from Business Manager's current insurance carrier, make
available to, and accessible by, Physicians and Optometrists health benefits
under any health benefit program maintained by Business Manager. If any
Physician or Optometrist elects such coverage, subject to Section 1.30(b), the
cost of such coverage shall be deemed an Office Expense for any Physician-
Employee or Optometrist, and a Practice Expense for any Physician-Shareholder.
4.15 No Warranty. Practice acknowledges that Business Manager has not
-----------
made and will not make any express or implied warranties or representations that
the services provided by Business Manager will result in any particular amount
or level of revenue or income to Practice.
ARTICLE V
COVENANTS AND RESPONSIBILITY OF PRACTICE
5.1 Organization and Operation. Practice, as a continuing condition of
--------------------------
Business Manager's obligations under this Management Services Agreement, shall
at all times during the Term be and remain legally organized and operated to
provide Medical Services in a manner consistent with all state and federal laws.
(a) Employment of Physicians.
------------------------
(i) Practice shall operate and maintain within the Practice
Territory a full-time practice of medicine specializing in the provision of
Medical Services, and shall maintain and enforce employment agreements
substantially in the form of Exhibit 5.1 (the "Employment Agreements") with
-----------
Physician-Shareholders, including, without limitation, the initial
Physician-Shareholders identified in Exhibit 5.1A. Practice shall not
------------
amend the Employment Agreements in any material manner or waive any
material rights of Practice thereunder without Business Manager Consent.
Recognizing that Business Manager would not have entered into this
Management Services Agreement but for Practice's covenant to maintain
Employment Agreements with Physician-Shareholders, and subject to
subparagraph (ii) below and Section 5.7(f) hereof, Practice shall pay to
Business Manager, in addition to the Management Fee, any damages,
compensation, payment or settlement received by Practice from a Physician
who terminates his or her Employment Agreement without Physician Cause (as
defined in the Employment Agreement) or whose Employment Agreement is
terminated by Practice for Practice Cause (as defined in the Employment
Agreement) or for any other material breaches of the Employment Agreements
(such damages being collectively referred to herein as the "Business
Manager Damages").
(ii) Notwithstanding the provisions of Section 5.1(a)(i) above,
or any other provision to the contrary contained herein, Practice shall
have a period of not less than
22
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forty-five (45) days following the occurrence of any event described in
Section 5.1(a)(i) above that entitles Business Manager to receive Business
Manager Damages to take such actions to cure the breach of any Employment
Agreement by a Physician-Shareholder (which actions to cure may, without
limitation, include retention of additional Physicians to replace the
levels of revenue and income previously generated by the Physician causing
such breach); provided, however, that the determination of whether or not
such breach has been cured shall be made by Business Manager in its good
faith reasonable discretion, and provided further, that Practice shall in
no event be permitted to cure any breach that results from a breach by a
Physician-Shareholder of any non-competition provision contained in any
Employment Agreement.
(b) Corporate Governance. Throughout the Term of this Management
--------------------
Services Agreement, Practice shall maintain and enforce written Buy-Sell
Agreements with Physician-Shareholders specified in Exhibit 5.1A, and shall
------------
cause all new shareholders of Practice to execute such agreements prior to
becoming a shareholder in Practice. As a condition precedent to the execution
of this Management Services Agreement, the Physician-Shareholders have amended
their existing Buy-Sell Agreement, or executed a new Buy-Sell Agreement, which
addresses the concepts set forth on Exhibit 5.1B to the reasonable satisfaction
------------
of Business Manager and its counsel. Practice will also maintain its articles
of incorporation and by-laws in accordance with applicable law, including,
without limitation, any laws governing the transferability of shares from
disqualified shareholders to qualified shareholders. Throughout the Term of this
Management Services Agreement, Practice shall not, without Business Manager
Consent, amend such documents or waive any rights thereunder in any manner.
5.2 Practice Personnel.
------------------
(a) Physician Personnel and Optometrists. Practice shall retain the
------------------------------------
number of Physicians and Optometrists as is reasonably necessary and appropriate
in the sole discretion of Practice for the provision of Medical Services. Each
Physician shall hold and maintain a valid and unrestricted license to practice
medicine in the Commonwealth of Virginia, and shall be competent, in the
reasonable opinion of Practice, in the practice of ophthalmology. Each
Optometrist shall hold and maintain a valid and unrestricted license to practice
optometry in the Commonwealth of Virginia, and shall be competent, in the
reasonable opinion of Practice, in such practice. Practice shall use its best
efforts to enter into and maintain with each such retained Physician and
Optometrist a written employment agreement substantially in the form of either
Exhibit 5.1 for Physician-Shareholders or Exhibit 5.2A for Physician-Employees.
- ----------- ------------
Practice will neither commit, nor permit to remain outstanding, any breach of
such employment agreement that would allow any Physician or Optometrist to
terminate for cause. Regardless of whether the compensation is a Practice
Expense or Office Expense, Practice shall be responsible for paying the
compensation and benefits, as applicable, for all Physicians, Optometrists, and
any other physician personnel or other contracted or affiliated physicians, and
for withholding any sums for income tax, unemployment insurance, social security
or any other withholding required by applicable law. If requested, Business
Manager shall, on behalf and at the direction of Practice, administer the
compensation with respect to such individuals in accordance with the written
agreement between Practice and each Physician or Optometrist. Business Manager
shall neither control nor direct any Physician or Optometrist in the performance
of Medical Services for patients.
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(b) Nonphysician Personnel. Business Manager shall retain all
----------------------
nonphysician personnel necessary for the operation of Practice and such
nonphysician personnel shall be under Business Manager's control, supervision
and direction in the performance of their duties, except for Designated Allied
Health Professionals, who shall perform their duties under the supervision and
control of Physicians, consistent with the requirements necessary to meet the
"incident to" provisions of the Medicare program.
5.3 Professional Standards. As a continuing condition of Business
----------------------
Manager's obligations hereunder, each Physician, Optometrist and any other
physician personnel retained by Practice to provide Medical Services must comply
with, be controlled and governed by, and otherwise provide Medical Services in
accordance with, all applicable federal, state and municipal laws, rules,
regulations, ordinances and orders, and the ethical standards and standards of
care of the medical community wherein the principal office of each Physician or
Optometrist is located. In addition, except for Stephan C. Volk, M.D., each
Physician and any other physician personnel retained by Practice to provide
Medical Services must obtain and retain appropriate admitting privileges at
local area hospitals or health care facilities which are reasonably adequate for
Physician to perform Medical Services. Dr. Volk will maintain appropriate
admitting privileges at the local area hospitals or health care facilities set
forth on Exhibit 5.3. Procurement of temporary staff privileges pending the
-----------
completion of the medical staff approval process shall satisfy this provision,
provided Physician actively pursues full admitting privileges and actually
receives full admitting privileges within a reasonable time.
5.4 Medical Services. Practice shall use reasonable efforts to ensure
----------------
that Physicians and Optometrists are available to provide Medical Services to
patients. In the event that Physicians or Optometrists are not available to
provide the relevant Medical Services coverage, Practice shall engage and retain
locum tenens coverage. Physicians and Optometrists retained on a locum tenens
- ----- ------ ----- ------
basis shall meet all of the requirements of Section 5.3 hereof, and the cost of
providing locum tenens coverage shall be an Office Expense, unless such locum
----- ------ -----
tenens coverage is attributable to a Physician-Shareholder exceeding the maximum
- ------
amount of vacation, personal and educational leave days allowable under such
Physician-Shareholder's Employment Agreement, in which case the cost of such
coverage shall be a Practice Expense. With the assistance of Business Manager,
Practice, Physicians and Optometrists shall be responsible for scheduling the
relevant coverage of all medical and eye-related procedures. Practice shall use
its best efforts to develop and promote Practice.
5.5 Peer Review/Quality Assurance. Practice shall adopt a peer
-----------------------------
review/quality assurance program to monitor and evaluate the quality and cost-
effectiveness of Medical Services provided by Physicians and Optometrists of
Practice. Upon request of Practice, Business Manager shall provide
administrative assistance to Practice in performing its peer review/quality
assurance activities, but only if such assistance can be provided in a manner
consistent with maintaining the confidentiality and privileged status of the
processes and actions of the peer review/quality assurance process of Practice.
5.6 Confidential and Proprietary Information. Practice will not
----------------------------------------
disclose any Confidential Information of Business Manager without Business
Manager's express written authorization. Such Confidential Information will not
be used in any way directly or indirectly detrimental to Business Manager, and
Practice will keep such Confidential Information confidential and will ensure
that its affiliates and advisors who have access to such Confidential
Information comply with these
24
<PAGE>
nondisclosure obligations. Notwithstanding the foregoing, Practice may disclose
Confidential Information to those of its Representatives who need to know
Confidential Information for the purposes of this Management Services Agreement,
it being understood and agreed to by Practice that such Representatives will be
informed of the confidential nature of the Confidential Information, will agree
to be bound by this Section 5.6, and will be directed by Practice not to
disclose to any other person any Confidential Information. Practice shall be
responsible for any breach of this Section 5.6 by its affiliates, advisors or
Representatives. If Practice is required (by interrogatories, requests for
information or documents, subpoenas, civil investigative demands or similar
processes) to disclose or produce any Confidential Information furnished in the
course of its dealings with Business Manager or its affiliates, advisors or
Representatives, Practice will (i) provide Business Manager with prompt prior
notice thereof and copies, if possible, and, if not, a description, of the
request and the Confidential Information requested or required to be produced so
that Business Manager may seek an appropriate protective order or other
protections to enforce the provisions of this Section 5.6, or, alternatively,
waive compliance with the provisions of this Section 5.6 and (ii) consult with
Business Manager as to the advisability of Business Manager's taking of legally
available steps to resist or narrow such request. Practice further agrees that
if, in the absence of a protective order or the receipt of a waiver hereunder,
Practice is nonetheless, in the written opinion of its legal counsel, compelled
to disclose or produce Confidential Information concerning Business Manager to
any tribunal or to stand liable for contempt or suffer other censure or penalty,
Practice may disclose or produce such Confidential Information to such tribunal
legally authorized to request and receive such Confidential Information without
liability hereunder; provided, however, that Practice shall give Business
Manager written notice of the Confidential Information to be so disclosed or
produced, and a copy of the request therefor, as far in advance of its
disclosure or production as is practicable and shall use its best efforts to
obtain, to the greatest extent practicable, an order or other reliable assurance
that confidential treatment will be accorded to such Confidential Information so
required to be disclosed or produced.
5.7 Noncompetition. Practice hereby recognizes and acknowledges that
--------------
Business Manager will incur substantial costs in providing the equipment,
support services, personnel, management, administration, and other items and
services that are the subject matter of this Management Services Agreement and
that in the process of providing services under this Management Services
Agreement, Practice will be privy to financial and Confidential Information of
Business Manager and other Regional Practices, to which Practice would not
otherwise be exposed. The parties also recognize that the services to be
provided by Business Manager will be feasible only if Practice operates an
active practice to which Physicians associated with Practice devote their full
professional time and attention. Practice agrees and acknowledges that the
noncompetition covenants described hereunder are necessary for the protection of
Business Manager, and that Business Manager would not have entered into this
Management Services Agreement without the following covenants:
(a) During the Term of this Management Services Agreement and except
for the performance of Medical Services and Ancillary Services at the Office as
contemplated by this Management Services Agreement or as expressly agreed to by
Business Manager in writing, Practice shall not establish, operate or provide
Medical Services at a medical office, clinic or other health care facility
anywhere within the Practice Territory.
(b) Except as specifically agreed to by Business Manager in writing,
Practice
25
<PAGE>
commits and agrees that during the Term of this Management Services Agreement
and for a period of one (1) year from the termination date of this Management
Services Agreement, except in the event Practice terminates this Management
Services Agreement for cause pursuant to Section 7.2(b) hereof, Practice shall
not directly or indirectly own through a Competing Business (as defined in the
Stock Purchase Agreement) (excluding ownership of less five percent (5%) of the
equity of any publicly traded entity), manage, operate, control, or otherwise be
associated with, lend funds to, lend its name to, or maintain any interest
whatsoever in any enterprise (i) having to do with the provision, distribution,
promotion or advertising of any type of management or administrative services or
products to third parties in competition with Business Manager; and/or (ii)
offering any type of service or product in the Practice Territory to third
parties similar to those offered by Business Manager to Practice.
Notwithstanding the above restriction, nothing herein shall prohibit Practice or
any of its holders from providing management and administrative services to its
or their own medical practices after the termination of this Management Services
Agreement.
(c) The written Employment Agreements described in Section 5.1
hereof shall contain covenants of Physician-Shareholder whereby they agree not
to compete with Practice within the Practice Territory for one (1) year after
termination of the employment agreement, except in the event Physician
terminates such agreement for Physician Cause or certain buyout rights are
exercised.
(d) Practice shall obtain and enforce formal written agreements with
Physician-Employees and Optometrists in the form of Exhibit 5.2A, pursuant to
------------
which the employees agree not to compete with Practice within the Practice
Territory for one (1) year after termination of the Employment Agreement, except
in the event Physician terminates such agreement for Physician Cause.
(e) Practice understands and acknowledges that the provisions in
Section 5.6 hereof and this Section 5.7 are designed to preserve the goodwill of
Business Manager and the goodwill of the individual Physicians and Optometrists
of Practice. Accordingly, if Practice breaches any obligation of Section 5.6
hereof or this Section 5.7, in addition to any other remedies available under
this Management Services Agreement at law or in equity, Business Manager shall
be entitled to enforce this Management Services Agreement by injunctive relief
and by specific performance of the Management Services Agreement, such relief to
be without the necessity of posting a bond, cash or otherwise. Additionally,
nothing in this paragraph shall limit Business Manager's right to recover any
other damages to which it is entitled as a result of Practice's breach. If any
provision of the covenants herein is held by a court of competent jurisdiction
to be unenforceable due to an excessive time period, geographic area or
restricted activity, the covenant shall be reformed to comply with such time
period, geographic area or restricted activity that would be held enforceable.
(f) Notwithstanding anything to the contrary contained herein,
Practice shall not be bound by the restrictions set forth in this Section 5.7 in
the event an Event of Default (as defined in the Subordinated Exchangeable
Promissory Note issued by NovaMed to Practice in connection with the Stock
Purchase Agreement) occurs and is continuing uncured for a period of more than
thirty (30) days. Moreover, upon an Event of Default remaining uncured for a
period of more than thirty (30) days, Practice shall not be responsible for
pursuing, or paying to Business Manager, any Business Manager Damages in
connection with any breach of an Employment Agreement arising
26
<PAGE>
after the date of such Event of Default.
5.8 Name, Trademark. Practice represents and warrants that Practice
---------------
conducts its professional practice under the name of, and only under the names
of "Dominion Eye Associates" that such name is the name of Practice under state
law. Practice covenants and promises that, without the prior written consent of
Business Manager, Practice will not:
(a) take any action or omit to take any action that would result in
the change or loss of the name;
(b) license, sell, give or otherwise transfer the name, or the right
to use the name, to any medical practice, physician, professional corporation or
any other entity; or
(c) cease conducting the professional practice of Practice under the
name.
5.9 Medical Advisory Board. The Operating Board of Business Manager has
----------------------
appointed a medical advisory board (the "Medical Advisory Board") to provide a
general forum for review and analysis of medical and clinical issues affecting
the Regional Practices and all other medical practices with which Business
Manager has entered into a Management Services Agreement or similar agreement.
The Medical Advisory Board consists of at least three Doctors of Ophthalmology,
one of whom is designated as the "Medical Director," and may include, at the
discretion of the Operating Board of Business Manager, one or more Doctors of
Optometry, Registered Nurses or other health care professionals. The Vice
President Clinical Operations of Business Manager, and/or such other designee as
Business Manager shall select, attends meetings of the Medical Advisory Board on
a consulting basis. Members of the Medical Advisory Board serve for one-year
terms and are appointed or re-appointed for such term during the first meeting
of the Operating Board of Business Manager held for each calendar year. The
Operating Board of Business Manager may name additional members, remove any
member, or fill any vacancy created by the resignation, death or disability of
any member, of the Medical Advisory Board during any duly called meeting of such
Operating Board. Notwithstanding anything to the contrary contained herein, the
Medical Advisory Board will serve in a solely advisory capacity and the ultimate
authority over medical decisions affecting Practice shall reside with Practice's
Physician-Shareholders.
5.10 Indemnification of Business Manager. Practice shall hold Business
-----------------------------------
Manager, its Affiliates, Representatives, successors and assigns and each of
them harmless from and against any and all losses, damages, fines, costs,
claims, judgments, proceedings, expenses or liabilities (including, without
limitation, reasonable attorneys' fees, paralegal fees, and costs and expenses
thereof) arising out of, or attributable to, or which result from: (a) any
claim of a third party with respect to Medical Services performed by Practice
(including, without limitation, malpractice claims); (b) any material breach of
this Management Services Agreement by Practice which is not cured by Practice
within the greater of any time period prescribed for such cure herein or a 30-
day period following receipt by Practice of written notice from Business Manager
(which written notice shall describe such breach in reasonable detail); or (c)
any violations of federal billing laws, rules and regulations which have a
material adverse effect on Practice and relate to acts, omissions, circumstances
or conditions arising from and after the Effective Date (excluding any such
violations which are attributable to the acts or omissions of Business Manager).
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5.11 Indemnification of Practice. Business Manager shall hold Practice,
---------------------------
its Affiliates, Representatives, successors and assigns and each of them
harmless from and against any and all losses, damages, fines, costs, claims,
judgments, proceedings, expenses or liabilities (including, without limitation,
reasonable attorneys' fees, paralegal fees, and costs and expenses thereof)
arising out of, attributable to, or which result from: (a) the gross negligence
or willful misconduct of Business Manager or its agents or employees, except to
the extent that any damages or losses are attributable to the gross negligence
or willful misconduct of Practice or its Physicians and Optometrists; (b) any
material breach of this Management Services Agreement by Business Manager which
is not cured by Business Manager within the greater of any time period
prescribed for such cure herein or a 30-day period following receipt by Business
Manager of written notice from Practice (which written notice shall describe
such breach in reasonable detail); or (c) any violations of federal billing
laws, rules and regulations which have a material adverse effect on Practice and
relate to acts, omissions, circumstances or conditions arising from and after
the Effective Date (excluding any such violations which are attributable to the
acts or omissions of Practice or any Physician).
ARTICLE VI
FINANCIAL ARRANGEMENT
6.1 Definitions. For purposes of this Article VI, capitalized terms
-----------
used herein shall have the meanings ascribed as follows:
(a) Base Management Fee. The term "Base Management Fee" shall be *
-------------------
, except in the event the * , in which case the Base Management Fee shall
be * .
(b) Budgeted Adjusted Gross Revenue. The term "Budgeted Adjusted
-------------------------------
Gross Revenue" shall mean the monthly amount of Adjusted Gross Revenue as
established in the Budget, as adjusted from year to year pursuant to Section
4.10 hereof.
(c) Budgeted Office Expense. The term "Budgeted Office Expense" shall
-----------------------
mean the monthly amount of Office Expense as established in the Budget, as
adjusted from year to year pursuant to Section 4.10 hereof.
(d) Budgeted Practice Expense. The term "Budgeted Practice Expense"
-------------------------
shall mean the monthly amount of * .
(e) Monthly Fee. The term "Monthly Fee" shall be the * .
-----------
(f) Monthly Office Expense. The term "Monthly Office Expense" shall
----------------------
mean the amount of Budgeted Office Expense for any given month, plus or minus
any difference between (i) the actual Office Expense incurred by or on behalf of
Practice for the previous month and (ii) Budgeted Office Expense for such
previous month.
___________________________
* Confidential portions omitted and filed separately with the Commission.
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(g) Monthly Practice Expense. The term "Monthly Practice Expense"
------------------------
shall mean *.
6.2 Monthly Practice Expense. In any given month, the Monthly Practice
------------------------
Expense shall be * , except in the event * , in which case the Monthly
Practice Expense shall be *.
6.3 Management Fee. Practice and Business Manager agree to the
--------------
compensation set forth herein as being paid to Business Manager in consideration
of a substantial commitment made by Business Manager hereunder and that such
fees are fair and reasonable. Each month, in the priority established by
Section 4.9 hereof, Business Manager will be paid the following:
(a) the amount of all Office Expense (other than the Base Management
Fee) paid on behalf of Practice; and
(b) the Base Management Fee.
6.4 Reasonable Value. Payment of the Base Management Fee is not
----------------
intended to be and shall not be interpreted or applied as permitting Business
Manager to share in Practice's fees for Medical Services or any other services,
but is acknowledged as the parties' negotiated agreement as to the reasonable
fair market value of the equipment, contract analysis and support, other support
services, purchasing, personnel, office space, management, administration,
strategic management and other items and services furnished by Business Manager
pursuant to this Management Services Agreement, after giving effect to the
nature and volume of the services required and the risks assumed by Business
Manager.
6.5 Payment of Management Fee. To facilitate the payment of the
-------------------------
Management Fee as provided in Section 6.3 hereof, and subject to the priority of
payment methodology set forth in Section 4.9 hereof, Practice hereby expressly
authorizes Business Manager to make withdrawals of the Management Fee from the
Depository Account as such fee becomes due and payable during the Term and
thereafter as provided in Section 7.3 hereof.
6.6 Accounts Receivable. Unless otherwise prohibited by law, to assure
-------------------
that Practice receives the entire amount of professional fees for its services
and to assist Practice in maintaining reasonable cash flow for the payment of
Office Expense, Business Manager may purchase, with recourse to Practice for the
amount of the purchase (up to the amount of Adjusted Gross Revenue for such
month), the accounts receivable of Practice arising during the previous month
(the "Purchased Receivables") by transferring the amount set forth below into
the Depository Account. The consideration for the purchase shall be an amount
equal to the Adjusted Gross Revenue with respect to the Purchased Receivables
(according to GAAP on an accrual basis net of Adjustments). Although it is the
intention of the parties that Business Manager purchase and thereby become the
owner of the Purchased Receivables of Practice, in the event such purchase shall
be ineffective for any reason, Practice is concurrently granting to Business
Manager a security interest in the Purchased Receivables, and Practice shall
cooperate with Business Manager and shall execute all documents in connection
with the pledge of the Purchased Receivables to Business Manager. All
_____________________________________
* Confidential portions omitted and filed separately with the Commission.
29
<PAGE>
collections in respect to the Purchased Receivables by Business Manager shall be
received by Business Manager as the agent of Practice and shall be endorsed to
Business Manager and deposited in a bank account at a bank designated by
Business Manager. To the extent Practice comes into possession of any payments
in respect of the Purchased Receivables, Practice shall direct such payments to
Business Manager for deposit in bank accounts designated by Business Manager.
6.7 Disputes Regarding Fees.
-----------------------
(a) It is the parties' intent that any disputes regarding Business
Manager's performance hereunder shall be resolved to the extent possible by good
faith negotiations. To that end, the parties agree that if Practice in good
faith believes that Business Manager has failed to perform its obligations, and
that as a result of such failure, Practice is entitled to a set-off or reduction
in its Management Fees, Practice shall give Business Manager notice of the
perceived failure and may require in the notice a set-off or reduction in
Management Fees. Business Manager and Practice shall then negotiate the dispute
in good faith, and if an agreement is reached, the parties shall implement the
resolution without further action.
(b) If the parties cannot reach a resolution within thirty (30) days,
and the amount at issue is $25,000 or less, then the dispute shall be submitted
to the Policy Board. The Policy Board shall then resolve such dispute, which
resolution shall be final and binding upon Practice and Business Manager.
(c) If the amount in dispute is greater than $25,000, and Business
Manager and Practice fail to resolve the dispute, then such dispute shall be
submitted by either party to binding arbitration as described by Article IX of
the Stock Purchase Agreement.
ARTICLE VII
TERM AND TERMINATION
7.1 Initial and Renewal Term. The Term of this Management Services
------------------------
Agreement will be for an initial period of forty (40) years after the Effective
Date, and shall be automatically renewed for successive five (5) year periods
thereafter, provided that neither Business Manager nor Practice shall have given
notice of termination of this Management Services Agreement at least one hundred
twenty (120) days before the end of the initial term or any renewal term, or
unless otherwise terminated as provided in Section 7.2 hereof.
7.2 Termination.
-----------
(a) Termination By Business Manager. Business Manager may terminate
-------------------------------
this Management Services Agreement upon the occurrence of any one of the
following events which shall be deemed to be "for cause:"
(i) The suspension, restriction materially impairing
Physician's ability to practice medicine, revocation or cancellation of any
Physician-Shareholder's l icense to practice medicine in the Commonwealth
of Virginia;
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(ii) Practice's loss or suspension of its Medicare or Medicaid
provider number (excluding any such loss or suspension which is
attributable to Business Manager's acts or omissions), and/or Practice's
restriction from treating patients of the Medicare or Medicaid programs;
(iii) The dissolution of Practice or the filing by Practice of a
petition in voluntary bankruptcy, an assignment for the benefit of
creditors, or other action taken voluntarily under any state or federal
statute for the protection of debtors;
(iv) The filing against Practice of an involuntary petition
under any bankruptcy statute, or the appointment of a custodian, receiver,
trustee or assignee for the benefit of creditors, and such condition shall
continue undischarged or undismissed for ninety (90) days; and
(v) Practice materially defaults in the performance of any of
its material duties or obligations hereunder, and shall fail to cure such
default within sixty (60) days after Practice receives notice from Business
Manager specifying the nature of such default; provided, however, that in
-------- -------
the event such breach is of a nature that it cannot reasonably be cured
within such sixty (60) day period, then Business Manager may terminate this
Agreement only if Practice shall fail to commence to cure such default
within such sixty (60) day period and thereafter to proceed diligently to
cure such default; provided further, that irrespective of Practice's
-------- -------
diligent efforts to cure such default, Business Manager may terminate this
Agreement if Practice fails to cure such default within one hundred twenty
(120) days after Practice received the original notice from Business
Manager specifying the nature of such default.
(b) Termination By Practice. Practice may terminate this Management
-----------------------
Services Agreement upon any of the following occurrences which shall be deemed
to be "for cause":
(i) In the event that an arbitrator pursuant to Section 8.6
hereof makes a final determination that Business Manager has materially
breached a fiduciary duty owed to Practice, Practice may terminate this
Management Services Agreement upon ten (10) days' notice to Business
Manager; or
(ii) With ten (10) days' written notice to Business Manager, in
the event Business Manager (A) misappropriates Practice's funds and fails
to correct such misappropriation within five (5) business days of receipt
of notice from Practice describing with particularity the error, or (B)
fails to properly account Practice's funds and fails to correct such
accounting error within thirty (30) days of receipt of notice from Practice
describing with particularity the error.
(c) Termination by Agreement. In the event Practice and Business
------------------------
Manager shall mutually agree in writing, this Management Services Agreement may
be terminated on the date specified in such written agreement.
(d) Legislative, Regulatory or Administrative Change. In the event
------------------------------------------------
there shall be a change in the Medicare or Medicaid statutes, state or federal
statutes, case law, regulations or
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general instructions, the interpretation of any of the foregoing, the adoption
of new federal or state legislation, or a change in any third-party
reimbursement system, any of which are reasonably likely to materially and
adversely affect the manner in which either party may perform or be compensated
for its services under this Management Services Agreement or which shall make
this Management Services Agreement unlawful, the parties shall immediately enter
into good faith negotiations regarding a new service arrangement or basis for
compensation for the services furnished pursuant to this Management Services
Agreement that complies with the law, regulation or policy and that approximates
as closely as possible the economic position of the parties prior to the change.
If good faith negotiations cannot resolve the matter, it shall be submitted to
arbitration as referenced in Section 8.6 hereof. If a court of competent
jurisdiction compels or requires a party hereto to refrain from performing its
duties and obligations hereunder, or a party's performance hereunder shall be
directly violative of a court order directed at such party, then, to the extent
necessary to comply with such court order, this Management Services Agreement
shall be deemed suspended. In no event shall such suspension be construed to
relieve either party's obligation under this Section 7.2(d) and the parties will
immediately commence good faith negotiations regarding a new service arrangement
or compensation structure that is in compliance with any such court order, which
arrangement or structure will allocate the economic aspects of the relationship
between the parties in a manner as nearly as possible as that intended by this
Management Services Agreement.
7.3 Effects of Termination. Upon termination of this Management
----------------------
Services Agreement, as heretofore provided, neither party shall have any further
obligations hereunder except for (i) obligations accruing prior to the date of
termination, including, without limitation, payment of the Management Fees,
Office Expense and Practice Expense relating to services provided prior to the
termination of this Management Services Agreement, (ii) obligations, promises or
covenants set forth herein that are expressly set forth herein to extend beyond
the Term under the circumstances giving rise to such termination, including,
without limitation, indemnity, confidentiality and noncompetition provisions,
which provisions shall survive the expiration or termination of this Management
Services Agreement by Business Manager for cause, and (iii) the applicable
obligations of Practice and Business Manager described in Section 7.4 or 7.5
hereof. In effectuating the provisions of this Section 7.3, Practice
specifically acknowledges and agrees that Business Manager shall continue to
collect and receive on behalf of Practice all cash collections from accounts
receivable in existence at the time this Management Services Agreement is
terminated, it being understood that such cash collections will be applied in
accordance with Section 4.9 hereof, and will represent, in part, compensation to
Business Manager for management services already rendered and compensation on
accounts receivable purchased by Business Manager. Upon the expiration or
termination of this Management Services Agreement for any reason or cause
whatsoever, Business Manager shall surrender to Practice all books and records
pertaining to Practice's medical practice.
7.4 Repurchase Obligation. Upon termination of this Management Services
---------------------
Agreement by Business Manager for cause or by Practice without cause, Business
Manager shall have the right, but not the obligation, to require Practice to
comply with the terms and conditions of this Section 7.4. In the event Business
Manager exercises such right by delivering written notice to Practice within
sixty (60) days of such termination, then Practice shall be required to:
(a) Purchase from Business Manager at the greater of book value (as
determined in accordance with GAAP) or fair market value of the intangible
assets, deferred charges and all
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other amounts on the books of Business Manager relating to the Management
Services Agreement as adjusted, through the last day of the month most recently
ended prior to the date of such termination in accordance with GAAP to reflect
amortization or depreciation of the intangible assets, deferred charges or
covenants;
(b) Purchase from Business Manager any real estate owned by Business
Manager and used as an Office at the greater of the appraised fair market value
thereof or the then book value thereof. In the event of any repurchase of real
property, the appraised value shall be determined by Business Manager and
Practice, each selecting a duly qualified appraiser, who in turn will agree on a
third appraiser. This agreed-upon appraiser shall perform the appraisal which
shall be binding on both parties. In the event either party fails to select an
appraiser within fifteen (15) days of the selection of an appraiser by the other
party, the appraiser selected by the other party shall make the selection of the
third-party appraiser;
(c) Purchase at the greater of book value (as determined in
accordance with GAAP) or fair market value all improvements, additions, or
leasehold improvements that have been made by Business Manager at any Office and
that relate solely to the performance of Business Manager's obligations under
this Management Services Agreement;
(d) Assume all debt and all contracts, payables and leases that are
obligations of Business Manager and that relate principally to the performance
of Business Manager's obligations under this Management Services Agreement or
the properties leased or subleased hereunder as an Office by Business Manager;
and
(e) Purchase from Business Manager at the greater of book value (as
determined in accordance with GAAP) or fair market value of all of the equipment
which was (i) was owned by the Predecessor Professional Corporation immediately
prior to the effective date of the Stock Purchase Agreement and (ii) was
transferred to NovaMed pursuant to the terms and conditions of the Stock
Purchase Agreement (the "Predecessor PC Equipment), including all replacements
and additions thereto made by Business Manager pursuant to the performance of
its obligations under this Management Services Agreement, and all other assets,
including inventory and supplies, and tangibles and intangibles, set forth on
the books of Business Manager as adjusted through the last day of the month most
recently ended prior to the date of such termination in accordance with GAAP to
reflect operations of the Office, depreciation, amortization and other
adjustments of assets shown on the books of Business Manager.
Notwithstanding anything to the contrary contained herein, this Section 7.4
shall only require Practice to purchase from Business Manager those assets which
are used exclusively in the operation of the ophthalmology practice of Practice
in the Office. In the event Business Manager exercises its rights pursuant to
this Section 7.4, Practice shall have the obligation to purchase all, and not
less than all, of the items listed in subparagraphs (a) through (e) above. In
no event, however, shall this Section 7.4 be construed as enabling Practice to
repurchase any assets, which relate directly or indirectly to the ambulatory
surgical treatment center owned and operated by Predecessor Professional
Corporation immediately prior to the effective date of the Stock Purchase
Agreement (the "ASC Assets"). The ASC Assets are expressly excluded from the
assets enumerated in subparagraphs (a) through (e) above and Practice shall have
no right to repurchase the ASC Assets under this Section 7.4 unless Business
Manager shall so elect in writing, in which case Practice shall
33
<PAGE>
be required to repurchase the ASC Assets at the greater of the then book or fair
market value. For purposes of this Article VII, "fair market value" of a
particular item shall be an amount mutually agreed upon by Practice and Business
Manager. If Practice and Business Manager are unable to reach agreement on such
value after ten (10) days of deliberations, then such fair market value shall be
determined by an independent, duly qualified appraiser mutually agreed upon by
Practice and Business Manager. If Practice and Business Manager cannot agree
upon an appraiser within ten (10) days, then each party shall select a duly
qualified appraiser, who in turn will select a third appraiser. This agreed-upon
appraiser shall perform the appraisal which shall be binding upon both parties.
All expenses of such appraisal shall be borne fifty percent (50%) by Business
Manager and fifty percent (50%) by Practice.
7.5 Repurchase Option. Upon termination of this Management Services
-----------------
Agreement by Practice for cause pursuant to Section 7.2(b) hereof, Practice
shall have the right, but not the obligation, to:
(a) Purchase from Business Manager at the greater of book or fair
market value the intangible assets, deferred charges and all other amounts on
the books of Business Manager relating to the Management Services Agreement as
adjusted, through the last day of the month most recently ended prior to the
date of such termination in accordance with GAAP to reflect amortization or
depreciation of the intangible assets, deferred charges or covenants;
(b) Purchase from Business Manager any real estate owned by Business
Manager and used as an Office at the greater of the appraised fair market value
or then book value thereof. In the event of any repurchase of real property,
the appraised value shall be determined in accordance with the appraisal
mechanism described in Section 7.4 hereof;
(c) Purchase at the greater of book or fair market value all
improvements, additions or leasehold improvements that have been made by
Business Manager at any Office and that relate solely to the performance of
Business Manager's obligations under this Management Services Agreement;
(d) Assume all debt and all contracts, payables and leases that are
obligations of Business Manager and that relate principally to the performance
of Business Manager's obligations under this Management Services Agreement or
the properties leased or subleased by Business Manager; and
(e) Purchase from Business Manager at the greater of book or fair
market value all of the Predecessor PC Equipment, including all replacements and
additions thereto made by Business Manager pursuant to the performance of its
obligations under this Management Services Agreement, and all other tangible
assets, including inventory and supplies, set forth on the books of Business
Manager as adjusted through the last day of the month most recently ended prior
to the date of such termination in accordance with GAAP to reflect operations of
the Office, depreciation, amortization and other adjustments of assets shown on
the books of Business Manager.
In the event Practice exercises its rights pursuant to this Section 7.5,
Practice shall have the obligation to purchase all, and not less than all, of
the items listed in subparagraphs (a) through (e). In no event, however, shall
this Section 7.5 be construed as enabling Practice to repurchase any
34
<PAGE>
assets acquired from Predecessor Professional Corporation, which relate directly
or indirectly to the ASC Assets. The ASC Assets are expressly excluded from the
assets enumerated in subparagraphs (a) through (e) above and Practice shall have
no right to repurchase the ASC Assets under this Section 7.5 unless Business
Manager shall so elect in writing, in which case Practice shall be required to
repurchase the ASC Assets at the greater of the then book or fair market value.
In lieu of paying cash for the items described in this Section 7.5, and subject
to Section 7.6 hereof, Practice shall have the option of: (i) offsetting the
cash amount required pursuant to this Section 7.5 against the outstanding
balance due and owing under the Note (as such term is defined in the Stock
Purchase Agreement); or (ii) contributing to Business Manager that number of
Exchange shares (as such term is defined in the Stock Purchase Agreement) which,
based on the then fair market value of such shares (determined in accordance
with a consistent application of the valuation procedure established under
Section 6.01(d) of the Stock Purchase Agreement), equals the cash amount
required pursuant to this Section 7.5.
7.6 Closing of Repurchase.
---------------------
(a) Except as expressly provided in subparagraph (b) below and in
Section 7.5 hereof, Practice shall pay cash for the repurchased assets. The
amount of the purchase price shall be reduced by the amount of debt and
liabilities of Business Manager, if any, assumed by Practice. Practice and, if
required by law, any Physician associated with Practice, shall execute such
documents as may be required, (i) for Practice to assume the liabilities set
forth in Section 7.4(d) or 7.5(d) hereof, as applicable, and (ii) for Practice
to indemnify or remove Business Manager from any liability with respect to such
repurchased asset and with respect to any property leased or subleased by
Business Manager. Business Manager shall execute such documents as may be
required to convey the assets, free and clear of all liens (except for those
liens assumed by Practice). The closing date for the repurchase shall be
determined by mutual agreement of Practice and Business Manager but shall in no
event occur later than one hundred eighty (180) days from the date of the notice
of termination. The termination of this Management Services Agreement shall
become effective upon the closing of the sale of the assets under Section 7.4 or
7.5 hereof, as the case may be, and all parties shall be released from any
restrictive covenants provided for in Section 5.7 hereof on such closing date.
From and after any termination, each party shall provide the other party with
reasonable access to the books and records then owned by it to permit such
requesting party to satisfy reporting and contractual obligations that may be
required of it.
(b) Notwithstanding anything to the contrary contained herein, in
the event the cash amount required to be paid to Business Manager pursuant to
Sections 7.4 and 7.5 exceeds $50,000, then Practice shall have the option of
financing the entire cash amount over a two-year period. This financing shall be
evidenced by a promissory note from Practice to Business Manager, the terms of
which shall provide for an interest rate equal to the prime rate publicly
announced by First National Bank of Chicago on the date of the closing of the
repurchase, with interest and principal payments payable quarterly in arrears to
Business Manager.
7.7 Rights and Remedies. In the event of a material breach of this
-------------------
Management Services Agreement by either party hereunder, the nonbreaching party
shall have, in addition to any other rights and remedies contained in this
Management Services Agreement, all rights and remedies available to such party
at law or equity (including the right of specific performance). Without
limiting the generality of the foregoing, the parties acknowledge and agree that
Business Manager
35
<PAGE>
entered into this Management Services Agreement with the understanding that the
Term of this Management Services Agreement would be forty years. In the event of
a material breach hereunder by Practice, the parties acknowledge and agree that
the actual damages to be suffered by Business Manager will be difficult to
ascertain. Practice recognizes that, in the event Practice shall fail to
perform, observe or discharge any of its duties, obligations or liabilities
under this Management Services Agreement, any remedy at law may prove to be
inadequate relief to Business Manager. Therefore, Practice agrees that, if
Business Manager so elects and in addition to any other remedies available at
law or equity, Business Manager shall be entitled to temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages, or to specific performance of any provision hereof. In addition to all
other remedies of Business Manager for any material breach hereunder by
Practice, and without limiting any and all rights set forth herein, Business
Manager may set-off any and all amounts which are due or which Business Manager
reasonably believes will become due and owing to Business Manager under this
Agreement within the next sixty (60) days, against any and all amounts which are
due and owing under the Note. Such rights of set-off shall be governed by the
terms and conditions set forth in the Note.
7.8 Interpretation. The purpose and intent of this Article VII is to
--------------
establish the limited instances in which a party may terminate this Management
Services Agreement. Unless the parties mutually agree to terminate this
Management Services Agreement, neither party shall be entitled to terminate this
Management Services Agreement prior to the expiration of the Term unless a
party's breach gives rise to a termination "for cause" pursuant to Section
7.2(a) or (b) hereof, as the case may be. Nothing in this Agreement (including
Section 7.4 hereof) shall be construed as permitting Practice to terminate this
Agreement without cause.
ARTICLE VIII
MISCELLANEOUS
8.1 Administrative Services Only. Nothing in this Management Services
----------------------------
Agreement is intended or shall be construed to allow Business Manager to
exercise control or direction over the manner or method by which Practice and
its Physicians and Optometrists perform Medical Services or other professional
health care services. The rendition of all Medical Services, including, but not
limited to, the prescription or administration of medicine and drugs shall be
the sole responsibility of Practice and its Physicians and Optometrists, and
Business Manager shall not interfere in any manner or to any extent therewith.
Nothing contained herein shall be construed to permit Business Manager to engage
in the practice of medicine, it being the sole intention of the parties hereto
that the services to be rendered to Practice by Business Manager are solely for
the purpose of providing nonmedical management and administrative services to
Practice to enable Practice to devote its full time and energies to the
professional conduct of its medical practice and provision of Medical Services
to its patients and not to administration or practice management.
8.2 Status of Contractor. It is expressly acknowledged that the parties
--------------------
hereto are "independent contractors," and nothing in this Management Services
Agreement is intended and nothing shall be construed to allow either party to
exercise control or direction over the manner or method by which the other party
performs the services that are the subject matter of this Management Services
Agreement; provided that the services to be provided hereunder shall be
furnished in a manner consistent with the standards governing such services and
the provisions of
36
<PAGE>
this Management Services Agreement. Each party understands and agrees that (i)
neither party will withhold on behalf of the other party any sums for income
tax, unemployment insurance, social security or any other withholding pursuant
to any law or requirement of any governmental body or make available any of the
benefits afforded to its employees, (ii) all of such payments, withholdings and
benefits, if any, are the sole responsibility of the party incurring the
liability, and (iii) each party will indemnify and hold the other harmless from
any and all loss or liability arising with respect to such payments,
withholdings and benefits, if any.
8.3 Notices. Any notice, demand or communication required, permitted or
-------
desired to be given hereunder shall be in writing and shall be served on the
parties at the following respective addresses:
Practice:
Dominion Eye Associates, P.C.
Richmond Medical Park
2010 Bremo Road, Suite 128
Richmond, Virginia 23226
Facsimile: (804) 282-6365
Attention: Stephan C. Volk, M.D.
with a copy to:
Arent Fox Kintner Plotkin & Kahn
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
Facsimile: (202) 857-6395
Attention: Lawrence Levit, Esq.
Business Manager:
NovaMed Eyecare Management, LLC
980 North Michigan Avenue, Suite 1620
Chicago, Illinois 60611
Facsimile: (312) 664-4250
Attention: Stephen J. Winjum
John W. Lawrence, Jr.
with a copy to:
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661
Facsimile: (312) 902-1061
Attention: Steven V. Napolitano, Esq.
or to such other address, or to the attention of such other person or officer,
as any party may by
37
<PAGE>
written notice designate. Any notice, demand, or communication required,
permitted or desired to be given hereunder shall be sent either (a) by hand
delivery, in which case notice shall be deemed received when actually delivered,
(b) by prepaid certified or registered first class mail, return receipt
requested, in which case notice shall be deemed received five calendar days
after deposit, postage prepaid in the United States Mail, (c) by facsimile if
also delivered by hand, or deposited in the United States Mail, postage prepaid,
registered or certified mail, on or before two (2) business days after its
delivery by facsimile, in which case notice shall be deemed received one (1)
business day after the facsimile transmission, or (d) by a nationally recognized
overnight courier, in which case notice shall be deemed received one business
day after prepaid deposit with such courier.
8.4 Governing Law. This Management Services Agreement shall be governed
-------------
by the laws of the Commonwealth of Virginia applicable to agreements to be
performed wholly within the Commonwealth of Virginia.
8.5 Assignment. Except as may be herein specifically provided to the
----------
contrary, this Management Services Agreement shall inure to the benefit of, and
be binding upon, the parties hereto and their respective legal representatives,
successors and permitted assigns; provided, however, Practice may not assign
this Management Services Agreement without the prior written consent of Business
Manager, which consent may be withheld in Business Manager's discretion. The
sale, transfer, pledge or assignment of any of the voting shares of Practice
held by any shareholder of Practice or the issuance by Practice of common or
other voting shares to any other person, or any combination of such transactions
within a period of one (1) year, such that the existing shareholders in Practice
immediately prior to such transactions or the beginning of the one-year period,
as applicable, fail to maintain a majority of the voting interests in Practice
shall be deemed an attempted assignment by Practice, and shall be null and void
unless consented to in writing by Business Manager prior to any such transfer or
issuance. Any breach of this provision, whether or not void or voidable, shall
constitute a material breach of this Management Services Agreement, and in the
event of such breach, Business Manager may terminate this Management Services
Agreement upon twenty-four (24) hours' notice to Practice. The parties agree
Business Manager or any transferee shall have the right to (i) assign its rights
and obligations hereunder to any third party, provided that in the event such
third party is an Affiliate of NovaMed, such assignment shall not release
NovaMed, and (ii) collaterally assign its interest in this Management Services
Agreement and its other rights hereunder to any financial institution or other
third party without the consent of Practice (which assignment shall not release
NovaMed from its obligations hereunder).
8.6 Arbitration. Except as expressly provided in Section 6.7 hereof,
-----------
the parties shall negotiate in good faith to resolve any controversy, dispute or
disagreement arising out of or relating to this Management Services Agreement or
the breach of this Management Services Agreement. Any matter not resolved by
negotiation shall be submitted to binding arbitration and such arbitration shall
be governed by the terms of Article IX of the Stock Purchase Agreement, which,
as it applies to the parties hereto, is incorporated herein by reference in its
entirety; provided, however, that nothing contained in this Section 8.6 shall
prevent either party hereto from pursuing any right or remedy afforded it under
Section 7.7 hereof.
8.7 Waiver of Breach. The waiver by either party of a breach or
----------------
violation of any provision of this Management Services Agreement shall not
operate as, or be construed to constitute,
38
<PAGE>
a waiver of any subsequent breach of the same or another provision hereof.
8.8 Enforcement. In the event either party resorts to legal action to
-----------
enforce or interpret any provision of this Management Services Agreement, the
prevailing party shall be entitled to recover the costs and expenses of such
action so incurred, including, without limitation, reasonable attorneys' fees.
8.9 Gender and Number. Whenever the context of this Management Services
-----------------
Agreement requires, the gender of all words herein shall include the masculine,
feminine and neuter, and the number of all words herein shall include the
singular and plural.
8.10 Additional Assurances. Except as may be specifically provided
---------------------
herein to the contrary, the provisions of this Management Services Agreement
shall be self-operative and shall not require further agreement by the parties;
provided, however, at the request of either party, the other party shall execute
such additional instruments and take such additional acts as are reasonable, and
as the requesting party may reasonably deem necessary, to effectuate this
Management Services Agreement.
8.11 Consents, Approvals, and Exercise of Discretion. Whenever this
-----------------------------------------------
Management Services Agreement requires any consent or approval to be given by
either party, or either party must or may exercise discretion, and except where
specifically set forth to the contrary, the parties agree that such consent or
approval shall not be unreasonably withheld or delayed, and that such discretion
shall be reasonably exercised.
8.12 Force Majeure. Neither party shall be liable or deemed to be in
-------------
default for any delay or failure in performance under this Management Services
Agreement or other interruption of service deemed to result, directly or
indirectly, from acts of God, civil or military authority, acts of public enemy,
war, accidents, explosions, earthquakes, floods, failure of transportation,
strikes or other work interruptions by either party's employees, or any other
similar cause beyond the reasonable control of either party unless such delay or
failure in performance is expressly addressed elsewhere in this Management
Services Agreement.
8.13 Severability. The parties hereto have negotiated and prepared the
------------
terms of this Management Services Agreement in good faith with the intent that
each and every one of the terms, covenants and conditions herein be binding upon
and inure to the benefit of the respective parties. Accordingly, if any one or
more of the terms, provisions, promises, covenants or conditions of this
Management Services Agreement or the application thereof to any person or
circumstance shall be adjudged to any extent invalid, unenforceable, void or
voidable for any reason whatsoever by a court of competent jurisdiction or an
arbitration tribunal, such provision shall be as narrowly construed as possible,
and each and all of the remaining terms, provisions, promises, covenants and
conditions of this Management Services Agreement or their application to other
persons or circumstances shall not be affected thereby and shall be valid and
enforceable to the fullest extent permitted by law. To the extent this
Management Services Agreement is in violation of applicable law, then the
parties agree to negotiate in good faith to amend the Management Services
Agreement, to the extent possible consistent with its purposes, to conform to
law.
8.14 Divisions and Headings. The divisions of this Management Services
----------------------
Agreement into
39
<PAGE>
articles, sections and subsections, and the use of captions and headings in
connection therewith is solely for convenience and shall not affect in any way
the meaning or interpretation of this Management Services Agreement.
8.15 Amendments and Management Services Agreement Execution. This
------------------------------------------------------
Management Services Agreement and amendments hereto shall be in writing and
executed in multiple copies on behalf of Practice and Business Manager by their
respective duly authorized officers. Each multiple copy shall be deemed an
original, but all multiple copies together shall constitute one and the same
instrument.
8.16 Entire Management Services Agreement. With respect to the subject
------------------------------------
matter of this Management Services Agreement, this Management Services Agreement
supersedes all previous contracts and constitutes the entire agreement between
the parties. Neither party shall be entitled to benefits other than those
specified herein. No prior oral statements or contemporaneous negotiations or
understandings or prior written material not specifically incorporated herein
shall be of any force and effect, and no changes in or additions to this
Management Services Agreement shall be recognized unless incorporated herein by
amendment as provided herein, such amendment to become effective on the date
stipulated in such amendment. The parties specifically acknowledge that, in
entering into and executing this Management Services Agreement, the parties rely
solely upon the representations and agreements contained in this Management
Services Agreement and no others.
40
<PAGE>
IN WITNESS WHEREOF, Practice and Business Manager have caused this
Management Services Agreement to be executed by their duly authorized
representatives, all as of the day and year first above written.
PRACTICE:
DOMINION EYE ASSOCIATES, P.C.,
a Virginia professional corporation
By: /s/ Stephan C. Volk, M.D.
---------------------------------------
Name: Stephan C. Volk, M.D.
-------------------------------------
Title: President
------------------------------------
BUSINESS MANAGER:
NOVAMED EYECARE MANAGEMENT, LLC,
a Delaware limited liability company
By: /s/ Stephen J. Winjum
---------------------------------------
Stephen J. Winjum,
President and Chief Executive Officer
41
<PAGE>
EXHIBIT 1.6
BUDGET
See attached.
<PAGE>
<TABLE>
<CAPTION>
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stephan C. Volk, M.D. * * * * * * * * * * * *
- -------------------------- * * * * * * * * * * * *
MSA Budget * * * * * * * * * * * *
Fiscal Year 1997 - Practice * * * * * * * * * * * *
* * * * * * * * * * * *
* * * * * * * * * * * *
* * * * * * * * * * * *
Description * * * * * * * * * * * *
- ---------------------------------- * * * * * * * * * * * *
Revenue * * * * * * * * * * * *
- ------- * * * * * * * * * * * *
Practice Revenue * * * * * * * * * * * *
Facility Revenue * * * * * * * * * * * *
Optical Revenue * * * * * * * * * * * *
Contractual Adjustments * * * * * * * * * * * *
Other Adjustments * * * * * * * * * * * *
Allowance For Doubtful Accounts * * * * * * * * * * * *
* * * * * * * * * * * *
* * * * * * * * * * * *
Other Revenue * * * * * * * * * * * *
* * * * * * * * * * * *
* * * * * * * * * * * *
BUDGETED ADJUSTED GROSS REVENUE * * * * * * * * * * * *
* * * * * * * * * * * *
* * * * * * * * * * * *
Expenses * * * * * * * * * * * *
- -------- * * * * * * * * * * * *
Salaries and Wages: * * * * * * * * * * * *
Salaries & Wages * * * * * * * * * * * *
Vacation Pay * * * * * * * * * * * *
Bonuses * * * * * * * * * * * *
FICA Tax * * * * * * * * * * * *
SUI * * * * * * * * * * * *
FUI * * * * * * * * * * * *
Allocated Salaries & Benefits * * * * * * * * * * * *
OD/MD Compensation * * * * * * * * * * * *
401k Match * * * * * * * * * * * *
Life & Disability Insurance * * * * * * * * * * * *
Employee Health Insurance * * * * * * * * * * * *
Total Salaries & Wages * * * * * * * * * * * *
* * * * * * * * * * * *
* * * * * * * * * * * *
Pharmaceuticals and supplies: * * * * * * * * * * * *
Surgical Supplies * * * * * * * * * * * *
Contact Lenses * * * * * * * * * * * *
Frames & Other Optical * * * * * * * * * * * *
Other Non-Office Supplies * * * * * * * * * * * *
Discounts & Rebates * * * * * * * * * * * *
Total Pharmac. & Supplies * * * * * * * * * * * *
* * * * * * * * * * * *
* * * * * * * * * * * *
* * * * * * * * * * * *
</TABLE>
<TABLE>
<CAPTION>
Description Total 1998 %
- ---------------------------------- ---------------
<S> <C> <C>
* * * * *
* * * * *
Revenue * * * * *
- ------- * * * * *
Practice Revenue * * * * *
Facility Revenue * * * * *
Optical Revenue * * * * *
Contractual Adjustments * * * * *
Other Adjustments * * * * *
Allowance For Doubtful Accounts * * * * *
* * * * *
* * * * *
Other Revenue * * * * *
* * * * *
* * * * *
BUDGETED ADJUSTED GROSS REVENUE * * * * *
* * * * *
* * * * *
Expenses * * * * *
- -------- * * * * *
Salaries and Wages: * * * * *
Salaries & Wages * * * * *
Vacation Pay * * * * *
Bonuses * * * * *
FICA Tax * * * * *
SUI * * * * *
FUI * * * * *
Allocated Salaries & Benefits * * * * *
OD/MD Compensation * * * * *
401k Match * * * * *
Life & Disability Insurance * * * * *
Employee Health Insurance * * * * *
Total Salaries & Wages * * * * *
* * * * *
* * * * *
Pharmaceuticals and supplies: * * * * *
Surgical Supplies * * * * *
Contact Lenses * * * * *
Frames & Other Optical * * * * *
Other Non-Office Supplies * * * * *
Discounts & Rebates * * * * *
Total Pharmac. & Supplies * * * * *
* * * * *
* * * * *
* * * * *
</TABLE>
*Confidential portions omitted and filed separately with the commission.
24
<PAGE>
<TABLE>
<CAPTION>
Stephan C. Volk, M.D.
- ------------------------------------------------------------------------------------------------------------------------------------
MSA Budget
Fiscal Year 1997 - Practice
Description
- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Expenses: * * * * * * * * * * * *
* * * * * * * * * * * *
Office & Administrative: * * * * * * * * * * * *
Office Supplies * * * * * * * * * * * *
Postage & Freight * * * * * * * * * * * *
MD Allowances * * * * * * * * * * * *
Continuing Education * * * * * * * * * * * *
Dues and Subscriptions * * * * * * * * * * * *
Telephone * * * * * * * * * * * *
Utilities * * * * * * * * * * * *
Other Office Expense * * * * * * * * * * * *
Allocated - Office & Admin. * * * * * * * * * * * *
Total Office & Admin. Expenses * * * * * * * * * * * *
* * * * * * * * * * * *
* * * * * * * * * * * *
Marketing: * * * * * * * * * * * *
Marketing & Printing * * * * * * * * * * * *
Allocated - Marketing * * * * * * * * * * * *
Total Marketing * * * * * * * * * * * *
* * * * * * * * * * * *
* * * * * * * * * * * *
Professional Fees: * * * * * * * * * * * *
Legal * * * * * * * * * * * *
Accounting * * * * * * * * * * * *
Other Services ## * * * * * * * * * * * *
Temporary Services * * * * * * * * * * * *
Other Prof. Consulting * * * * * * * * * * * *
Amortization - * * * * * * * * * * * *
Deferred Professional Fees * * * * * * * * * * * *
Allocated - Prof. Fees * * * * * * * * * * * *
Total Professional Fees * * * * * * * * * * * *
* * * * * * * * * * * *
Richmond * * * * * * * * * * * *
Rental Expense: Colonial Hghts * * * * * * * * * * * *
Building Rent * * * * * * * * * * * *
Equipment Leases * * * * * * * * * * * *
NovaMed Equipment Rent * * * * * * * * * * * *
Total Rent Expense * * * * * * * * * * * *
* * * * * * * * * * * *
* * * * * * * * * * * *
* * * * * * * * * * * *
## Other Services include Uniform Rental, * * * * * * * * * * * *
Answerin * * * * * * * * * * * *
</TABLE>
<TABLE>
<CAPTION>
Description
- ----------------------------------
<S> <C> <C> <C>
Operating Expenses: * * *
* * *
Office & Administrative: * * *
Office Supplies * * *
Postage & Freight * * *
MD Allowances * * *
Continuing Education * * *
Dues and Subscriptions * * *
Telephone * * *
Utilities * * *
Other Office Expense * * *
Allocated - Office & Admin. * * *
Total Office & Admin. Expenses * * *
* * *
* * *
Marketing: * * *
Marketing & Printing * * *
Allocated - Marketing * * *
Total Marketing * * *
* * *
* * *
Professional Fees: * * *
Legal * * *
Accounting * * *
Other Services ## * * *
Temporary Services * * *
Other Prof. Consulting * * *
Amortization - * * *
Deferred Professional Fees * * *
Allocated - Prof. Fees * * *
Total Professional Fees * * *
* * *
Richmond * * *
Rental Expense: Colonial Hghts * * *
Building Rent * * *
Equipment Leases * * *
NovaMed Equipment Rent * * *
Total Rent Expense * * *
* * *
* * *
* * *
## Other Services include Uniform Rental, * * *
Answerin * * *
</TABLE>
* Confidential portions omitted and filed separately with the commission.
25
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C><C><C>
Stephan C. Volk, M.D. * * * * * * * * * * * * * * *
- ----------------------------------------- * * * * * * * * * * * * * * *
MSA Budget * * * * * * * * * * * * * * *
Fiscal Year 1997 - Practice * * * * * * * * * * * * * * *
* * * * * * * * * * * * * * *
* * * * * * * * * * * * * * *
* * * * * * * * * * * * * * *
Description * * * * * * * * * * * * * * *
- ---------------------------------- * * * * * * * * * * * * * * *
Repairs & Maintenance: * * * * * * * * * * * * * * *
Building Maintenance * * * * * * * * * * * * * * *
Repairs * * * * * * * * * * * * * * *
Other Repairs * * * * * * * * * * * * * * *
Total Repairs & Maint. * * * * * * * * * * * * * * *
* * * * * * * * * * * * * * *
* * * * * * * * * * * * * * *
Taxes and Insurance: * * * * * * * * * * * * * * *
Malpractice * * * * * * * * * * * * * * *
Liab/Casualty & W. Comp. * * * * * * * * * * * * * * *
D&O * * * * * * * * * * * * * * *
Key Man Life * * * * * * * * * * * * * * *
Other Insurance * * * * * * * * * * * * * * *
Property Tax * * * * * * * * * * * * * * *
Sales & Use Tax * * * * * * * * * * * * * * *
Other Taxes * * * * * * * * * * * * * * *
Allocated - Taxes * * * * * * * * * * * * * * *
Total Taxes & Ins. * * * * * * * * * * * * * * *
* * * * * * * * * * * * * * *
* * * * * * * * * * * * * * *
Other Expenses: * * * * * * * * * * * * * * *
Travel & Enter. * * * * * * * * * * * * * * *
Recruitment * * * * * * * * * * * * * * *
Auto & Van * * * * * * * * * * * * * * *
Donations and Gifts * * * * * * * * * * * * * * *
Other/Employee Programs * * * * * * * * * * * * * * *
Allocated - Other * * * * * * * * * * * * * * *
Total Other Expense * * * * * * * * * * * * * * *
* * * * * * * * * * * * * * *
Total Operating Expenses * * * * * * * * * * * * * * *
* * * * * * * * * * * * * * *
* * * * * * * * * * * * * * *
Depreciation & Amortization: * * * * * * * * * * * * * * *
Building Depreciation * * * * * * * * * * * * * * *
Equipment Depreciation * * * * * * * * * * * * * * *
Goodwill Amortization * * * * * * * * * * * * * * *
Other Intangible Amortization * * * * * * * * * * * * * * *
Amortization of Deferred Charges * * * * * * * * * * * * * * *
* * * * * * * * * * * * * * *
Total Depr. and Amortization * * * * * * * * * * * * * * *
* * * * * * * * * * * * * * *
* * * * * * * * * * * * * * *
</TABLE>
*Confidential portions omitted and filed separately with the commission.
26
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stephan C. Volk, M.D. * * * * * * * * * * * * * *
- ---------------------------------- * * * * * * * * * * * * * *
MSA Budget
Fiscal Year 1997 - Practice * * * * * * * * * * * * * *
* * * * * * * * * * * * * *
* * * * * * * * * * * * * *
Description * * * * * * * * * * * * * *
- ---------------------------------- * * * * * * * * * * * * * *
* * * * * * * * * * * * * *
Interest (income) and expense: * * * * * * * * * * * * * *
Depository Interest * * * * * * * * * * * * * *
Investment Income * * * * * * * * * * * * * *
Bank Line Interest Expense * * * * * * * * * * * * * *
Cap. Lease Interest Expense * * * * * * * * * * * * * *
Other Interest Expense * * * * * * * * * * * * * *
* * * * * * * * * * * * * *
Total Interest (income)/expense * * * * * * * * * * * * * *
* * * * * * * * * * * * * *
BUDGETED OFFICE EXPENSE * * * * * * * * * * * * * *
* * * * * * * * * * * * * *
* * * * * * * * * * * * * *
MONTHLY FEE * * * * * * * * * * * * * *
* * * * * * * * * * * * * *
* * * * * * * * * * * * * *
BUDGETED PRACTICE EXPENSE * * * * * * * * * * * * * *
* * * * * * * * * * * * * *
* * * * * * * * * * * * * *
* * * * * * * * * * * * * *
** In establishing the Monthly Fee set * * * * * * * * * * * * * *
forth in this Bu Pre-Tax Income (as * * * * * * * * * * * * * *
hereinafter defined) of Practic * * * * * * * * * * * * * *
annual Pre-Tax Income of Practice, then * * * * * * * * * * * * * *
the aggre income of Practice, then the * * * * * * * * * * * * * *
aggre Income of Practice, then the * * * * * * * * * * * * * *
aggregate Monthly fe * * * * * * * * * * * * * *
</TABLE>
*Confidential portions omitted and filed separately with the commission.
27
<PAGE>
EXHIBIT 1.30(g)
EQUIPMENT
See attached.
<PAGE>
EXHIBIT 1.43
PREEXISTING OBLIGATION PAYMENTS
None.
<PAGE>
EXHIBIT 3.1
MEMBERS OF INITIAL POLICY BOARD
BUSINESS MANAGER DESIGNEES
Daniel O. Wagster
T. Trent Roark
REGIONAL PRACTICE DESIGNEES
Stephan C. Volk, M.D.
[To be appointed]
<PAGE>
EXHIBIT 4.8
POWER OF ATTORNEY
See attached.
<PAGE>
EXHIBIT 5.1
FORM OF EMPLOYMENT AGREEMENT (SHAREHOLDERS)
See attached.
<PAGE>
EXHIBIT 5.1A
LIST OF INITIAL PHYSICIAN-SHAREHOLDER
Stephan C. Volk, M.D.
<PAGE>
EXHIBIT 5.1B
FORM OF BUY-SELL AGREEMENT
See attached.
<PAGE>
EXHIBIT 5.2A
FORM OF EMPLOYMENT AGREEMENT (NONSHAREHOLDERS)
See attached.
<PAGE>
EXHIBIT 5.3
HOSPITALS AND HEALTH CARE FACILITIES
The Cataract and Refractive Surgery Center.
<PAGE>
EXHIBIT 10.11
AMENDED AND RESTATED
MANAGEMENT SERVICES AGREEMENT
BY AND BETWEEN
NOVAMED EYECARE MANAGEMENT, LLC,
a Delaware limited liability company
AND
THE EYE CENTER, INC.,
a Missouri corporation
AMENDED AND RESTATED
EFFECTIVE AS OF NOVEMBER 30,1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
RECITALS............................................................... 2
ARTICLE I DEFINITIONS.................................................. 3
1.1 Adjustments...................................................... 3
1.2 Affiliate........................................................ 3
1.3 Ancillary Revenue................................................ 3
1.4 Budget........................................................... 3
1.5 Business Manager................................................. 3
1.6 Business Manager Consent......................................... 3
1.7 Business Manager Expense......................................... 4
1.8 Capitation/Case Rate Revenues.................................... 4
1.9 Confidential Information......................................... 5
1.10 Contribution and Exchange Agreement.............................. 5
1.11 Depository Account............................................... 5
1.12 Designated Allied Health Professionals........................... 5
1.13 Dispensary Business.............................................. 5
1.14 Dispensary Business Budgeted Office Expense...................... 5
1.15 Dispensary Business Budgeted Practice Expense.................... 5
1.16 Dispensary Business Budgeted Revenue............................. 5
1.17 Dispensary Business Management Fee............................... 6
1.18 Dispensary Business Monthly Fee.................................. 6
1.19 Dispensary Business Monthly Office Expense....................... 6
1.20 Dispensary Business Monthly Practice Expense..................... 6
1.21 Dispensary Business Office Expense............................... 6
1.22 Dispensary Business Revenue...................................... 6
1.23 GAAP............................................................. 6
1.24 Managed Care Contract............................................ 6
1.25 Management Fee................................................... 6
1.26 Management Services.............................................. 6
1.27 Management Services Agreement.................................... 6
1.28 Medical Advisory Board........................................... 6
1.29 Medical Services................................................. 7
1.30 Monthly Office Expense........................................... 7
1.31 Monthly Practice Expense......................................... 7
1.32 Office........................................................... 7
1.33 Office Expense................................................... 7
1.34 Optometrist...................................................... 9
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
1.35 Physician.......................................................... 9
1.36 Physician Discretionary Expenses................................... 9
1.37 Physician-Employee................................................. 9
1.38 Physician-Shareholder.............................................. 9
1.39 Policy Board....................................................... 9
1.40 Practice........................................................... 9
1.41 Practice Consent................................................... 9
1.42 Practice Expense................................................... 9
1.43 Practice Territory................................................. 10
1.44 Preexisting Obligation Payments.................................... 10
1.45 Principal Services................................................. 10
1.46 Principal Services Budgeted Office Expense......................... 10
1.47 Principal Services Budgeted Practice Expense....................... 10
1.48 Principal Services Budgeted Revenue................................ 10
1.49 Principal Services Management Fee.................................. 10
1.50 Principal Services Monthly Fee..................................... 10
1.51 Principal Services Monthly Office Expense.......................... 10
1.52 Principal Services Monthly Practice Expense........................ 10
1.53 Principal Services Office Expense.................................. 10
1.54 Principal Services Revenues........................................ 10
1.55 Professional Services Revenues..................................... 10
1.56 Regional Practices................................................. 11
1.57 Representatives.................................................... 11
1.58 Stark Act.......................................................... 11
1.59 Subcontractor Costs................................................ 11
1.60 Term............................................................... 11
ARTICLE II APPOINTMENT AND AUTHORITY OF BUSINESS MANAGER................. 11
2.1 Appointment........................................................ 11
2.2 Authority.......................................................... 11
2.3 Patient Referrals.................................................. 12
2.4 Internal Practice Matters.......................................... 12
2.5 Practice of Medicine............................................... 12
ARTICLE III RESPONSIBILITIES OF THE POLICY BOARD......................... 12
3.1 Formation and Operation of the Policy Board........................ 12
3.2 Duties and Responsibilities of the Policy Board.................... 13
3.3 Medical Decisions.................................................. 14
ARTICLE IV COVENANTS AND RESPONSIBILITIES OF BUSINESS MANAGER............ 15
4.1 Office and Equipment............................................... 15
4.2 Medical Supplies................................................... 15
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
4.3 Support Services................................................... 16
4.4 Quality Assurance, Risk Management, and Utilization Review......... 16
4.5 Licenses and Permits............................................... 16
4.6 Personnel.......................................................... 16
4.7 Contract Negotiations.............................................. 16
4.8 Billing and Collection............................................. 17
4.9 Priority of Payments............................................... 19
4.10 Fiscal Matters..................................................... 20
4.11 Reports and Records................................................ 22
4.12 Recruitment of Physicians and Optometrists......................... 22
4.13 Confidential and Proprietary Information........................... 22
4.14 Business Manager's Insurance....................................... 23
4.15 No Warranty........................................................ 24
ARTICLE V COVENANTS AND RESPONSIBILITY OF PRACTICE....................... 24
5.1 Organization and Operation......................................... 24
5.2 Practice Personnel................................................. 25
5.3 Professional Standards............................................. 26
5.4 Medical Services................................................... 26
5.5 Peer Review/Quality Assurance...................................... 26
5.6 Confidential and Proprietary Information........................... 26
5.7 Noncompetition..................................................... 27
5.8 Name, Trademark.................................................... 29
5.9 Medical Advisory Board............................................. 29
5.10 Indemnification of Business Manager................................ 29
ARTICLE VI FINANCIAL ARRANGEMENT......................................... 29
6.1 Definitions........................................................ 30
6.2 Management Fee..................................................... 32
6.3 Reasonable Value................................................... 32
6.4 Payment of Management Fee.......................................... 33
6.5 Accounts Receivable................................................ 33
6.6 Disputes Regarding Fees............................................ 34
ARTICLE VII TERM AND TERMINATION......................................... 34
7.1 Initial and Renewal Term........................................... 34
7.2 Termination........................................................ 34
7.3 Effects of Termination............................................. 36
7.4 Repurchase Obligation.............................................. 36
7.5 Repurchase Option.................................................. 37
7.6 Closing of Repurchase.............................................. 38
7.7 Rights and Remedies................................................ 39
7.8 Interpretation..................................................... 39
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
ARTICLE VIII MISCELLANEOUS............................................... 39
8.1 Administrative Services Only....................................... 39
8.2 Status of Contractor............................................... 40
8.3 Notices............................................................ 40
8.4 Governing Law and Consent to Jurisdiction.......................... 41
8.5 Assignment......................................................... 41
8.6 Arbitration........................................................ 42
8.7 Waiver of Breach................................................... 42
8.8 Enforcement........................................................ 42
8.9 Gender and Number.................................................. 42
8.10 Additional Assurances.............................................. 42
8.11 Consents, Approvals, and Exercise of Discretion.................... 42
8.12 Force Majeure...................................................... 42
8.13 Severability....................................................... 43
8.14 Divisions and Headings............................................. 43
8.15 Amendments and Management Services Agreement Execution............. 43
8.16 Entire Management Services Agreement............................... 43
</TABLE>
iv
<PAGE>
MANAGEMENT SERVICES AGREEMENT
THIS AMENDED AND RESTATED MANAGEMENT SERVICES AGREEMENT (this "Management
Services Agreement") made and entered into effective as of November 30, 1998
(the "Effective Date"), by and between NovaMed Eyecare Management, LLC, a
Delaware limited liability company ("Business Manager"), and The Eye Center,
Inc., a Missouri corporation ("Practice"), and amends, restates and replaces in
its entirety that certain Management Services Agreement previously made and
entered into effective as of November 1, 1996 (the "Original Date"), by and
between Business Manager and Practice.
RECITALS
This Management Services Agreement is made with reference to the following
facts:
A. Practice is a validly existing Missouri corporation, formed for and
engaged in the conduct of a medical practice and the provision of medical
services to the general public in and around the St. Louis metropolitan area
through individual physicians who are licensed to practice medicine in the State
of Missouri and who are employed or otherwise retained by Practice.
B. Practice is also engaged in the business of selling prescription and
non-prescription eyewear, contact lenses and other related optical products (the
"Dispensary Business").
C. Business Manager is a validly existing Delaware limited liability
company which is in the business of providing physician practice management
services to medical practices.
D. Business Manager and Practice previously have entered into a Management
Services Agreement dated as of November 1, 1996 (the "Original Management
Services Agreement").
E. Practice desires to focus its energies, expertise and time on the
practice of medicine and on the delivery of medical services to patients, and
desires to delegate the business functions of its medical practice to persons
with business expertise.
F. Practice desires to engage Business Manager to provide all management,
administrative and business services as are necessary or appropriate for the
day-to-day administration of the nonmedical aspects of Practice's medical
practice and Dispensary Business, including the provision of all non-medical
assets necessary or appropriate for the operation of Practice's medical practice
and Dispensary Business, and Business Manager desires to provide such services
upon the terms and conditions hereinafter set forth.
G. Practice and Business Manager have determined a fair market value for
the services to be rendered by Business Manager and, based on this fair market
value, have developed a formula for compensating Business Manager that will
allow the parties to establish a relationship permitting each party to devote
its skills and expertise to the appropriate responsibilities and functions.
H. Business Manager is willing to commit significant resources to Practice
based upon the representation and warranty of Practice that the current
shareholder of Practice will continue
<PAGE>
to practice medicine for Practice in the Practice Territory (as hereinafter
defined) during the term of this Management Services Agreement pursuant to
employment agreements between Practice and each Physician-Shareholder (the
"Employment Agreements").
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
When used in this Management Services Agreement, the following terms shall
have the meanings set forth below.
1.1 Adjustments. The term "Adjustments" shall mean any adjustments on
-----------
an accrual basis in accordance with GAAP for uncollectible accounts, Medicare,
Medicaid and other payor contractual adjustments, discounts, worker's
compensation adjustments, professional courtesies and other reductions in
collectible revenue.
1.2 Affiliate. The term "Affiliate" shall mean any person, firm or
---------
entity which directly or indirectly, through one or more intermediaries,
controls or is controlled by, or is under common control with, any other person
(including members of such person's family), firm or entity.
1.3 Ancillary Revenue. The term "Ancillary Revenue" shall mean all
-----------------
other revenue of Practice, Physicians and Optometrists actually recorded each
month (net of Adjustments) which is not Professional Services Revenue or
Dispensary Business Revenue and shall include, without limitation, any revenues
of Practice or its Physicians and Optometrists which are derived from
professionally related activities such as expert witness fees, and any
royalties, honoraria or the like from authored documents or speeches.
1.4 Budget. The term "Budget" shall mean an operating budget and
------
capital expenditure budget for each fiscal year for each of the Dispensary
Business and the Principal Services, as prepared by Business Manager and adopted
by Practice in accordance with Section 4.10 hereof. The initial Budget shall be
attached hereto and incorporated herein as Exhibit 1.6. Each succeeding Budget
-----------
subsequently adopted pursuant to Section 4.10 hereof shall also be incorporated
herein.
1.5 Business Manager. The term "Business Manager" shall mean NovaMed
----------------
Eyecare Management, LLC, a Delaware limited liability company, or any successor
in interest.
1.6 Business Manager Consent. The term "Business Manager Consent" shall
------------------------
mean the consent granted by any of Business Manager's representatives to the
Policy Board. When any provision of this Management Services Agreement requires
Business Manager Consent, such consent shall not be unreasonably withheld or
delayed and shall be binding on Business Manager.
1.7 Business Manager Expense. The term "Business Manager Expense" shall
------------------------
mean any expense or cost incurred by Business Manager which does not relate
directly to the provision of services to Practice. Such expenses or costs shall
include, without limitation:
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(a) all salaries, benefits and other direct costs (including payroll
and other withholding taxes) of executive officers and management personnel of
Business Manager or employees of Business Manager who devote substantially all
of their time and effort to the operations of Business Manager in the aggregate
rather than the operations of any particular practice affiliated with Business
Manager;
(b) the expense of using, leasing, maintaining or repairing the
offices of Business Manager;
(c) the cost of capital to finance the general business obligations
of Business Manager, and any costs associated with raising such capital; and
(d) the costs of any consultants or advisors who provide services for
Business Manager in connection with its business operations, such as accounting,
financial and legal services, other than those services which constitute Office
Expense pursuant to Section 1.30 hereof.
1.8 Capitation/Case Rate Revenues. The term "Capitation/Case Rate
-----------------------------
Revenues" shall mean all revenues from managed care organizations, third party
payors or employers in which payments are based on a per member, case rate or
other similar basis (i.e., all payments which are not based on a fee-for-service
payment methodology or discounted fee-for-service reimbursement methodology) for
the medical needs of a subscribing patient. Capitation/Case Rate revenues shall
include any associated plan payments received such as patient co-payments,
incentive bonuses or incentive fund penalties. All Capitation/Case Rate
Revenues shall be allocated in good faith on an actuarial basis as follows:
(a) Dispensary Business Capitation. The portion, if any, of payments
------------------------------
designated for Dispensary Business goods sold by Practice; Dispensary Business
Capitation shall be Dispensary Business Revenue;
(b) Professional Services Capitation. The portion of payments
--------------------------------
designated for physician services currently performed by Practice; Professional
Services Capitation shall be Professional Services Revenues; and
(c) Subcontractor Capitation Revenues. The portion of payments
---------------------------------
designated for physicians, optometrists or other medical or optometric services
that will be Subcontractor Costs (e.g., reinsurance, hospitalization, surgical
facility fees, etc.), including incentive bonuses or penalties, and an estimate
for incurred but not reported claims; Subcontractor Capitation Revenues shall
not be Professional Services Revenues.
Subject to the approval of the Policy Board, Business Manager shall develop and
implement an appropriate allocation methodology for each Capitation/Case Rate
Revenues contract.
1.9 Confidential Information. The term "Confidential Information"
------------------------
shall mean any and all financial, technical, commercial or other information of
Business Manager or Practice, as appropriate (whether written or oral),
including, without limitation, all information, notes, studies, patient lists
and records, reports, analyses, financial statements, compilations, studies,
forms, business or management methods, marketing data, fee schedules, peer
review information,
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credentialing information, quality assurance and utilization review information,
interpretations, projections, forecasts or trade secrets of Business Manager or
of Practice, as applicable, whether or not such Confidential Information is
disclosed or otherwise made available to one party by the other party pursuant
to this Management Services Agreement. Confidential Information shall also
include the terms and provisions of this Management Services Agreement and any
transactions consummated or documents executed by the parties pursuant to this
Management Services Agreement. Confidential Information does not include any
information that (i) is or becomes generally available to and known by the
public (other than as a result of an unpermitted disclosure directly or
indirectly by the receiving party or its affiliates, advisors or
Representatives); (ii) is or becomes available to the receiving party on a
nonconfidential basis from a source other than the furnishing party or its
affiliates, advisors or Representatives, provided that such source is not and
was not bound by a confidentiality agreement with or other obligation of secrecy
to the furnishing party of which the receiving party has knowledge at the time
of such disclosure; or (iii) has already been developed, or is hereafter
independently acquired or developed, by the receiving party without violating
any confidentiality agreement with or other obligation of secrecy to the
furnishing party.
1.10 Contribution and Exchange Agreement. The term "Contribution and
-----------------------------------
Exchange Agreement" shall mean that certain Asset Contribution and Exchange
Agreement dated as of November 1, 1996, by and among Business Manager, Practice,
Cataract Surgery Center of St. Louis, Inc. and Physician-Shareholders.
1.11 Depository Account. The term "Depository Account" shall mean the
------------------
bank account referred to in Section 4.8 hereof.
1.12 Designated Allied Health Professionals. The term "Designated
--------------------------------------
Allied Health Professionals" shall mean those medical professionals other than
Physicians and Optometrists whose services must be rendered "incident to" a
Physician's services in order to be billable under the Medicare program.
1.13 Dispensary Business. The term "Dispensary Business" shall have the
-------------------
meaning set forth in the Recitals hereto; provided, however, that the sale of
contact lenses shall be a part of Professional Services Revenues and not
Dispensary Business.
1.14 Dispensary Business Budgeted. The term "Dispensary Business Office
----------------------------
Expense Budgeted Office Expense" shall have the meaning set forth in Section 6.1
hereof.
1.15 Dispensary Business Budgeted. The term "Dispensary Business Practice
----------------------------
Expense Budgeted Practice Expense" shall have the meaning set forth in Section
6.1 hereof.
1.16 Dispensary Business Budgeted. The term "Dispensary Business Revenue
----------------------------
Budgeted Revenue" shall have the meaning set forth in Section 6.1 hereof.
1.17 Dispensary Business Management. The term "Dispensary Business
------------------------------
Management Fee" shall have the Fee meaning set forth in Section 6.1 hereof.
1.18 Dispensary Business Monthly Fee. The term "Dispensary Business
-------------------------------
Monthly Fee" shall have the meaning set forth in Section 6.1 hereof.
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1.19 Dispensary Business Monthly. The term "Dispensary Business Office
---------------------------
Expense Monthly Office Expense" shall have the meaning set forth in Section 6.1
hereof.
1.20 Dispensary Business Monthly. The term "Dispensary Business Practice
---------------------------
Expense Monthly Practice Expense" shall have the meaning set forth in Section
6.1 hereof.
1.21 Dispensary Business Office. The term "Dispensary Business Monthly
--------------------------
Office Expense" shall have Expense the meaning set forth in Section 6.1 hereof.
1.22 Dispensary Business Revenue. The term "Dispensary Business
---------------------------
Revenue" shall mean all revenues of the Dispensary Business of the Practice
recorded on an accrual basis under GAAP (net of Adjustments).
1.23 GAAP. The term "GAAP" shall mean generally accepted accounting
----
principles set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants,
statements and pronouncements of the Financial Accounting Standards Board, or
other statements, practices and procedures as may be approved by a significant
segment of the accounting profession, which are applicable to the circumstances
as of the date of the determination.
1.24 Managed Care Contract. The term "Managed Care Contract" shall
---------------------
include any Capitation/Case Rate Revenues contract, or any contracts based on a
fee-for-service payment methodology or discounted fee-for-service reimbursement
methodology and other agreements with third party payors, alternative delivery
systems or other purchasers of group health care services.
1.25 Management Fee. The term "Management Fee" shall mean the amount
--------------
determined pursuant to Section 6.1.
1.26 Management Services. The term "Management Services" shall mean the
-------------------
business, administrative and management services to be provided to Practice by
Business Manager under this Agreement including, without limitation, the
provision of equipment, supplies, support services, nonphysician personnel,
office space, management, administration, financial recordkeeping and reporting,
information systems and all other business office services necessary for the
nonmedical operations of Practice.
1.27 Management Services Agreement. The term "Management Services
-----------------------------
Agreement" shall mean this Management Services Agreement by and between Practice
and Business Manager and any amendments hereto.
1.28 Medical Advisory Board. The term "Medical Advisory Board" shall
----------------------
have the meaning set forth in Section 5.9 hereof.
1.29 Medical Services. The term "Medical Services" shall mean the
----------------
practice of ophthalmology, optometry and other related eye care services as
provided by Practice through Physicians and Optometrists, as the case may be.
1.30 Monthly Office Expense. The term "Monthly Office Expense" shall
----------------------
have the meaning set forth in Section 6.1 hereof.
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1.31 Monthly Practice Expense. The term "Monthly Practice Expense"
------------------------
shall have the meaning set forth in Section 6.1 hereof.
1.32 Office. The term "Office" shall mean any office space, clinic,
------
facility or satellite facilities that Business Manager owns, leases or otherwise
procures for the exclusive use of Practice.
1.33 Office Expense. The term "Office Expense" shall mean all expenses
--------------
incurred by Business Manager or Practice in the provision of services to
Practice and the operation of the Offices. Except as specifically enumerated
below, Office Expense shall not include any state or federal income tax
liability of Practice or Physician-Shareholders, or any other expense that is a
Practice Expense or a Business Manager Expense. Without limitation, Office
Expense shall include:
(a) the salaries, benefits and other direct costs (including payroll
and other withholding taxes) of all employees of Business Manager who are either
located at, devote substantially all of their time and effort to, or for which
time is allocated specifically for a function to support, Practice;
(b) the salaries, benefits and other direct costs (including payroll
and other withholding taxes) of all Physician-Employees and Optometrists, but
excluding the salaries, benefits and other direct costs (including payroll and
other withholding taxes) of Physician-Shareholders; provided, however, that in
the event any Physician-Shareholder shall fail, for any reason, to work full-
time in the performance of his or her duties as described in such Physician-
Shareholder's Employment Agreement for a period exceeding two (2) consecutive
months, whether or not such failure (i) gives rise to termination rights
pursuant to such Employment Agreement or (ii) occurs prior to or after the
termination of the Initial Term (as such term is defined in Section 4.1 of such
Employment Agreement), then the expenses described in this Section 1.33(b) shall
thereafter be categorized as Practice Expense;
(c) except as otherwise provided in Section 5.4 hereof, the direct or
reasonably allocated costs of providing such locum tenens coverage as may be
----- ------
necessary pursuant to Section 5.4 hereof, which costs shall include, without
limitation, the salaries, benefits and other direct costs of any Physicians or
Optometrists retained by Practice for such purposes;
(d) the direct or reasonably allocated costs of any employee or
consultant that provides services at the direction of Business Manager for
improved performance of Practice, such as management, billings and collections,
business office consultation, training, and accounting and legal services;
(e) reasonable recruitment costs and out-of-pocket expenses of
Business Manager or Practice associated with the recruitment of additional
Physician-Employees and Optometrists of Practice;
(f) all reasonable and customary business insurance expenses of
Practice, Physicians, Optometrists, Designated Allied Health Professionals and
the Office, including, without limitation, professional and general liability
insurance;
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(g) without duplication of expenses included pursuant to any other
subparagraph of this Section 1.33, the expense of using, leasing, maintaining,
repairing, purchasing or otherwise procuring the Office and related equipment
(including any leasehold improvements), including, without limitation, any
depreciation expense, any personal property taxes assessed against assets
utilized for the benefit of Practice, and any and all expenses relating to the
equipment listed on Exhibit 1.33(g) attached hereto and incorporated herein, but
---------------
excluding any Preexisting Obligation Payments;
(h) without duplication of expenses included pursuant to any other
subparagraph of this Section 1.33, the cost of capital, whether as actual
interest on indebtedness incurred on behalf of Practice or as reasonable imputed
interest on capital advanced by Business Manager to finance or refinance
obligations of Practice, purchase medical or nonmedical equipment, renovate the
Office, or finance new ventures of Practice, but excluding any Preexisting
Obligation Payments;
(i) the Base Management Fee;
(j) the direct or reasonably allocated costs relating to sales or
marketing activities or materials, including, without limitation, brochures,
pamphlets, displays, direct mail, promotional materials, patient screening,
network directories, signs, video and audio tapes, equipment, media, development
costs and consulting services;
(k) the direct or reasonably allocated costs of obtaining,
maintaining and supporting Managed Care Contracts;
(l) the direct or reasonably allocated costs relating to any third
party service agreements for the general day-to-day operations of Office and
Practice, which services shall include, without limitation, maintenance, patient
transportation, janitorial, answering services, landscaping, snow removal and
uniform rental;
(m) the direct or reasonably allocated travel expenses of Business
Manager associated with attending meetings, conferences or seminars primarily
benefiting Practice;
(n) the cost of medical supplies (including, without limitation,
drugs, pharmaceuticals, products, substances or medical devices), office
supplies, inventory (including, without limitation, inventory for the Dispensary
Business) and utilities; and
(o) direct costs, not to exceed budgeted allowances, for professional
dues, subscriptions, continuing medical education expenses and travel costs for
continuing medical education or other business travel of Practice employees.
1.34 Optometrist. The term "Optometrist" shall mean each individually
-----------
licensed doctor of optometry who is employed or otherwise retained by or
associated with Practice, each of whom shall meet at all times the
qualifications described in Sections 5.2 and 5.3 hereof.
1.35 Physician. The term "Physician" shall mean each individual
---------
licensed to practice medicine in the State of Missouri and certified by the
American Academy of Ophthalmology who
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is employed or otherwise retained by or associated with Practice, each of whom
shall meet at all times the qualifications described in Sections 5.2 and 5.3
hereof.
1.36 Physician Discretionary Expenses. The term "Physician
--------------------------------
Discretionary Expenses" shall mean any expenses or debt obligations of Practice
or Physicians which are not included in the Budget or approved by Business
Manager and shall include, without limitation, the following: accounting,
consulting or legal expenses incurred by Practice without coordinating such
engagement through Business Manager; professional dues, subscriptions,
continuing medical education expenses and travel costs for continuing medical
education in excess of budgeted allowances for such items and any equipment
obtained by Practice without the approval of the Policy Board as set forth in
Section 4.1(d) hereof; and other discretionary business expenses incurred
directly by Physicians or Practice.
1.37 Physician-Employee. The term "Physician-Employee" shall mean any
------------------
Physician employed by Practice, but shall not include Physician-Shareholders.
1.38 Physician-Shareholder. The term "Physician-Shareholder" shall mean
---------------------
any Physician who is employed by, and a shareholder of, Practice.
1.39 Policy Board. The term "Policy Board" shall refer to the body
------------
responsible for developing and implementing management and administrative
policies for the overall operation of the Regional Practices.
1.40 Practice. The term "Practice" is defined in the introductory
--------
paragraph of this Management Services Agreement.
1.41 Practice Consent. The term "Practice Consent" shall mean the
----------------
consent granted by any of Practice's authorized Representatives who is not an
officer or employee of Business Manager. When any provision of this Management
Services Agreement requires Practice Consent, such consent shall not be
unreasonably withheld or delayed and shall be binding on Practice.
1.42 Practice Expense. The term "Practice Expense" shall mean an
----------------
expense incurred by Business Manager or Practice and for which Practice, and not
Business Manager, is financially liable. Practice Expense shall include,
without limitation, such items as Preexisting Obligation Payments, Physician
Discretionary Expenses, salaries, benefits and other direct costs of Physician-
Shareholders, any costs of providing locum tenens coverage designated as a
----- ------
Practice Expense pursuant to Section 5.4 hereof, and any other expenses incurred
by Practice and Physician-Shareholders which are not in the Budget or are in
excess of budgeted allowances.
1.43 Practice Territory. The term "Practice Territory" shall mean the
------------------
geographic area within a five-mile radius of: (a) 900 North Highway 67,
Florissant, Missouri; or (b) in the event the principal location of the Office
is relocated, such new location.
1.44 Preexisting Obligation Payments. The term "Preexisting Obligation
-------------------------------
Payments" shall mean (i) the expense for principal and interest amortization of
debt obligations of Practice or any Physician-Shareholder relating to the
operation of Practice which existed prior to the execution of this Management
Services Agreement and (ii) lease payments and other costs relating
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to any outstanding debt, obligations or liabilities of Practice or any
Physician-Shareholder relating to the operation of Practice which existed prior
to the execution of this Management Services Agreement, and which include,
without limitation, the items set forth on Exhibit 1.42 attached hereto and
------------
incorporated herein.
1.45 Principal Services. The term "Principal Services" shall mean all
------------------
services performed by or on behalf of Practice which generate Professional
Services Revenues or Ancillary Revenues.
1.46 Principal Services Budgeted. The term "Principal Services Office
---------------------------
Expense Budgeted Office Expense" shall have the meaning set forth in Section 6.1
hereof.
1.47 Principal Services Budgeted. The term "Principal Practice Expense
---------------------------
Services Budgeted Practice Expense" shall have the meaning set forth in Section
6.1 hereof.
1.48 Principal Services Budgeted Revenue. The term "Principal
-----------------------------------
Services Budgeted Revenue" shall have the meaning set forth in Section 6.1
hereof.
1.49 Principal Services Management Fee. The term "Principal Services
---------------------------------
Management Fee" shall have the meaning set forth in Section 6.1 hereof.
1.50 Principal Services Monthly Fee. The term "Principal Services Monthly
------------------------------
Fee" shall have the meaning set forth in Section 6.1 hereof.
1.51 Principal Services Monthly Office. The term "Principal Expense
---------------------------------
Services Monthly Office Expense" shall have the meaning set forth in Section 6.1
hereof.
1.52 Principal Services Monthly Practice. The term "Principal Expense
-----------------------------------
Services Monthly Practice Expense" shall have the meaning set forth in Section
6.1 hereof.
1.53 Principal Services Office Expense. The term "Principal Services
---------------------------------
Office Expense" shall have the meaning set forth in Section 6.1 hereof.
1.54 Principal Services Revenues. The term "Principal Services Revenue"
---------------------------
shall mean the sum of Professional Services Revenue and Ancillary Revenue.
1.55 Professional Services Revenues. The term "Professional Services
------------------------------
Revenues" shall mean the sum of (i) all professional fees actually recorded each
month on an accrual basis under GAAP (net of Adjustments) as a result of Medical
Services and related health care services rendered by Physicians, Optometrists
and Designated Allied Health Professionals, whether rendered in an outpatient or
inpatient setting, as well as customary professional fees for the fitting of
contact lenses, and (ii) Professional Services Capitation allocated to
Professional Service Revenues.
1.56 Regional Practices. The term "Regional Practices" is defined in
------------------
Section 3.1(a) hereof.
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1.57 Representatives. The term "Representatives" shall mean a party's
---------------
officers, directors, employees, or other agents or representatives.
1.58 Stark Act. The term "Stark Act" shall refer to Section 1877 of the
---------
Social Security Act.
1.59 Subcontractor Costs. The term "Subcontractor Costs" shall mean the
-------------------
amounts payable to third parties for providing medical services for
Capitation/Case Rate Revenues contracts.
1.60 Term. The term "Term" shall mean the initial term and any renewal
----
terms of this Management Services Agreement as described in Section 7.1 hereof.
ARTICLE II
APPOINTMENT AND AUTHORITY OF BUSINESS MANAGER
2.1 Appointment. Practice hereby appoints Business Manager as its sole
-----------
and exclusive agent for the management and administration of the business
functions and business affairs of the medical practice, including the optical
dispensaries of Practice, and Business Manager hereby accepts such appointment,
subject at all times to the terms and conditions of this Management Services
Agreement.
2.2 Authority. Consistent with the provisions of this Management
---------
Services Agreement, Business Manager shall have the responsibility and
commensurate authority to provide Management Services to Practice. Subject to
the terms and conditions of this Management Services Agreement, Practice
expressly authorizes Business Manager to provide the Management Services in any
manner Business Manager deems appropriate to meet the day-to-day requirements of
the business functions of Practice. In connection with Business Manager's
provision of Management Services, Practice also expressly authorizes Business
Manager to negotiate and execute on behalf of Practice any and all contracts
related to the provision of such Management Services; provided, however that,
subject to Section 4.7 hereof, Business Manager shall have no authority to
negotiate and execute on behalf of Practice contracts that relate specifically
to the provision of Medical Services. The parties acknowledge and agree that
Practice, through its Physicians, shall be responsible for and shall have
complete authority, responsibility, supervision and control over the provision
of all Medical Services and other professional health care services performed
for patients, and that all diagnoses, treatments, procedures and other
professional health care services shall be provided and performed exclusively by
or under the supervision of Physicians in such manner as such Physicians, in
their sole discretion, deem appropriate. Business Manager shall have and
exercise absolutely no control or supervision over the provision of Medical
Services. Except as provided in Section 4.7 hereof, with respect to any
agreement relating specifically to Medical Services, and subject to the approval
of the Policy Board pursuant to Section 3.2(e), Practice shall, to the extent
practicable, give Business Manager and the Policy Board thirty (30) days' prior
notice of Practice's intent to execute any such agreement obligating Practice to
perform Medical Services or otherwise creating a binding legal obligation on
Practice to perform Medical Services.
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2.3 Patient Referrals. Business Manager and Practice agree that the
-----------------
benefits afforded either party hereunder are not payment for, and are not in any
way contingent upon the referral, admission or any other arrangement for, the
provision of any item or service offered by Business Manager or Practice.
2.4 Internal Practice Matters. Except as otherwise provided herein,
-------------------------
matters involving the internal governance, control or finances of Practice,
including specifically the allocation of professional income among Physician-
Shareholders, Physician-Employees and Optometrists of Practice, and tax and
investment planning, shall remain the sole responsibility of Practice,
Physician-Shareholders, Physician-Employees and Optometrists.
2.5 Practice of Medicine. The parties acknowledge that Business
--------------------
Manager is not authorized or qualified to engage in any activity that may be
construed or deemed to constitute the practice of medicine. To the extent that
any act or service required to be performed by Business Manager hereunder should
be construed by a court of competent jurisdiction or by the Board of Medical
Examiners of the State of Missouri to constitute the practice of medicine,
Business Manager's requirement to perform that act or service shall be deemed
waived and unenforceable.
ARTICLE III
RESPONSIBILITIES OF THE POLICY BOARD
3.1 Formation and Operation of the Policy Board.
-------------------------------------------
(a) Structure of Policy Board. Practice hereby acknowledges that it is
one of a group of ophthalmology practices located in the St. Louis metropolitan
area which is affiliated with Business Manager (Practice and such other
practices shall be collectively referred to herein as "Regional Practices"). The
Regional Practices and Business Manager shall establish a Policy Board which
shall be responsible for overseeing the overall operations of the nonmedical
aspects of each Regional Practice's facilities and, subject to Section 3.3
hereof, certain medical issues. The Policy Board shall consist of four (4)
members, with each of the Business Manager and Regional Practices designating
two (2) members. Each member of the Policy Board shall serve a one-year term.
The Policy Board members designated by the Regional Practices shall be
Physician-Shareholders of a Regional Practice. Except as otherwise expressly
provided herein, the act of a majority of the members of the Policy Board shall
be the act of the Policy Board.
(b) Appointment of Members. As of the Effective Date, the Policy Board
----------------------
shall consist of the members set forth on Exhibit 3.1 attached hereto and
-----------
incorporated herein. Thereafter, annually and at least thirty (30) days prior to
the commencement of each calendar year, each of Business Manager and the
Regional Practices shall deliver to the Operating Board of Business Manager a
list of two (2) designees to the Policy Board to serve as members of the Policy
Board for the upcoming calendar year. In the event that either Business Manager
or the Regional Practices fail to deliver the list of designees by the required
date, then such party's representatives on the Policy Board shall remain the
same for the upcoming calendar year. Any vacancies created, whether by death,
incapacity or resignation of a designee, shall be filled by the party which
appointed such designee by no later than fifteen (15) business days after the
date of receipt by all of the Regional Practices of notice from Business Manager
that such vacancy exists and must be filled. If the applicable party shall fail
to designate a replacement member to the
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Policy Board within the required time period, then the other party shall have
the right to designate the replacement member and such replacement member shall
serve on the Policy Board until his or her successor is duly appointed pursuant
to this Section 3.1(b). In any case in which the Regional Practices shall be
required to designate a member or members to the Policy Board, a previously
appointed designee of the Regional Practices shall convene a meeting or collect
the written votes of the Representatives of the Regional Practices to select
such designee or designees. Each Regional Practice shall be entitled to one vote
per designee to be appointed and those designees receiving a plurality of the
votes shall serve as the representatives of the Regional Practices on the Policy
Board.
(c) Actions of the Policy Board. The Policy Board meetings shall be
---------------------------
held as mutually agreed, but at least semiannually, in St. Louis, Missouri.
Meetings may be called by any two (2) members of the Policy Board upon notice to
Business Manager. Notice of each such meeting, stating the place, date and hour
of the meeting, shall then be delivered by Business Manager to each member of
the Policy Board not less than seventy-two (72) hours prior to such meeting.
Meetings shall be open to any Physician-Shareholder and any officer, director or
employee (as designated by Business Manager) of Business Manager. Members of
the Policy Board may participate in a meeting by means of conference telephone.
Attendance at any meeting in person or by proxy, or participation in a meeting
by means of conference telephone, shall constitute a waiver of notice thereof.
Any action required to be taken at a meeting of the Policy Board may be taken
without a meeting and without a vote if a consent in writing, setting forth the
action to be taken, is signed by all of the members of the Policy Board, unless
such action is medical in nature, in which case such consent need be signed only
by all of Physician members of the Policy Board.
3.2 Duties and Responsibilities of the Policy Board. The Policy Board
-----------------------------------------------
shall have the following duties, obligations and authority:
(a) Capital Improvements and Expansion. Subject to the items
----------------------------------
specifically enumerated in the Budget as determined in accordance with Section
4.10(a) hereof, any renovation and expansion plans and capital expenditures with
respect to the Office, or the priority of such capital expenditures, shall be
reviewed and approved by the Policy Board and shall be based upon economic
feasibility, physician support, productivity and then-current market conditions.
(b) Marketing and Advertising. The Policy Board shall explore
-------------------------
potential joint marketing and other advertising of the services performed at the
Regional Practices' facilities.
(c) Patient Fees; Collection Policies. As a part of the annual
---------------------------------
operating budget, in consultation with Practice and Business Manager, the Policy
Board shall review and approve the collection policies for the Dispensary
Business of, and for all Medical Services and ancillary services provided by
Practice.
(d) Provider and Payor Relationships. Subject to Sections 4.7 and 4.8
--------------------------------
hereof, decisions regarding the establishment or maintenance of relationships
with institutional health care providers and third party payors shall be
approved by the Policy Board in consultation with Practice and Business Manager.
The Policy Board shall review and approve such discounted fee
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<PAGE>
schedules, including capitated fee arrangements, and shall approve allocations
of Capitation/Case Rate Revenues.
(e) Strategic Planning. The Policy Board shall recommend long-term
------------------
strategic planning objectives for Practice; provided, however, that the Policy
Board shall not engage in recommending any horizontal marketing allocations
between practices.
(f) Physician and Optometrist Hiring. Subject to the items
--------------------------------
specifically enumerated in the Budget as determined in accordance with Section
4.10(a) hereof, the Policy Board shall recommend to Practice the number and type
of Physicians and Optometrists required for the efficient operation of
Practice's facilities. Practice shall have the right to accept or reject any
recommendation of the Policy Board on this matter and Practice shall retain the
number and type of Physicians and Optometrists as it shall deem necessary in its
sole discretion. The Policy Board shall review and approve any variations to the
restrictive covenants in any Employment Agreement.
(g) Fee Dispute Resolution. Upon written submission by Practice of a
----------------------
dispute concerning Management Fees, the Policy Board shall consider, develop and
attempt to implement a resolution of such dispute.
(h) Employee Relations. Upon submission by Practice or any Physician
------------------
or Optometrist of a written complaint or concern regarding any employee of
Business Manager performing services for Practice hereunder, the Policy Board
shall consider, develop and attempt to implement a resolution of such complaint
or concern.
(i) Grievance Referrals. The Policy Board shall consider and make
-------------------
recommendations to Practice regarding any disputes pertaining to matters not
specifically addressed in this Management Services Agreement as referred to it
by Practice.
3.3 Medical Decisions. Notwithstanding anything to the contrary
-----------------
contained in Section 3.2 above, all medical decisions addressed by the Policy
Board will be made solely by Physician members of the Policy Board.
ARTICLE IV
COVENANTS AND RESPONSIBILITIES OF BUSINESS MANAGER
During the Term, Business Manager shall provide all Management Services
which are necessary or appropriate for the day-to-day administration of the
nonmedical aspects of Practice's operations (including the Dispensary Business),
including, without limitation, those services set forth in this Article IV in
accordance with all laws, rules, regulations and guidelines applicable to the
provision of Management Services.
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4.1 Office and Equipment.
--------------------
(a) Subject to Section 4.1(b) hereof, as necessary or appropriate, and
after taking into consideration the professional concerns of Practice, Business
Manager shall lease, acquire or otherwise procure an Office in a location or
locations reasonably acceptable to Practice and shall permit Practice to use the
Office. Any Office procured by Business Manager for use by Practice shall be
procured at commercially reasonable rates.
(b) In the event Practice is the lessee of the Office under a lease
with an unrelated and nonaffiliated lessor, Business Manager may require
Practice to assign such lease to Business Manager upon receipt of consent from
the lessor, and, in such event, Business Manager shall assume Practice's
obligations thereunder from and after the date of such assignment. Practice
shall use its best efforts to assist in obtaining the lessor's consent to the
assignment. Upon request, Practice shall execute any instruments and shall take
any acts that Business Manager deems necessary to accomplish the assignment of
the lease. Any expenses incurred in effectuating the assignment shall be an
Office Expense.
(c) Business Manager shall provide all nonmedical equipment, fixtures,
office supplies, furniture and furnishings deemed necessary by Business Manager
for the operation of the Office and for the provision of Medical Services.
(d) Business Manager shall provide or cause to be provided (including
financing arrangements with respect thereto) all medical equipment required by
Practice.
(e) Business Manager shall be responsible for all necessary repair and
maintenance of the Office as an Office Expense, consistent with Business
Manager's responsibilities under the terms of any lease or other use
arrangement. Business Manager shall also be responsible for all necessary
repair, maintenance and replacement of all equipment relating to the Office,
except for any such repairs, maintenance and replacement necessitated by the
negligence or willful misconduct of Practice, its Physicians or other personnel
employed by Practice, in which event any such repair or replacement shall be a
Practice Expense and not an Office Expense.
4.2 Medical Supplies. Business Manager shall order, procure, purchase
----------------
and provide on behalf of, and as agent for, Practice all necessary and
reasonably desirable medical supplies and optical dispensary supplies and
inventory unless otherwise prohibited by federal and/or state law, and shall
appropriately respond to any reasonable inquiries or requests by Physicians for
the need to order or repair such supplies. Business Manager shall ensure that
the Office is adequately stocked at all times with medical supplies that are
reasonably necessary or appropriate for the operation of Practice and required
for the provision of Medical Services and optical dispensary supplies and
inventory that are reasonably necessary or appropriate for the operation of the
Dispensary Business. The ultimate oversight, supervision and ownership of all
medical supplies is and shall remain the sole responsibility of Practice. As
used in this Section 4.2, the term "medical supplies" shall mean all drugs,
pharmaceuticals, products, substances, items or devices whose purchase,
possession, maintenance, administration, prescription or security requires the
authorization or order of a licensed health care provider or requires a permit,
registration, certification or other governmental authorization held by a
licensed health care provider as specified under any federal and/or state law.
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4.3 Support Services. Business Manager shall provide or arrange for
----------------
all printing, stationery, telephone, facsimile, office supplies, forms, postage,
duplication or photocopying services, and other support services as are
reasonably necessary or appropriate for the operation of the Office and the
provision of Medical Services and the operation of the Dispensary Business
therein.
4.4 Quality Assurance, Risk Management, and Utilization Review.
----------------------------------------------------------
Business Manager shall assist Practice in Practice's establishment and
implementation of procedures to ensure the consistency, quality, appropriateness
and medical necessity of Medical Services provided by Practice, and shall
provide administrative support for Practice's overall quality assurance, risk
management and utilization review programs. Business Manager shall use its
commercially reasonable efforts to perform these tasks in a manner to ensure the
confidentiality of, and the privileged status afforded to, these programs and
procedures to the fullest extent allowable under state and federal law.
4.5 Licenses and Permits. Business Manager shall, on behalf of and in
--------------------
the name of Practice, coordinate all development and planning processes, and
assist in the application for, and use reasonable efforts to assist Practice in
obtaining and maintaining, all federal, state and local licenses, certifications
and regulatory permits required for, or in connection with, the operation of
Practice, the equipment located at the Office, and any optical dispensary of
Practice, other than those relating to the provision of Medical Services or the
administration of drugs by Physicians.
4.6 Personnel. Except as specifically provided in Section 5.2(b)
---------
hereof, Business Manager shall, consistent with the Budget, employ or otherwise
retain and shall be responsible for selecting, hiring, training, supervising and
terminating, all nonphysician personnel as Business Manager deems necessary and
appropriate for Business Manager's performance of its duties and obligations
under this Management Services Agreement. Business Manager shall have sole
responsibility for determining the salaries, providing employee benefits, and
for withholding any sums for income tax, unemployment insurance, worker's
compensation coverage, social security or any other withholding required by
applicable law or governmental requirement.
4.7 Contract Negotiations. Business Manager shall advise Practice with
---------------------
respect to and negotiate, either directly or on Practice's behalf, as
appropriate, all contractual arrangements with third parties as are reasonably
necessary and appropriate for Practice's provision of Medical Services and for
Practice's operation of the Dispensary Business, including, without limitation,
Managed Care Contracts. Practice hereby constitutes and appoints Business
Manager as Practice's agent for the purpose of negotiating and executing on
behalf of Practice and its Physicians any Managed Care Contract approved by the
Policy Board, as well as any modifications, extensions and renewals of such
Managed Care Contracts. Practice also designates Business Manager as Practice's
agent for the further purpose of giving and receiving notices required or
permitted to be given and received under such Managed Care Contracts. Any
notice received by Business Manager on behalf of Practice shall be transmitted
to Practice as soon as practicable. Business Manager may engage such
consultants as Business Manager deems necessary and appropriate to pursue and
negotiate Managed Care Contracts for Practice, and Practice authorizes Business
Manager to negotiate, for approval by the Policy Board, agreements for
Subcontractor Costs. Notwithstanding the foregoing, upon approval of the Policy
Board of any Managed Care Contract, Business Manager shall deliver a copy of
such contract to Practice for its review and approval. Practice may accept or
reject any Managed Care Contract by delivering written notice to Business
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Manager within five (5) business days of its receipt of such Contract.
Practice's failure to respond within such five-day period shall be deemed an
acceptance of the Managed Care Contract for all purposes.
4.8 Billing and Collection. On behalf of and for the account of
----------------------
Practice, Business Manager shall (i) establish and maintain credit, billing and
collection policies and procedures, (ii) timely bill and collect all
professional and other fees for all billable Medical Services provided by
Practice, Physicians or Optometrists and for all goods sold by Practice in
connection with the Dispensary Business, all for application solely in
accordance with the Budget, and (iii) perform all cash management services on
behalf of Practice which Business Manager shall deem commercially reasonable.
Business Manager shall advise and consult with Practice regarding the fees for
Medical Services and ancillary services provided by Practice; it being
understood, however, that Practice shall establish the fees to be charged for
Medical Services and that Business Manager shall have no authority whatsoever
with respect to the establishment of such fees. In connection with the billing,
collection and cash management services to be provided hereunder, and throughout
the Term (and thereafter as provided in Section 7.3 hereof), Practice hereby
grants to Business Manager an exclusive special power of attorney and appoints
Business Manager as Practice's exclusive true and lawful agent and attorney-in-
fact, and Business Manager hereby accepts such special power of attorney and
appointment, for the following purposes:
(a) To bill Practice's patients, in Practice's name and on Practice's
behalf, for all billable Medical Services provided or arranged by Practice to
patients and for all goods sold by Practice in connection with the Dispensary
Business, unless such billing would cause Practice to be in violation of the
Stark Act, any state referral ban or any other applicable federal, state or
local law or regulation;
(b) To bill, in Practice's name and on Practice's behalf, all claims
for payment, reimbursement or indemnification from Blue Cross/Blue Shield,
insurance companies, Medicare, Medicaid and all other third-party payors or
fiscal intermediaries for all covered billable Medical Services provided or
arranged by Practice to patients and for all goods sold by Practice in
connection with the Dispensary Business, unless such billing would cause
Practice to be in violation of the Stark Act, any state referral ban or any
other applicable federal, state or local law or regulation;
(c) Subject to applicable law, and excluding receivables for Medicare
and Medicaid services, to collect and receive, as the agent of Practice, in
Business Manager's name and for Business Manager's account all accounts
receivable of Practice purchased by Business Manager, including, without
limitation, Purchased Receivables (as defined in Section 6.5 hereof), and to
deposit such collections in an account selected by Business Manager and
maintained in Business Manager's name;
(d) Subject to subparagraph (e) below, to collect and receive, in
Practice's name and on Practice's behalf, all accounts receivable generated by
such billings and claims for reimbursement that have not been purchased by
Business Manager, and to administer such accounts at its reasonable discretion
on Practice's behalf, which administration shall include, without limitation,
(i) extending the time of payment of any such accounts for cash, credit or
otherwise; (ii) with Practice Consent, discharging or releasing the obligors of
any such accounts; (iii) with Practice Consent, suing, assigning or selling at a
discount such accounts to collection
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agencies; or (iv) with Practice Consent, taking other measures to require the
payment of any such accounts.
(e) To collect all government program receivables after such amounts
have been received and deposited into an account maintained in Practice's name
and over which Practice has sole control. Once deposited into such account,
Practice hereby authorizes the government receivables to be automatically swept
into the Depository Account.
(f) To deposit all amounts collected into the Depository Account which
shall be in the name of Business Manager, but in which Business Manager shall
account for such funds on a separate and distinct basis from any other funds
deposited into such account by other Regional Practices; moreover, Practice
shall retain all rights in and to such deposited funds irrespective of their
deposit into the Depository Account. The parties hereto acknowledge and agree
that Business Manager is performing cash management services on behalf of
Practice by collecting all such amounts in the Depository Account and making any
distributions, withdrawals and payments therefrom as required in this Management
Services Agreement. The parties further acknowledge and agree that in
performing such services for Practice, Business Manager is acting as Practice's
agent pursuant to the power of attorney set forth in this Section 4.8, and,
except as expressly provided herein, all rights to such funds shall remain with
Practice. Practice covenants to transfer and deliver to Business Manager for
deposit into Depository Account, or covenants that Practice itself will make
such deposit of, all funds received by Practice from patients or third party
payors for Medical Services provided on or after the Effective Date and for
goods sold in connection with the Dispensary Business on or after the Effective
Date. Upon receipt by Business Manager of any funds from patients or third
party payors or from Practice pursuant hereto for Medical Services provided on
or after the Effective Date or for goods sold in connection with the Dispensary
Business on or after the Effective Date, Business Manager shall deposit same
into the Depository Account as soon as commercially practicable. In the manner
set forth in Section 4.9 hereof, Business Manager shall disburse such deposited
funds to creditors and other persons on behalf of Practice, maintaining records
of such receipt and disbursement of funds.
(g) To take possession of, and endorse in the name of Practice, solely
for deposit into the Depository Account, any notes, checks, money orders,
insurance payments and any other instruments received as payment for Medical
Services and ancillary services and for goods sold in connection with the
Dispensary Business.
(h) To sign checks, drafts, bank notes or other instruments on behalf
of Practice, and to make withdrawals from the Depository Account for payments
specified in this Management Services Agreement or as requested from time to
time by Practice.
Throughout the Term (and as provided in Section 7.3 hereof), Practice hereby
grants to Business Manager an exclusive special power of attorney for the
purposes stated herein and appoints Business Manager as Practice's exclusive
true and lawful agent and attorney-in-fact, and Business Manager hereby accepts
such special power of attorney and appointment, to deposit into the Depository
Account as and when received all funds, fees and revenues generated from
Practice's provision of Medical Services and ancillary services on or after the
Effective Date and collected by Business Manager and for all goods sold by
Practice in connection with the Dispensary Business on or after the Effective
Date and collected by the Business Manager, and to make withdrawals from
Depository Account solely for payments specified in this Management Services
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Agreement, including any Preexisting Obligation Payments directly affecting
property used in or relating to the Office, and/or as requested from time to
time by Practice. Upon request of Business Manager, Practice shall execute and
deliver to the financial institution where the Depository Account is maintained,
such additional documents or instruments as may be necessary to evidence or
effect the special and limited power of attorney granted to Business Manager by
Practice pursuant to this Section 4.8. The special and limited power of
attorney granted herein shall be coupled with an interest and shall be
irrevocable during the term hereof, except with Business Manager Consent. The
irrevocable power of attorney shall expire on the later of the termination of
this Management Services Agreement, the collection, sale or release of all
accounts receivable purchased by Business Manager, and the payment of all
Management Fees due to Business Manager as of such date pursuant to Section 6.3
hereof. If Business Manager assigns this Management Services Agreement in
accordance with its terms, then Practice shall execute a power of attorney in
favor of the assignee and in the form of Exhibit 4.8 attached hereto.
-----------
4.9 Priority of Payments. As of the Effective Date, all revenue of
--------------------
Practice derived from Medical Services and ancillary services provided on and
after the Effective Date and from sales of goods in connection with the
Dispensary Business on or after the Effective Date (collectively, "Post-
Effective Date Revenues") shall be deposited into the Depository Account (or, in
the alternative, identified or segregated in such a manner as to permit the
Post-Effective Date Revenues to be deposited into the Depository Account when
and as directed by Business Manager) for distribution in accordance with this
Section 4.9. From and after the Effective Date, each month Business Manager
shall apply, or retain on behalf of Practice, funds that are in the Depository
Account in the following order of priority:
(a) to Business Manager, in satisfaction of Office Expense, except the
Base Management Fee;
(b) as directed by Practice, in satisfaction of Monthly Practice
Expense; and
(c) to Business Manager, in satisfaction of the Base Management Fee.
4.10 Fiscal Matters.
--------------
(a) Annual Budget.
-------------
(1) Initial Budget. The initial Budget shall be agreed upon by
--------------
the parties before the execution of this Management Services Agreement and
shall be attached hereto and made a part hereof.
(ii) Process for Succeeding Budgets. Annually and at least forty-
five (45) days prior to the commencement of each fiscal year of Business
Manager, Business Manager, in consultation with the Policy Board, shall
prepare and deliver to Practice for Practice's approval a proposed Budget,
setting forth an estimate of Practice's revenues and expenses for the
upcoming fiscal year (including, without limitation, the Dispensary
Business Budgeted Practice Expense, the Principal Services Budgeted
Practice Expense, the Dispensary Business Monthly Fee and the Principal
Services Monthly Fee). Practice shall review the proposed Budget and either
approve the proposed Budget or request any changes within fifteen (15) days
after receiving the proposed Budget. The Budget shall
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be adopted by Practice after reasonable review and comment and may be
revised or modified only in consultation with Business Manager. Once
approved each succeeding Budget shall be attached hereto and made a part
hereof.
(iii) Deadlock. In the event the parties are unable to agree on a
--------
Budget by the beginning of the fiscal year (a "Deadlock"), then until an
agreement is reached, the Budget for the prior year shall be deemed to be
adopted as the Budget for the current year. Notwithstanding the foregoing,
the Policy Board, in its judgment, may impose reductions on a consistent
basis to each of Budgeted Practice Expense and the Monthly Fee in the event
that the Policy Board makes a determination that general economic
conditions and/or regulatory developments adversely affecting the Medical
Services provided by Practice render the present levels of the Budgeted
Practice Expense and the Monthly Fee impractical. For purposes of
illustration only, and without limitation, such general economic conditions
and/or regulatory developments could include proposed or actual cuts in
Medicare/Medicaid reimbursement for procedures that are a material
component of the Medical Services performed by Practice. Following
resolution of any Deadlock, Budgeted Practice Expense and the Monthly Fee
(and the corresponding Monthly Practice Expense and Base Management Fee as
calculated in Article VI hereof) shall be recomputed retroactive to the
beginning of the fiscal year based upon the parameters agreed to in the new
Budget, and appropriate adjustments in payments owing to Practice and/or
Business Manager, as the case may be, resulting from such recomputation
shall be made promptly. Notwithstanding the foregoing, if after six months
the parties are still unable to agree on a Budget, then the dispute shall
be submitted to arbitration in accordance with Section 8.6 hereof. Until
the arbitrator renders a judgment or the dispute is otherwise resolved, the
adjustments described in this Section 4.10(a)(iii) shall continue to apply.
Notwithstanding anything to the contrary contained herein, nothing in this
Section 4.10(a)(iii) shall affect the payment of Office Expense, which
shall be paid in full in accordance with the provisions of this Agreement.
For purposes of Section 4.10(iii) and (iv), "Budgeted Practice Expense" and
"Monthly Fee" shall refer to either Principal Services or Dispensary
Business, as appropriate.
(iv) Modifications to Budget. The Budget may be modified at any
-----------------------
time by mutual agreement of Practice and Business Manager, which
modifications may include, without limitation, modifications to the Monthly
Fee and Budgeted Practice Expense in the event that additional Physicians
or Optometrists become affiliated with Practice during the calendar year.
(b) Accounting and Financial Records. Business Manager shall
--------------------------------
establish and administer adequate accounting procedures, controls and systems
for the development, preparation and safekeeping of administrative and financial
records in connection with the performance of its duties and responsibilities
hereunder, all of which shall be prepared and maintained in accordance with GAAP
and applicable laws and regulations. Business Manager shall provide Practice
with the following:
(i) Monthly Reports. As soon as practicable, and in any event no
---------------
later than fifteen (15) days after the end of each calendar month, Business
Manager shall furnish to Practice a monthly statement reflecting the
computation for the Dispensary Business Monthly Practice Expense, Principal
Services Monthly Practice Expense, the Dispensary
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Business Management Fee and the Principal Services Management Fee. Within
forty-five (45) days after the end of each month, Business Manager shall
provide Practice with a monthly statement reflecting the accounting
activity for Practice prepared in accordance with GAAP.
(ii) Annual Financial Statements. As soon as practicable, and in
---------------------------
any event no later than one hundred twenty (120) days after the end of each
calendar year, Business Manager shall furnish to Practice audited financial
statements of Business Manager, consisting of a balance sheet and related
statements of income, changes in members' equity and cash flow, all of
which (taken as a whole) shall reflect the financial status of Business
Manager as of the end of such calendar year, and shall be prepared in
accordance with GAAP consistently applied.
(c) Review of Expenditures. A Representative of Practice shall have
----------------------
the right to review all expenditures related to the operation of Practice, but
Practice shall not have the power to prohibit or invalidate any expenditure that
is consistent with the Budget.
(d) Tax Matters. Business Manager and Practice acknowledge and agree
-----------
that, to the extent that any of the services to be provided by Business Manager
hereunder may be subject to any state sales and use taxes, Business Manager may
have a legal obligation to collect such taxes from Practice and to remit same to
the appropriate tax collection authorities. Practice agrees to pay, in addition
to the payment of the Management Fee, the applicable state sales and use taxes
in respect of the portion of the Management Fees attributable to such services.
4.11 Reports and Records.
-------------------
(a) Medical Records. Business Manager shall advise and assist
---------------
Practice as to the establishment, monitoring and maintenance of procedures and
policies for the timely creation, preparation, filing and retrieval of all
medical records generated by Practice in connection with Practice's provision of
Medical Services; and, subject to applicable law, shall ensure that medical
records are promptly available to Physicians and any other appropriate persons.
All such medical records shall be retained and maintained in accordance with all
applicable state and federal laws. All medical records are, and will remain, the
property and Confidential Information of Practice and its patients.
(b) Other Reports and Records. Business Manager shall create, prepare
-------------------------
and file such additional reports and records as are reasonably necessary or
appropriate for Practice's provision of Medical Services, and shall be prepared
to analyze and interpret such reports and records upon the request of Practice.
4.12 Recruitment of Physicians and Optometrists. Upon Practice's
------------------------------------------
request, Business Manager shall perform all administrative services reasonably
necessary or appropriate to recruit potential Physicians and Optometrists to
become employees of Practice. Business Manager shall provide Practice with
model agreements to document Practice's employment, retention or other service
arrangements with such individuals. It is and will remain the sole and complete
responsibility of Practice to interview, select, contract with, supervise,
control and terminate all Physicians and Optometrists performing Medical
Services or other professional services, and Business Manager shall have no
authority whatsoever with respect to such activities.
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4.13 Confidential and Proprietary Information.
----------------------------------------
(a) Business Manager will not disclose any Confidential Information
of Practice to other persons without Practice Consent. Business Manager will
not, directly or indirectly, use such Confidential Information in a manner
detrimental to Practice, and Business Manager will keep such Confidential
Information confidential and will ensure that its affiliates and advisors who
have access to such Confidential Information comply with these nondisclosure
obligations. Notwithstanding the foregoing, Business Manager may disclose
Confidential Information to those of its Representatives who need to know
Confidential Information for the purposes of this Management Services Agreement,
it being understood and agreed to by Business Manager that such Representatives
will be informed of the confidential nature of the Confidential Information,
will agree to be bound by this Section 4.13, and will be directed by Business
Manager not to disclose to any other person any Confidential Information.
Business Manager shall be responsible for any breach of this Section 4.13 by its
affiliates, advisors or Representatives. If Business Manager is required (by
interrogatories, requests for information or documents, subpoenas, civil
investigative demands or similar legal processes) to disclose or produce any
Confidential Information furnished in the course of its dealings with Practice
or its affiliates, advisors or Representatives, Business Manager will (i)
provide Practice with prompt prior notice thereof and copies, if possible, and,
if not, a description, of the request and the Confidential Information requested
or required to be produced so that Practice may seek an appropriate protective
order or other protections to enforce the provisions of this Section 4.13, or,
alternatively, waive compliance with the provisions of this Section 4.13, and
(ii) consult with Practice as to whether Practice should attempt to resist or
narrow such request. If Business Manager is compelled to disclose or produce
Confidential Information concerning Practice or, in the alternative, be liable
for contempt or suffer other censure or penalty, Business Manager may disclose
or produce such Confidential Information without liability hereunder; provided,
however, that Business Manager shall give Practice written notice of the
Confidential Information to be so disclosed or produced, and a copy of the
request therefor, as far in advance of its disclosure or production as is
reasonably practicable and shall use its commercially reasonable efforts to
obtain, to the greatest extent practicable, an order or other reliable assurance
that confidential treatment will be accorded to such Confidential Information so
required to be disclosed or produced.
(b) Notwithstanding clause (a) above, Business Manager may share,
subject to the restrictions of this Section 4.13(b), with other professional
corporations, associations, medical practices or health care delivery entities,
the statistics of Practice, including utilization review data, quality assurance
data, cost data, outcomes data or other Practice data. Business Manager may
disclose such statistics to other medical groups with whom Business Manager has
a management relationship, to managed care providers or other third party payors
for the purpose of obtaining or maintaining third party payor contracts, or to
financial analysts and underwriters. In addition, Business Manager may disclose
all Practice-related information necessary or desirable in connection with any
public or private offering of any security of Business Manager, but no such data
will disclose or divulge patient identifying information.
4.14 Business Manager's Insurance.
----------------------------
(a) Business Manager's Insurance. Throughout the Term, Business
----------------------------
Manager shall, as an Office Expense, obtain and maintain with commercial
carriers, through self-insurance or some combination thereof and in a manner
consistent with good business practice, appropriate
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workers' compensation coverage for Business Manager's employed personnel
provided to Practice pursuant to this Management Services Agreement, and
professional, casualty and comprehensive general and vicarious liability
insurance covering Business Manager, the Office, Business Manager's personnel
and all of Business Manager's equipment in such amounts, on such basis and upon
such terms and conditions as Business Manager deems appropriate. Upon the
request of Practice, Business Manager shall provide Practice with a certificate
evidencing such insurance coverage and Business Manager shall use commercially
reasonable efforts to list Practice as an additional insured. Business Manager
may also carry, as an Office Expense, key person life and disability insurance
on any Physician in amounts determined reasonable and sufficient by Business
Manager. Business Manager shall be the owner and beneficiary of any such
insurance.
(b) Professional and General Liability Insurance of Practice.
--------------------------------------------------------
Business Manager shall obtain and maintain, on behalf of Practice and as an
Office Expense, professional and comprehensive general liability insurance
covering Practice and each of Physicians and Optometrists. The comprehensive
general liability coverage shall be in the minimum amount of One Million dollars
($1,000,000) for each occurrence and Two Million dollars ($2,000,000) annual
aggregate; and professional liability coverage shall be in the minimum amount of
Two Million dollars ($2,000,000) for each occurrence and Four Million dollars
($4,000,000) annual aggregate, or any other higher minimum coverage requirements
established by law. The insurance policy or policies shall provide for at least
(30) days' advance written notice to Business Manager and Practice from the
insurer as to any alteration of coverage, cancellation or proposed cancellation
for any cause. Business Manager shall cause to be issued to Practice a
certificate of such insurer or insurers reflecting such coverage and either
party hereunder shall provide written notice to the other party promptly upon
receipt of any notice canceling or proposing to cancel the insurance coverage of
Practice, or any Physician or Optometrist for any reason. Upon the termination
of this Management Services Agreement for any reason, Practice shall obtain and
maintain as a Practice Expense "tail" professional liability coverage, in the
amounts specified in this Section 4.14(b) for an extended reporting period of
ten years, and Practice shall be responsible for paying all premiums for "tail"
insurance coverage.
(c) Health Insurance. Business Manager shall, to the extent such
----------------
coverage is available from Business Manager's current insurance carrier, make
available to, and accessible by, Physicians and Optometrists health benefits
under any health benefit program maintained by Business Manager. If any
Physician or Optometrist elects such coverage, subject to Section 1.30(b), the
cost of such coverage shall be deemed an Office Expense for any Physician-
Employee or Optometrist, and a Practice Expense for any Physician-Shareholder.
4.15 No Warranty. Practice acknowledges that Business Manager has not made
-----------
and will not make any express or implied warranties or representations that the
services provided by Business Manager will result in any particular amount or
level of revenue or income to Practice.
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ARTICLE V
COVENANTS AND RESPONSIBILITY OF PRACTICE
5.1 Organization and Operation. Practice, as a continuing condition of
--------------------------
Business Manager's obligations under this Management Services Agreement, shall
at all times during the Term be and remain legally organized and operated to
provide Medical Services in a manner consistent with all state and federal laws.
(a) Employment of Physicians.
------------------------
(i) Practice shall operate and maintain within the Practice
Territory a full-time practice of medicine specializing in the provision of
Medical Services, and shall maintain and enforce employment agreements in
the form of Exhibit 5.1 (the "Employment Agreements") with Physician-
-----------
Shareholders, including, without limitation, the initial Physician-
Shareholders identified in Exhibit 5.1A. Practice shall not amend the
------------
Employment Agreements in any material manner or waive any material rights
of Practice thereunder without the prior written approval of Business
Manager. Recognizing that Business Manager would not have entered into this
Management Services Agreement but for Practice's covenant to maintain
Employment Agreements with Physician-Shareholders, and subject to
subparagraph (ii) below, Practice shall pay to Business Manager, in
addition to the Management Fee, any damages, compensation, payment or
settlement received by Practice from a Physician who terminates his or her
Employment Agreement without Physician Cause (as defined in the Employment
Agreement) or whose Employment Agreement is terminated by Practice for
Practice Cause (as defined in the Employment Agreement) or for any other
material breaches of the Employment Agreements (such damages being
collectively referred to herein as the "Business Manager Damages").
(ii) Notwithstanding the provisions of Section 5.1(a)(i) above,
or any other provision to the contrary contained herein, Practice shall
have a period of not less than forty-five (45) days following the
occurrence of any event described in Section 5.1(a)(i) above that entitles
Business Manager to receive Business Manager Damages to take such actions
to cure the breach of any Employment Agreement by a Physician-Shareholder
(which actions to cure may, without limitation, include retention of
additional Physicians to replace the levels of revenue and income
previously generated by the Physician causing such breach); provided,
however, that the determination of whether or not such breach has been
cured shall be made by Business Manager in its good faith discretion, and
provided further, that Practice shall in no event be permitted to cure any
breach that results from a breach by a Physician-Shareholder of any non-
competition provision contained in any Employment Agreement.
(b) Corporate Governance. Throughout the Term of this Management
--------------------
Services Agreement, Practice shall maintain and enforce written Buy-Sell
Agreements with Physician-Shareholders specified in Exhibit 5.1A, and shall
------------
cause all new shareholders of Practice to execute such agreements prior to
becoming a shareholder in Practice. As a condition precedent to the execution of
this Management Services Agreement, the Physician-Shareholders have amended
their existing Buy-Sell Agreement, or executed a new Buy-Sell Agreement, which
addresses the concepts set forth on Exhibit 5.1B to the satisfaction of Business
------------
Manager and its counsel. Practice will also maintain its articles of
incorporation and bylaws in accordance with applicable
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law, including, without limitation, any laws governing the transferability of
shares from disqualified shareholders to qualified shareholders. Throughout the
Term of this Management Services Agreement, Practice shall not, without the
prior written consent of Business Manager, amend such documents or waive any
rights thereunder in any manner.
5.2 Practice Personnel.
------------------
(a) Physician Personnel and Optometrists. Practice shall retain the
------------------------------------
number of Physicians and Optometrists as is reasonably necessary and appropriate
in the sole discretion of Practice for the provision of Medical Services. Each
Physician shall hold and maintain a valid and unrestricted license to practice
medicine in the state of Missouri, and shall be competent, in the reasonable
opinion of Practice, in the practice of ophthalmology. Each Optometrist shall
hold and maintain a valid and unrestricted license to practice optometry in the
state of Missouri, and shall be competent, in the reasonable opinion of
Practice, in such practice. Except as provided on Schedule 5.2A, Practice shall
-------------
enter into and maintain with each such retained Physician and Optometrist a
written employment agreement substantially in the form of either Exhibit 5.1 for
-----------
Physician-Shareholders or Exhibit 5.2A for Physician-Employees. Practice will
------------
neither commit nor permit to remain outstanding any breach of such employment
agreement that would allow any Physician or Optometrist to terminate for cause.
Regardless of whether the compensation is a Practice Expense or Office Expense,
Practice shall be responsible for paying the compensation and benefits, as
applicable, for all Physicians, Optometrists, and any other physician personnel
or other contracted or affiliated physicians, and for withholding any sums for
income tax, unemployment insurance, social security or any other withholding
required by applicable law. If requested, Business Manager shall, on behalf and
at the direction of Practice, administer the compensation with respect to such
individuals in accordance with the written agreement between Practice and each
Physician or Optometrist. Business Manager shall neither control nor direct any
Physician or Optometrist in the performance of Medical Services for patients.
(b) Nonphysician Personnel. Business Manager shall retain all
----------------------
nonphysician personnel necessary for the operation of Practice and such
nonphysician personnel shall be under Business Manager's control, supervision
and direction in the performance of their duties, except for (i) Designated
Allied Health Professionals, who shall perform their duties under the
supervision and control of Physicians, consistent with the requirements
necessary to meet the "incident to" provisions of the Medicare program, and (ii)
opticians and others providing services in Practice's optical dispensary, who
shall perform their duties under the supervision and control of Physicians and
Optometrists.
5.3 Professional Standards. As a continuing condition of Business
----------------------
Manager's obligations hereunder, each Physician, Optometrist and any other
physician personnel retained by Practice to provide Medical Services must comply
with, be controlled and governed by, and otherwise provide Medical Services in
accordance with, all applicable federal, State and municipal laws, rules,
regulations, ordinances and orders, and the ethical standards and standards of
care of the medical community wherein the principal office of each Physician or
Optometrist is located. In addition, each Physician and any other physician
personnel retained by Practice to provide Medical Services must obtain and
retain appropriate admitting privileges at local area hospitals or health care
facilities which are reasonably adequate for Physician to perform Medical
Services. Procurement of temporary staff privileges pending the completion of
the medical staff approval
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process shall satisfy this provision, provided Physician actively pursues full
admitting privileges and actually receives full admitting privileges within a
reasonable time.
5.4 Medical Services. Practice shall use reasonable efforts to ensure
----------------
that Physicians and Optometrists are available to provide Medical Services to
patients. In the event that Physicians or Optometrists are not available to
provide the relevant Medical Services coverage, Practice shall engage and retain
locum tenens coverage. Physicians and Optometrists retained on a locum tenens
- ----- ------ ----- ------
basis shall meet all of the requirements of Section 5.3 hereof, and the cost of
providing locum tenens coverage shall be an Office Expense, unless such locum
----- ------ -----
tenens coverage is attributable to a Physician-Shareholder exceeding the maximum
- ------
amount of vacation, personal and educational leave days allowable under such
Physician-Shareholder's Employment Agreement, in which case the cost of such
coverage shall be a Practice Expense. With the assistance of Business Manager,
Practice, Physicians and Optometrists shall be responsible for scheduling the
relevant coverage of all medical and eye-related procedures. Practice shall use
its best efforts to develop and promote Practice.
5.5 Peer Review/Quality Assurance. Practice shall adopt a peer
-----------------------------
review/quality assurance program to monitor and evaluate the quality and cost-
effectiveness of Medical Services provided by Physicians and Optometrists of
Practice. Upon request of Practice, Business Manager shall provide
administrative assistance to Practice in performing its peer review/quality
assurance activities, but only if such assistance can be provided in a manner
consistent with maintaining the confidentiality and privileged status of the
processes and actions of the peer review/quality assurance process of Practice.
5.6 Confidential and Proprietary Information. Practice will not disclose
----------------------------------------
any Confidential Information of Business Manager without Business Manager's
express written authorization. Such Confidential Information will not be used in
any way directly or indirectly detrimental to Business Manager, and Practice
will keep such Confidential Information confidential and will ensure that its
affiliates and advisors who have access to such Confidential Information comply
with these nondisclosure obligations. Notwithstanding the foregoing, Practice
may disclose Confidential Information to those of its Representatives who need
to know Confidential Information for the purposes of this Management Services
Agreement, it being understood and agreed to by Practice that such
Representatives will be informed of the confidential nature of the Confidential
Information, will agree to be bound by this Section 5.6, and will be directed by
Practice not to disclose to any other person any Confidential Information.
Practice shall be responsible for any breach of this Section 5.6 by its
affiliates, advisors or Representatives. If Practice is required (by
interrogatories, requests for information or documents, subpoenas, civil
investigative demands or similar processes) to disclose or produce any
Confidential Information furnished in the course of its dealings with Business
Manager or its affiliates, advisors or Representatives, Practice will (i)
provide Business Manager with prompt prior notice thereof and copies, if
possible, and, if not, a description, of the request and the Confidential
Information requested or required to be produced so that Business Manager may
seek an appropriate protective order or other protections to enforce the
provisions of this Section 5.6, or, alternatively, waive compliance with the
provisions of this Section 5.6 and (ii) consult with Business Manager as to the
advisability of Business Manager's taking of legally available steps to resist
or narrow such request. Practice further agrees that if, in the absence of a
protective order or the receipt of a waiver hereunder, Practice is nonetheless,
in the written opinion of its legal counsel, compelled to disclose or produce
Confidential Information concerning Business Manager
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<PAGE>
to any tribunal or to stand liable for contempt or suffer other censure or
penalty, Practice may disclose or produce such Confidential Information to such
tribunal legally authorized to request and receive such Confidential Information
without liability hereunder; provided, however, that Practice shall give
Business Manager written notice of the Confidential Information to be so
disclosed or produced, and a copy of the request therefor, as far in advance of
its disclosure or production as is practicable and shall use its best efforts to
obtain, to the greatest extent practicable, an order or other reliable assurance
that confidential treatment will be accorded to such Confidential Information so
required to be disclosed or produced.
5.7 Noncompetition. Practice hereby recognizes and acknowledges that
--------------
Business Manager will incur substantial costs in providing the equipment,
support services, personnel, management, administration, and other items and
services that are the subject matter of this Management Services Agreement and
that in the process of providing services under this Management Services
Agreement, Practice will be privy to financial and Confidential Information of
Business Manager and other Regional Practices, to which Practice would not
otherwise be exposed. The parties also recognize that the services to be
provided by Business Manager will be feasible only if Practice operates an
active practice to which Physicians associated with Practice devote their full
professional time and attention. Practice agrees and acknowledges that the
noncompetition covenants described hereunder are necessary for the protection of
Business Manager, and that Business Manager would not have entered into this
Management Services Agreement without the following covenants:
(a) During the Term of this Management Services Agreement and except
for the performance of Medical Services and ancillary services at the Office as
contemplated by this Management Services Agreement or as expressly agreed to by
Business Manager in writing, Practice shall not establish, operate or provide
Medical Services at a medical office, clinic or other health care facility
anywhere within the Practice Territory. During the Term of this Management
Services Agreement and except for the operation of the Dispensary Business at
Offices contemplated by, or subject to, this Management Services Agreement or as
expressly agreed to by Business Manager in writing, Practice shall not
establish, operate or engage in a Dispensary Business at any other office or
facility within the Practice Territory.
(b) Except as specifically agreed to by Business Manager in writing,
Practice commits and agrees that during the Term of this Management Services
Agreement and for a period of five (5) years from the termination date of this
Management Services Agreement, except in the event Practice terminates this
Management Services Agreement for cause pursuant to Section 7.2(b) hereof,
Practice shall not directly or indirectly own (excluding ownership of less five
percent (5%) of the equity of any publicly traded entity), manage, operate,
control, or otherwise be associated with, lend funds to, lend its name to, or
maintain any interest whatsoever in any enterprise (i) having to do with the
provision, distribution, promotion or advertising of any type of management or
administrative services or products to third parties in competition with
Business Manager; and/or (ii) offering any type of service or product in the
Practice Territory to third parties similar to those offered by Business Manager
to Practice. Notwithstanding the above restriction, nothing herein shall
prohibit Practice or any of its holders from providing management and
administrative services to its or their own medical practices after the
termination of this Management Services Agreement.
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<PAGE>
(c) The written Employment Agreements described in Section 5.1 hereof
shall contain covenants of Physician-Shareholder whereby they agree not to
compete with Practice within the Practice Territory for one (1) year after
termination of the employment agreement, except in the event Physician
terminates such agreement for Physician Cause or certain buyout rights are
exercised.
(d) Practice shall obtain and enforce formal written agreements with
Physician-Employees and Optometrists in the form of Exhibit 5.2A, pursuant to
------------
which the employees agree not to compete with Practice within the Practice
Territory for one (1) year after termination of the Employment Agreement, except
in the event Physician terminates such agreement for Physician Cause.
(e) Practice understands and acknowledges that the provisions in
Section 5.6 hereof and this Section 5.7 are designed to preserve the goodwill of
Business Manager and the goodwill of the individual Physicians and Optometrists
of Practice. Accordingly, if Practice breaches any obligation of Section 5.6
hereof or this Section 5.7, in addition to any other remedies available under
this Management Services Agreement at law or in equity, Business Manager shall
be entitled to enforce this Management Services Agreement by injunctive relief
and by specific performance of the Management Services Agreement, such relief to
be without the necessity of posting a bond, cash or otherwise. Additionally,
nothing in this paragraph shall limit Business Manager's right to recover any
other damages to which it is entitled as a result of Practice's breach. If any
provision of the covenants herein is held by a court of competent jurisdiction
to be unenforceable due to an excessive time period, geographic area or
restricted activity, the covenant shall be reformed to comply with such time
period, geographic area or restricted activity that would be held enforceable.
5.8 Name, Trademark. Practice represents and warrants that Practice
---------------
conducts its professional practice under the name of, and only under the name of
"The Eye Center," that such name is the name of Practice under state law, and
that Practice is the licensee of such name under the Contribution and Exchange
Agreement. Practice covenants and promises that, without the prior written
consent of Business Manager, Practice will not:
(a) take any action or omit to take any action that would result in
the change or loss of the name;
(b) license, sell, give or otherwise transfer the name, or the right
to use the name, to any medical practice, physician, professional corporation or
any other entity; or
(c) cease conducting the professional practice of Practice under the
name.
5.9 Medical Advisory Board. The Operating Board of Business Manager has
----------------------
appointed a medical advisory board (the "Medical Advisory Board") to provide a
general forum for review and analysis of medical and clinical issues affecting
the Regional Practices and all other medical practices with which Business
Manager has entered into a Management Services Agreement or similar agreement.
The Medical Advisory Board consists of at least three Doctors of Ophthalmology,
one of whom is designated as the "Medical Director," and may include, at the
discretion of the Operating Board of Business Manager, one or more Doctors of
Optometry, Registered Nurses or other health care professionals. The Vice
President Clinical Operations of
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<PAGE>
Business Manager, and/or such other designee as Business Manager shall select,
attends meetings of the Medical Advisory Board on a consulting basis. Members of
the Medical Advisory Board serve for one-year terms and are appointed or re-
appointed for such term during the first meeting of the Operating Board of
Business Manager held for each calendar year. The Operating Board of Business
Manager may name additional members, remove any member, or fill any vacancy
created by the resignation, death or disability of any member, of the Medical
Advisory Board during any duly called meeting of such Operating Board.
Notwithstanding anything to the contrary contained herein, the Medical Advisory
Board will serve in a solely advisory capacity and the ultimate authority over
medical decisions affecting Practice shall reside with Practice's Physician-
Shareholders.
5.10 Indemnification of Business Manager. Practice shall hold Business
-----------------------------------
Manager, its Affiliates, Representatives, successors and assigns and each of
them harmless from and against any and all losses, damages, fines, costs,
claims, judgments, proceedings, expenses or liabilities (including, without
limitation, reasonable attorneys' fees, paralegal fees, and costs and expenses
thereof) arising out of, or attributable to, or which result from any claim of a
third party with respect to the operation of the Dispensary Business or the
performance of Medical Services performed by Practice (including, without
limitation, malpractice claims).
ARTICLE VI
FINANCIAL ARRANGEMENT
6.1 Definitions.
-----------
(a) Dispensary Business Budgeted Office Expense. The term "Dispensary
-------------------------------------------
Business Budgeted Office Expense" shall mean, for any month, the Dispensary
Business Office Expense (other than the Dispensary Business Management Fee)
established in the Budget for such month.
(b) Dispensary Business Budgeted Practice Expense. The term
---------------------------------------------
"Dispensary Business Budgeted Practice Expense" shall mean, for any month, the
Dispensary Business Practice Expense (as defined in the Budget) established in
the Budget for such month.
(c) Dispensary Business Budgeted Revenue. The term "Dispensary
------------------------------------
Business Budgeted Revenue" shall mean, for any month, the Dispensary Business
Revenue established in the Budget for such month.
(d) Dispensary Business Management Fee. The term "Dispensary Business
----------------------------------
Management Fee" shall be, for any month, the * or (ii) *, in which case the
"Dispensary Business Management Fee" for such month shall be *.
(e) Dispensary Business Monthly Fee. The term "Dispensary Business
-------------------------------
Monthly Fee" shall be for any month, the * for such month.
___________________
* Confidential portions omitted and filed separately with the commission.
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<PAGE>
(f) Dispensary Business Monthly Office Expense. The term "Dispensary
------------------------------------------
Business Monthly Office Expense" for any month shall mean the amount of
Dispensary Business Budgeted Office Expense for such month, plus or minus any
difference between (i) the actual Dispensary Business Office Expense incurred by
or on behalf of Practice for the previous month (other than the Dispensary
Business Management Fee) and (ii) Dispensary Business Budgeted Office Expense
for the previous month.
(g) Dispensary Business Monthly Practice Expense. The term
--------------------------------------------
"Dispensary Business Monthly Practice Expense" shall mean, for any month, the *
for such month, except in the event that either (i) * or (ii) *, in which case
the term "Dispensary Business Monthly Practice Expense" for such month shall
mean *.
(h) Dispensary Business Office Expense. The term "Dispensary Business
----------------------------------
Office Expense" shall mean all Office Expenses, operating and non-operating,
which constitute direct expenses to produce Dispensary Business Revenue, as
determined consistent with the Budget; provided that any disagreement over
whether an expense constitutes a direct expense to produce Dispensary Business
Revenue shall be resolved by the Policy Board.
(i) Management Fee. The term "Management Fee" shall mean, for any
--------------
month, the sum of the Dispensary Business Management Fee for such month and the
Principal Services Management Fee for such month.
(j) Monthly Office Expense. The term "Monthly Office Expense" shall
----------------------
mean, for any month, the sum of the Dispensary Business Monthly Office Expense
for such month and the Principal Services Monthly Office Expense for such month.
(k) Monthly Practice Expense. The term "Monthly Practice Expense"
------------------------
shall mean, for any month, the sum of the Dispensary Business Monthly Practice
Expense for such month and the Principal Services Monthly Practice Expense for
such month.
(l) Principal Services Budgeted Office Expense. The term "Principal
------------------------------------------
Services Budgeted Office Expense" shall mean, for any month, the Principal
Services Office Expense (other than the Principal Services Management Fee)
established in the Budget for such month.
(m) Principal Services Budgeted Practice Expense. The term
--------------------------------------------
"Principal Services Budgeted Practice Expense" shall mean, for any month, the
Principal Services Practice Expense (as defined in the Budget) established in
the Budget for such month.
(n) Principal Services Budgeted Revenue. The term "Principal
-----------------------------------
Services Budgeted Revenue" shall mean, for any month, the amount of Principal
Services Revenue established in the Budget for such month.
(o) Principal Services Management Fee. The term "Principal Services
---------------------------------
Management Fee" shall be, for any month, the *, except in the event that either
(i) *
_____________________
* Confidential portions omitted and filed separately with the commission.
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<PAGE>
or (ii) *, in which case the "Principal Services Management Fee" for such month
shall be */.
-
(p) Principal Services Monthly Fee. The term "Principal Services
------------------------------
Monthly Fee" shall mean, for any month, the * for such month.
(q) Principal Services Monthly Office Expense. The term "Principal
-----------------------------------------
Services Monthly Office Expense" shall mean, for any month, the amount of
Principal Services Budgeted Office Expense for such month, plus or minus any
difference between (i) the actual Principal Services Office Expense incurred by
or on behalf of Practice for such month (other than the Principal Services
Management Fee) and (ii) Principal Services Budgeted Office Expense for such
month.
(r) Principal Services Monthly Practice Expense. The term "Principal
-------------------------------------------
Services Monthly Practice Expense" shall mean, for any month, the * for such
month, except in the event that either (i) * or (ii) *, in which case the term
"Principal Services Monthly Practice Expense" for such month shall mean * .
(s) Principal Services Office Expense. The term "Principal Services
---------------------------------
Office Expense" for any month shall mean all Office Expenses for such month
other than Dispensary Business Office Expenses for such month.
6.2 Management Fee. Practice and Business Manager agree to the
--------------
compensation set forth herein as being paid to Business Manager in consideration
of a substantial commitment made by Business Manager hereunder and that such
fees are fair and reasonable. Each month, in the priority established by Section
4.9 hereof, Business Manager will be paid the following:
(a) the amount of all Office Expense (other than the Dispensary
Business Management Fee and the Principal Services Management Fee) for the
previous month, paid on behalf of Practice; and
(b) the Management Fee for the previous month.
6.3 Reasonable Value. Payment of the Management Fee is not intended to be
----------------
and shall not be interpreted or applied as permitting Business Manager to share
in Practice's fees for Medical Services or any other services, but is
acknowledged as the parties' negotiated agreement as to the reasonable fair
market value of the equipment, contract analysis and support, other support
services, purchasing, personnel, office space, management, administration,
strategic management and other items and services furnished by Business Manager
pursuant to this Management Services Agreement, after giving effect to the
nature and volume of the services required and the risks assumed by Business
Manager. The parties agree that it is appropriate to calculate and apply
separate fees for the management of the Dispensary Business and Principal
Services, due to (i) the amount of Business Manager Expense incurred by Business
Manager in connection with the management of the operations of the Dispensary
Business, (ii) the fair market value of the management services provided by
Business Manager with respect to each of the Dispensary Business and financial
services and (iii) the nature and volume of the
_______________________
* Confidential portions omitted and filed separetely with the commission.
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<PAGE>
Dispensary Business and financial services and (iii) the nature and volume of
the services required and the risks assumed by Business Manager with respect to
each of the Dispensary Business and Principal Services.
6.4 Payment of Management Fee. To facilitate the payment of the
-------------------------
Management Fee as provided in Section 6.2 hereof, and subject to the priority of
payment methodology set forth in Section 4.9 hereof, Practice hereby expressly
authorizes Business Manager to make withdrawals of the Management Fee from the
Depository Account as such fee becomes due and payable during the Term and
thereafter as provided in Section 7.3 hereof.
6.5 Accounts Receivable. Unless otherwise prohibited by law, to assure
-------------------
that Practice receives the entire amount of professional fees for its services
and to assist Practice in maintaining reasonable cash flow for the payment of
Office Expense, Practice hereby agrees to sell, and Business Manager hereby
agrees to purchase, with respect to any month during the Term and with recourse
to Practice for the amount of the purchase, accounts receivable of Practice (the
"Purchased Receivables") (i) in an amount equal to the difference, if any,
between (A) the sum of the Monthly Office Expense and the Monthly Practice
Expense paid or accrued by Business Manager for such month and (B) the amount of
cash collections deposited into the Depository Account during such month and
used to pay all or any portion of the Office Expenses and the Monthly Practice
Expense, by transferring such amount into the Depository Account, and (ii) in an
amount equal to the difference, if any, between the Management Fee and the
amount of cash collections deposited into the Depository Account during such
month and used to pay all or any portion of the Management Fee, in satisfaction
of Practice's obligation to pay Business Manager the Management Fee. The
consideration paid to Business Manager for the purchase shall be an amount equal
to the Principal Services Revenue and Dispensary Business Revenue with respect
to the Purchased Receivables, computed in accordance with GAAP on an accrual
basis net of Adjustments. Although it is the intention of the parties that
Business Manager purchase and thereby become the owner of the Purchased
Receivables of Practice, in the event such purchase shall be ineffective for any
reason, Practice is concurrently granting to Business Manager a security
interest in the Purchased Receivables, and Practice shall cooperate with
Business Manager and shall execute all documents in connection with the pledge
of the Purchased Receivables to Business Manager. All collections in respect to
the Purchased Receivables by Business Manager shall be received by Business
Manager as the agent of Practice and shall be endorsed to Business Manager and
deposited in a bank account at a bank designated by Business Manager. To the
extent Practice comes into possession of any payments in respect of the
Purchased Receivables, Practice shall direct such payments to Business Manager
for deposit in bank accounts designated by Business Manager. Without limiting
the foregoing, to ensure that a reasonable cash flow is maintained for the
payment of Office Expenses hereunder, Practice shall not, except as expressly
contemplated herein, sell, assign, transfer, pledge, mortgage or in any way
encumber, the accounts receivable of Practice without the express written
consent of Business Manager.
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<PAGE>
6.6 Disputes Regarding Fees.
-----------------------
(a) It is the parties' intent that any disputes regarding Business
Manager's performance hereunder shall be resolved to the extent possible by good
faith negotiations. To that end, the parties agree that if Practice in good
faith believes that Business Manager has failed to perform its obligations, and
that as a result of such failure, Practice is entitled to a set-off or reduction
in its Management Fees, Practice shall give Business Manager notice of the
perceived failure and request in the notice a set-off or reduction in Management
Fees. Business Manager and Practice shall then negotiate the dispute in good
faith, and if an agreement is reached, the parties shall implement the
resolution without further action.
(b) If the parties cannot reach a resolution within thirty (30) days,
and the amount at issue is $25,000 or less, then the dispute shall be submitted
to the Policy Board. The Policy Board shall then consider, develop and
implement a resolution of such dispute which shall be final and binding upon
Practice and Business Manager.
(c) If the amount in dispute is greater than $25,000, and Business
Manager and Practice fail to resolve the dispute, then such dispute shall be
submitted by either party to binding arbitration as described by Article XII of
the Contribution and Exchange Agreement.
ARTICLE VII
TERM AND TERMINATION
7.1 Initial and Renewal Term. The Term of this Management Services
------------------------
Agreement will be for an initial period of forty (40) years after the Original
Date, and shall be automatically renewed for successive five (5) year periods
thereafter, provided that neither Business Manager nor Practice shall have given
notice of termination of this Management Services Agreement at least one hundred
twenty (120) days before the end of the initial term or any renewal term, or
unless otherwise terminated as provided in Section 7.2 hereof.
7.2 Termination.
-----------
(a) Termination By Business Manager. Business Manager may terminate
-------------------------------
this Management Services Agreement upon the occurrence of any one of the
following events which shall be deemed to be "for cause:"
(i) The suspension, restriction, revocation or cancellation of
any Physician's license to practice medicine in the state of Missouri;
(ii) Practice's loss or suspension of its Medicare or Medicaid
provider number, and/or Practice's restriction from treating patients of
the Medicare or Medicaid programs;
(iii) The dissolution of Practice or the filing by Practice of a
petition in voluntary bankruptcy, an assignment for the benefit of
creditors, or other action taken voluntarily under any state or federal
statute for the protection of debtors;
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(iv) The filing against Practice of an involuntary petition
under any bankruptcy statute, or the appointment of a custodian, receiver,
trustee or assignee for the benefit of creditors, and such condition shall
continue undischarged or undismissed for sixty (60) days; and
(v) Practice materially defaults in the performance of any of
its material duties or obligations hereunder, and shall fail to cure such
default within sixty (60) days after Practice receives notice from Business
Manager specifying the nature of such default.
(b) Termination By Practice. Practice may terminate this Management
-----------------------
Services Agreement upon any of the following occurrences which shall be deemed
to be "for cause":
(i) In the event that an arbitrator pursuant to Section 8.6
hereof makes a final determination that Business Manager has materially
breached a fiduciary duty owed to Practice, Practice may terminate this
Management Services Agreement upon ten (10) days' notice to Business
Manager; or
(ii) With ten (10) days' written notice to Business Manager, in
the event Business Manager (A) intentionally and in bad faith
misappropriates Practice's funds, or (B) fails to properly account
Practice's funds and fails to correct such accounting error within thirty
(30) days of receipt of notice from Practice describing with particularity
the error.
(c) Termination by Agreement. In the event Practice and Business
------------------------
Manager shall mutually agree in writing, this Management Services Agreement may
be terminated on the date specified in such written agreement.
(d) Legislative, Regulatory or Administrative Change. In the event
------------------------------------------------
there shall be a change in the Medicare or Medicaid statutes, state or federal
statutes, case law, regulations or general instructions, the interpretation of
any of the foregoing, the adoption of new federal or state legislation, or a
change in any third-party reimbursement system, any of which are reasonably
likely to materially and adversely affect the manner in which either party may
perform or be compensated for its services under this Management Services
Agreement or which shall make this Management Services Agreement unlawful, the
parties shall immediately enter into good faith negotiations regarding a new
service arrangement or basis for compensation for the services furnished
pursuant to this Management Services Agreement that complies with the law,
regulation or policy and that approximates as closely as possible the economic
position of the parties prior to the change. If good faith negotiations cannot
resolve the matter, it shall be submitted to arbitration as referenced in
Section 8.6 hereof. If a court of competent jurisdiction compels or requires a
party hereto to refrain from performing its duties and obligations hereunder, or
a party's performance hereunder shall be directly violative of a court order
directed at such party, then, to the extent necessary to comply with such court
order, this Management Services Agreement shall be deemed suspended. In no
event shall such suspension be construed to relieve either party's obligation
under this Section 7.2(d) and the parties will immediately commence good faith
negotiations regarding a new service arrangement or compensation structure that
is in compliance with any such court order, which arrangement or structure will
allocate the economic aspects of the relationship between the parties in a
manner as nearly as possible as that intended by this Management Services
Agreement.
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7.3 Effects of Termination. Upon termination of this Management
----------------------
Services Agreement, as heretofore provided, neither party shall have any further
obligations hereunder except for (i) obligations accruing prior to the date of
termination, including, without limitation, payment of the Management Fees,
Office Expense and Practice Expense relating to services provided prior to the
termination of this Management Services Agreement, (ii) obligations, promises or
covenants set forth herein that are expressly set forth herein to extend beyond
the Term under the circumstances giving rise to such termination, including,
without limitation, indemnity, confidentiality and noncompetition provisions,
which provisions shall survive the expiration or termination of this Management
Services Agreement by Business Manager for cause, and (iii) the applicable
obligations of Practice and Business Manager described in Section 7.4 or 7.5
hereof. In effectuating the provisions of this Section 7.3, Practice
specifically acknowledges and agrees that Business Manager shall continue to
collect and receive on behalf of Practice all cash collections from accounts
receivable in existence at the time this Management Services Agreement is
terminated, it being understood that such cash collections will be applied in
accordance with Section 4.9 hereof, and will represent, in part, compensation to
Business Manager for management services already rendered and compensation on
accounts receivable purchased by Business Manager. Upon the expiration or
termination of this Management Services Agreement for any reason or cause
whatsoever, Business Manager shall surrender to Practice all books and records
pertaining to Practice's medical practice.
7.4 Repurchase Obligation. Upon termination of this Management
---------------------
Services Agreement by Business Manager for cause or by Practice without cause,
Business Manager shall have the right, but not the obligation, to require
Practice to comply with the terms and conditions of this Section 7.4. In the
event Business Manager exercises such right by delivering written notice to
Practice within sixty (60) days of such termination, then Practice shall be
required to:
(a) Purchase from Business Manager at the greater of book or fair
market value the intangible assets, deferred charges and all other amounts on
the books of Business Manager relating to the Management Services Agreement as
adjusted, through the last day of the month most recently ended prior to the
date of such termination in accordance with GAAP to reflect amortization or
depreciation of the intangible assets, deferred charges or covenants;
(b) Purchase from Business Manager any real estate owned by Business
Manager and used as an Office at the greater of the appraised fair market value
thereof or the then book value thereof. In the event of any repurchase of real
property, the appraised value shall be determined by Business Manager and
Practice, each selecting a duly qualified appraiser, who in turn will agree on a
third appraiser. This agreed-upon appraiser shall perform the appraisal which
shall be binding on both parties. In the event either party fails to select an
appraiser within fifteen (15) days of the selection of an appraiser by the other
party, the appraiser selected by the other party shall make the selection of the
third-party appraiser;
(c) Purchase at the greater of book or fair market value all
improvements, additions, or leasehold improvements that have been made by
Business Manager at any Office and that relate solely to the performance of
Business Manager's obligations under this Management Services Agreement;
(d) Assume all debt and all contracts, payables and leases that are
obligations of Business Manager and that relate principally to the performance
of Business Manager's
-34-
<PAGE>
obligations under this Management Services Agreement or the properties leased or
subleased hereunder as an Office by Business Manager; and
(e) Purchase from Business Manager at the greater of book or fair
market value all of the equipment listed in the Contribution and Exchange
Agreement or an exhibit thereto, including all replacements and additions
thereto made by Business Manager pursuant to the performance of its obligations
under this Management Services Agreement, and all other assets, including
inventory and supplies, and tangibles and intangibles, set forth on the books of
Business Manager as adjusted through the last day of the month most recently
ended prior to the date of such termination in accordance with GAAP to reflect
operations of the Office, depreciation, amortization and other adjustments of
assets shown on the books of Business Manager.
In the event Business Manager exercises its rights pursuant to this Section 7.4,
Practice shall have the obligation to purchase all, and not less than all, of
the items listed in subparagraphs (a) through (e) above. In no event, however,
shall this Section 7.4 be construed as enabling Practice to repurchase any
assets acquired from Practice pursuant to the Contribution and Exchange
Agreement, which relate directly or indirectly to the ambulatory surgical
treatment center owned and operated by Practice immediately prior to the
effective date of the Contribution and Exchange Agreement (the "ASC Assets").
The ASC Assets are expressly excluded from the assets enumerated in
subparagraphs (a) through (e) above and Practice shall have no right to
repurchase the ASC Assets under this Section 7.4 unless Business Manager shall
so elect in writing, in which case Practice shall be required to repurchase the
ASC Assets at the greater of the then book or fair market value. For purposes of
this Article VII, "fair market value" of a particular item shall be an amount
mutually agreed upon by Practice and Business Manager. If Practice and Business
Manager are unable to reach agreement on such value after ten (10) days of
deliberations, then such fair market value shall be determined by an
independent, duly qualified appraiser mutually agreed upon by Practice and
Business Manager. If Practice and Business Manager cannot agree upon an
appraiser within ten (10) days, then each party shall select a duly qualified
appraiser, who in turn will select a third appraiser. This agreed-upon appraiser
shall perform the appraisal which shall be binding upon both parties. All
expenses of such appraisal shall be borne fifty percent (50%) by Business
Manager and fifty percent (50%) by Practice.
7.5 Repurchase Option. Upon termination of this Management Services
-----------------
Agreement by Practice for cause pursuant to Section 7.2(b) hereof, Practice
shall have the right, but not the obligation, to:
(a) Purchase from Business Manager at fair market value the intangible
assets, deferred charges and all other amounts on the books of Business Manager
relating to the Management Services Agreement as adjusted, through the last day
of the month most recently ended prior to the date of such termination in
accordance with GAAP to reflect amortization or depreciation of the intangible
assets, deferred charges or covenants;
(b) Purchase from Business Manager any real estate owned by Business
Manager and used as an Office at the appraised fair market value thereof. In
the event of any repurchase of real property, the appraised value shall be
determined in accordance with the appraisal mechanism described in Section 7.4
hereof;
-35-
<PAGE>
(c) Purchase at fair market value all improvements, additions or
leasehold improvements that have been made by Business Manager at any Office and
that relate solely to the performance of Business Manager's obligations under
this Management Services Agreement;
(d) Assume all debt and all contracts, payables and leases that are
obligations of Business Manager and that relate principally to the performance
of Business Manager's obligations under this Management Services Agreement or
the properties leased or subleased by Business Manager; and
(e) Purchase from Business Manager at fair market value all of the
equipment listed in the Contribution and Exchange Agreement or an exhibit
thereto, including all replacements and additions thereto made by Business
Manager pursuant to the performance of its obligations under this Management
Services Agreement, and all other tangible assets, including inventory and
supplies, set forth on the books of Business Manager as adjusted through the
last day of the month most recently ended prior to the date of such termination
in accordance with GAAP to reflect operations of the Office, depreciation,
amortization and other adjustments of assets shown on the books of Business
Manager.
In the event Practice exercises its rights pursuant to this Section 7.5,
Practice shall have the obligation to purchase all, and not less than all, of
the items listed in subparagraphs (a) through (e). In no event, however, shall
this Section 7.5 be construed as enabling Practice to repurchase any assets
acquired from Practice pursuant to the Contribution and Exchange Agreement,
which relate directly or indirectly to the ASC Assets. The ASC Assets are
expressly excluded from the assets enumerated in subparagraphs (a) through (e)
above and Practice shall have no right to repurchase the ASC Assets under this
Section 7.5 unless Business Manager shall so elect in writing, in which case
Practice shall be required to repurchase the ASC Assets at the greater of the
then book or fair market value. In lieu of paying cash for the items described
in this Section 7.5, Practice shall have the option of: (i) offsetting the cash
amount required pursuant to this Section 7.5 against the outstanding balance due
and owing under the Note (as such term is defined in the Contribution and
Exchange Agreement); or (ii) contributing to Business Manager that number of
Exchange Shares (as such term is defined in the Contribution and Exchange
Agreement) which, based on the then fair market value of such shares (determined
in accordance with a consistent application of the valuation procedure
established under Section 9.01(d) of the Contribution and Exchange Agreement),
equals the cash amount required pursuant to this Section 7.5.
7.6 Closing of Repurchase. Except as expressly provided in Section
---------------------
7.5 hereof, Practice shall pay cash for the repurchased assets. The amount of
the purchase price shall be reduced by the amount of debt and liabilities of
Business Manager, if any, assumed by Practice. Practice and, if required by law,
any Physician associated with Practice, shall execute such documents as may be
required, (i) for Practice to assume the liabilities set forth in Section 7.4(d)
or 7.5(d) hereof, as applicable, and (ii) for Practice to indemnify or remove
Business Manager from any liability with respect to such repurchased asset and
with respect to any property leased or subleased by Business Manager. Business
Manager shall execute such documents as may be required to convey the assets,
free and clear of all liens (except for those liens assumed by Practice). The
closing date for the repurchase shall be determined by mutual agreement of
Practice and Business Manager but shall in no event occur later than one hundred
eighty (180) days from the date of the notice of termination. The termination of
this Management Services
-36-
<PAGE>
Agreement shall become effective upon the closing of the sale of the assets
under Section 7.4 or 7.5 hereof, as the case may be, and all parties shall be
released from any restrictive covenants provided for in Section 5.7 hereof on
such closing date. From and after any termination, each party shall provide the
other party with reasonable access to the books and records then owned by it to
permit such requesting party to satisfy reporting and contractual obligations
that may be required of it.
7.7 Rights and Remedies. In the event of a material breach of this
-------------------
Management Services Agreement by either party hereunder, the nonbreaching party
shall have, in addition to any other rights and remedies contained in this
Management Services Agreement, all rights and remedies available to such party
at law or equity. Without limiting the generality of the foregoing, the parties
acknowledge and agree that Business Manager entered into this Management
Services Agreement with the understanding that the Term of this Management
Services Agreement would be forty years. In the event of a material breach
hereunder by Practice, the parties acknowledge and agree that the actual damages
to be suffered by Business Manager will be difficult to ascertain. Practice
recognizes that, in the event Practice shall fail to perform, observe or
discharge any of its duties, obligations or liabilities under this Management
Services Agreement, any remedy at law may prove to be inadequate relief to
Business Manager. Therefore, Practice agrees that, if Business Manager so elects
and in addition to any other remedies available at law or equity, Business
Manager shall be entitled to temporary and permanent injunctive relief in any
such case without the necessity of proving actual damages, or to specific
performance of any provision hereof. In addition to all other remedies of
Business Manager for any material breach hereunder by Practice, and without
limiting any and all rights set forth herein, Business Manager may set-off any
and all amounts which are due or which Business Manager reasonably believes will
become due and owing to Business Manager under this Agreement, against any and
all amounts which are due and owing under the Note. Such rights of set-off shall
be governed by the terms and conditions set forth in the Note.
7.8 Interpretation. The purpose and intent of this Article VII is to
--------------
establish the limited instances in which a party may terminate this Management
Services Agreement. Unless the parties mutually agree to terminate this
Management Services Agreement, neither party shall be entitled to terminate this
Management Services Agreement prior to the expiration of the Term unless a
party's breach gives rise to a termination "for cause" pursuant to Section
7.2(a) or (b) hereof, as the case may be. Nothing in this Agreement (including
Section 7.4 hereof) shall be construed as permitting Practice to terminate this
Agreement without cause.
-37-
<PAGE>
ARTICLE VIII
MISCELLANEOUS
8.1 Administrative Services Only. Nothing in this Management
----------------------------
Services Agreement is intended or shall be construed to allow Business Manager
to exercise control or direction over the manner or method by which Practice and
its Physicians and Optometrists perform Medical Services or other professional
health care services. The rendition of all Medical Services, including, but not
limited to, the prescription or administration of medicine and drugs shall be
the sole responsibility of Practice and its Physicians and Optometrists, and
Business Manager shall not interfere in any manner or to any extent therewith.
Nothing contained herein shall be construed to permit Business Manager to engage
in the practice of medicine, it being the sole intention of the parties hereto
that the services to be rendered to Practice by Business Manager are solely for
the purpose of providing nonmedical management and administrative services to
Practice to enable Practice to devote its full time and energies to the
professional conduct of its medical practice and provision of Medical Services
to its patients and not to administration or practice management. Practice,
through the Physicians and Optometrists, shall be responsible for and shall have
complete authority, responsibility, supervision and control over the opticians
and other employees of Business Manager providing services in connection with
the Dispensary Business, consistent with the requirements necessary to satisfy
the "in-office ancillary service exception" to the Stark Act.
8.2 Status of Contractor. It is expressly acknowledged that the
--------------------
parties hereto are "independent contractors," and nothing in this Management
Services Agreement is intended and nothing shall be construed to allow either
party to exercise control or direction over the manner or method by which the
other party performs the services that are the subject matter of this Management
Services Agreement; provided that the services to be provided hereunder shall be
furnished in a manner consistent with the standards governing such services and
the provisions of this Management Services Agreement. Each party understands
and agrees that (i) neither party will withhold on behalf of the other party any
sums for income tax, unemployment insurance, social security or any other
withholding pursuant to any law or requirement of any governmental body or make
available any of the benefits afforded to its employees, (ii) all of such
payments, withholdings and benefits, if any, are the sole responsibility of the
party incurring the liability, and (iii) each party will indemnify and hold the
other harmless from any and all loss or liability arising with respect to such
payments, withholdings and benefits, if any.
8.3 Notices. Any notice, demand or communication required, permitted
-------
or desired to be given hereunder shall be in writing and shall be served on the
parties at the following respective addresses:
Practice:
The Eye Center, Inc.
900 North Highway 67
Florissant, Missouri 63031
Facsimile: (314) 838-4682
Attention: John P. Goltschman, M.D.
Marvin I. Koenig, M.D.
-38-
<PAGE>
with a copy to:
Stark & Knoll
1512 Ohio Edison Building
76 South Main Street
Akron, Ohio 44308
Facsimile: (330) 376-6237
Attention: Michael L. Stark, Esq.
Business Manager:
NovaMed Eyecare Management, LLC
980 North Michigan Avenue, Suite 1620
Chicago, Illinois 60611
Facsimile: (312) 664-4250
Attention: Stephen J. Winjum
John W. Lawrence, Jr.
with a copy to:
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661
Facsimile: (312) 902-1061
Attention: Steven V. Napolitano, Esq.
or to such other address, or to the attention of such other person or officer,
as any party may by written notice designate. Any notice, demand, or
communication required, permitted or desired to be given hereunder shall be sent
either (a) by hand delivery, in which case notice shall be deemed received when
actually delivered, (b) by prepaid certified or registered first class mail,
return receipt requested, in which case notice shall be deemed received five
calendar days after deposit, postage prepaid in the United States Mail, (c) by
facsimile if also delivered by hand, or deposited in the United States Mail,
postage prepaid, registered or certified mail, on or before two (2) business
days after its delivery by facsimile, in which case notice shall be deemed
received one (1) business day after the facsimile transmission, or (d) by a
nationally recognized overnight courier, in which case notice shall be deemed
received one business day after prepaid deposit with such courier.
8.4 Governing Law and Consent to Jurisdiction. This Management
-----------------------------------------
Services Agreement shall be governed by the laws of the State of Illinois
applicable to agreements to be performed wholly within the State of Illinois.
8.5 Assignment. Except as may be herein specifically provided to the
----------
contrary, this Management Services Agreement shall inure to the benefit of, and
be binding upon, the parties hereto and their respective legal representatives,
successors and permitted assigns; provided, however, Practice may not assign
this Management Services Agreement without the prior written consent of Business
Manager, which consent may be withheld in Business Manager's discretion. The
sale, transfer, pledge or assignment of any of the voting shares of Practice
held by any shareholder of Practice or the issuance by Practice of common or
other voting shares to any other person, or any combination of such transactions
within a period of one (1) year, such that the existing shareholders in Practice
immediately prior to such transactions or the beginning of the
-39-
<PAGE>
one-year period, as applicable, fail to maintain a majority of the voting
interests in Practice shall be deemed an attempted assignment by Practice, and
shall be null and void unless consented to in writing by Business Manager prior
to any such transfer or issuance. Any breach of this provision, whether or not
void or voidable, shall constitute a material breach of this Management Services
Agreement, and in the event of such breach, Business Manager may terminate this
Management Services Agreement upon twenty-four (24) hours' notice to Practice.
The parties agree Business Manager or any transferee shall have the right to (i)
assign its rights and obligations hereunder to any third party and (ii)
collaterally assign its interest in this Management Services Agreement and its
other rights hereunder to any financial institution or other third party without
the consent of Practice.
8.6 Arbitration. Except as expressly provided in Section 6.7 hereof,
-----------
the parties shall negotiate in good faith to resolve any controversy, dispute or
disagreement arising out of or relating to this Management Services Agreement or
the breach of this Management Services Agreement. Any matter not resolved by
negotiation shall be submitted to binding arbitration and such arbitration shall
be governed by the terms of Article XII of the Contribution and Exchange
Agreement, which, as it applies to the parties hereto, is incorporated herein by
reference in its entirety; provided, however, that nothing contained in this
Section 8.6 shall prevent either party hereto from pursuing any right or remedy
afforded it under Section 7.7 hereof.
8.7 Waiver of Breach. The waiver by either party of a breach or
----------------
violation of any provision of this Management Services Agreement shall not
operate as, or be construed to constitute, a waiver of any subsequent breach of
the same or another provision hereof.
8.8 Enforcement. In the event either party resorts to legal action
-----------
to enforce or interpret any provision of this Management Services Agreement, the
prevailing party shall be entitled to recover the costs and expenses of such
action so incurred, including, without limitation, reasonable attorneys' fees.
8.9 Gender and Number. Whenever the context of this Management
-----------------
Services Agreement requires, the gender of all words herein shall include the
masculine, feminine and neuter, and the number of all words herein shall include
the singular and plural.
8.10 Additional Assurances. Except as may be specifically provided
---------------------
herein to the contrary, the provisions of this Management Services Agreement
shall be self-operative and shall not require further agreement by the parties;
provided, however, at the request of either party, the other party shall execute
such additional instruments and take such additional acts as are reasonable, and
as the requesting party may reasonably deem necessary, to effectuate this
Management Services Agreement.
8.11 Consents, Approvals, and Exercise of Discretion. Whenever this
-----------------------------------------------
Management Services Agreement requires any consent or approval to be given by
either party, or either party must or may exercise discretion, and except where
specifically set forth to the contrary, the parties agree that such consent or
approval shall not be unreasonably withheld or delayed, and that such discretion
shall be reasonably exercised.
8.12 Force Majeure. Neither party shall be liable or deemed to be in
-------------
default for any delay or failure in performance under this Management Services
Agreement or other interruption of service deemed to result, directly or
indirectly, from acts of God, civil or military authority, acts of public enemy,
war, accidents, explosions, earthquakes, floods, failure of transportation,
strikes or other work interruptions by either party's employees, or any other
similar cause beyond
-40-
<PAGE>
the reasonable control of either party unless such delay or failure in
performance is expressly addressed elsewhere in this Management Services
Agreement.
8.13 Severability. The parties hereto have negotiated and prepared the
------------
terms of this Management Services Agreement in good faith with the intent that
each and every one of the terms, covenants and conditions herein be binding upon
and inure to the benefit of the respective parties. Accordingly, if any one or
more of the terms, provisions, promises, covenants or conditions of this
Management Services Agreement or the application thereof to any person or
circumstance shall be adjudged to any extent invalid, unenforceable, void or
voidable for any reason whatsoever by a court of competent jurisdiction or an
arbitration tribunal, such provision shall be as narrowly construed as possible,
and each and all of the remaining terms, provisions, promises, covenants and
conditions of this Management Services Agreement or their application to other
persons or circumstances shall not be affected thereby and shall be valid and
enforceable to the fullest extent permitted by law. To the extent this
Management Services Agreement is in violation of applicable law, then the
parties agree to negotiate in good faith to amend the Management Services
Agreement, to the extent possible consistent with its purposes, to conform to
law.
8.14 Divisions and Headings. The divisions of this Management Services
----------------------
Agreement into articles, sections and subsections, and the use of captions and
headings in connection therewith is solely for convenience and shall not affect
in any way the meaning or interpretation of this Management Services Agreement.
8.15 Amendments and Management Services Agreement Execution. This
------------------------------------------------------
Management Services Agreement and amendments hereto shall be in writing and
executed in multiple copies on behalf of Practice and Business Manager by their
respective duly authorized officers. Each multiple copy shall be deemed an
original, but all multiple copies together shall constitute one and the same
instrument.
8.16 Entire Management Services Agreement. With respect to the subject
------------------------------------
matter of this Management Services Agreement, this Management Services Agreement
supersedes all previous contracts and constitutes the entire agreement between
the parties. Neither party shall be entitled to benefits other than those
specified herein. No prior oral statements or contemporaneous negotiations or
understandings or prior written material not specifically incorporated herein
shall be of any force and effect, and no changes in or additions to this
Management Services Agreement shall be recognized unless incorporated herein by
amendment as provided herein, such amendment to become effective on the date
stipulated in such amendment. The parties specifically acknowledge that, in
entering into and executing this Management Services Agreement, the parties rely
solely upon the representations and agreements contained in this Management
Services Agreement and no others.
-41-
<PAGE>
IN WITNESS WHEREOF, Practice and Business Manager have caused this
Management Services Agreement to be executed by their duly authorized
representatives, all as of the day and year first above written.
PRACTICE:
THE EYE CENTER, INC.,
a Missouri corporation
By: /s/ John P. Goltschman, M.D.
---------------------------------------
Name: John P. Goltschman, M.D.
-------------------------------------
Title: President
------------------------------------
BUSINESS MANAGER:
NOVAMED EYECARE MANAGEMENT, LLC, a Delaware
limited liability Company
By: /s/ Stephen J. Winjum
---------------------------------------
Stephen J. Winjum,
President and Chief Executive Officer
<PAGE>
EXHIBIT 1.6
BUDGET
*/
-
____________________________
* Confidential portions omitted and filed separately with the commission.
<PAGE>
The Eye Center
_______________________________________________________________________
1999 MSA Budget
<TABLE>
<CAPTION>
Description Jan Feb Mar Apr May Jun
- ------------------------------------ -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Practice * * * * * *
Revenue * * * * * *
- -------
Practice revenue * * * * * *
ASC facility revenue * * * * * *
Optical revenue - glasses * * * * * *
Optical revenue - contacts * * * * * *
Optometric revenue * * * * * *
Other revenue * * * * * *
Contractual adjustments * * * * * *
* * * * * *
Other Revenue * * * * * *
* * * * * *
Budgeted Principal Services Revenue * * * * * *
* * * * * *
Expenses * * * * * *
- -------- * * * * * *
Salaries and Wages: * * * * * *
Center Staff Salaries: * * * * * *
---------------------
Administration * * * * * *
Technician * * * * * *
Nurses * * * * * *
Other salaries * * * * * *
Overtime pay * * * * * *
* * * * * *
Payroll Taxes & Benefits * * * * * *
------------------------
Vacation & leave pay * * * * * *
Bonuses * * * * * *
Incentive compensation * * * * * *
FICA Tax * * * * * *
SUI * * * * * *
FUI * * * * * *
Other payroll taxes * * * * * *
Labor allocation * * * * * *
401k Match * * * * * *
Life & Disability ins. * * * * * *
Employee Health ins. * * * * * *
* * * * * *
Benefits % * * * * * *
Total Salaries & Wages * * * * * *
* * * * * *
MD/OD Compensation * * * * * *
* * * * * *
* * * * * *
Pharmaceuticals and supplies: * * * * * *
Practice supplies * * * * * *
ASC - general * * * * * *
ASC - refractive * * * * * *
Pillar point fees * * * * * *
Optical COS - glasses * * * * * *
Optical COS - contacts * * * * * *
Optometric supplies * * * * * *
Total Pharmac. & Supplies * * * * * *
Practice * * * * * *
G & A expenses: * * * * * *
</TABLE>
<TABLE>
<CAPTION>
Description Jul Aug Sep Oct Nov Dec Total 1998 %
- ------------------------------------- ---------------------------------------------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Practice * * * * * * * * * * *
Revenue * * * * * * * * * * *
- -------
Practice revenue * * * * * * * * * * *
ASC facility revenue * * * * * * * * * * *
Optical revenue - glasses * * * * * * * * * * *
Optical revenue - contacts * * * * * * * * * * *
Optometric revenue * * * * * * * * * * *
Other revenue * * * * * * * * * * *
Contractual adjustments * * * * * * * * * * *
* * * * * * * * * * *
Other Revenue * * * * * * * * * * *
* * * * * * * * * * *
Budgeted Principal Services Revenue * * * * * * * * * * *
* * * * * * * * * * *
Expenses * * * * * * * * * * *
- -------- * * * * * * * * * * *
Salaries and Wages: * * * * * * * * * * *
Center Staff Salaries: * * * * * * * * * * *
---------------------
Administration * * * * * * * * * * *
Technician * * * * * * * * * * *
Nurses * * * * * * * * * * *
Other salaries * * * * * * * * * * *
Overtime pay * * * * * * * * * * *
* * * * * * * * * * *
Payroll Taxes & Benefits * * * * * * * * * * *
------------------------
Vacation & leave pay * * * * * * * * * * *
Bonuses * * * * * * * * * * *
Incentive compensation * * * * * * * * * * *
FICA Tax * * * * * * * * * * *
SUI * * * * * * * * * * *
FUI * * * * * * * * * * *
Other payroll taxes * * * * * * * * * * *
Labor allocation * * * * * * * * * * *
401k Match * * * * * * * * * * *
Life & Disability ins. * * * * * * * * * * *
Employee Health ins. * * * * * * * * * * *
* * * * * * * * * * *
Benefits % * * * * * * * * * * *
Total Salaries & Wages * * * * * * * * * * *
* * * * * * * * * * *
MD/OD Compensation * * * * * * * * * * *
* * * * * * * * * * *
* * * * * * * * * * *
Pharmaceuticals and supplies: * * * * * * * * * * *
Practice supplies * * * * * * * * * * *
ASC - general * * * * * * * * * * *
ASC - refractive * * * * * * * * * * *
Pillar point fees * * * * * * * * * * *
Optical COS - glasses * * * * * * * * * * *
Optical COS - contacts * * * * * * * * * * *
Optometric supplies * * * * * * * * * * *
Total Pharmac. & Supplies * * * * * * * * * * *
Practice * * * * * * * * * * *
G & A expenses: * * * * * * * * * * *
</TABLE>
* Confidential portions omitted and filed separately with the commission.
9
<PAGE>
<TABLE>
The Eye Center
- ---------------------------------------------------------------------------------------------------------------------------------
1999 MSA Budget
<CAPTION>
Description Jan Feb Mar Apr May June
------------------------------------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Office & Administrative: * * * * * *
Office Supplies * * * * * *
---------------
Office supplies * * * * * *
Software/computer expense * * * * * *
Food service * * * * * *
Bank charges * * * * * *
Credit card fees * * * * * *
Postage & freight * * * * * *
Employee & patient programs * * * * * *
Continuing education * * * * * *
Dues and subscriptions * * * * * *
Telephone * * * * * *
Utilities * * * * * *
Printing * * * * * *
Misc. office expense * * * * * *
Total Office & Admin. Expenses * * * * * *
* * * * * *
* * * * * *
Marketing: * * * * * *
Advertising * * * * * *
Marketing-Other * * * * * *
Total Marketing * * * * * *
* * * * * *
Professional and Service Fees: * * * * * *
Legal * * * * * *
Accounting * * * * * *
Other prof. consulting * * * * * *
Collection fees * * * * * *
Answering service * * * * * *
Linens & uniforms * * * * * *
Other services * * * * * *
Temporary services * * * * * *
Total Professional Fees * * * * * *
* * * * * *
* * * * * *
Rental Expense: * * * * * *
Building rent * * * * * *
Other office rent & parking * * * * * *
Equipment leases * * * * * *
Optical equipment rent * * * * * *
Total Rent Expense * * * * * *
* * * * * *
Repairs & Maintenance: * * * * * *
Building maintenance * * * * * *
Repairs-equipment * * * * * *
Non-capitalized tools * * * * * *
Total Repairs & Maint. * * * * * *
Practice * * * * * *
* * * * * *
Taxes and insurance: * * * * * *
Malpractice * * * * * *
Liability & casualty * * * * * *
Workers' compensation ins. * * * * * *
</TABLE>
* Confidential portions omitted and filed separately with the commission.
<TABLE>
<CAPTION>
Description Jul Aug Sep Oct Nov Dec Total 1998 %
------------------------------------------- ------------------------------------------------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Office & Administrative: * * * * * * * * * * *
Office Supplies * * * * * * * * * * *
---------------
Office supplies * * * * * * * * * * *
Software/computer expense * * * * * * * * * * *
Food service * * * * * * * * * * *
Bank charges * * * * * * * * * * *
Credit card fees * * * * * * * * * * *
Postage & freight * * * * * * * * * * *
Employee & patient programs * * * * * * * * * * *
Continuing education * * * * * * * * * * *
Dues and subscriptions * * * * * * * * * * *
Telephone * * * * * * * * * * *
Utilities * * * * * * * * * * *
Printing * * * * * * * * * * *
Misc. office expense * * * * * * * * * * *
Total Office & Admin. Expenses * * * * * * * * * * *
* * * * * * * * * * *
* * * * * * * * * * *
Marketing: * * * * * * * * * * *
Advertising * * * * * * * * * * *
Marketing-Other * * * * * * * * * * *
Total Marketing * * * * * * * * * * *
* * * * * * * * * * *
Professional and Service Fees: * * * * * * * * * * *
Legal * * * * * * * * * * *
Accounting * * * * * * * * * * *
Other prof. consulting * * * * * * * * * * *
Collection fees * * * * * * * * * * *
Answering service * * * * * * * * * * *
Linens & uniforms * * * * * * * * * * *
Other services * * * * * * * * * * *
Temporary services * * * * * * * * * * *
Total Professional Fees * * * * * * * * * * *
* * * * * * * * * * *
* * * * * * * * * * *
Rental Expense: * * * * * * * * * * *
Building rent * * * * * * * * * * *
Other office rent & parking * * * * * * * * * * *
Equipment leases * * * * * * * * * * *
Optical equipment rent * * * * * * * * * * *
Total Rent Expense * * * * * * * * * * *
* * * * * * * * * * *
Repairs & Maintenance: * * * * * * * * * * *
Building maintenance * * * * * * * * * * *
Repairs-equipment * * * * * * * * * * *
Non-capitalized tools * * * * * * * * * * *
Total Repairs & Maint. * * * * * * * * * * *
Practice * * * * * * * * * * *
* * * * * * * * * * *
Taxes and insurance: * * * * * * * * * * *
Malpractice * * * * * * * * * * *
Liability & casualty * * * * * * * * * * *
Workers' compensation ins. * * * * * * * * * * *
</TABLE>
* Confidential portions omitted and filed separately with the commission.
<PAGE>
The Eye Center
- --------------------------------------------------------------------------------
1999 MSA Budget
<TABLE>
<CAPTION>
Description Jan Feb Mar Apr May June July Aug Sep Oct Nov
- ------------------- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
D&O * * * * * * * * * * *
Key Man Life * * * * * * * * * * *
Other insurance * * * * * * * * * * *
Property tax * * * * * * * * * * *
Sales & Use tax * * * * * * * * * * *
Property tax * * * * * * * * * * *
Other taxes * * * * * * * * * * *
Total Taxes & Ins. * * * * * * * * * * *
* * * * * * * * * * *
* * * * * * * * * * *
Other Expenses: * * * * * * * * * * *
Travel & entertainment * * * * * * * * * * *
Recruitment & relocation * * * * * * * * * * *
Auto & Van * * * * * * * * * * *
Contracted patient transport. * * * * * * * * * * *
Donations and gifts * * * * * * * * * * *
Allocated IT/Computing costs * * * * * * * * * * *
Other * * * * * * * * * * *
Total Other Expense * * * * * * * * * * *
* * * * * * * * * * *
Total G&A expenses * * * * * * * * * * *
* * * * * * * * * * *
* * * * * * * * * * *
Depreciation & Amortization: * * * * * * * * * * *
Building depreciation * * * * * * * * * * *
Equipment depreciation * * * * * * * * * * *
Goodwill amortization * * * * * * * * * * *
Other intangible amortization * * * * * * * * * * *
Amortization of deferred charges * * * * * * * * * * *
* * * * * * * * * * *
Total Depr. and Amortization * * * * * * * * * * *
* * * * * * * * * * *
* * * * * * * * * * *
Interest (income) and expense: * * * * * * * * * * *
Depository Interest * * * * * * * * * * *
Investment Income * * * * * * * * * * *
Bank Line Interest Expense * * * * * * * * * * *
Cap. Lease Interest Expense * * * * * * * * * * *
Other Interest Expense * * * * * * * * * * *
* * * * * * * * * * *
Total Interest (income)/expense * * * * * * * * * * *
* * * * * * * * * * *
Principal Services Budgeted Office Expense * * * * * * * * * * *
* * * * * * * * * * *
Practice * * * * * * * * * * *
Principal Services Budgeted Office Expense * * * * * * * * * * *
Principal Services Budgeted * * * * * * * * * * *
Practice Expense * * * * * * * * * * *
* * * * * * * * * * *
Principal Services Monthly Fee * * * * * * * * * * *
</TABLE>
<TABLE>
<CAPTION>
Description Dec Total 1998 %
- ------------------- ------ -------------------
<S> <C> <C> <C> <C>
D&O * * * * * *
Key Man Life * * * * * *
Other insurance * * * * * *
Property tax * * * * * *
Sales & Use tax * * * * * *
Property tax * * * * * *
Other taxes * * * * * *
Total Taxes & Ins. * * * * * *
* * * * * *
* * * * * *
Other Expenses: * * * * * *
Travel & entertainment * * * * * *
Recruitment & relocation * * * * * *
Auto & Van * * * * * *
Contracted patient transport. * * * * * *
Donations and gifts * * * * * *
Allocated IT/Computing costs * * * * * *
Other * * * * * *
Total Other Expense * * * * * *
* * * * * *
Total G&A expenses * * * * * *
* * * * * *
* * * * * *
Depreciation & Amortization: * * * * * *
Building depreciation * * * * * *
Equipment depreciation * * * * * *
Goodwill amortization * * * * * *
Other intangible amortization * * * * * *
Amortization of deferred charges * * * * * *
* * * * * *
Total Depr. and Amortization * * * * * *
* * * * * *
* * * * * *
Interest (income) and expense: * * * * * *
Depository Interest * * * * * *
Investment Income * * * * * *
Bank Line Interest Expense * * * * * *
Cap. Lease Interest Expense * * * * * *
Other Interest Expense * * * * * *
* * * * * *
Total Interest (income)/expense * * * * * *
* * * * * *
Principal Services Budgeted Office Expense * * * * * *
* * * * * *
Practice * * * * * *
Principal Services Budgeted Office Expense * * * * * *
Principal Services Budgeted * * * * * *
Practice Expense * * * * * *
* * * * * *
Principal Services Monthly Fee * * * * * *
</TABLE>
* Confidential portions omitted and filed separately with the commission.
<PAGE>
The Eye Center
- -----------------------------------------------------------------------
1999 MSA Budget
<TABLE>
<CAPTION>
Description Jan Feb Mar Apr May Jun
- ------------------------------------ -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Optical * * * * * *
Revenue * * * * * *
- -------
Practice revenue * * * * * *
ASC facility revenue * * * * * *
Optical revenue * * * * * *
Optometric revenue * * * * * *
Alliance revenue * * * * * *
Research & Consulting * * * * * *
Other revenue * * * * * *
* * * * * *
Laboratory revenue * * * * * *
* * * * * *
Dispensary Business Budgeted Revenue * * * * * *
* * * * * *
Expenses * * * * * *
- -------- * * * * * *
Salaries and Wages: * * * * * *
Center Staff Salaries: * * * * * *
---------------------
Administration * * * * * *
Technician/Nurses * * * * * *
PSR/Front Desk * * * * * *
Other salaries * * * * * *
Overtime pay * * * * * *
* * * * * *
Payroll Taxes & Benefits * * * * * *
------------------------
Vacation & leave pay * * * * * *
Bonuses * * * * * *
Incentive compensation * * * * * *
FICA Tax * * * * * *
SUI * * * * * *
FUI * * * * * *
Other payroll taxes * * * * * *
Labor allocation * * * * * *
401k Match * * * * * *
Life & Disability ins. * * * * * *
Employee Health ins. * * * * * *
* * * * * *
Benefits % * * * * * *
Total Salaries & Wages * * * * * *
* * * * * *
MD/OD Compensation * * * * * *
* * * * * *
* * * * * *
Pharmaceuticals and supplies: * * * * * *
Medical Supplies * * * * * *
COS - Glasses * * * * * *
COS - Contacts * * * * * *
COS - adjustments * * * * * *
Laboratory fees * * * * * *
Discount & allowances * * * * * *
Optical - Other * * * * * *
Total Pharmac. & Supplies * * * * * *
Optical * * * * * *
G & A expenses: * * * * * *
</TABLE>
<TABLE>
<CAPTION>
Description Jul Aug Sep Oct Nov Dec Total 1998 %
- ------------------------------------- ---------------------------------------------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Optical * * * * * * * * * * *
Revenue * * * * * * * * * * *
- -------
Practice revenue * * * * * * * * * * *
ASC facility revenue * * * * * * * * * * *
Optical revenue * * * * * * * * * * *
Optometric revenue * * * * * * * * * * *
Alliance revenue * * * * * * * * * * *
Research & Consulting * * * * * * * * * * *
Other revenue * * * * * * * * * * *
* * * * * * * * * * *
Laboratory revenue * * * * * * * * * * *
* * * * * * * * * * *
Dispensary Business Budgeted Revenue * * * * * * * * * * *
* * * * * * * * * * *
Expenses * * * * * * * * * * *
- -------- * * * * * * * * * * *
Salaries and Wages: * * * * * * * * * * *
Center Staff Salaries: * * * * * * * * * * *
---------------------
Administration * * * * * * * * * * *
Technician/Nurses * * * * * * * * * * *
PSR/Front Desk * * * * * * * * * * *
Other salaries * * * * * * * * * * *
Overtime pay * * * * * * * * * * *
* * * * * * * * * * *
Payroll Taxes & Benefits * * * * * * * * * * *
------------------------
Vacation & leave pay * * * * * * * * * * *
Bonuses * * * * * * * * * * *
Incentive compensation * * * * * * * * * * *
FICA Tax * * * * * * * * * * *
SUI * * * * * * * * * * *
FUI * * * * * * * * * * *
Other payroll taxes * * * * * * * * * * *
Labor allocation * * * * * * * * * * *
401k Match * * * * * * * * * * *
Life & Disability ins. * * * * * * * * * * *
Employee Health ins. * * * * * * * * * * *
* * * * * * * * * * *
Benefits % * * * * * * * * * * *
Total Salaries & Wages * * * * * * * * * * *
* * * * * * * * * * *
MD/OD Compensation * * * * * * * * * * *
* * * * * * * * * * *
* * * * * * * * * * *
Pharmaceuticals and supplies: * * * * * * * * * * *
Medical supplies * * * * * * * * * * *
COS - Glasses * * * * * * * * * * *
COS - Contacts * * * * * * * * * * *
COS - adjustments * * * * * * * * * * *
Laboratory fees * * * * * * * * * * *
Discounts & allowances * * * * * * * * * * *
Optical - Other * * * * * * * * * * *
Total Pharmac. & Supplies * * * * * * * * * * *
Optical * * * * * * * * * * *
G & A expenses: * * * * * * * * * * *
</TABLE>
* Confidential portions omitted and filed separately with the commission.
12
<PAGE>
The Eye Center
- --------------------------------------------------------------------------------
1999 MSA Budget
<TABLE>
<CAPTION>
Description Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
- ---------------------------------- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Office & Administrative: * * * * * * * * * * * *
Office Supplies * * * * * * * * * * * *
Office supplies * * * * * * * * * * * *
Software/computer expense * * * * * * * * * * * *
Food service * * * * * * * * * * * *
Bank charges * * * * * * * * * * * *
Credit card fees * * * * * * * * * * * *
* * * * * * * * * * * *
Postage & freight * * * * * * * * * * * *
Employee & patient programs * * * * * * * * * * * *
Continuing education * * * * * * * * * * * *
Dues and subscriptions * * * * * * * * * * * *
Telephone * * * * * * * * * * * *
Utilities * * * * * * * * * * * *
Printing * * * * * * * * * * * *
Misc. office expense * * * * * * * * * * * *
Total Office & Admin. Expenses * * * * * * * * * * * *
* * * * * * * * * * * *
* * * * * * * * * * * *
Marketing: * * * * * * * * * * * *
Advertising * * * * * * * * * * * *
Marketing - Other * * * * * * * * * * * *
Total Marketing * * * * * * * * * * * *
* * * * * * * * * * * *
* * * * * * * * * * * *
Professional and Service Fees: * * * * * * * * * * * *
Legal * * * * * * * * * * * *
Accounting * * * * * * * * * * * *
Other prof. consulting * * * * * * * * * * * *
Collection fees * * * * * * * * * * * *
Answering service * * * * * * * * * * * *
Linens & uniforms * * * * * * * * * * * *
Other services * * * * * * * * * * * *
Temporary services * * * * * * * * * * * *
Total Professional Fees * * * * * * * * * * * *
* * * * * * * * * * * *
* * * * * * * * * * * *
Rental Expense: * * * * * * * * * * * *
Building rent * * * * * * * * * * * *
Other office rent & parking * * * * * * * * * * * *
Equipment leases * * * * * * * * * * * *
Optical equipment rent * * * * * * * * * * * *
Total Rent Expense * * * * * * * * * * * *
* * * * * * * * * * * *
* * * * * * * * * * * *
Repairs & Maintenance: * * * * * * * * * * * *
Building maintenance * * * * * * * * * * * *
Repairs - equipment * * * * * * * * * * * *
Non-capitalized tools * * * * * * * * * * * *
Total Repairs & Maint. * * * * * * * * * * * *
Optical * * * * * * * * * * * *
* * * * * * * * * * * *
Taxes and Insurance: * * * * * * * * * * * *
Malpractice * * * * * * * * * * * *
Liability & casualty * * * * * * * * * * * *
Workers' compensation ins. * * * * * * * * * * * *
</TABLE>
<TABLE>
<CAPTION>
Description Total 1998 %
- ---------------------------------- ---------------
<S> <C> <C>
Office & Administrative: * * * * *
Office Supplies * * * * *
Office supplies * * * * *
Software/computer expense * * * * *
Food service * * * * *
Bank charges * * * * *
Credit card fees * * * * *
* * * * *
Postage & freight * * * * *
Employee & patient programs * * * * *
Continuing education * * * * *
Dues and subscriptions * * * * *
Telephone * * * * *
Utilities * * * * *
Printing * * * * *
Misc. office expense * * * * *
Total Office & Admin. Expenses * * * * *
* * * * *
* * * * *
Marketing: * * * * *
Advertising * * * * *
Marketing - Other * * * * *
Total Marketing * * * * *
* * * * *
Professional and Service Fees: * * * * *
Legal * * * * *
Accounting * * * * *
Other prof. consulting * * * * *
Collection fees * * * * *
Answering service * * * * *
Linens & uniforms * * * * *
Other services * * * * *
Temporary services * * * * *
Total Professional Fees * * * * *
* * * * *
Rental Expense: * * * * *
Building rent * * * * *
Other office rent & parking * * * * *
Equipment leases * * * * *
Optical equipment rent * * * * *
Total Rent Expense * * * * *
* * * * *
* * * * *
Repairs & Maintenance: * * * * *
Building maintenance * * * * *
Repairs - equipment * * * * *
Non-capitalized tools * * * * *
Total Repairs & Maint. * * * * *
* * * * *
Optical * * * * *
* * * * *
Taxes and Insurance: * * * * *
Malpractice * * * * *
Liability & casualty * * * * *
Workers' compensation ins. * * * * *
</TABLE>
*Confidential portions omitted and filed separately with the commission.
13
<PAGE>
<TABLE>
<CAPTION>
The Eye Center
- ------------------------------------------------------------------------------------------------------------
1999 MSA Budget
Description Jan Feb Mar Apr May Jun Jul Aug Sep
- ---------------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
D&O * * * * * * * * *
Key Man Life * * * * * * * * *
Other insurance * * * * * * * * *
Property tax * * * * * * * * *
Sales & Use tax * * * * * * * * *
Property tax * * * * * * * * *
Other taxes * * * * * * * * *
Total Taxes & Ins. * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Other Expenses: * * * * * * * * *
Travel & entertainment * * * * * * * * *
Recruitment & relocation * * * * * * * * *
Auto & Van * * * * * * * * *
Contracted patient transport. * * * * * * * * *
Donations and gifts * * * * * * * * *
Allocated IT/Computing costs * * * * * * * * *
Other * * * * * * * * *
Total Other Expense * * * * * * * * *
* * * * * * * * *
Total G&A expenses * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Depreciation & Amortization: * * * * * * * * *
Building depreciation * * * * * * * * *
Equipment depreciation * * * * * * * * *
Goodwill amortization * * * * * * * * *
Other intangible amortization * * * * * * * * *
Amortization of deferred charges * * * * * * * * *
* * * * * * * * *
Total Depr. and Amortization * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Interest (income) and expense: * * * * * * * * *
Depository Interest * * * * * * * * *
Investment Income * * * * * * * * *
Bank Line Interest Expense * * * * * * * * *
Cap. Lease Interest Expense * * * * * * * * *
Other Interest Expense * * * * * * * * *
* * * * * * * * *
Total Interest (income)/expense * * * * * * * * *
* * * * * * * * *
Dispensary Business Budgeted * * * * * * * * *
Office Expense * * * * * * * * *
Optical * * * * * * * * *
* * * * * * * * *
Dispensary Business Budgeted * * * * * * * * *
Practice Expense * * * * * * * * *
* * * * * * * * *
Dispensary Business Monthly Fee * * * * * * * * *
</TABLE>
<TABLE>
Description Oct Nov Dec
- ---------------------------------- ---------------------
<S> <C> <C> <C>
D&O * * *
Key Man Life * * *
Other insurance * * *
Property tax * * *
Sales & Use tax * * *
Property tax * * *
Other taxes * * *
Total Taxes & Ins. * * *
* * *
* * *
Other Expenses: * * *
Travel & entertainment * * *
Recruitment & relocation * * *
Auto & Van * * *
Contracted patient transport. * * *
Donations and gifts * * *
Allocated IT/Computing costs * * *
Other * * *
Total Other Expense * * *
* * *
Total G&A expenses * * *
* * *
* * *
Depreciation & Amortization: * * *
Building depreciation * * *
Equipment depreciation * * *
Goodwill amortization * * *
Other intangible amortization * * *
Amortization of deferred charges * * *
* * *
Total Depr. and Amortization * * *
* * *
* * *
Interest (income) and expense: * * *
Depository Interest * * *
Investment Income * * *
Bank Line Interest Expense * * *
Cap. Lease Interest Expense * * *
Other Interest Expense * * *
* * *
Total Interest (income)/expense * * *
* * *
Dispensary Business Budgeted * * *
Office Expense * * *
Optical * * *
* * *
Dispensary Business Budgeted * * *
Practice Expense * * *
* * *
Dispensary Business Monthly Fee * * *
</TABLE>
<TABLE>
<CAPTION>
Description Total 1998 %
- ---------------------------------- ---------------
<S> <C> <C>
D&O * * * * *
Key Man Life * * * * *
Other insurance * * * * *
Property tax * * * * *
Sales & Use tax * * * * *
Property tax * * * * *
Other taxes * * * * *
Total Taxes & Ins. * * * * *
* * * * *
* * * * *
Other Expenses: * * * * *
Travel & entertainment * * * * *
Recruitment & relocation * * * * *
Auto & Van * * * * *
Contracted patient transport. * * * * *
Donations and gifts * * * * *
Allocated IT/Computing costs * * * * *
Other * * * * *
Total Other Expense * * * * *
* * * * *
Total G&A expenses * * * * *
* * * * *
* * * * *
Depreciation & Amortization: * * * * *
Building depreciation * * * * *
Equipment depreciation * * * * *
Goodwill amortization * * * * *
Other intangible amortization * * * * *
Amortization of deferred charges * * * * *
* * * * *
Total Depr. and Amortization * * * * *
* * * * *
* * * * *
Interest (income) and expense: * * * * *
Depository Interest * * * * *
Investment Income * * * * *
Bank Line Interest Expense * * * * *
Cap. Lease Interest Expense * * * * *
Other Interest Expense * * * * *
* * * * *
Total Interest (income)/expense * * * * *
* * * * *
Dispensary Business Budgeted * * * *
Office Expense * * * *
Optical * * * * *
* * * * *
Dispensary Business Budgeted * * * * *
Practice Expense * * * * *
* * * * *
Dispensary Business Monthly Fee * * * * *
</TABLE>
*Confidential portions omitted and filed separately with the commission.
18
<PAGE>
EXHIBIT 1.30(g)
EQUIPMENT
None.
<PAGE>
EXHIBIT 1.42
PREEXISTING OBLIGATION PAYMENTS
In connection with the Alcon Financing Agreement No. 21074J (or
Contract No. 8686M002) dated December 13, 1993 between Alcon Surgical,
a division of Alcon Laboratories, Inc., and Cataract Surgery Center of
St. Louis, Inc., an affiliate of Practice, any procedural financing
costs relating to the purchase of IOLs, ophthalmic custom packs or any
other items pursuant to such financing arrangement will be the
responsibility of Practice and/or the Physician-Shareholders.
<PAGE>
EXHIBIT 3.1
MEMBERS OF INITIAL POLICY BOARD
BUSINESS MANAGER DESIGNEES
E. Michele Vickery
T. Trent Roark
REGIONAL PRACTICE DESIGNEES
John P. Goltschman, M.D.
Edward A. Doisy, III, M.D.
<PAGE>
EXHIBIT 4.8
POWER OF ATTORNEY
See attached.
<PAGE>
EXHIBIT 5.1
FORM OF EMPLOYMENT AGREEMENT (SHAREHOLDERS)
See attached.
<PAGE>
EXHIBIT 5.1A
LIST OF INITIAL PHYSICIAN-SHAREHOLDERS
John P. Goltschman, M.D.
Marvin I. Koenig, M.D.
<PAGE>
EXHIBIT 5.1B
FORM OF BUY-SELL AGREEMENT
The Buy-Sell Agreement referenced in Section 5.1(b) will address the
following concepts to the satisfaction of Business Manager and its counsel:
Applicable state statutes generally require that the shares of a
professional corporation held by a physician-shareholder be transferred
to a person qualified to render professional medical services if (i) such
shareholder dies, (ii) such shareholder becomes a disqualified person, or
(iii) the shares of a professional corporation are transferred by
operation of law or court decree to a disqualified person. Illinois law
requires that the articles of incorporation, by-laws or a separate
agreement provide for the purchase or redemption of the shares of any
shareholder upon death or disqualification. Accordingly, the Buy-Sell
Agreement must contain a provision providing for (i) redemption, (ii)
cross-purchase, or (iii) a combination thereof, in the case of a
shareholder's death or disqualification. In addition, the transfer of
shares to disqualified persons must be specifically prohibited.
A provision must also be included which governs succession in the case of
death or disqualification of the last remaining shareholder of the
professional corporation. Business Manager and Practice will work
together to structure an arrangement mutually acceptable to both parties.
Specifically, the Buy-Sell Agreement will incorporate the provisions set
forth on Schedule 1 attached to this Exhibit 5.1B.
---------- ------------
<PAGE>
SCHEDULE 1
TO
EXHIBIT 5.1B
Definitions.
- -----------
"Act" means the [applicable state Medical Corporation Act or Professional
Corporation Act].
"NovaMed" means NovaMed Eyecare Management, LLC, a Delaware limited
liability company.
"NovaMed Agreement" means that certain ___________ Agreement dated as of
_________ __, 199_, by and among the Corporation, the Shareholders and NovaMed.
["Partnership" means the limited partnership formed pursuant to that
certain Limited Partnership Agreement by and between __________ and __________,
dated ______________.] [If applicable]
"Selling Shareholder" means a Shareholder affected by a Triggering Event
other than a Final Triggering Event.
"Shares" means the shares of common stock of the Corporation, and any
shares of any other class of stock, presently authorized and issued or which the
Corporation may hereafter authorize and issue, including subscription and other
purchase rights relative to any such shares of stock and all securities and
obligations convertible into such shares of stock, in each case whether now or
hereafter issued.
"Transfer" means any sale, gift, bequest, distribution, disposition,
assignment, pledge or any other voluntary or involuntary transfer, disposition
or encumbrance, including any disposition by operation of law.
"Triggering Event" means any of the following events:
(a) the death of a Shareholder;
(b) the disability of a Shareholder (which is defined as a Shareholder's
inability to engage in the practice of medicine for ninety (90) days
within any period of one hundred eighty (180) consecutive days);
(c) the disqualification of a Shareholder from the practice of medicine;
(d) the termination of a Shareholder's employment or active involvement
with the Corporation for any reason; or
<PAGE>
(e) the voluntary or involuntary transfer, transfer by operation of law
(including without limitation a transfer in connection with a divorce
or bankruptcy), or any other transfer or attempted transfer of Shares
or any right or interest therein in violation of this Agreement.
Restriction On Transfer.
-----------------------
Each Shareholder agrees not to make any Transfer of Shares that he or she
now owns or may hereafter own, outright or beneficially, except in accordance
with and as expressly permitted in this Agreement. Except as expressly
permitted in this Agreement, no Transfer of Shares may be made by any
Shareholder without the prior written consent of the remaining Shareholders, and
no such Transfer shall be effective unless and until the Transferee agrees in
writing to be subject to and bound by all of the terms, conditions and
restrictions of this Agreement and the NovaMed Agreement by signing a
counterpart hereof and thereof. Any Transfer of Shares not in strict compliance
with this Agreement shall be null and void ab initio.
-- ------
Additional Shareholders.
-----------------------
The parties hereto acknowledge and agree that from time to time other
physicians may acquire Shares in the Corporation. Notwithstanding the
foregoing, the Corporation shall not issue any Shares to another person unless
such person agrees in writing to be subject to and bound by all of the terms,
conditions and restrictions of this Agreement and the NovaMed Agreement by
signing a counterpart hereof and thereof.
Licensing Requirement.
---------------------
Under no circumstances shall any Transfer or issuance of Shares of the
Corporation to an additional shareholder be valid unless the proposed new or
additional shareholder is a licensed physician in good standing under the laws
of the State of Missouri, except as otherwise permitted under the Act.
Final Triggering Event.
----------------------
(a) Application. Upon the occurrence of a Triggering Event affecting all
-----------
Shareholders simultaneously or affecting the last remaining Shareholder(s)
(each, a "Final Triggering Event"), the following provisions shall apply and
shall supersede any other provision contained in this Agreement relating to
cross-purchases or redemptions of a Selling Shareholder's Shares.
(b) Repurchase of Shares. Promptly upon the occurrence of a Final
--------------------
Triggering Event, but in any event not later than within three (3) days, the
Shareholder(s) to whom such Final Triggering Event relates and any Selling
Shareholder with respect to whom this Section __ supersedes the application of
any other provision of this Agreement pursuant to subsection (a)
<PAGE>
above, and/or such Shareholders' estates, transferees or other representatives
(all such Shareholders or such Shareholders' estates, transferees or other
representatives, as the case may be, hereinafter referred to as "Terminating
Shareholders") shall notify NovaMed's Medical Director of the occurrence of such
Final Triggering Event, and NovaMed's Medical Director shall have the right to
purchase Shares in accordance with subsection (c) below or to designate a New
Shareholder in accordance with the provisions of the NovaMed Agreement. Upon
such designation, the Terminating Shareholders shall (i) sell to the
Corporation, and the Corporation shall purchase from each such Terminating
Shareholder, ninety-nine percent (99%) of all Shares then held by each such
Terminating Shareholder, and (ii) sell to NovaMed's Medical Director or the New
Shareholder (as defined in the NovaMed Agreement), as the case may be, and
NovaMed's Medical Director or such New Shareholder, as the case may be, shall
purchase from each such Terminating Shareholder, the remainder of the Shares
then held by each such Terminating Shareholder, in accordance with the
provisions of this Section __.
(c) Purchase Price. The purchase price to be paid for each Terminating
--------------
Shareholder's Shares (the "Purchase Price") shall be as follows:
(i) The Purchase Price for the Shares to be purchased by the Corporation
shall consist of each Terminating Shareholder's pro rata share of the
[Partnership] interests held by the Corporation.
(ii) The Purchase Price for the Shares to be purchased by NovaMed's Medical
Director or the New Shareholder, as the case may be, shall be an
amount equal to ______________________________________.
(d) Closing. The closing of any purchase and sale pursuant to this Section
-------
__ (the "Closing") shall take place within [thirty (30)] days after the Final
Triggering Event at the principal office of the Corporation or at such other
place as the parties to such purchase and sale may mutually agree. At the
Closing, each Terminating Shareholder shall deliver certificates for the Shares
to be purchased, duly endorsed in blank, and such Shares shall be conveyed (i)
to the Corporation effective as of the close of business of the day of the Final
Triggering Event, and (ii) to NovaMed's Medical Director or the New Shareholder,
as the case may be, effective as of the opening of business on the day after the
Final Triggering Event, in each case free and clear of all claims, liens,
encumbrances and other rights of third parties, and the Corporation and
NovaMed's Medical Director or the New Shareholder, as the case may be, shall
deliver the Purchase Price in the form of instruments of transfer, in form and
substance satisfactory to the Terminating Shareholders, assigning and
transferring to the Terminating Shareholders, effective as of the date of the
Final Triggering Event, each Terminating Shareholder's share of the
[Partnership] interests and all of the Corporation's right, title and interest
therein, free and clear of all claims, liens, encumbrances and other rights of
third parties, or in immediately available funds, as applicable.
(e) Taxable Year. The Corporation's taxable year shall be closed as of
------------
the close of business of the day of the Final Triggering Event.
<PAGE>
(f) Violation of Law. In the event that the consummation of the
----------------
purchase and sale of Shares as contemplated under this Section __ violates
applicable law, the Terminating Shareholders and NovaMed's Medical Director
shall in good faith negotiate and consummate an alternative transaction
structure, including without limitation, the purchase of the Corporation's
assets and assumption of the Corporation's liabilities by NovaMed's Medical
Director or his designee, which will allow (i) the continuation of the
Corporation's business by the Corporation or a successor entity, (ii) the
continued performance by the Corporation or a successor entity and NovaMed of
their respective obligations under that certain Management Services Agreement by
and between NovaMed and the Corporation, dated as of _______ __, 199_, and (iii)
the transfer of the [Partnership] interests held by the Corporation to the
Terminating Shareholders.
(g) NovaMed's Failure to Designate New Shareholder. In the event that
----------------------------------------------
NovaMed's Medical Director fails to elect to purchase Shares or to designate a
New Shareholder as required pursuant to the NovaMed Agreement, the provisions of
this Section __ shall not be binding on the Corporation or the Terminating
Shareholders.
Legend on Certificates.
----------------------
The certificates representing all Shares now or hereafter owned by the
Shareholders shall be subject to the terms of this Agreement, and shall bear the
following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
SHAREHOLDERS' AGREEMENT, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THE CORPORATION. THE SHARES MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED, OR OTHERWISE
DISPOSED OF EXCEPT IN STRICT ACCORDANCE WITH THE TERMS OF THE
SHAREHOLDERS' AGREEMENT. BY ACCEPTING THE SHARES OF STOCK
EVIDENCED BY THIS CERTIFICATE, THE HOLDER AGREES TO BE BOUND BY
THE SHAREHOLDERS' AGREEMENT.
Termination.
-----------
This Agreement and all restrictions on the transfer of Shares created
hereby shall terminate upon the bankruptcy or receivership of the Corporation or
the execution by all parties hereto of a written instrument terminating this
Agreement. Termination of this Agreement for any reason shall not affect any
right or remedy existing hereunder prior to the effective date of termination.
Binding Effect. This Agreement is binding upon, and shall inure to the
--------------
benefit of, the Corporation, its successors, and assigns and to the Shareholders
and their respective heirs, personal representatives, successors, and assigns.
<PAGE>
SCHEDULE 5.2A
Practice shall not be required to enter into a written employment agreement
in the form of Exhibit 5.2A with Bradley J. Stuckenschneider, M.D.
------------
<PAGE>
EXHIBIT 5.2A
FORM OF EMPLOYMENT AGREEMENT (NONSHAREHOLDERS)
<PAGE>
EXHIBIT 6.1
EQUIPMENT LEASE
See attached.
<PAGE>
EXHIBIT 10.12
MANAGEMENT SERVICES AGREEMENT
BY AND BETWEEN
NOVAMED EYECARE MANAGEMENT, LLC,
a Delaware limited liability company
AND
HUNKELER EYE CENTERS-CHICAGO, L.L.C.,
a Delaware limited liability company
EFFECTIVE JULY 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C>
ARTICLE 1 DEFINITIONS........................................................... 2
1.1 Adjustments.......................................................... 2
1.2 Affiliate............................................................ 3
1.3 Ancillary Revenue.................................................... 3
1.4 Budget............................................................... 3
1.5 Business Manager..................................................... 3
1.6 Business Manager Consent............................................. 3
1.7 Business Manager Expense............................................. 3
1.8 Capitation/Case Rate Revenues........................................ 4
1.9 Confidential Information............................................. 4
1.10 Depository Account................................................... 5
1.11 Designated Allied Health Professionals............................... 5
1.12 Dispensary Business.................................................. 5
1.13 GAAP................................................................. 5
1.14 Managed Care Contract................................................ 5
1.15 Management Fee....................................................... 5
1.16 Management Services.................................................. 5
1.17 Management Services Agreement........................................ 6
1.18 Medical Advisory Board............................................... 6
1.19 Medical Services..................................................... 6
1.20 Monthly Office Expense............................................... 6
1.21 Monthly Practice Expense............................................. 6
1.22 Non-Ophthalmic Business.............................................. 6
1.23 Non-Ophthalmic Business Budgeted Office Expense...................... 6
1.24 Non-Ophthalmic Business Budgeted Practice Expense.................... 6
1.25 Non-Ophthalmic Business Budgeted Revenue............................. 6
1.26 Non-Ophthalmic Business Management Fee............................... 6
1.27 Non-Ophthalmic Business Monthly Fee.................................. 6
1.28 Non-Ophthalmic Business Monthly Office Expense....................... 6
1.29 Non-Ophthalmic Business Monthly Practice Expense..................... 7
1.30 Non-Ophthalmic Business Office Expense............................... 7
1.31 Non-Ophthalmic Business Revenue...................................... 7
1.32 Office or Offices.................................................... 7
1.33 Office Expense....................................................... 7
1.34 Optometric Business.................................................. 9
1.35 Optometrist.......................................................... 9
1.36 Physician............................................................ 10
1.37 Physician Discretionary Expenses..................................... 10
1.38 Physician-Employee................................................... 10
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page No.
<S> <C>
1.39 Policy Board......................................................... 10
1.40 Practice............................................................. 10
1.41 Practice Consent..................................................... 10
1.42 Practice Expense..................................................... 10
1.43 Practice-Owner....................................................... 11
1.44 Predecessor Management Services Agreements........................... 11
1.45 Preexisting Obligation Payments...................................... 11
1.46 Principal Services................................................... 11
1.47 Principal Services Budgeted Office Expense........................... 11
1.48 Principal Services Budgeted Practice Expense......................... 11
1.49 Principal Services Budgeted Revenue.................................. 11
1.50 Principal Services Management Fee.................................... 11
1.51 Principal Services Monthly Fee....................................... 11
1.52 Principal Services Monthly Office Expense............................ 11
1.53 Principal Services Monthly Practice Expense.......................... 12
1.54 Principal Services Office Expense.................................... 12
1.55 Principal Services Revenue........................................... 12
1.56 Professional Services Revenues....................................... 12
1.57 Purchase Agreements.................................................. 12
1.58 Representatives...................................................... 12
1.59 Services Agreements.................................................. 12
1.60 Stark Act............................................................ 12
1.61 Subcontractor Costs.................................................. 12
1.62 Term................................................................. 12
ARTICLE 2 APPOINTMENT AND AUTHORITY OF BUSINESS MANAGER......................... 13
2.1 Appointment.......................................................... 13
2.2 Authority............................................................ 13
2.3 Patient Referrals.................................................... 13
2.4 Internal Practice Matters............................................ 14
2.5 Practice of Medicine or Optometry.................................... 14
ARTICLE 3 RESPONSIBILITIES OF THE POLICY BOARD.................................. 14
3.1 Formation and Operation of the Policy Board........................... 14
3.2 Duties and Responsibilities of the Policy Board....................... 15
3.3 Medical Decisions..................................................... 17
ARTICLE 4 COVENANTS AND RESPONSIBILITIES OF BUSINESS MANAGER.................... 17
4.1 Offices and Equipment................................................. 17
4.2 Medical Supplies...................................................... 18
4.3 Support Services...................................................... 18
4.4 Quality Assurance, Risk Management, and Utilization Review............ 18
4.5 Licenses and Permits.................................................. 19
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page No.
<S> <C>
4.6 Personnel............................................................ 19
4.7 Contract Negotiations................................................ 19
4.8 Billing and Collection............................................... 20
4.9 Priority of Payments................................................. 24
4.10 Fiscal Matters....................................................... 25
4.11 Reports and Records.................................................. 27
4.12 Recruitment of Physicians and Optometrists........................... 27
4.13 Confidential and Proprietary Information............................. 27
4.14 Insurance............................................................ 28
4.15 No Warranty.......................................................... 30
ARTICLE 5 COVENANTS AND RESPONSIBILITY OF PRACTICE.............................. 31
5.1 Organization and Operation........................................... 31
5.2 Practice Personnel................................................... 32
5.3 Professional Standards............................................... 33
5.4 Medical Services..................................................... 34
5.5 Peer Review/Quality Assurance........................................ 34
5.6 Confidential and Proprietary Information............................. 34
5.7 Noncompetition....................................................... 35
5.8 Name, Trademark...................................................... 36
5.9 Medical Advisory Board............................................... 37
5.10 Indemnification of Business Manager.................................. 37
5.11 Indemnification of Practice.......................................... 38
ARTICLE 6 FINANCIAL ARRANGEMENT................................................. 38
6.1 Definitions.......................................................... 38
6.2 Management Fee....................................................... 41
6.3 Reasonable Value..................................................... 41
6.4 Payment of Management Fee............................................ 41
6.5 Accounts Receivable.................................................. 41
6.6 Disputes Regarding Fees.............................................. 42
ARTICLE 7 MEDIATION AND ARBITRATION............................................. 43
ARTICLE 8 TERM AND TERMINATION.................................................. 43
8.1 Initial and Renewal Term............................................. 43
8.2 Termination.......................................................... 44
8.3 Effects of Termination............................................... 46
8.4 Repurchase Obligation................................................ 46
8.5 Repurchase Option.................................................... 48
8.6 Closing of Repurchase................................................ 49
8.7 Rights and Remedies.................................................. 49
8.8 Interpretation....................................................... 49
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page No.
<S> <C>
ARTICLE 9 MISCELLANEOUS......................................................... 50
9.1 Administrative Services Only......................................... 50
9.2 Status of Contractor................................................. 50
9.3 Notices.............................................................. 50
9.4 Governing Law and Consent to Jurisdiction............................ 51
9.5 Assignment........................................................... 52
9.6 Waiver of Breach..................................................... 52
9.7 Enforcement.......................................................... 52
9.8 Gender and Number.................................................... 53
9.9 Additional Assurances................................................ 53
9.10 Consents, Approvals, and Exercise of Discretion...................... 53
9.11 Force Majeure........................................................ 53
9.12 Severability......................................................... 53
9.13 Divisions and Headings............................................... 54
9.14 Amendments and Management Services Agreement Execution............... 54
9.15 Entire Management Services Agreement................................. 54
</TABLE>
<PAGE>
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT is made and entered into effective as of
July 1, 1999 (the "Effective Date"), by and between NovaMed Eyecare Management,
LLC, a Delaware limited liability company ("Business Manager"), and Hunkeler Eye
Centers-Chicago, L.L.C., a Delaware limited liability company ("Practice"), and
replaces and supercedes, in their entirety, the Predecessor Management Services
Agreements (as hereinafter defined).
RECITALS
This Management Services Agreement is made with reference to the following
facts:
A. Business Manager is a validly existing Delaware limited liability
company which is in the business of providing physician practice management
services to medical practices.
B. Since January 1, 1996, Business Manager has provided physician
practice management services pursuant to Predecessor Management Services
Agreements with several practices in the Chicago, Illinois metropolitan area and
Northwest Indiana, including Brodersen-Williams Eye Institute, P.C., Deschamps
Eye Center, P.C., Walter I. Fried, Ph.D., M.D., S.C., Kirk Eye Center, S.C.,
Northshore Eye Associates, Ltd., and Northwest Ophthalmology Associates, S.C.
(the "Original Practices").
C. The Original Practices and S. Kirk, S.C., Kathleen M. Scarpulla, M.D.,
S.C., Lawrence D. Wolin, M.D., S.C., and Ann K. Williams, M.D. (collectively,
the "Regional Practices") desire to consolidate into a single group practice in
order to facilitate, among other things: (i) a focus on growth in refractive
eye surgery; (ii) more effective marketing; (iii) more efficient leveraging of
the existing infrastructure; (iv) enhanced recruiting and hiring of physicians
and other personnel; (v) further integration of subspecialists; (vi)
opportunities for intra-market acquisitions; (vii) joint managed care
contracting efforts; and (viii) such other objectives as may be determined by
the parties.
D. The Regional Practices formed the Practice, of which they are initial
owners, as the consolidated entity through which they will satisfy the
aforementioned objectives.
E. Practice is a validly existing Delaware limited liability company,
formed for and engaged in all lawful businesses for which limited liability
companies may be organized under the Limited Liability Company Act of the State
of Delaware, Del. Code tit. 6, (S) 18-101 et seq., as amended from time to time,
including, without limitation, the practice of medicine outside of the State of
Delaware; provided that the Practice shall not engage in any business from which
--------
a licensed professional corporation would be prohibited under the laws of
Illinois, Indiana, or any other state under whose professional regulations the
Practice may at any time become subject. Specifically, the Practice's initial
purpose is to render professional medical services in the fields of
ophthalmology and optometry and to provide related and ancillary services and
products.
<PAGE>
F. In addition to providing medical services, Practice conducts an
Optometric Business (as hereinafter defined) and a Dispensary Business (as
hereinafter defined) (hereinafter collectively defined as the "Non-Ophthalmic
Business").
G. Practice desires to focus its energies, expertise and time on the
practice of medicine and on the delivery of medical services to patients, and
desires to delegate the business functions of its medical practice and Non-
Ophthalmic Business to persons with business expertise.
H. Practice desires to engage Business Manager to provide all management,
administrative and business services as are necessary or appropriate for the
day-to-day administration of the nonmedical aspects of Practice's medical
practice and Non-Ophthalmic Business, including the provision of all non-medical
assets necessary or appropriate for the operation of Practice's medical practice
and Non-Ophthalmic Business, and Business Manager desires to provide such
services upon the terms and conditions hereinafter set forth.
I. Practice and Business Manager have determined a fair market value for
the services to be rendered by Business Manager and, based on this fair market
value, have developed a formula for compensating Business Manager that will
allow the parties to establish a relationship permitting each party to devote
its skills and expertise to the appropriate responsibilities and functions.
J. Business Manager is willing to commit significant resources to
Practice based upon the representation and warranty of Practice that the current
owners of Practice intend to continue to practice medicine for Practice in the
Chicago, Illinois metropolitan and northwest Indiana areas for a substantial
period during the term of this Management Services Agreement pursuant to
employment agreements (the "Employment Agreements") or Services Agreements (the
"Services Agreements") between Practice and each Practice-Owner (as hereinafter
defined).
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions contained herein, the parties agree as follows:
ARTICLE 1
DEFINITIONS
When used in this Management Services Agreement, the following terms shall
have the meanings set forth below.
1.1 Adjustments. The term "Adjustments" shall mean any adjustments on an
-----------
accrual basis in accordance with GAAP for uncollectible accounts, Medicare,
Medicaid and other payor contractual adjustments, discounts, worker's
compensation adjustments, professional courtesies and other reductions in
collectible revenue. On a continual basis, Business Manager and Practice agree
that Principal Services Revenue and Non-Ophthalmic Business Revenue will be
adjusted to cause amounts from such revenues to be stated at their net
realizable value in accordance with GAAP.
2
<PAGE>
1.2 Affiliate. The term "Affiliate" shall mean any person, firm or entity
---------
which directly or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with, any other person (including
members of such person's family), firm or entity.
1.3 Ancillary Revenue. The term "Ancillary Revenue" shall mean all other
-----------------
revenue of Practice, Physicians and Optometrists actually recorded each month
(net of Adjustments) which is not Professional Services Revenue or Non-
Ophthalmic Business Revenue and shall include, without limitation, any revenues
of Practice or its Physicians and Optometrists which are derived from
professionally related activities such as expert witness fees, and any
royalties, honoraria or the like from authored documents or speeches.
1.4 Budget. The term "Budget" shall mean an operating budget and capital
------
expenditure budget for each fiscal year for each of the Non-Ophthalmic Business
and the Principal Services, as prepared by Business Manager and adopted by
Practice in accordance with Section 4.10 hereof. The initial Budget shall be
attached hereto and incorporated herein as Exhibit 1.4. Each succeeding Budget
-----------
subsequently adopted pursuant to Section 4.10 hereof shall also be incorporated
herein.
1.5 Business Manager. The term "Business Manager" shall mean NovaMed
----------------
Eyecare Management, LLC, a Delaware limited liability company, or any permitted
successor or assign under Section 8.5 hereof.
1.6 Business Manager Consent. The term "Business Manager Consent" shall
------------------------
mean the consent granted by any of Business Manager's representatives to the
Policy Board. When any provision of this Management Services Agreement requires
Business Manager Consent, such consent shall not be unreasonably withheld or
delayed and shall be binding on Business Manager.
1.7 Business Manager Expense. The term "Business Manager Expense" shall
------------------------
mean any expense or cost incurred by Business Manager which does not relate
directly to the provision of services to Practice or Practice-Owners. Such
expenses or costs shall include, without limitation:
(a) all salaries, benefits and other direct costs (including payroll
and other withholding taxes) of executive officers and management personnel of
Business Manager or employees of Business Manager who devote substantially all
of their time and effort to the operations of Business Manager in the aggregate
rather than the operations of Practice;
(b) the expense of using, leasing, maintaining or repairing the
corporate offices of Business Manager;
(c) the cost of capital to finance the general business obligations of
Business Manager, or acquisition of assets not used in the operation or
management of Practice, and any costs associated with raising such capital; and
3
<PAGE>
(d) the costs of any consultants or advisors who provide services for
Business Manager in connection with its business operations, such as accounting,
financial and legal services, other than those services which constitute an
Office Expense pursuant to Section 1.33 hereof. Except as otherwise expressly
provided in this Agreement, no Business Manager Expense shall be allocated to or
against Practice pursuant to Article 2 or otherwise without Practice Consent.
1.8 Capitation/Case Rate Revenues. The term "Capitation/Case Rate
-----------------------------
Revenues" shall mean all revenues from managed care organizations, third party
payors or employers in which payments are based on a per member, case rate or
other similar basis (i.e., all payments which are not based on a fee-for-service
payment methodology or discounted fee-for-service reimbursement methodology) for
the medical needs of a subscribing patient. Capitation/Case Rate revenues shall
include any associated plan payments received such as patient co-payments,
incentive bonuses or incentive fund penalties. Subject to the review and
approval of the Policy Board, all Capitation/Case Rate Revenues shall be
allocated in good faith on an actuarial basis as follows:
(a) "Non-Ophthalmic Business Capitation" shall be the portion, if any,
of payments designated for Non-Ophthalmic Business goods sold or services
provided by Practice. Non-Ophthalmic Business Capitation shall be Non-
Ophthalmic Business Revenue;
(b) "Professional Services Capitation" shall be the portion of
payments designated for physician services performed by Practice. Professional
Services Capitation shall be Professional Services Revenues; and
(c) "Subcontractor Capitation Revenues" shall be the portion of
payments designated for physicians, optometrists or other medical or optometric
services that will be Subcontractor Costs (e.g., reinsurance, hospitalization,
surgical facility fees, etc.), including incentive bonuses or penalties, and an
estimate for incurred but not reported claims. The Policy Board shall determine
how Subcontractor Capitation Revenues are accounted for under this Management
Services Agreement.
Notwithstanding the foregoing, subject to the approval of the Policy Board,
Business Manager shall develop and implement an appropriate allocation
methodology for each Capitation/Case Rate Revenues contract.
1.9 Confidential Information. The term "Confidential Information" shall
------------------------
mean any and all financial, technical, commercial or other information of
Business Manager or Practice, as appropriate (whether written or oral),
including, without limitation, all information, notes, studies, patient lists
and records, reports, analyses, financial statements, compilations, studies,
forms, business or management methods, marketing data, fee schedules, peer
review information, credentialing information, quality assurance and utilization
review information, interpretations, information technology systems and
programs, projections, forecasts or trade secrets of Business Manager or of
Practice, as applicable, whether or not such Confidential Information is
disclosed or otherwise made available to one party by the other party pursuant
to this Management Services Agreement. Confidential Information shall also
include the terms and provisions of this
4
<PAGE>
Management Services Agreement and any transactions consummated or documents
executed by the parties pursuant to this Management Services Agreement.
Confidential Information does not include any information that (i) is or becomes
generally available to and known by the public (other than as a result of an
unpermitted disclosure directly or indirectly by the receiving party or its
Affiliates, advisors or Representatives); (ii) is or becomes available to the
receiving party on a nonconfidential basis from a source other than the
furnishing party or its Affiliates, advisors or Representatives, provided that
such source is not and was not bound by a confidentiality agreement with or
other obligation of secrecy to the furnishing party of which the receiving party
has knowledge at the time of such disclosure; or (iii) has already been
developed, or is hereafter independently acquired or developed, by the receiving
party without violating any confidentiality agreement with or other obligation
of secrecy to the furnishing party.
1.10 Depository Account. The term "Depository Account" shall mean the bank
------------------
account referred to in Section 4.8 hereof.
1.11 Designated Allied Health Professionals. The term "Designated Allied
--------------------------------------
Health Professionals" shall mean those medical professionals working for or on
behalf of Practice, other than Physicians and Optometrists, whose services must
be rendered "incident to" a Physician's services in order to be billable under
the Medicare program.
1.12 Dispensary Business. The term "Dispensary Business" shall mean the
-------------------
business of selling prescription and non-prescription eyewear, contact lenses
and other related optical products.
1.13 GAAP. The term "GAAP" shall mean generally accepted accounting
----
principles set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants,
statements and pronouncements of the Financial Accounting Standards Board, or
other statements, practices and procedures as may be approved by a significant
segment of the accounting profession, which are applicable to the circumstances
as of the date of the determination.
1.14 Managed Care Contract. The term "Managed Care Contract" shall include
---------------------
any Capitation/Case Rate Revenues contract, or any contracts based on a
fee-for-service payment methodology or discounted fee-for-service reimbursement
methodology and other agreements with third party payors, alternative delivery
systems or other purchasers of group health care services.
1.15 Management Fee. The term "Management Fee" shall mean the amount
--------------
determined pursuant to Article 6 hereof.
1.16 Management Services. The term "Management Services" shall mean the
-------------------
business, administrative and management services to be provided to Practice by
or through Business Manager under this Agreement including, without limitation,
the provision of equipment, supplies, support services, nonphysician personnel,
office space, management, administration, financial record keeping and
reporting, information systems and all other business office services necessary
for the nonmedical operations of Practice.
5
<PAGE>
1.17 Management Services Agreement. The term "Management Services
-----------------------------
Agreement" shall mean this Management Services Agreement by and between Practice
and Business Manager and any amendments hereto.
1.18 Medical Advisory Board. The term "Medical Advisory Board" shall have
----------------------
the meaning set forth in Section 5.9 hereof.
1.19 Medical Services. The term "Medical Services" shall mean ophthalmic
----------------
and optometric services as provided by Practice through Physicians or
Optometrists, as the case may be, but any such services by Optometrists shall be
limited to those services performed at the locations listed on Exhibit 1.19 (all
------------
optometric services provided by Optometrists at any other location of Practice
shall be deemed part of Optometric Business (as hereinafter defined)).
1.20 Monthly Office Expense. The term "Monthly Office Expense" shall
----------------------
have the meaning set forth in Section 6.1 hereof.
1.21 Monthly Practice Expense. The term "Monthly Practice Expense" shall
------------------------
have the meaning set forth in Section 6.1 hereof.
1.22 Non-Ophthalmic Business. The term "Non-Ophthalmic Business" shall
-----------------------
mean the Optometric Business and Dispensary Business, collectively.
1.23 Non-Ophthalmic Business Budgeted Office Expense. The term "Non-
-----------------------------------------------
Ophthalmic Business Budgeted Office Expense" shall have the meaning set forth in
Section 6.1 hereof.
1.24 Non-Ophthalmic Business Budgeted Practice Expense. The term
-------------------------------------------------
"Non-Ophthalmic Business Budgeted Practice Expense" shall have the meaning set
forth in Section 6.1 hereof.
1.25 Non-Ophthalmic Business Budgeted Revenue. The term "Non-Ophthalmic
----------------------------------------
Business Budgeted Revenue" shall have the meaning set forth in Section 6.1
hereof.
1.26 Non-Ophthalmic Business Management Fee. The term "Non-Ophthalmic
--------------------------------------
Business Management Fee" shall have the meaning set forth in Section 6.1 hereof.
1.27 Non-Ophthalmic Business Monthly Fee. The term "Non-Ophthalmic
-----------------------------------
Business Monthly Fee" shall have the meaning set forth in Section 6.1 hereof.
1.28 Non-Ophthalmic Business Monthly Office Expense. The term "Non-
----------------------------------------------
Ophthalmic Business Monthly Office Expense" shall have the meaning set forth in
Section 6.1 hereof.
1.29 Non-Ophthalmic Business Monthly Practice Expense. The term "Non-
------------------------------------------------
Ophthalmic Business Monthly Practice Expense" shall have the meaning set forth
in Section 6.1 hereof.
1.30 Non-Ophthalmic Business Office Expense. The term "Non-Ophthalmic
--------------------------------------
Business Office Expense" shall have the meaning set forth in Section 6.1 hereof.
6
<PAGE>
1.31 Non-Ophthalmic Business Revenue. The term "Non-Ophthalmic Business
-------------------------------
Revenue" shall mean all revenues of the Non-Ophthalmic Business of the Practice
recorded on an accrual basis under GAAP (net of Adjustments). Non-Ophthalmic
Business Revenue shall include, without limitation, such revenues governed by
the Billing and Collection Agreements (as defined in Section 4.8 hereof).
1.32 Office or Offices. The term "Office" or "Offices" shall mean any
-----------------
office spaces, clinics, facilities or satellite facilities that Business Manager
owns, leases or otherwise procures for the exclusive use of Practice.
1.33 Office Expense. The term "Office Expense" shall mean all
--------------
expenses incurred by Business Manager, Practice or Practice-Owners, in
accordance with GAAP in the provision of services to Practice and Practice-
Owners and the operation of the Offices, except insofar as such expenses are
Business Manager Expenses or Practice Expenses. Except as specifically
enumerated below, Office Expense shall not include any state or federal income
tax liability of Practice, Practice-Owners, or any other expense that is a
Practice Expense or a Business Manager Expense. Without limitation, Office
Expense shall include:
(a) the salaries, benefits and other direct costs (including payroll
and other withholding taxes) of all employees of Business Manager who are either
located at, or devote substantially all of their time and effort to, Practice;
(b) the salaries, benefits and other direct costs (including payroll
and other withholding taxes) of all Optometrists and Physician-Employees, but
excluding the salaries, benefits, fees, and other direct costs (including
payroll and other withholding taxes) of all Practice-Owners and of those
Physician-Employees and Optometrists set forth on Exhibit 1.33(b) (the "Practice
---------------
Expense Employees"); provided, however, that in the event any Practice-Owner
-------- -------
shall fail to work in the performance of its/his/her duties as described in such
Practice-Owner's Employment Agreement or Services Agreement, as applicable, (i)
due to the Practice-Owner being Permanently Disabled, as defined in the
Operating Agreement of Practice (the "Operating Agreement") for a period
exceeding six (6) consecutive months or twelve (12) months within any eighteen
(18) consecutive month period, or (ii) otherwise fails to work, for any reason,
in performance of its/his/her such duties for a period exceeding two (2) months,
whether or not such failure (i) gives rise to termination rights pursuant to
such Employment Agreement or Services Agreement or (ii) occurs prior to or after
the termination of the Initial Term (as such term is defined in Section 4.1 of
the Employment Agreement and Section 4.1 of the Services Agreement), then the
expenses described in this Section 1.33(b) with respect to any Physician or
Optometrist necessary to replace such Practice-Owner's services shall thereafter
be categorized as a Practice Expense. Notwithstanding anything herein to the
contrary, the Policy Board shall determine the Practice Expense Employees to be
listed on Exhibit 1.33(b) from time to time;
---------------
(c) except as otherwise provided in Section 5.4, the direct or
reasonably allocated costs of providing locum tenens coverage with respect to
----- ------
any Optometrists or Physician-Employees as may be necessary pursuant to Section
5.4 hereof, which costs shall include, without
7
<PAGE>
limitation, the salaries, benefits and other direct costs of any Physician-
Employees and Optometrists retained by Practice for such purposes;
(d) the direct or reasonably allocated costs of any employee or
consultant to the extent such person provides services at the direction of
Business Manager for improved performance of Practice, such as management,
billings and collections, business office consultation, training, and accounting
and legal services;
(e) the direct or reasonably allocated costs and out-of-pocket
expenses of Business Manager or Practice incurred to recruit Office personnel,
Physician-Employees and Optometrists of Practice;
(f) all reasonable and customary business insurance expenses of
Practice, Physicians, Optometrists, Designated Allied Health Professionals and
the Offices, including, without limitation, professional and general liability
insurance;
(g) without duplication of expenses included pursuant to any other
subparagraph of this Section 1.33, the expense of using, leasing, maintaining,
repairing, purchasing or otherwise procuring the Offices and related equipment
(including any leasehold improvements), including, without limitation, any
depreciation expense, any personal property taxes assessed against assets
utilized for the benefit of Practice, and any and all expenses relating to the
equipment listed on Exhibit 1.33(g) attached hereto and incorporated herein, but
---------------
excluding any Preexisting Obligation Payments;
(h) without duplication of expenses included pursuant to any other
subparagraph of this Section 1.33, the cost of capital, whether as actual
interest on indebtedness incurred on behalf of Practice or as reasonable imputed
interest on capital advanced by Business Manager to finance or refinance
obligations of Practice, purchase medical or nonmedical equipment, renovate the
Offices, or finance new ventures of Practice, but excluding any Preexisting
Obligation Payments;
(i) the Management Fee;
(j) the direct or reasonably allocated costs relating to sales or
marketing activities or materials relating to Practice, including, without
limitation, brochures, pamphlets, displays, direct mail, promotional materials,
patient screening, network directories, signs, video and audio tapes, equipment,
media, development costs and consulting services;
(k) the direct or reasonably allocated costs of obtaining, maintaining
and supporting Managed Care Contracts for Practice;
(l) the direct or reasonably allocated costs relating to any third
party service agreements for the general day-to-day operations of Offices and
Practice, which services shall include, without limitation, maintenance, patient
transportation, janitorial, answering services, landscaping, snow removal and
uniform rental;
8
<PAGE>
(m) with Practice Consent, the direct or reasonably allocated travel
expenses of Business Manager associated with attending meetings, conferences or
seminars primarily benefitting Practice;
(n) the cost of medical supplies (including, without limitation,
drugs, pharmaceuticals, products, substances or medical devices), office
supplies, inventory (including, without limitation, inventory for the Non-
Ophthalmic Business) and utilities;
(o) direct costs, not to exceed budgeted allowances, for professional
dues, subscriptions, continuing medical education expenses and travel costs for
continuing medical education or other business travel of Practice employees;
(p) all direct or reasonably allocated costs relating to the operation
of the Offices, including without limitation, expenses relating to utilities;
and
(q) a licensing and access fee for each Windows terminal to cover
expenses relating to capital equipment and maintenance, system installation and
training, telecommunications and wide area networking, installation and support
of software provided by Business Manager, and support and system administration;
provided, however, that capital equipment and support fees will be adjusted
- -------- -------
accordingly to the extent PCs and/or notebooks are utilized in lieu of Windows
terminals; provided further that Business Manager shall have the discretion to
-------- -------
adjust this fee annually provided that such adjustments are consistently applied
by Business Manager to all managed practices on a company-wide basis.
1.34 Optometric Business. The term "Optometric Business" shall mean the
-------------------
business comprised of all professional services performed by, on behalf of, or
under the direction and/or supervision of, all Optometrists employed by
Practice, including, without limitation, any professional fitting fees relating
to contact lenses, and any visual field tests performed by a certified
technician employed by Practice at the location of such Optometrists; provided,
--------
however, that Optometric Business shall not include any services provided by
- -------
Optometrists at locations listed on Exhibit 1.19 (which services shall be a
------------
component of Principal Services).
1.35 Optometrist. The term "Optometrist" shall mean each individually
-----------
licensed doctor of optometry who is employed or otherwise retained by or
associated with Practice, each of whom shall meet at all times the
qualifications described in Sections 5.2 and 5.3 hereof.
1.36 Physician. The term "Physician" shall mean each individual licensed
---------
to practice medicine in the States of Illinois and/or Indiana who is employed or
otherwise retained by or associated with Practice, including without limitation,
those individuals employed by, and an owner of, any Practice-Owner, each of whom
shall meet at all times the qualifications described in Sections 5.2 and 5.3
hereof.
1.37 Physician Discretionary Expenses. The term "Physician Discretionary
--------------------------------
Expenses" shall mean any expenses or debt obligations of Practice or Physicians
which are not included in the Budget or approved by Business Manager and shall
include, without limitation, the following:
9
<PAGE>
accounting, consulting or legal expenses incurred by Practice without
coordinating such engagement through Business Manager; professional dues,
subscriptions, continuing medical education expenses and travel costs for
continuing medical education in excess of budgeted allowances for such items and
any equipment obtained by Practice without the approval of the Policy Board as
set forth in Section 4.1(d) hereof; and other discretionary business expenses
incurred directly by Physicians or Practice.
1.38 Physician-Employee. The term "Physician-Employee" shall mean any
------------------
Physician employed by Practice, but shall not include (i) Practice-Owners or
(ii) any Physician directly employed by, and an owner of, a Practice-Owner.
1.39 Policy Board. The term "Policy Board" shall refer to the body
------------
responsible for developing and implementing management and administrative
policies pursuant to this Agreement.
1.40 Practice. The term "Practice" shall mean Hunkeler Eye Centers -
--------
Chicago, L.L.C., a Delaware limited liability company authorized to do business
in Illinois and Indiana, or any permitted successor or assign under Section 8.5
hereof.
1.41 Practice Consent. The term "Practice Consent" shall mean the
----------------
consent unanimously granted by Practice's Managers (as described in the
Operating Agreement). When any provision of this Management Services Agreement
requires Practice Consent, such consent shall not be unreasonably withheld or
delayed and, once granted, shall be binding on Practice.
1.42 Practice Expense. The term "Practice Expense" shall mean an expense
----------------
incurred by Business Manager or Practice that is not an Office Expense and for
which Practice, and not Business Manager, is financially liable. Practice
Expense shall include, without limitation, such items as Preexisting Obligation
Payments, Physician Discretionary Expenses, salaries, benefits, fees, and other
direct costs of all Practice-Owners, the Physicians directly employed by, and
who are owners of, a Practice-Owner and the Practice Expense Employees, any
costs of providing locum tenens coverage designated as a Practice Expense
----- ------
pursuant to Section 5.4 hereof, any continuing medical education ("CME")
expenses in excess of the CME expenses allocated for each Physician in the
Budget, which amount will not be less than $10,000, and any other expenses
incurred by Practice, Practice-Owners and Physicians directly employed by, and
who are owners of, a Practice-Owner, the general nature of which are not
contemplated in the Budget.
1.43 Practice-Owner. The term "Practice-Owner" shall mean any
--------------
Physician who is employed by, and an owner of, Practice, and any professional or
medical service corporation that is an owner of Practice and provides
professional medical services (through its employed Physician Shareholder) under
a Services Agreement.
1.44 Predecessor Management Services Agreements. The term "Predecessor
------------------------------------------
Management Services Agreements" shall mean the management services agreements
dated as of January 1, 1996, as amended from time to time, by and between
Business Manager and each of the Original Practices.
10
<PAGE>
1.45 Preexisting Obligation Payments. The term "Preexisting Obligation
-------------------------------
Payments" shall mean (i) the expense for principal and interest amortization of
debt obligations of Practice or any Practice-Owner relating to the operation of
Practice (A) that were not assumed by Business Manager under the Purchase
Agreements, and which existed prior to the execution of the Predecessor
Management Services Agreements; or (B) which existed prior to the execution of
this Management Services Agreement and did not constitute an Office Expense
under the terms and conditions of the applicable Predecessor Management Services
Agreement and (ii) lease payments and other costs relating to any outstanding
debt, obligations or liabilities of Practice or any Practice-Owner relating to
the operation of Practice (A) that were not assumed by Business Manager under
the Purchase Agreements and which existed prior to the execution of the
Predecessor Management Services Agreements, or (B) which existed prior to the
execution of this Management Services Agreement and did not constitute an Office
Expense under the terms and conditions of the applicable Predecessor Management
Services Agreement.
1.46 Principal Services. The term "Principal Services" shall mean all
------------------
services performed by or on behalf of Practice which generate Professional
Services Revenues or Ancillary Revenues.
1.47 Principal Services Budgeted Office Expense. The term "Principal
------------------------------------------
Services Budgeted Office Expense" shall have the meaning set forth in Section
6.1 hereof.
1.48 Principal Services Budgeted Practice Expense. The term "Principal
--------------------------------------------
Services Budgeted Practice Expense" shall have the meaning set forth in Section
6.1 hereof.
1.49 Principal Services Budgeted Revenue. The term "Principal Services
-----------------------------------
Budgeted Revenue" shall have the meaning set forth in Section 6.1 hereof.
1.50 Principal Services Management Fee. The term "Principal Services
---------------------------------
Management Fee" shall have the meaning set forth in Section 6.1 hereof.
1.51 Principal Services Monthly Fee. The term "Principal Services Monthly
------------------------------
Fee" shall have the meaning set forth in Section 6.1 hereof.
1.52 Principal Services Monthly Office Expense. The term "Principal
-----------------------------------------
Services Monthly Office Expense" shall have the meaning set forth in Section 6.1
hereof.
1.53 Principal Services Monthly Practice Expense. The term "Principal
-------------------------------------------
Services Monthly Practice Expense" shall have the meaning set forth in Section
6.1 hereof.
1.54 Principal Services Office Expense. The term "Principal Services
---------------------------------
Office Expense" shall have the meaning set forth in Section 6.1 hereof.
1.55 Principal Services Revenue. The term "Principal Services Revenue"
--------------------------
shall mean the sum of Professional Services Revenue and Ancillary Revenue.
11
<PAGE>
1.56 Professional Services Revenues. The term "Professional Services
------------------------------
Revenues" shall mean the sum of (i) all professional fees actually recorded on
an accrual basis under GAAP (net of Adjustments) as a result of Medical Services
and related health care services rendered by Physicians, the Optometrists to the
extent such services are performed at the locations listed on Exhibit 1.19, and
------------
Designated Allied Health Professionals, whether rendered in an outpatient or
inpatient setting, as well as customary professional fees for the fitting of
contact lenses by the Physicians or the Optometrists (to the extent such
fittings are performed by the Optometrists at the locations listed on Exhibit
-------
1.19), and (ii) Professional Services Capitation allocated to Professional
- ----
Service Revenues. Professional Services Revenues shall include, without
limitation, such professional fees and Professional Services Capitation governed
by the Billing and Collection Agreements (as defined in Section 4.8 hereof).
Except as may be otherwise provided herein, Professional Services Revenues shall
in no event include revenues derived from the Non-Ophthalmic Business.
1.57 Purchase Agreements. The term "Purchase Agreements" shall mean
-------------------
collectively those agreements set forth on Exhibit 1.57.
------------
1.58 Representatives. The term "Representatives" shall mean a party's
---------------
officers, directors, managers, employees, or other agents or representatives.
1.59 Services Agreements. The term "Services Agreements" shall mean those
-------------------
agreements for the provision of professional services between Practice and any
professional or medical service corporation Practice-Owner in the form attached
hereto as Exhibit 1.59(a), including, without limitation, the agreements listed
---------------
on Exhibit 1.59(b) attached hereto and incorporated herein.
---------------
1.60 Stark Act. The term "Stark Act" shall mean Section 1877 of the
---------
Social Security Act.
1.61 Subcontractor Costs. The term "Subcontractor Costs" shall mean
-------------------
the amounts payable to third parties for providing goods or medical services for
Capitation/Case Rate Revenues contracts.
1.62 Term. The term "Term" shall mean the initial term and any renewal
----
terms of this Management Services Agreement as described in Section 8.1 hereof.
ARTICLE 2
APPOINTMENT AND AUTHORITY OF BUSINESS MANAGER
2.1 Appointment. Practice hereby appoints Business Manager as its sole
-----------
and exclusive agent for the management and administration of the business
functions and business affairs of the medical practice, including the Non-
Ophthalmic Business of Practice, and Business Manager hereby accepts such
appointment, subject at all times to the terms and conditions of this Management
Services Agreement.
12
<PAGE>
2.2 Authority. Consistent with the provisions of this Management Services
---------
Agreement, Business Manager shall have the responsibility and commensurate
authority to provide Management Services to Practice. Subject to the terms and
conditions of this Management Services Agreement, Practice expressly authorizes
Business Manager to provide the Management Services in any reasonable manner
Business Manager deems appropriate to meet the day-to-day requirements of the
business functions of Practice. In connection with Business Manager's provision
of Management Services, Practice also expressly authorizes Business Manager to
negotiate and execute on behalf of Practice any and all contracts related to the
provision of such Management Services; provided, however that, subject to
-------- -------
Section 4.7 hereof, Business Manager shall have no authority to negotiate and
execute on behalf of Practice contracts that relate specifically to the
provision of Medical Services, provided that Practice Consent shall be required
(which Practice Consent shall not be unreasonably withheld) for all such
contracts which legally bind Practice and result in the expenditure by Business
Manager or Practice of more than $25,000 per year, unless such contract relates
to any item specifically reflected in the Budget, in which case no Practice
Consent shall be required. The parties acknowledge and agree that Practice,
through its Physicians, shall be responsible for and shall have complete
authority, responsibility, supervision and control over the provision of all
Medical Services and other professional health care services performed for
patients, and that all diagnoses, treatments, procedures and other professional
health care services shall be provided and performed exclusively by or under the
supervision of Physicians in such manner as such Physicians, in their sole
discretion, deem appropriate. For the purposes of this Management Services
Agreement, such supervision and control means that a Physician shall be present
in the office suite where the foregoing services are being performed and be
immediately available to provide assistance and direction throughout the time
that the services are being performed. Practice shall exercise the same degree
of supervision and control over the services of personnel leased to Practice
hereunder as Practice exercises over its own employees. Business Manager shall
have and exercise absolutely no control or supervision over the provision of
Medical Services. Except as provided in Section 4.7 hereof, with respect to any
agreement relating specifically to Medical Services, and subject to the approval
of the Policy Board pursuant to Section 3.2(d), Practice shall, to the extent
commercially practicable, give Business Manager and the Policy Board thirty (30)
days' prior notice of Practice's intent to execute any such agreement obligating
Practice to perform Medical Services or otherwise creating a binding legal
obligation on Practice to perform Medical Services.
2.3 Patient Referrals. Business Manager and Practice agree that the
-----------------
benefits afforded either party hereunder are not payment for, and are not in any
way contingent upon the referral, admission or any other arrangement for, the
provision of any item or service offered by Business Manager or Practice.
2.4 Internal Practice Matters. Except as otherwise provided herein,
-------------------------
matters involving the internal governance, control or finances of Practice,
including specifically the allocation of professional income among Practice-
Owners, Physician-Employees and Optometrists of Practice, and tax and investment
planning, as well as the admission and removal of Practice-Owners, shall remain
the sole responsibility of Practice, Practice-Owners, Physician-Employees and
Optometrists.
13
<PAGE>
2.5 Practice of Medicine or Optometry. The parties acknowledge that
---------------------------------
Business Manager is not authorized or qualified to engage in any activity that
may be construed or deemed to constitute the practice of medicine or optometry.
To the extent that any act or service required to be performed by Business
Manager hereunder should be construed by a court of competent jurisdiction or by
the Illinois Department of Professional Regulation or the Health Profession
Bureau or Board of Medical Examiners of the State of Indiana to constitute the
practice of medicine or optometry, Business Manager's requirement to perform
that act or service shall be deemed waived and unenforceable.
ARTICLE 3
RESPONSIBILITIES OF THE POLICY BOARD
3.1 Formation and Operation of the Policy Board.
-------------------------------------------
(a) Structure of Policy Board. Practice hereby acknowledges that it
-------------------------
has been formed by the Regional Practices, and that the Original Practices each
have previously engaged Business Manager to provide physician practice
management services under the Predecessor Management Services Agreements. The
Original Practices and Business Manager have established a Policy Board which
has been responsible for overseeing the overall operations of the non-medical
aspects of each Original Practice's facilities and certain medical issues,
subject to Section 3.3 below. Upon the Effective Date, the Policy Board shall
serve the foregoing role with respect to the Practice and all of the Practice-
Owners. The Policy Board shall consist of four (4) members, each of whom shall
serve a one-year term. Business Manager shall designate, in its sole
discretion, two (2) members of the Policy Board, and the Practice-Owners shall
collectively designate two (2) members of the Policy Board. The Policy Board
members designated by the Practice-Owners shall be either physician-shareholders
of those Practice-Owners that are professional or medical service corporations,
or shall be individual licensed physicians who are Practice-Owners. Except as
otherwise expressly provided herein, the act of a majority of the members of the
Policy Board shall be the act of the Policy Board.
(b) Appointment of Members. As of the Effective Date, the Policy
----------------------
Board consists of the members set forth on Exhibit 3.1(b) attached hereto and
--------------
incorporated herein. Annually and at least thirty (30) days prior to the
commencement of each fiscal year of Business Manager, each of Business Manager
and the Practice-Owners shall deliver to the board of directors of Business
Manager a list of two (2) designees to the Policy Board to serve as members of
the Policy Board for the upcoming fiscal year. In the event that either
Business Manager or the Practice-Owners fail to deliver the list of designees by
the required date, then such party's representatives on the Policy Board shall
remain the same for the upcoming fiscal year. Any vacancies created, whether by
death, incapacity or resignation of a designee, shall be filled by the party
that appointed such designee by no later than fifteen (15) business days after
the date of receipt by all of the Practice-Owners of notice from Business
Manager that such vacancy exists and must be filled. If the applicable party
shall fail to designate a replacement member to the Policy Board within the
required time period, then the other party shall have the right to designate the
replacement member and such replacement member shall serve on the Policy Board
on an
14
<PAGE>
interim basis until his or her successor is duly appointed by the original
appointing party pursuant to this Section 3.1(b). In any case in which the
Practice-Owners shall be required to designate a member or members to the Policy
Board, a previously appointed designee of the Practice-Owners shall convene a
meeting or collect the written votes of the Representatives of the Practice-
Owners to select such designee or designees. Each Practice-Owner shall be
entitled to one vote per designee to be appointed by the Practice-Owner and
those designees receiving a plurality of the votes shall serve as the
representatives of the Practice-Owners on the Policy Board. Each of Business
Manager and the Practice-Owners (acting pursuant to the Operating Agreement)
shall have the discretion, at any time and upon ten (10) days notice to such
other party, to remove any of its designated representatives from the Policy
Board and replace such representative with a new designee.
(c) Actions of the Policy Board. The Policy Board meetings shall be
---------------------------
held as mutually agreed, but at least semiannually, in the Chicago, Illinois
metropolitan area. Meetings may be called by any two (2) members of the Policy
Board upon notice to Business Manager. Notice of each such meeting, stating the
place, date and hour of the meeting, shall then be delivered by Business Manager
to each member of the Policy Board not less than seventy-two (72) hours prior to
such meeting; provided, however, that such notice may be delivered in a shorter
-------- -------
time frame if the circumstances surrounding such meeting reasonably dictate such
shorter notice. Meetings shall be open to any Practice-Owner and any officer,
director or employee (as designated by Business Manager) of Business Manager.
Members of the Policy Board may participate in a meeting by means of conference
telephone. Attendance at any meeting in person or by proxy, or participation in
a meeting by means of conference telephone, shall constitute a waiver of notice
thereof. Any action required to be taken at a meeting of the Policy Board may
be taken without a meeting and without a vote if a consent in writing, setting
forth the action to be taken, is signed by all of the members of the Policy
Board, unless such action is medical in nature, in which case such consent need
be signed only by all of the Physician members of the Policy Board. Action by
the Policy Board shall require majority approval (which in the case of actions
taken in connection with this Management Services Agreement, shall require both
members designated by Practice).
3.2 Duties and Responsibilities of the Policy Board. The Policy Board
-----------------------------------------------
shall have the following duties, obligations and authority:
(a) Capital Improvements and Expansion. Subject to the items
----------------------------------
specifically enumerated in the Budget as determined in accordance with Section
4.10(a) hereof, any renovation and expansion plans and capital expenditures with
respect to any one or more of the Offices, or the priority of such capital
expenditures, shall be reviewed and approved by the Policy Board and shall be
based upon economic feasibility, Physician support, productivity and then-
current market conditions.
(b) Marketing and Advertising. The Policy Board shall explore
-------------------------
potential marketing and other advertising of the services performed at
Practice's facilities.
15
<PAGE>
(c) Fees; Collection Policies. As a part of the annual operating
-------------------------
budget, in consultation with Practice and Business Manager, the Policy Board
shall review and approve the collection policies for the Non-Ophthalmic Business
of, and for all Medical Services and ancillary services provided by, Practice.
(d) Provider and Payor Relationships. Subject to Sections 4.7 and 4.8
--------------------------------
hereof, decisions regarding the establishment or maintenance of relationships
with institutional health care providers and third party payors shall be
approved by the Policy Board in consultation with Practice and Business Manager.
The Policy Board shall review and approve such discounted fee schedules,
including capitated fee arrangements, and shall approve allocations of
Capitation/Case Rate Revenues.
(e) Strategic Planning. The Policy Board shall recommend long-term
------------------
strategic planning objectives for Practice; provided, however, that the Policy
-------- -------
Board shall not engage in recommending any horizontal market allocations between
Practice and any other medical practice.
(f) Physician and Optometrist Hiring. Subject to the items
--------------------------------
specifically enumerated in the Budget as determined in accordance with Section
4.10(a) hereof, the Policy Board shall recommend to Practice the number and type
of Physicians and Optometrists required for the efficient operation of
Practice's facilities. Practice shall have the right to accept or reject any
recommendation of the Policy Board on this matter and Practice shall retain the
number and type of Physicians and Optometrists as it shall deem necessary in its
sole discretion. The Policy Board may review and suggest any variations to the
restrictive covenants in any Employment Agreement.
(g) Fee Dispute Resolution. Upon written submission by Practice of a
----------------------
dispute concerning Management Fees, the Policy Board shall consider, develop and
attempt to implement a resolution of such dispute.
(h) Employee Relations. Subject to applicable law, upon submission by
------------------
Practice or any Physician or Optometrist of a written complaint or concern
regarding any employee of Business Manager performing services for Practice
hereunder, the Policy Board shall consider, develop and attempt to implement a
resolution of such complaint or concern, which, if the circumstances warrant,
could result in the removal of such employee from the Offices.
(i) Grievance Referrals. The Policy Board shall consider and make
-------------------
recommendations to Practice regarding any disputes pertaining to matters not
specifically addressed in this Management Services Agreement as referred to it
by Practice.
(j) Miscellaneous. The Policy Board shall approve the addition of
-------------
locations to be listed on Exhibit 1.19, and shall determine the economic terms
------------
(and any necessary amendments to this Management Services Agreement) associated
with such addition at the time the addition is being contemplated. The Policy
Board shall determine any individuals to be added to Exhibit 1.33(b) hereof,
---------------
from time to time.
16
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3.3 Medical Decisions. Notwithstanding anything to the contrary contained
-----------------
in Section 3.1 or 3.2 above, all medical decisions addressed by the Policy Board
will be made solely by Physician members of the Policy Board.
ARTICLE 4
COVENANTS AND RESPONSIBILITIES OF BUSINESS MANAGER
During the Term, Business Manager shall provide all Management Services
which are necessary or appropriate for the day-to-day administration of the
nonmedical aspects of Practice's operations (including the Non-Ophthalmic
Business), including, without limitation, those services set forth in this
Article 4 in accordance, in all material respects, with all laws, rules,
regulations and guidelines applicable to the provision of Management Services.
4.1 Offices and Equipment.
---------------------
(a) Subject to Section 4.1(b) hereof, as necessary or appropriate, and
after taking into consideration the professional concerns of Practice, Business
Manager shall lease, acquire or otherwise procure Offices in locations
reasonably acceptable to Practice and shall permit Practice to use the Offices.
Any Office procured by Business Manager for use by Practice shall be procured at
commercially reasonable rates. Any move from the Offices or any particular
location or locations of said Offices shall be done only after Business Manager
has received Practice Consent.
(b) In the event Practice is the lessee of one or more of the Offices
under a lease or leases with one or more unrelated and nonaffiliated lessors,
Business Manager may require Practice to assign such lease or leases to Business
Manager upon receipt of consent from the lessor(s), and, in such event, Business
Manager shall assume Practice's obligations thereunder from and after the date
of such assignment. Practice shall use its commercially reasonable efforts to
assist in obtaining each lessor's consent to the assignment. Upon request,
Practice shall execute any instruments and shall take any acts that Business
Manager may reasonably deem necessary to accomplish the assignment of the
lease(s). Any expenses incurred in effectuating the assignment shall be an
Office Expense.
(c) Business Manager shall provide all nonmedical equipment, fixtures,
office supplies, information systems, furniture and furnishings reasonably
deemed necessary by Business Manager for the operation of the Offices and for
the provision of Medical Services and the operation of the Non-Ophthalmic
Business, including all reasonably necessary replacements and upgrades thereof.
Notwithstanding the foregoing, with respect to information systems, Practice
acknowledges and agrees that Business Manager will have the reasonable
discretion (with reasonable advance notice to Practice) to determine the timing
and extent of the upgrade and/or replacement of Practice's information systems
from time to time during the Term.
(d) Business Manager shall provide or cause to be provided (including
financing arrangements with respect thereto) all medical equipment required by
Practice.
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(e) Business Manager shall be responsible for all necessary repair and
maintenance of the Offices as an Office Expense, consistent with Business
Manager's responsibilities under the terms of any lease or other use
arrangement. Business Manager shall also be responsible for all necessary
repair, maintenance and replacement of all equipment relating to the Offices,
except for any such repairs, maintenance and replacement necessitated by the
negligence or willful misconduct of Practice, its Physicians or other personnel
employed by Practice, in which event any such repair or replacement shall be a
Practice Expense and not an Office Expense.
4.2 Medical Supplies. Business Manager shall order, procure, purchase and
----------------
provide on behalf of, and as agent for, Practice all necessary and reasonably
desirable medical supplies and optical dispensary supplies and inventory unless
otherwise prohibited by federal and/or state law, and shall appropriately
respond to any reasonable inquiries or requests by Physicians for the need to
order or repair such supplies. Business Manager shall ensure that the Offices
are adequately stocked at all times with medical supplies that are reasonably
necessary or appropriate for the operation of Practice and required for the
provision of Medical Services and optical dispensary supplies and inventory that
are reasonably necessary or appropriate for the operation of the Non-Ophthalmic
Business. The ultimate oversight, supervision and ownership of all medical
supplies is and shall remain the sole responsibility of Practice. As used in
this Section 4.2, the term "medical supplies" shall mean all drugs,
pharmaceuticals, products, substances, items or devices whose purchase,
possession, maintenance, administration, prescription or security requires the
authorization or order of a licensed health care provider or requires a permit,
registration, certification or other governmental authorization held by a
licensed health care provider as specified under any federal and/or state law.
4.3 Support Services. Business Manager shall provide or arrange for all
----------------
printing, stationery, telephone, facsimile, office supplies, forms, postage,
duplication or photocopying services, and other support services as are
reasonably necessary or appropriate for the operation of the Practice and
Offices and the provision of Medical Services and the operation of the Non-
Ophthalmic Business therein.
4.4 Quality Assurance, Risk Management, and Utilization Review. Business
----------------------------------------------------------
Manager shall assist Practice in Practice's establishment and implementation of
procedures to ensure the consistency, quality, appropriateness and medical
necessity of Medical Services provided by Practice, and shall provide
administrative support for Practice's overall quality assurance, risk management
and utilization review programs. Business Manager shall use its commercially
reasonable efforts to perform these tasks in a manner to ensure the
confidentiality of, and the privileged status afforded to, these programs and
procedures to the fullest extent allowable under state and federal law.
4.5 Licenses and Permits. Business Manager shall, on behalf of and in the
--------------------
name of Practice, coordinate all development and planning processes, and assist
in the application for, and use reasonable efforts to assist Practice in
obtaining and maintaining, all federal, state and local licenses, certifications
and regulatory permits required for, or in connection with, the operation
18
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of Practice, the equipment located at the Offices, and any optical dispensary of
Practice, other than those relating to the provision of Medical Services or the
administration of drugs by Physicians.
4.6 Personnel. Except as specifically provided in Section 5.2(b) hereof,
---------
Business Manager shall, consistent with the Budget, employ or otherwise retain
and shall be responsible for selecting, hiring, training, supervising and
terminating, all nonphysician personnel as Business Manager reasonably deems
necessary and appropriate for Business Manager's performance of its duties and
obligations under this Management Services Agreement. Business Manager shall
have sole responsibility for determining the salaries, providing employee
benefits, and for withholding any sums for income tax, unemployment insurance,
worker's compensation coverage, social security or any other withholding
required by applicable law or governmental requirement; provided, however, that
-------- -------
with respect to Regional Employees (as hereinafter defined) only, any addition
in headcount with respect to any salaried employees or a material number of
hourly employees or salary increases that are not contemplated in the Budget
shall require Policy Board approval. As used herein, "Regional Employees" shall
be those individuals (i) whose compensation is an Office Expense pursuant to
Section 1.33(a) hereof, and (ii) who devote substantially all of their time and
effort providing services to Practice as a whole rather than providing services
at a particular Office location of Practice.
4.7 Contract Negotiations. Business Manager shall advise Practice with
---------------------
respect to and negotiate, either directly or on Practice's behalf, as
appropriate, all contractual arrangements with third parties as are reasonably
necessary and appropriate for Practice's provision of Medical Services and for
Practice's operation of the Non-Ophthalmic Business, including, without
limitation, Managed Care Contracts. Practice hereby constitutes and appoints
Business Manager as Practice's agent for the purpose of negotiating and
executing on behalf of Practice and its Physicians any Managed Care Contract
approved by the Policy Board and Practice, as well as any modifications,
extensions and renewals of such Managed Care Contracts. Practice also
designates Business Manager as Practice's agent for the further purpose of
giving and receiving notices required or permitted to be given and received
under such Managed Care Contracts. Any notice received by Business Manager on
behalf of Practice shall be transmitted to Practice as soon as practicable.
Business Manager may engage such consultants as Business Manager deems necessary
and appropriate to pursue and negotiate Managed Care Contracts for Practice, and
Practice authorizes Business Manager to negotiate agreements for Subcontractor
Costs, for approval by Practice, and, in certain instances, the Policy Board.
Any Managed Care Contract having a material economic effect on Practice
("material economic effect" to include any capitalized arrangements) shall be
submitted to and reviewed and approved by the Policy Board. Upon approval of
the Policy Board, such approval (which will include approval by the Practice
Managers who comprise the Practice representatives on the Policy Board) shall be
deemed approval by Practice. For all other types of Managed Care Contracts,
Business Manager shall deliver a copy of such contract to Practice (or a
description of the principal terms and conditions thereof) for its review and
approval. Notwithstanding anything herein to the contrary, Practice may accept
or reject any Managed Care Contract by delivering notice to Business Manager
within fifteen (15) days of its receipt of such contract (or a description
thereof). Practice's failure to respond within such fifteen-day period shall be
deemed an acceptance and approval of the Managed Care Contract for all purposes.
19
<PAGE>
4.8 Billing and Collection. On behalf of and for the account of Practice,
----------------------
Practice-Owners, and Physicians directly employed by Practice-Owners, and except
as otherwise provided herein, Business Manager shall (i) establish and maintain
credit, billing and collection policies and procedures, (ii) timely bill and
collect all professional and other fees for all billable Medical Services
provided by Practice, Practice-Owners, Physicians or Optometrists and for all
goods sold by Practice or Practice-Owners in connection with the Non-Ophthalmic
Business, all for application solely in accordance with the Budget, and (iii)
perform all cash management services on behalf of Practice and Practice-Owners
consistent with reasonably prudent business practices. Business Manager shall
advise and consult with Practice regarding the fees for Medical Services and
ancillary services provided by Practice; it being understood, however, that
Practice shall establish the fees to be charged for Medical Services and that
Business Manager shall have no authority whatsoever with respect to the
establishment of such fees. In connection with the billing, collection and cash
management services to be provided hereunder, and throughout the Term (and
thereafter as provided in Section 8.3 hereof), Practice hereby grants to
Business Manager an exclusive special power of attorney and appoints Business
Manager, and shall cause Practice-Owners to grant an exclusive special power of
attorney and appoint Business Manager, as Practice's or Practice-Owners',
respectively, exclusive true and lawful agent and attorney-in-fact, and Business
Manager hereby, and pursuant to Billing and Collection agreements between
Business Manager and each Practice-Owner (except those Practice-Owners who are
directly employed by Practice) in the form attached hereto at Exhibit 4.8(a)
--------------
(the "Billing and Collection Agreements"), accepts such special power of
attorney and appointment, solely for the following purposes:
(a) To bill Practice's patients, in Practice's name and on Practice's
behalf, for all billable Medical Services provided or arranged by Practice to
patients and for all goods sold and services provided by Practice in connection
with the Non-Ophthalmic Business, unless such billing would cause Practice to be
in violation of the Stark Act, any state referral ban or any other applicable
federal, state or local law or regulation. Consistent with the foregoing, the
following specifications shall apply to all billing and collection provisions of
this Management Services Agreement:
(i) Business Manager will bill and collect in accordance with
this Management Services Agreement for (A) all Medical Services and other
services generating Non-Ophthalmic Business Revenues rendered within any
Office, and (B) all Medical Services rendered outside of the Offices of
Practice except insofar as such Medical Services are to be paid for by
Medicare, Medicaid, or any other governmental health program, or except
insofar as such billing is not permitted by another third party payor being
billed for such Medical Services; and
(ii) For Medical Services rendered outside of an Office which
are to be paid for by Medicare, Medicaid, or any other governmental health
program, or which are to be paid for by a third party payor that does not
permit billing in accordance with Section 4.8(a)(i) hereof, Business
Manager shall bill and collect under this Management Services Agreement for
Medical Services only insofar as such services are provided by employees of
Practice. Medical Services rendered outside of an Office by other than an
employee of
20
<PAGE>
Practice, and which are to be paid for by Medicare, Medicaid, or any other
governmental health program, or by another third party payor if so required
by said third party payor, must be billed in the name of the provider of
said services or his/her employer. In most, if not all, instances, the
provider of services will be employed by a Practice-Owner, each of which
shall maintain a Billing and Collection Agreement with Business Manager
authorizing Business Manager to bill and collect on behalf of said provider
or employer. Pursuant to the Services Agreements and the aforesaid Billing
and Collection Agreements, all payments and proceeds of such billings and
collections shall be deposited into an account maintained in Practice-
Owner's name over which Practice-Owner has sole control (each such account
shall be referred to herein as a "Practice Owner Account"). Business
Manager will then automatically sweep such funds into an account selected
by Business Manager and maintained in Business Manager's name (the
"Depository Account"), at which time Business Manager will collect and
allocate such funds to Practice pursuant to the direction of Practice and
in accordance with this Management Services Agreement.
(b) Except as otherwise provided in Section 4.8(a) above, to bill, in
Practice's name and on Practice's behalf, all claims for payment, reimbursement
or indemnification from Blue Cross/Blue Shield, insurance companies, Medicare,
Medicaid and all other third-party payors or fiscal intermediaries for all
covered billable Medical Services provided or arranged by Practice to patients
and for all goods sold by Practice in connection with the Non-Ophthalmic
Business, unless such billing would cause Practice to be in violation of the
Stark Act, any state referral ban or any other applicable federal, state or
local law or regulation.
(c) Subject to applicable law, and excluding receivables for Medicare
and Medicaid services, to collect and receive, as the agent of Practice, in
Business Manager's name and for Business Manager's account all accounts
receivable of Practice purchased by Business Manager, including, without
limitation, Purchased Receivables (as defined in Section 6.5 hereof), and to
deposit such collections in the Depository Account.
(d) Subject to subparagraph (e) below, to collect and receive, in
Practice's name and on Practice's behalf, all accounts receivable generated by
such billings and claims for reimbursement that have not been purchased by
Business Manager, and to administer such accounts at its reasonable discretion
on Practice's behalf, which administration shall include, without limitation,
(i) extending the time of payment of any such accounts for cash, credit or
otherwise; (ii) with Practice Consent, discharging or releasing the obligors of
any such accounts; (iii) with Practice Consent, suing, assigning or selling at a
discount such accounts to collection agencies; or (iv) with Practice Consent,
taking other measures to require the payment of any such accounts.
(e) Subject to Section 4.8(a)(ii) above, to collect all government
program receivables after such amounts have been received and deposited into an
account maintained in Practice's name and over which Practice has sole control
(the "Practice Account"), or into a Practice-Owner Account, as applicable. Once
deposited in such account, Practice hereby authorizes, and shall cause Practice-
Owner to authorize, the government receivables to be automatically swept into
the Depository Account as provided in Section 4.8(f), below. Practice
21
<PAGE>
shall cause the institution at which it maintains the aforementioned Practice
Account to provide Business Manager with copies of all bank statements prepared
with respect to such account.
(f) To deposit all amounts collected into the Depository Account which
shall be in the name of Business Manager, but in which Business Manager will
account for such funds on a separate and distinct basis from any other funds
deposited into such account by other practices for which Business Manager
provides management services. Moreover, subject to Business Manager's authority
to discharge its responsibilities under this Agreement, Practice or Practice-
Owner, as applicable, shall retain all rights in and to such deposited funds
irrespective of their deposit into the Depository Account; provided, however,
-------- -------
that Practice or Practice-Owner, as applicable, shall have no rights in or to
funds in the Depository Account that have been collected and received pursuant
to Section 4.8(c). The parties hereto acknowledge and agree that Business
Manager is performing cash management services on behalf of Practice and
Practice-Owners by collecting all such amounts in the Depository Account and
making any distributions, withdrawals and payments therefrom as required in this
Management Services Agreement. The parties further acknowledge and agree that
in performing such services for Practice and Practice-Owners, Business Manager
is acting as Practice's agent pursuant to the power of attorney set forth in
this Section 4.8, and as Practice-Owner's agent pursuant to the power of
attorney set forth in the Billing and Collection Agreements, and, except as
expressly provided herein, all rights to such funds shall remain with Practice
(directly or through the Services Agreements). Practice covenants, and shall
cause each Physician and Optometrist to covenant, to forward any payments,
notes, checks, money orders, insurance payments and any other instruments
received for Medical Services provided and goods sold in connection with the
Dispensary Business on or after the Original Effective Date by or on behalf of
Practice or any of the Physicians or Optometrists to Business Manager for
deposit into Depository Account, or covenants that Practice itself or Practice-
Owners themselves will make such deposit of, all funds received by Practice or
Practice-Owners from patients or third party payors for Medical Services
provided on or after the Effective Date and for services provided and goods sold
in connection with the Non-Ophthalmic Business on or after the Effective Date.
Upon receipt by Business Manager of any funds from patients or third party
payors or from Practice pursuant hereto or from Practice-Owners pursuant to the
Billing and Collection Agreements, and pursuant to the Billing and Collection
Agreements for Medical Services provided on or after the Effective Date or for
services provided and goods sold in connection with the Non-Ophthalmic Business
on or after the Effective Date, Business Manager shall have the right, at any
time and from time to time, to withdraw funds from the Practice Account and all
owners of the Practice Account shall execute a revocable standing transfer order
(the "Transfer Order") under which the bank maintaining the Practice Account
shall daily transfer the entire balance of the Practice Account to the
Depository Account. Practice and Business Manager hereby agree to execute from
time to time such documents and instructions as shall be required by the bank
maintaining the Practice Account to effect the foregoing provisions and to
extend or amend such documents and instructions as reasonably required to effect
the intent of this Section 4.8. Any action or threatened action by Practice
that materially interferes with or could materially interfere with the operation
of this Section 4.8, including but not limited to, (A) any failure to deposit
into, or to allow or permit Business Manager to withdraw any funds from, the
Practice Account; (B) any withdrawal of any funds from the Practice Account not
authorized by the express terms of this Management Services Agreement or any
other written agreement
22
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executed by each of the parties; or (C) any revocation of or attempt to revoke
the Transfer Order (otherwise than upon expiration or termination of this
Management Services Agreement), will constitute a breach of this Agreement and
will entitle Business Manager, in addition to any other remedies it may have at
law or in equity, to seek a court ordered assignment of the rights provided to
Business Manager pursuant to this Section 4.8 and to distribute account debtor
letters to non-governmental payors instructing them to make payment directly to
and in the name of Business Manager for services rendered by Practice. In the
manner set forth in Section 4.9 hereof, Business Manager shall disburse such
deposited funds to creditors and other persons on behalf of Practice,
maintaining records of such receipt and disbursement of funds.
(g) To take possession of, and endorse in the name of Practice or
Practice-Owners, as applicable, solely for deposit into the Depository Account,
any notes, checks, money orders, insurance payments and any other instruments
received as payment for Medical Services, ancillary services and for goods sold
in connection with the Non-Ophthalmic Business.
(h) To sign checks, drafts, bank notes or other instruments on behalf
of Practice and Practice-Owners, and to make withdrawals from the Depository
Account for payments specified in this Management Services Agreement or as
requested from time to time by Practice.
Throughout the Term (and as provided in Section 8.3 hereof), Practice hereby
grants to Business Manager, and shall cause Practice-Owners to grant to Business
Manager, an exclusive special power of attorney for the purposes stated in this
Section 4.8 and appoints Business Manager as Practice's exclusive true and
lawful agent and attorney-in-fact, and shall cause Practice-Owners to appoint
Business Manager as Practice-Owners' exclusive true and lawful agent and
attorney-in-fact, and Business Manager hereby and pursuant to the Billing and
Collection Agreements accepts such special power of attorney and appointment, to
deposit into the Depository Account as and when received all funds, fees and
revenues generated from Practice's provision of Medical Services and ancillary
services prior to, on or after the Effective Date and collected by Business
Manager and for all goods sold by Practice in connection with the Non-Ophthalmic
Business prior to, on or after the Effective Date and collected by the Business
Manager, and to make withdrawals from Depository Account solely for payments
specified in this Management Services Agreement, including any Preexisting
Obligation Payments directly affecting property used in or relating to the
Offices, and/or as requested from time to time by Practice. Upon request of
Business Manager, Practice shall execute and deliver, and shall cause Practice-
Owners to execute and deliver to the financial institution(s) where the Practice
Account, Practice-Owner Accounts and/or Depository Account are maintained, such
additional documents or instruments as may be necessary to evidence or effect
the special and limited power of attorney granted to Business Manager by
Practice pursuant to this Section 4.8 and by Practice-Owners pursuant to the
Billing and Collection Agreements. The special and limited power of attorney
granted herein shall be coupled with an interest and shall be irrevocable during
the term hereof, except with Business Manager Consent. The irrevocable power of
attorney shall expire on the later of the termination of this Management
Services Agreement, the collection, sale or release of all accounts receivable
purchased by Business Manager, or the payment of all Management Fees due to
Business Manager as of such date pursuant to Section 6.2 hereof. If Business
Manager assigns this Management Services Agreement in accordance with its terms,
then Practice shall execute a power of attorney and shall
23
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cause Practice-Owners to execute a power of attorney in favor of the assignee
and in the form of Exhibit 4.8(b) attached hereto.
--------------
4.9 Priority of Payments. As of the Effective Date, all revenue of
--------------------
Practice derived from Medical Services and ancillary services provided prior to,
on and after the Effective Date and from services provided and sales of goods in
connection with the Non-Ophthalmic Business prior to, on and after the Effective
Date (collectively, "Available Revenues") shall be deposited into the Depository
Account (or, in the alternative, identified or segregated in such a manner as to
permit the Available Revenues to be deposited into the Depository Account when
and as directed by Business Manager) for distribution in accordance with this
Section 4.9. From and after the Effective Date, each month Business Manager
shall apply, or retain on behalf of Practice, funds that are in the Depository
Account in the following order of priority:
(a) to Business Manager, in satisfaction of Office Expense, except the
Management Fee;
(b) as directed by Practice, in satisfaction of Monthly Practice
Expense; provided, that such Monthly Practice Expense shall be payable two (2)
--------
months in arrears (i.e., payment in July will represent Monthly Practice Expense
for May, payment in August will represent Monthly Practice Expense for June,
etc.); and
(c) to Business Manager, in satisfaction of the Management Fee;
provided, that such Management Fee will be payable two (2) months in arrears
- --------
(i.e., payment in July will represent Management Fee for May, payment in August
will represent Management Fee for June, etc.).
4.10 Fiscal Matters.
--------------
(a) Annual Budget.
-------------
(i) Initial Budget. The initial Budget has been agreed upon by
--------------
the parties before the execution of this Management Services Agreement and
is attached hereto as Exhibit 1.4 and made a part hereof.
-----------
(ii) Process for Succeeding Budgets. Annually and at least
------------------------------
forty-five (45) days prior to the commencement of each fiscal year of
Business Manager, Business Manager, in consultation with the Policy Board,
shall prepare and deliver to Practice for its approval a proposed Budget,
setting forth an estimate of Practice's revenues and expenses for the
upcoming fiscal year (including, without limitation, the Non-Ophthalmic
Business Budgeted Practice Expense, the Principal Services Budgeted
Practice Expense, the Non-Ophthalmic Business Monthly Fee and the Principal
Services Monthly Fee). Practice shall review the proposed Budget and
either approve the proposed Budget or request any changes within fifteen
(15) days after receiving the proposed Budget. The Budget shall be adopted
upon mutual agreement of Business Manager and Practice after reasonable
review and comment and may be revised or modified only in consultation with
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Business Manager. Once approved by both Business Manager and Practice,
each succeeding Budget shall be attached hereto and made a part hereof.
(iii) Deadlock. In the event the parties are unable to agree on
--------
a Budget by the beginning of the fiscal year (a "Deadlock"), then until an
agreement is reached, the Budget for the prior year shall be deemed to be
adopted as the Budget for the current year. Notwithstanding the foregoing,
the Policy Board, in its judgment, may impose reductions on a consistent
basis to each of Budgeted Practice Expense and the Monthly Fee in the event
that the Policy Board makes a determination that general economic
conditions and/or regulatory developments adversely affecting the Medical
Services provided by Practice render the present levels of the Budgeted
Practice Expense and the Monthly Fee impractical. For purposes of
illustration only, and without limitation, such general economic conditions
and/or regulatory developments could include proposed or actual cuts in
Medicare/Medicaid reimbursement for procedures that are a material
component of the Medical Services performed by Practice. Following
resolution of any Deadlock, Budgeted Practice Expense and the Monthly Fee
(and the corresponding Monthly Practice Expense and Management Fee as
calculated in Article 6 hereof) shall be recomputed retroactive to the
beginning of the fiscal year based upon the parameters agreed to in the new
Budget, and appropriate adjustments in payments owing to Practice and/or
Business Manager, as the case may be, resulting from such recomputation
shall be made promptly. Notwithstanding the foregoing, if after six months
the parties are still unable to agree on a Budget, then the dispute shall
be submitted to arbitration in accordance with Article 7 of this Management
Services Agreement; provided, however, that the scope of such arbitration
-------- -------
shall be limited to the parties resolving the dispute relating to the
Budget and shall not address or rule in any manner on matters relating to
any alleged breaches by either party hereto or any potential remedies
therefor. Until the arbitrator renders a judgment or the dispute is
otherwise resolved, the adjustments described in this Section 4.10(a)(iii)
shall continue to apply. Notwithstanding anything to the contrary contained
herein, nothing in this Section 4.10(a)(iii) shall affect the payment of
Office Expense, which shall be paid in full in accordance with the
provisions of this Agreement. For purposes of Section 4.10(a)(iii) and
(iv), "Budgeted Practice Expense" and "Monthly Fee" shall refer to either
Principal Services or Non-Ophthalmic Business, as appropriate.
(iv) Modifications to Budget. The Budget may be modified at
-----------------------
any time by mutual agreement of Practice and Business Manager, which
modifications may include, without limitation, modifications to the Monthly
Fee and Budgeted Practice Expense in the event that additional Physicians
or Optometrists become affiliated with Practice during the calendar year.
(b) Accounting and Financial Records. Business Manager shall
--------------------------------
establish and administer adequate accounting procedures, controls and systems
for the development, preparation and safekeeping of administrative and financial
records in connection with the performance of its duties and responsibilities
hereunder, all of which shall be prepared and maintained in accordance with GAAP
and applicable laws and regulations. Business Manager shall provide Practice
with the following:
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(i) Monthly Reports. As soon as practicable, and in any event
---------------
no later than fifteen (15) days after the end of each calendar month,
Business Manager shall furnish to Practice a monthly statement reflecting
the computation for the Office Expenses, Non-Ophthalmic Business Monthly
Practice Expense, Principal Services Monthly Practice Expense, the Non-
Ophthalmic Business Management Fee and the Principal Services Management
Fee. Within forty-five (45) days after the end of each month, Business
Manager shall provide Practice with a monthly statement reflecting the
accounting activity for Practice prepared in accordance with GAAP.
(ii) Annual Financial Statements. As soon as practicable, and
---------------------------
in any event no later than one hundred twenty (120) days after the end of
each calendar year, Business Manager shall furnish to Practice (A) audited
financial statements of Business Manager, consisting of a balance sheet and
related statements of income, changes in members' equity and cash flow, all
of which (taken as a whole) shall reflect the financial status of Business
Manager as of the end of such calendar year, and shall be prepared in
accordance with GAAP consistently applied; and (B) an annual statement
reflecting the computation for the Office Expenses, Non-Ophthalmic Business
Monthly Practice Expense, Principal Services Monthly Practice Expense, the
Non-Ophthalmic Business Management Fee and the Principal Services
Management Fee.
(c) Review of Expenditures. A Representative of Practice shall have
----------------------
the right to review all expenditures related to the operation of Practice, but
Practice shall not have the power to prohibit or invalidate any expenditure that
is consistent with the Budget.
(d) Tax Matters.
-----------
(i) In General. Upon request of Practice, Business Manager shall
----------
assist Practice with the preparation of all appropriate tax schedules and
reports required by Practice in preparing its tax returns.
(ii) Sales and Use Taxes. Business Manager and Practice
-------------------
acknowledge and agree that, to the extent that any of the services to be
provided by Business Manager hereunder may be subject to any state sales
and use taxes, Business Manager may have a legal obligation to collect such
taxes from Practice and to remit same to the appropriate tax collection
authorities. Practice agrees to pay, in addition to the payment of the
Management Fee, the applicable state sales and use taxes in respect of the
portion of the Management Fees attributable to such services.
4.11 Reports and Records.
-------------------
(a) Medical Records. Business Manager shall advise and assist
---------------
Practice as to the establishment, monitoring and maintenance of procedures and
policies for the timely creation, preparation, filing and retrieval of all
medical records generated by Practice in connection with Practice's provision of
Medical Services; and, subject to applicable law, shall ensure that medical
records are promptly available to Physicians and any other appropriate persons.
All such medical
26
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records shall be retained and maintained in accordance with all applicable state
and federal laws. All medical records are, and will remain, the property and
Confidential Information of Practice and its patients.
(b) Other Reports and Records. Business Manager shall timely create,
-------------------------
prepare and file such additional reports and records as are reasonably necessary
or appropriate for Practice's provision of Medical Services, and shall be
prepared to analyze and interpret such reports and records upon the request of
Practice.
4.12 Recruitment of Physicians and Optometrists. Upon Practice's request,
------------------------------------------
Business Manager shall perform all administrative services reasonably necessary
or appropriate to recruit potential Physicians and Optometrists to become
employees of Practice. Business Manager shall provide Practice with model
agreements to document Practice's employment, retention or other service
arrangements with such individuals. It is and will remain the sole and complete
responsibility of Practice to interview, select, contract with, supervise,
control and terminate all Physicians and Optometrists performing Medical
Services or other professional services, and Business Manager shall have no
authority whatsoever with respect to such activities.
4.13 Confidential and Proprietary Information.
----------------------------------------
(a) Business Manager will not disclose any Confidential Information of
Practice to other persons without Practice Consent. Business Manager will not,
directly or indirectly, use such Confidential Information in a manner
detrimental to Practice, and Business Manager will keep such Confidential
Information confidential and will ensure that its affiliates and advisors who
have access to such Confidential Information comply with these nondisclosure
obligations. Notwithstanding the foregoing, Business Manager may disclose
Confidential Information to those of its Representatives who need to know
Confidential Information for the purposes of this Management Services Agreement,
it being understood and agreed to by Business Manager that such Representatives
will be informed of the confidential nature of the Confidential Information,
will agree to be bound by this Section 4.13, and will be directed by Business
Manager not to disclose to any other person any Confidential Information.
Business Manager shall be responsible for any breach of this Section 4.13 by its
affiliates, advisors or Representatives. If Business Manager is required (by
interrogatories, requests for information or documents, subpoenas, civil
investigative demands or similar legal processes) to disclose or produce any
Confidential Information furnished in the course of its dealings with Practice
or its affiliates, advisors or Representatives, Business Manager will (i)
provide Practice with prompt prior notice thereof and copies, if possible, and,
if not, a description, of the request and the Confidential Information requested
or required to be produced so that Practice may seek an appropriate protective
order or other protections to enforce the provisions of this Section 4.13, or,
alternatively, waive compliance with the provisions of this Section 4.13, and
(ii) consult with Practice as to whether Practice should attempt to resist or
narrow such request. If Business Manager is compelled to disclose or produce
Confidential Information concerning Practice or, in the alternative, be liable
for contempt or suffer other censure or penalty, Business Manager may disclose
or produce such Confidential Information without liability hereunder; provided,
--------
however, that Business Manager shall give Practice notice of the Confidential
- -------
Information to be so disclosed or produced, and a
27
<PAGE>
copy of the request therefor, as far in advance of its disclosure or production
as is reasonably practicable and shall use its best efforts to obtain, to the
greatest extent practicable, an order or other reliable assurance that
confidential treatment will be accorded to such Confidential Information so
required to be disclosed or produced.
(b) Notwithstanding clause (a) above, Business Manager may share,
subject to the restrictions of this Section 4.13(b), with other professional
corporations, associations, medical practices or health care delivery entities,
the statistics of Practice, including utilization review data, quality assurance
data, cost data, outcomes data or other Practice data. Business Manager may
disclose such statistics to other medical groups with whom Business Manager has
a management relationship, to managed care providers or other third party payors
for the purpose of obtaining or maintaining third party payor contracts, or to
financial analysts and underwriters. In addition, Business Manager may disclose
all Practice-related information necessary or desirable in connection with any
public or private offering of any security of Business Manager, but no such data
will disclose or divulge patient identifying information.
4.14 Insurance.
---------
(a) Business Manager's Insurance. Throughout the Term, Business
----------------------------
Manager shall, as an Office Expense, obtain and maintain with commercial
carriers, through self-insurance or some combination thereof and in a manner
consistent with good business practice, appropriate workers' compensation
coverage for Business Manager's employed personnel provided to Practice pursuant
to this Management Services Agreement (such employed personnel to be the
personnel whose salaries and benefits are Office Expenses pursuant to Section
1.33(a) hereof, and professional, casualty and comprehensive general and
vicarious liability insurance covering Business Manager, the Offices, Business
Manager's personnel and all of Business Manager's equipment in such amounts, on
such basis and upon such terms and conditions as Business Manager deems
appropriate. Upon the request of Practice, Business Manager shall provide
Practice with a certificate evidencing such insurance coverage and Business
Manager shall use commercially reasonable efforts to list Practice as an
additional insured. Business Manager may also carry, as an Office Expense, key
person life and disability insurance on any Physician in amounts determined
reasonable and sufficient by Business Manager, but only upon the express written
permission of Practice. Business Manager shall be the owner and beneficiary of
any such insurance; provided, however, that any key person life and disability
-------- -------
insurance on any Physician which is purchased by Business Manager and for which
such premiums are paid as a Principal Services Office Expense hereunder shall
require that benefit payments under such insurance be Principal Services
Revenue.
(b) Professional and General Liability Insurance of Practice.
--------------------------------------------------------
Business Manager shall obtain and maintain, on behalf of Practice and as an
Office Expense, professional and comprehensive general liability insurance
covering Practice and each of Physicians and Optometrists for the services they
provide for Practice. The comprehensive general liability coverage shall be in
the minimum amount of One Million dollars ($1,000,000) for each occurrence and
Two Million dollars ($2,000,000) annual aggregate in each of Illinois, Indiana
and Delaware; and professional liability coverage shall be in the minimum amount
of One Million dollars
28
<PAGE>
($1,000,000) for each occurrence and Three Million dollars ($3,000,000) annual
aggregate, in Illinois, and in the minimum amount of One Hundred Thousand
dollars ($100,000) for each occurrence and Three Hundred Thousand dollars
($300,000) annual aggregate, in Indiana, or any other higher minimum coverage
requirements established by law. The insurance policy or policies shall provide
for at least (30) days' advance written notice to Business Manager and Practice
from the insurer as to any alteration of coverage, cancellation or proposed
cancellation for any cause. Business Manager shall cause to be issued to
Practice a certificate of such insurer or insurers reflecting such coverage and
either party hereunder shall provide notice to the other party promptly upon
receipt of any notice canceling or proposing to cancel the insurance coverage of
Practice, or any Physician or Optometrist for any reason. Upon the termination
of this Management Services Agreement for any reason, Practice shall obtain and
maintain as a Practice Expense "tail" professional liability coverage, in the
amounts specified in this Section 4.14(b) for an extended reporting period of
ten (10) years, and Practice shall be responsible for paying all premiums for
"tail" insurance coverage.
(c) Health Insurance. Business Manager shall, to the extent such
----------------
coverage is available from Business Manager's current insurance carrier, make
available to, and accessible by, Physicians and Optometrists health benefits
under any health benefit program maintained by Business Manager. If any
Physician or Optometrist elects such coverage, the cost of such coverage shall
be deemed an Office Expense for any Optometrist or Physician-Employee, and a
Practice Expense for any Practice-Owner, except that the cost of such coverage
for the Practice Expense Employees shall be a Practice Expense.
4.15 No Warranty. Practice acknowledges that Business Manager has not
-----------
made and will not make any express or implied warranties or representations that
the services provided by Business Manager will result in any particular amount
or level of revenue or income to Practice.
4.16 Future Transactions.
-------------------
(a) The parties acknowledge that a component of Business Manager's
business is to affiliate with Ophthalmic Practices (as hereinafter defined) by
one or more business transactions, ventures or arrangements, including, without
limitation, acquiring the nonmedical assets of, and entering into a Management
Services Agreement with, such Ophthalmic Practices (such transactions
hereinafter referred to as "Ophthalmic Transactions"). In the event Business
Manager is negotiating with, is actually considering initiating negotiations
with, or is approached by any third party with a proposal or view to initiating
negotiation with, any Ophthalmic Practice regarding an Ophthalmic Transaction,
and such Ophthalmic Practice is located and/or serves patients within the
Chicago Territory (as hereinafter defined) (such Ophthalmic Practice to be
referred to as the "Target Practice"), Business Manager will in all events give
Practice first notice and opportunity with respect to such Ophthalmic
Transaction and use all commercially reasonable efforts to structure the
Ophthalmic Transaction through or involving Practice. Such efforts shall entail
at a minimum the following: Business Manager will give Practice at least thirty
(30) days' prior written notice of any proposed Ophthalmic Transaction, unless
such Ophthalmic Transaction has come to Business Manager's attention in such a
way or under such circumstances as to require shorter notice and response time
in order for Business Manager and Practice to be reasonably able
29
<PAGE>
to take advantage of the opportunity (for example, if there are multiple bidders
or the Target Practice has of its own accord established a response deadline and
expediency is therefore required), in which case Business Manager shall give
Practice the maximum amount of advance notice permitted under the circumstances.
Business Manager shall use all commercially reasonable efforts and shall
negotiate with Practice in good faith to structure such Ophthalmic Transaction
so as to involve the business combination of the Target Practice with Practice,
or another transaction or structure designed to achieve a substantially similar
economic result. Business Manager shall express to the Target Practice that the
preferred transaction alternative for all concerned will involve a business
combination with Practice, shall use all commercially reasonable efforts to
encourage the principals of the Target Practice to negotiate with Practice to
this end and shall use commercially reasonable efforts to facilitate
negotiations between Practice and the Target Practice. Business Manager shall
not engage in any transaction or arrangement designed to circumvent the
requirements of this Section 4.16. If, notwithstanding the foregoing efforts by
Business Manager the parties are unable to structure the Ophthalmic Transaction
so as to involve Practice, Business Manager shall be deemed to have satisfied
its obligation set forth in this Section 4.16 and shall be free to negotiate a
transaction with such Target Practice that does not involve Practice.
Notwithstanding the foregoing, nothing herein shall be construed as requiring
Business Manager to structure through or on behalf of Practice any transactions
involving any practice or business that is not an Ophthalmic Practice, nor shall
Business Manager be required to structure through Practice any component of the
Ophthalmic Practice that does not involve the provision of ophthalmic
professional services. Examples of practices or businesses that are not
Ophthalmic Practices (or ophthalmic-related components thereof) include, without
limitation, the provision of optometric professional services, the provision of
optical dispensing services, the operation of an ambulatory surgery or
refractive laser center, or the operation of an optical lab.
(b) As used herein, (i) the "Chicago Territory" is comprised of Lake
and Porter counties in Indiana, and the Illinois counties of Cook, Lake, Will,
Kane, Kendall, McHenry and DuPage; and (ii) "Ophthalmic Practice" shall mean an
ophthalmologist or group of ophthalmologists engaged in the provision of
professional ophthalmic services.
ARTICLE 5
COVENANTS AND RESPONSIBILITY OF PRACTICE
5.1 Organization and Operation. Practice, as a continuing condition of
--------------------------
Business Manager's obligations under this Management Services Agreement, shall
at all times during the Term be and remain legally organized and operated to
provide Medical Services in a manner consistent in all material respects with
all state and federal laws.
(a) Employment of Physicians.
------------------------
(i) Practice shall operate and maintain within the Practice
Territory a full-time practice of medicine specializing in the provision of
Medical Services, and shall maintain and enforce employment agreements in
the form of Exhibit 5.1A (the "Employment Agreements") with individual
------------
physician Practice-Owners, and Services
30
<PAGE>
Agreements with professional or medical service corporation Practice-
Owners, including, without limitation, the initial Practice-Owners
identified in Exhibit 5.1B. Practice-Owners that are parties to Services
------------
Agreements shall maintain employment agreements with their Physician
Shareholders in the form of Exhibit 5.1C. Practice shall not amend the
------------
Employment Agreements or the Services Agreements in any material manner or
waive any material rights of Practice thereunder without the prior written
approval of Business Manager. Recognizing that Business Manager would not
have entered into this Management Services Agreement but for Practice's
covenant to maintain Employment Agreements or Services Agreements with
Practice-Owners, and subject to subparagraph (ii) below, Practice shall pay
to Business Manager, in addition to the Management Fee, any damages,
compensation, payment or settlement received by Practice from a Practice-
Owner (A) pursuant to Section 4.2 of the Employment Agreements and/or
Section 4.2 of the Services Agreement, or (B) arising from any other
material breaches of the Employment Agreements or Services Agreements or
(C) any funds remitted (1) by Physician to Owner-Contractor in accordance
with Section 6.5 of the Employment Agreement or (2) by Owner-Contractor to
Practice pursuant to Section 6.5 the Services Agreement (such damages being
collectively referred to herein as the "Business Manager Damages"). If any
Physician shall fail to perform any of the material duties and obligations
of a Physician under an Employment Agreement or pursuant to an employment
agreement with a Practice-Owner that is a party to a Services Agreement,
and Practice fails to enforce vigorously (as determined reasonably and in
good faith by the Policy Board) such Employment Agreement or Services
Agreement (and associated employment agreement), Business Manager shall
have the right, but not the obligation, to enforce the provisions of such
Employment Agreement or Services Agreement (and associated employment
agreement), and Practice shall assign all of its rights and remedies under
such Employment Agreement or Services Agreement (and any associated
employment agreement) upon the request of Business Manager. To the extent
permitted by law, Practice acknowledges and agrees that Business Manager
has third party beneficiary rights to the extent set forth above in each
Employment Agreement or Service Agreement.
(ii) Notwithstanding the provisions of Section 5.1(a)(i) above,
or any other provision to the contrary contained herein, Practice shall
have a period of not less than forty-five (45) days following the
occurrence of any event described in Section 5.1(a)(i) above that entitles
Business Manager to receive Business Manager Damages to take such actions
to cure the breach of any Employment Agreement or Services Agreement by a
Practice-Owner (which actions to cure may, without limitation, include
retention of additional Physicians to replace the levels of revenue and
income previously generated by the Practice-Owner causing such breach);
provided, however, that the determination of whether or not such breach has
-------- -------
been cured shall be made by Business Manager in its good faith discretion,
and provided further, that Practice shall in no event be permitted to cure
-------- -------
any breach that results from a breach by a Practice-Owner of any non-
competition provision contained in any Employment Agreement or Services
Agreement.
(b) Corporate Governance. Throughout the Term of this Management
--------------------
Services Agreement, Practice shall maintain and enforce the Operating Agreement,
and shall cause all new
31
<PAGE>
owners of Practice to become a party to, and bound by the Operating Agreement
prior to becoming an owner of Practice. Practice will also maintain its articles
of organization and Operating Agreement in accordance with applicable law,
including, without limitation, any laws governing the transferability of shares
from disqualified owners to qualified owners. Throughout the Term of this
Management Services Agreement, Practice shall not, without the prior written
consent of Business Manager, amend the following sections of the Operating
Agreement: 1(p); 10.8(f); 10.8(h); or 13.9. To the extent Practice elects to
bring in any New Member (as such term is defined in the Operating Agreement) who
was previously an employee of Practice participating in NovaMed's 401(k) plan
(the "NovaMed Plan"), Practice agrees that the effective date of such New
Member's procurement of an equity interest in Practice shall be the first day of
the next succeeding calendar year in which such election is made. Alternatively,
Practice will advise any potential New Member not to participate in the NovaMed
Plan in the calendar year in which he or she becomes a New Member.
5.2 Practice Personnel.
------------------
(a) Physician Personnel and Optometrists. Practice shall retain
------------------------------------
(either directly or through Services Agreements or other agreements) the number
of Physicians and Optometrists as is reasonably necessary and appropriate in the
sole discretion of Practice for the provision of Medical Services. Each
Physician shall hold and maintain a valid and unrestricted license to practice
medicine each state in which said Physician practices, which may include,
without limitation, Illinois and/or Indiana, and shall be competent, in the
reasonable opinion of Practice, in the practice of ophthalmology. Each
Optometrist shall hold and maintain a valid and unrestricted license to practice
optometry in each state in which said Optometrist practices, which may include,
without limitation, Illinois and/or Indiana, and shall be competent, in the
reasonable opinion of Practice, in such practice. Practice shall enter into and
maintain with each such retained Physician and Optometrist a written employment
agreement substantially in the form of either Exhibit 5.1A for Practice-Owners
------------
who are individual Physicians or Exhibit 5.2A for Physician-Employees, or a
------------
written services agreement substantially in the form of Exhibit 1.59 for
------------
professional or medical service corporation Practice-Owners that employ a
Physician pursuant to the terms of an employment agreement in the form of
Exhibit 5.1A. Practice will neither commit nor permit to remain outstanding any
- ------------
breach of such employment agreement or Services Agreement that would allow any
Practice-Owner, Physician or Optometrist to terminate for cause. Regardless of
whether the compensation is a Practice Expense or Office Expense, Practice shall
be responsible for paying the compensation and benefits, as applicable, for all
Physicians, Optometrists, and any other physician personnel or other contracted
or affiliated physicians, and for withholding any sums for income tax,
unemployment insurance, social security or any other withholding required by
applicable law (except as may be otherwise provided in the services agreements).
Business Manager shall, on behalf and at the direction of Practice, administer
the compensation with respect to such individuals in accordance with the written
agreement between Practice and each Practice-Owner, other Physician or
Optometrist. Business Manager shall neither control nor direct any Physician or
Optometrist in the performance of Medical Services for patients.
(b) Nonphysician Personnel. Business Manager shall retain all
----------------------
nonphysician personnel necessary for the operation of Practice and such
nonphysician personnel shall be under
32
<PAGE>
Business Manager's control, supervision and direction in the performance of
their duties, except for (i) Designated Allied Health Professionals, who shall
perform their duties under the supervision and control of Physicians, consistent
with the requirements necessary to meet the "incident to" provisions of the
Medicare program, and (ii) opticians and others providing services in Practice's
optical dispensary, who shall perform their duties under the supervision and
control of Physicians and Optometrists.
5.3 Professional Standards. As a continuing condition of Business
----------------------
Manager's obligations hereunder, each Physician, Optometrist and any other
physician personnel retained by Practice to provide Medical Services must comply
with, be controlled and governed by, and otherwise provide Medical Services in
all material respects in accordance with, all applicable federal, state and
municipal laws, rules, regulations, ordinances and orders, and the ethical
standards and standards of care of the medical community wherein the principal
office of each Physician or Optometrist is located. In addition, each Physician
and any other physician personnel retained by Practice to provide Medical
Services must obtain and retain appropriate admitting privileges at local area
hospitals or health care facilities which are reasonably adequate for Physician
to perform Medical Services. Procurement of temporary staff privileges pending
the completion of the medical staff approval process shall satisfy this
provision, provided Physician actively pursues full admitting privileges and
actually receives full admitting privileges within a reasonable time.
5.4 Medical Services. Practice shall use reasonable efforts to ensure that
----------------
Physicians and Optometrists are available to provide Medical Services to
patients. In the event that Physicians or Optometrists are not available to
provide the relevant Medical Services coverage, Practice shall engage and retain
locum tenens coverage. Physicians and Optometrists retained on a locum tenens
- ----- ------ ----- ------
basis shall meet all of the requirements of Section 5.3 hereof in all material
respects and the cost of providing locum tenens coverage shall be an Office
----- ------
Expense unless such locum tenens coverage is attributable to a Practice-Owner or
------------
a Practice Expense Employees exceeding the maximum amount of vacation, and
personal and educational leave days allowable under such Practice-Owner's
Employment Agreement or Services Agreement or such Physician Employee's or
Optometrist's employment agreement with Practice, in which case the cost of such
coverage attributable to such Practice-Owner, Physician-Employee or Optometrist
shall be a Practice Expense. With the assistance of Business Manager, Practice,
Physicians and Optometrists shall be responsible for scheduling the relevant
coverage of all medical and eye-related procedures. Practice shall use all
reasonable efforts to develop and promote Practice.
5.5 Peer Review/Quality Assurance. Practice shall adopt a peer
-----------------------------
review/quality assurance program to monitor and evaluate the quality and cost-
effectiveness of Medical Services provided by Physicians and Optometrists of
Practice, the cost of which shall be an Office Expense. Upon request of
Practice, Business Manager shall provide administrative assistance to Practice
in performing its peer review/quality assurance activities, but only if such
assistance can be provided in a manner consistent with maintaining the
confidentiality and privileged status of the processes and actions of the peer
review/quality assurance process of Practice.
5.6 Confidential and Proprietary Information. Practice will not disclose
----------------------------------------
any Confidential Information of Business Manager without Business Manager's
express written authorization. Such
33
<PAGE>
Confidential Information will not be used in any way directly or indirectly
detrimental to Business Manager, and Practice will keep such Confidential
Information confidential and will ensure that its affiliates and advisors who
have access to such Confidential Information comply with these nondisclosure
obligations. Notwithstanding the foregoing, Practice may disclose Confidential
Information to those of its Representatives who need to know Confidential
Information for the purposes of this Management Services Agreement, it being
understood and agreed to by Practice that such Representatives will be informed
of the confidential nature of the Confidential Information, will agree to be
bound by this Section 5.6, and will be directed by Practice not to disclose to
any other person any Confidential Information. Practice shall be responsible for
any breach of this Section 5.6 by its affiliates, advisors or Representatives.
If Practice is required (by interrogatories, requests for information or
documents, subpoenas, civil investigative demands or similar processes) to
disclose or produce any Confidential Information furnished in the course of its
dealings with Business Manager or its affiliates, advisors or Representatives,
Practice will (i) provide Business Manager with prompt prior notice thereof and
copies, if possible, and, if not, a description, of the request and the
Confidential Information requested or required to be produced so that Business
Manager may seek an appropriate protective order or other protections to enforce
the provisions of this Section 5.6, or, alternatively, waive compliance with the
provisions of this Section 5.6 and (ii) consult with Business Manager as to the
advisability of Business Manager's taking of legally available steps to resist
or narrow such request. Practice further agrees that if, in the absence of a
protective order or the receipt of a waiver hereunder, Practice is nonetheless,
in the written opinion of its legal counsel, compelled to disclose or produce
Confidential Information concerning Business Manager to any tribunal or to stand
liable for contempt or suffer other censure or penalty, Practice may disclose or
produce such Confidential Information to such tribunal legally authorized to
request and receive such Confidential Information without liability hereunder;
provided, however, that Practice shall give Business Manager written notice of
- -------- -------
the Confidential Information to be so disclosed or produced, and a copy of the
request therefor, as far in advance of its disclosure or production as is
practicable and shall use its best efforts to obtain, to the greatest extent
practicable, an order or other reliable assurance that confidential treatment
will be accorded to such Confidential Information so required to be disclosed or
produced.
5.7 Noncompetition. Practice hereby recognizes and acknowledges that
--------------
Business Manager has incurred and will continue to incur substantial costs in,
and devote substantial resources to, providing the equipment (including, without
limitation, lasers, microkeratomes and/or other equipment used to perform vision
correction procedures), support services, personnel, management, administration,
and other items and services that are the subject matter of this Management
Services Agreement, including, without limitation, devoting significant
resources to developing Practice's laser vision correction practice, and that in
the process of providing services under this Management Services Agreement,
Practice will be privy to financial and Confidential Information of Business
Manager and other practices for whom Business Manager provides services, to
which Practice would not otherwise be exposed. The parties also recognize that
the services to be provided by Business Manager will be feasible only if
Practice operates an active practice to which Physicians associated with
Practice devote their full professional time and attention. Practice agrees and
acknowledges that the noncompetition covenants described hereunder are necessary
for the protection of Business Manager, and that Business Manager would not have
entered into this Management Services Agreement without the following covenants:
34
<PAGE>
(a) During the Term of this Management Services Agreement and except
for the performance of Medical Services and ancillary services at Offices
contemplated by, or subject to, this Management Services Agreement or as
expressly agreed to by Business Manager in writing, Practice shall not
establish, operate or provide Medical Services at any other medical office,
clinic or other health care facility. During the Term of this Management
Services Agreement and except for the operation of the Non-Ophthalmic Business
at Offices contemplated by, or subject to, this Management Services Agreement or
as expressly agreed to by Business Manager in writing, Practice shall not
establish, operate or engage in a Non-Ophthalmic Business at any other office or
facility. During the Term of this Management Services Agreement, Practice shall
not acquire, by purchase, lease or otherwise, any medical or nonmedical
equipment, including, without limitation, lasers, microkeratomes and/or other
equipment, used to perform vision correction procedures, except from or through
Business Manager or with the express written consent of Business Manager.
Notwithstanding the foregoing, and subject to the terms and conditions of the
Employment Agreements and other written agreements with Practice's Physicians
and Optometrists, no Physician or Optometrist shall be prohibited from providing
services at medical offices, clinics or other health care facilities other than
the Offices.
(b) Except as specifically agreed to by Business Manager in writing,
Practice commits and agrees that during the Term of this Management Services
Agreement and, if this Agreement terminates other than for expiration of the
Term or by Practice for Practice Cause under Section 8.2(b), for a period of
five (5) years from the termination date of this Management Services Agreement,
Practice shall not directly or indirectly own (excluding ownership of less five
percent (5%) of the equity of any publicly traded entity), manage, operate,
control, contract with, or otherwise be associated with, lend funds to, lend its
name to, or maintain any interest whatsoever in any enterprise (i) having to do
with the provision, distribution, promotion or advertising of any type of
management or administrative services or products to third parties in
competition with Business Manager; and/or (ii) offering any type of service or
product to third parties similar to those offered by Business Manager to
Practice. Notwithstanding the above restriction, nothing herein shall prohibit
Practice or any of its holders from providing management and administrative
services to its or their own medical practices after the termination of this
Management Services Agreement.
(c) The written Employment Agreements and Services Agreements (and the
employment agreements required thereby) described in Section 5.1 hereof shall
contain covenants of Practice-Owners and any Physician employed by, and an owner
of, a Practice-Owner whereby they agree: (i) not to compete with Practice within
a prescribed territory for one (1) year after termination of the Employment
Agreement or Services Agreement (or the employment agreement required by said
Services Agreement), except in the event Practice-Owner terminates such
agreement for Physician Cause under an Employment Agreement, or for Owner-
Contractor Cause under a Services Agreement, or certain buyout rights are
exercised, and (ii) not to acquire, by purchase, lease or otherwise, any medical
or nonmedical equipment, including without limitation, lasers, microkeratomes
and/or other equipment, used to perform vision correction procedures, during the
term of the applicable Employment Agreement and for one (1) year after
termination of the applicable Employment Agreement, except from or through
Business Manager or with the express written consent of Business Manager.
35
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(d) Unless waived by Business Manager, Practice shall obtain and
enforce formal written agreements with Physician-Employees and Optometrists in
the form of Exhibit 5.2A, pursuant to which the employees agree: (i) not to
------------
compete with Practice within a prescribed territory for one (1) year after
termination of the Employment Agreement, except in the event Physician
terminates such agreement for Physician Cause (as defined in the Employment
Agreements), or exercises his or her right to buy out of such noncompete
provision in accordance with the terms of the Employment Agreements, and (ii)
not to acquire, by purchase, lease or otherwise, any medical or nonmedical
equipment, including, without limitation, lasers, microkeratomes and/or other
equipment, used to perform vision correction procedures, during the term of the
applicable Employment Agreement and for one (1) year after termination of the
applicable Employment Agreement, except from or through Business Manager or with
the express written consent of Business Manager.
(e) Practice understands and acknowledges that the provisions in
Section 5.6 hereof and this Section 5.7 are designed to preserve the goodwill of
Business Manager and the goodwill of the individual Physicians and Optometrists
of Practice. Accordingly, if Practice breaches any obligation of Section 5.6
hereof or this Section 5.7, in addition to any other remedies available under
this Management Services Agreement at law or in equity, Business Manager shall
be entitled to enforce this Management Services Agreement by injunctive relief
and by specific performance of the Management Services Agreement, such relief to
be without the necessity of posting a bond, cash or otherwise. Additionally,
nothing in this paragraph shall limit Business Manager's right to recover any
other damages to which it is entitled as a result of Practice's breach. If any
provision of the covenants herein is held by a court of competent jurisdiction
to be unenforceable due to an excessive time period, geographic area or
restricted activity, the covenant shall be reformed to comply with such time
period, geographic area or restricted activity that would be held enforceable.
5.8 Name, Trademark. Pursuant to that certain License Agreement by and
---------------
between Business Manager and Hunkeler Eye Centers, P.C., a Missouri professional
corporation, of even date herewith (the "License Agreement"), Business Manager
has the royalty-free right to use the name "Hunkeler Eye Centers" (the "HEC
Name") in connection with its management of Practice, and the right to
sublicense the HEC Name to Practice. At the end of the term of the License
Agreement, Business Manager shall either: (i) renew the License Agreement and
continue to have the right to sublicense the HEC Name to Practice, (ii) purchase
the HEC Name and license same to Practice, or (iii) arrange for Hunkeler Eye
Centers, P.C., an affiliated practice of Business Manager located in Kansas
City, Missouri ("HEC-KC") to license the HEC Name to Practice pursuant to a
royalty-free license. Business Manager hereby grants to Practice a royalty-free
sublicense to use the HEC Name to practice medicine and conduct business in the
Chicago Territory, and a royalty-free license to use the HEC Name to practice
medicine and conduct business in the Chicago Territory. The license or
sublicense granted hereunder (whether by Business Manager or through a separate
agreement between HEC-KC and Practice) shall be effective for the Term of this
Management Services Agreement and shall terminate immediately upon termination
of this Management Services Agreement. Practice represents and warrants that
Practice conducts its professional practice under the name of, and only under
the name of "Hunkeler Eye Centers-Chicago, L.L.C." and any registered d/b/a's,
including, without limitation,
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the d/b/a's set forth on Exhibit 5.8 and that such name is the name under which
-----------
Practice practices medicine and conducts business under state law. Each party
hereto covenants and promises that, without the prior written consent of the
other party hereto, it will not:
(a) knowingly take any action or omit to take any action that would
result in the change or loss of the HEC Name; or
(b) license, sell, give or otherwise transfer the HEC Name, or the
right to use the HEC Name, to any medical practice, physician, professional
corporation or any other entity not affiliated with Practice.
5.9 Medical Advisory Board. The board of directors of Business Manager
----------------------
has appointed a medical advisory board (the "Medical Advisory Board") to provide
a general forum for review and analysis of medical and clinical issues affecting
Practice and all other medical practices with which Business Manager has entered
into a management services agreement or similar agreement. The Medical Advisory
Board consists of at least three Doctors of Ophthalmology, one of whom is
designated as the "Medical Director," and may include, at the discretion of the
board of directors of Business Manager, one or more Doctors of Optometry,
Registered Nurses or other health care professionals. The Vice President
Clinical Operations of Business Manager, and/or such other designee as Business
Manager shall select, attends meetings of the Medical Advisory Board on a
consulting basis. Members of the Medical Advisory Board serve for one-year
terms and are appointed or re-appointed for such term during the first meeting
of the board of directors of Business Manager held for each calendar year. The
board of directors of Business Manager may name additional members, remove any
member, or fill any vacancy created by the resignation, death or disability of
any member, of the Medical Advisory Board during any duly called meeting of such
board of directors. Notwithstanding anything to the contrary contained herein,
the Medical Advisory Board will serve in a solely advisory capacity and the
ultimate authority over medical decisions affecting Practice shall reside with
Practice's Practice-Owners.
5.10 Indemnification of Business Manager. Practice shall hold Business
-----------------------------------
Manager, its Affiliates, Representatives, successors and assigns and each of
them harmless from and against any and all losses, damages, fines, costs,
claims, judgments, proceedings, expenses or liabilities (including, without
limitation, reasonable attorneys' fees, paralegal fees, and costs and expenses
thereof), (a) arising out of or attributable to, or which result from, the
provision of medical services in connection with the operation of the Non-
Ophthalmic Business or the performance of Medical Services (including, without
limitation, malpractice claims) or the gross negligence or willful misconduct of
Practice and/or its members, officers, employees, agents, and/or independent
contractors (other than Business Manager and/or its employees, agents, members,
officers, and/or independent contractors) and (b) arising out of, or
attributable to, or which result from, any claim of a third party with respect
to any miscoding or other error in medical service or optical non-ophthalmic
documentation by Practice or its Physicians or Optometrists resulting in false
or inaccurate billings.
5.11 Indemnification of Practice. Business Manager shall hold Practice,
---------------------------
its Affiliates, Representatives, successors and assigns and each of them
harmless from and against any and all
37
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losses, damages, fines, costs, claims, judgments, proceedings, expenses or
liabilities (including, without limitation, reasonable attorneys' fees,
paralegal fees, and costs and expenses thereof) (a) arising out of or
attributable to, or which result from, the gross negligence or willful
misconduct of Business Manager and/or its members, officers, employees, agents,
and/or independent contractors (other than Practice and/or its members,
officers, employees, agents, and/or independent contractors), and (b) arising
out of, or attributable to, or which result from, any claim of a third party
with respect to any miscoding or other error in medical service documentation by
Business Manager or its employees resulting in false or inaccurate billings.
ARTICLE 6
FINANCIAL ARRANGEMENT
6.1 Definitions. For purposes of this Article 6, capitalized terms used
-----------
herein shall have the meanings ascribed as follows:
(a) Management Fee. The term "Management Fee" shall mean, for any
--------------
month, the * for such month and * for such month.
(b) Monthly Office Expense. The term "Monthly Office Expense" shall
----------------------
mean, for any month, the sum of the Non-Ophthalmic Business Monthly Office
Expense for such month and the Principal Services Monthly Office Expense for
such month.
(c) Monthly Practice Expense. The term "Monthly Practice Expense"
------------------------
shall mean, for any month, the sum of the Non-Ophthalmic Business Monthly
Practice Expense for such month and the Principal Services Monthly Practice
Expense for such month.
(d) Non-Ophthalmic Business Budgeted Office Expense. The term "Non-
-----------------------------------------------
Ophthalmic Business Budgeted Office Expense" shall mean, for any month, the Non-
Ophthalmic Business Office Expense (other than the Non-Ophthalmic Business
Management Fee) established in the Budget for such month.
(e) Non-Ophthalmic Business Budgeted Practice Expense. The term "Non-
-------------------------------------------------
Ophthalmic Business Budgeted Practice Expense" shall mean, for any month, the
Non-Ophthalmic Business Practice Expense (as defined in the Budget) established
in the Budget for such month.
(f) Non-Ophthalmic Business Budgeted Revenue. The term "Non-
----------------------------------------
Ophthalmic Business Budgeted Revenue" shall mean, for any month, the Non-
Ophthalmic Business Revenue established in the Budget for such month.
(g) Non-Ophthalmic Business Management Fee. The term "Non-Ophthalmic
--------------------------------------
Business Management Fee" shall be, for any month, the *, except in the event
that either (i) *
- ---------------
* Confidential portions omitted and filed separately with the commission.
38
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* or (ii) * for such month, in which case the "Non-Ophthalmic Business
Management Fee" for such month shall be *.
(h) Non-Ophthalmic Business Monthly Fee. The term "Non-Ophthalmic
-----------------------------------
Business Monthly Fee" shall be for any month, the * for such month.
(i) Non-Ophthalmic Business Monthly Office Expense. The term "Non-
----------------------------------------------
Ophthalmic Business Monthly Office Expense" for any month shall mean the amount
of Non-Ophthalmic Business Budgeted Office Expense for such month, plus or minus
any difference between (i) the actual Non-Ophthalmic Business Office Expense
incurred by or on behalf of Practice for such month, as measured in accordance
with GAAP (other than the Non-Ophthalmic Business Management Fee) and (ii) Non-
Ophthalmic Business Budgeted Office Expense for such month.
(j) Non-Ophthalmic Business Monthly Practice Expense. The term "Non-
------------------------------------------------
Ophthalmic Business Monthly Practice Expense" shall mean, for any month, the
Non-Ophthalmic Business Budgeted Practice Expense for such month, except in the
event that either (i) * or (ii) *, in which case the term "Non-Ophthalmic
Business Monthly Practice Expense" for such month shall mean *.
(k) Non-Ophthalmic Business Office Expense. The term "Non-Ophthalmic
--------------------------------------
Business Office Expense" shall mean all Office Expenses, operating and non-
operating, which constitute direct expenses to produce Non-Ophthalmic Business
Revenue, as determined consistent with the Budget; provided that any
disagreement over whether an expense constitutes a direct expense to produce
Non-Ophthalmic Business Revenue shall be resolved by the Policy Board.
(l) Principal Services Budgeted Office Expense. The term "Principal
------------------------------------------
Services Budgeted Office Expense" shall mean, for any month, the Principal
Services Office Expense (other than the Principal Services Management Fee)
established in the Budget for such month.
- ------------------
* Confidential portions omitted and filed separately with the commission.
39
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(m) Principal Services Budgeted Practice Expense. The term "Principal
--------------------------------------------
Services Budgeted Practice Expense" shall mean, for any month, the Principal
Services Practice Expense (as defined in the Budget) established in the Budget
for such month.
(n) Principal Services Budgeted Revenue. The term "Principal Services
-----------------------------------
Budgeted Revenue" shall mean, for any month, the amount of Principal Services
Revenue established in the Budget for such month.
(o) Principal Services Management Fee. The term "Principal Services
---------------------------------
Management Fee" shall be, for any month, the *, except in the event that either
(i) * or (ii) *, in which case the "Principal Services Management Fee" for
such month shall be *.
(p) Principal Services Monthly Fee. The term "Principal Services
------------------------------
Monthly Fee" shall mean, for any month, the * for such month.
(q) Principal Services Monthly Office Expense. The term "Principal
-----------------------------------------
Services Monthly Office Expense" shall mean, for any month, the amount of
Principal Services Budgeted Office Expense for such month, plus or minus any
difference between (i) the actual Principal Services Office Expense incurred by
or on behalf of Practice for such month, as measured in accordance with GAAP
(other than the Principal Services Management Fee) and (ii) Principal Services
Budgeted Office Expense for such month.
(r) Principal Services Monthly Practice Expense. The term "Principal
-------------------------------------------
Services Monthly Practice Expense" shall mean, for any month, the * for such
month, except in the event that either (i) * or (ii) * for such month, in
which case the term "Principal Services Monthly Practice Expense" for such month
shall mean *.
(s) Principal Services Office Expense. The term "Principal Services
---------------------------------
Office Expense" for any month shall mean all Office Expenses for such month
other than Non-Ophthalmic Business Office Expenses for such month.
- ------------
* Confidential portions omitted and filed separately with the commission.
40
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6.2 Management Fee. Practice and Business Manager agree to the
--------------
compensation set forth herein as being paid to Business Manager in consideration
of a substantial commitment made by Business Manager hereunder and that such
fees are fair and reasonable. In the priority established by Section 4.9
hereof, Business Manager will be paid the following:
(a) the amount of all Office Expense (other than the Non-Ophthalmic
Business Management Fee and the Principal Services Management Fee) paid on
behalf of Practice; and
(b) the Management Fee.
6.3 Reasonable Value. Payment of the Management Fee is not intended to be
----------------
and shall not be interpreted or applied as permitting Business Manager to share
in Practice's fees for Medical Services or any other services, but is
acknowledged as the parties' negotiated agreement as to the reasonable fair
market value of the equipment, contract analysis and support, other support
services, purchasing, personnel, office space, management, administration,
strategic management and other items and services furnished by Business Manager
pursuant to this Management Services Agreement, after giving effect to the
nature and volume of the services required and the risks assumed by Business
Manager. The parties agree that it is appropriate to calculate and apply
separate fees for the management of the Non-Ophthalmic Business and Principal
Services, due to (i) the amount of Business Manager Expense incurred by
Business Manager in connection with the management of the operations of the Non-
Ophthalmic Business, (ii) the fair market value of the management services
provided by Business Manager with respect to each of the Non-Ophthalmic
Business, and Principal Services, and (iii) the nature and volume of the
services required and the risks assumed by Business Manager with respect to each
of the Non-Ophthalmic Business and Principal Services.
6.4 Payment of Management Fee. To facilitate the payment of the
-------------------------
Management Fee as provided in Section 6.2 hereof, and subject to the priority of
payment methodology set forth in Section 4.9 hereof, Practice hereby expressly
authorizes Business Manager to make withdrawals of the Management Fee from the
Depository Account as such fee becomes due and payable during the Term and
thereafter as provided in Section 8.3 hereof.
6.5 Accounts Receivable. Unless otherwise prohibited by law, to assure
-------------------
that Practice receives the entire amount of professional fees for its services
and to assist Practice in maintaining reasonable cash flow for the payment of
Office Expense, Practice hereby agrees to sell, and Business Manager hereby
agrees to purchase, with respect to any month during the Term and with recourse
to Practice for the amount of the purchase, accounts receivable of Practice net
of Adjustments (the "Purchased Receivables") (i) in an amount equal to the
difference, if any, between (A) the sum of the Monthly Office Expense and the
Monthly Practice Expense paid by Business Manager for such month and (B) the
amount of cash collections deposited into the Depository Account during such
month and used to pay all or any portion of the Office Expenses and the Monthly
Practice Expense pursuant to this Management Services Agreement, by transferring
such amount into the Depository Account, and (ii) in an amount equal to the
difference, if any, between the Management Fee and the amount of cash
collections deposited into the Depository Account during such month and used to
pay all or any portion of the Management Fee,
41
<PAGE>
in satisfaction of Practice's obligation to pay Business Manager the Management
Fee pursuant to this Management Services Agreement. The consideration paid to
Business Manager for the purchase shall be an amount equal to the Principal
Services Revenue and Non-Ophthalmic Business Revenue with respect to the
Purchased Receivables, computed in accordance with GAAP on an accrual basis (net
of Adjustments). Although it is the intention of the parties that Business
Manager purchase and thereby become the owner of the Purchased Receivables of
Practice, in the event such purchase shall be ineffective for any reason, to
secure the payment and performance of Practice's obligations hereunder, Practice
is hereby concurrently and irrevocably granting, giving, assigning and pledging
to Business Manager a security interest in all of Practice's accounts
receivable. This Management Services Agreement shall constitute a security
agreement with respect to Practice's assets and accounts receivable and may be
filed under the Uniform Commercial Code in each state in which Practice does
business. Practice shall cooperate with Business Manager and shall execute all
agreements or documents, including any Security Agreements and financing
statements, in connection with the granting of such security interest to
Business Manager, or at Business Manager's option, its lenders, that such
persons deem necessary or appropriate. All collections with respect to the
Purchased Receivables by Business Manager shall be received by Business Manager
as the agent of Practice and shall be endorsed to Business Manager and deposited
in a bank account at a bank designated by Business Manager. To the extent
Practice comes into possession of any payments in respect of the Purchased
Receivables, Practice shall direct such payments to Business Manager for deposit
in bank accounts designated by Business Manager. Without limiting the foregoing,
to ensure that a reasonable cash flow is maintained for the payment of Office
Expenses hereunder, Practice shall not, except as expressly contemplated herein,
sell, assign, transfer, pledge, mortgage or in any way encumber, the accounts
receivable of Practice without the express written consent of Business Manager.
6.6 Disputes Regarding Fees.
-----------------------
(a) It is the parties' intent that any disputes regarding Business
Manager's performance hereunder shall be resolved to the extent possible by good
faith negotiations. To that end, the parties agree that if Practice in good
faith believes that Business Manager has failed to perform its obligations, and
that as a result of such failure, Practice is entitled to a set-off or reduction
in its Management Fees, Practice shall give Business Manager notice of the
perceived failure and request in the notice a set-off or reduction in Management
Fees. Business Manager and Practice shall then negotiate the dispute in good
faith, and if an agreement is reached, the parties shall implement the
resolution without further action.
(b) If the parties cannot reach a resolution within thirty (30) days,
and the amount at issue is $25,000 or less, then the dispute shall be submitted
to the Policy Board. The Policy Board shall then consider, develop and
implement a resolution of such dispute which shall be final and binding upon
Practice and Business Manager.
(c) If the amount in dispute is greater than $25,000, and Business
Manager and Practice fail to resolve the dispute, then such dispute shall be
submitted by either party to binding arbitration as described in Article 7 of
this Management Services Agreement. The parties hereto expressly acknowledge
and agree that any arbitration regarding a dispute under this Section 6.6(c)
42
<PAGE>
shall be limited solely to the determination of the amount of fees due and owing
either party, and shall not address or rule in any manner on matters relating to
any alleged breaches by either party hereto or any potential remedies therefor.
Nothing herein shall preclude the exercise by Practice of any remedies available
at law or equity with respect to matters outside the scope of the arbitration.
ARTICLE 7
MEDIATION AND ARBITRATION
The parties hereto shall negotiate in good faith to resolve any
controversy, dispute, claim or disagreement arising out of or relating to this
Management Services Agreement or the breach of this Management Services
Agreement. Any such dispute, controversy, disagreement or claim (including,
without limitation, tort claims, requests for provisional remedies or other
interim relief, and issues as to arbitrability of any matter) arising from any
provision in this Management Services Agreement which specifically provides for
arbitration as a potential remedy, that cannot be settled through negotiation
shall be settled (a) first, by the parties trying in good faith to settle the
dispute by mediation under the Commercial Mediation Rules of the American
Arbitration Association ("AAA") (such mediation session to be held in Chicago,
Illinois, and to commence within fifteen (15) days after the appointment of the
mediator by the AAA), and (b) if the dispute, controversy, disagreement or claim
cannot be settled by mediation, then by arbitration administered by the AAA
under its Commercial Arbitration Rules (such arbitration to be held in Chicago,
Illinois before a single arbitrator mutually agreed upon by the parties hereto
and to commence within fifteen (15) days after the appointment of the arbitrator
by the AAA), and judgment on the award rendered by the arbitrator may be entered
in any court having jurisdiction thereof. The parties acknowledge that all
other disputes arising under this Management Services Agreement, including,
without limitation, any allegations of breach by either party, shall not be
subject to arbitration; rather, unless otherwise mutually agreed upon by the
parties hereto, such disputes will be submitted to the jurisdiction of the
courts in accordance with Section 9.4 hereof.
ARTICLE 8
TERM AND TERMINATION
8.1 Initial and Renewal Term. The Term of this Management Services
------------------------
Agreement will be for an initial period of thirty-seven (37) years after the
Effective Date, and shall be automatically renewed for successive five (5) year
periods thereafter, provided that neither Business Manager nor Practice shall
have given notice of termination of this Management Services Agreement at least
one hundred twenty (120) days before the end of the initial term or any renewal
term, or unless otherwise terminated sooner as provided in Section 8.2 hereof.
8.2 Termination.
-----------
(a) Termination By Business Manager. Business Manager may terminate
-------------------------------
this Management Services Agreement upon the occurrence of any one of the
following events which shall be deemed to be for "Business Manager Cause":
43
<PAGE>
(i) The suspension or restriction for more than thirty (30)
consecutive days, or the revocations or cancellations of any three (3)
Physicians' licenses within a single twelve-month period to practice
medicine in the States of Illinois and/or Indiana, as applicable, if, in
the reasonable judgment of the Business Manager, Practice will not be
financially viable after such revocations, suspensions, cancellations or
restrictions;
(ii) Practice's loss or suspension of its Medicare or Medicaid
provider number, and/or Practice's restriction from treating patients of
the Medicare or Medicaid programs for a period of more than thirty (30)
consecutive days if, in the reasonable judgment of Business Manager,
Practice will not be financially viable after such loss or suspension;
(iii) The dissolution of Practice, or the filing by Practice of
a petition in voluntary bankruptcy, an assignment for the benefit of
creditors, or other action taken voluntarily under any state or federal
statute for the protection of debtors;
(iv) The filing against Practice of an involuntary petition
under any bankruptcy statute, or the appointment of a custodian, receiver,
trustee or assignee for the benefit of creditors, and such condition shall
continue undischarged or undismissed for sixty (60) days; and
(v) Practice materially defaults in the performance of its
duties or obligations hereunder, and shall fail to cure such default within
sixty (60) days after Practice receives notice from Business Manager
specifying the nature of such default.
(b) Termination By Practice. Practice may terminate this Management
-----------------------
Services Agreement upon any of the following occurrences which shall be deemed
to be for "Practice Cause":
(i) In the event that a court of competent jurisdiction makes
a final determination that Business Manager has materially breached a
fiduciary duty owed to Practice, Practice may terminate this Management
Services Agreement upon ten (10) days' notice to Business Manager; or
(ii) With ten (10) days' written notice to Business Manager, in
the event Business Manager (A) intentionally and in bad faith
misappropriates Practice's funds, or (B) misapplies Practice's funds and
fails to correct such misapplication within thirty (30) days of receipt of
notice from Practice describing with particularity the misapplication.
Upon delivery of written notice by Practice pursuant to (A) of this
subparagraph (iii) no funds of Practice may be withdrawn or disbursed by
Business Manager during such ten-day interim period without Practice
Consent.
(c) Termination by Agreement. In the event Practice and Business
------------------------
Manager shall mutually agree in writing, this Management Services Agreement may
be terminated on the date specified in such written agreement.
44
<PAGE>
(d) Legislative, Regulatory or Administrative Change.
------------------------------------------------
(i) In the event there shall be a change in the Medicare or
Medicaid statutes, state or federal statutes, case law, regulations or
general instructions, the interpretation of any of the foregoing, the
adoption of new federal or state legislation, or a change in any third-
party reimbursement system, any of which are reasonably likely to
materially and adversely affect the manner in which either party may
perform or be compensated for its services under this Management Services
Agreement or which shall make this Management Services Agreement unlawful,
the parties shall immediately enter into good faith negotiations regarding
a new service arrangement or basis for compensation for the services
furnished pursuant to this Management Services Agreement that complies with
the law, regulation or policy and that approximates as closely as possible
the economic position of the parties prior to the change. If good faith
negotiations cannot resolve the matter, it shall be submitted to
arbitration in accordance with Article 7 of this Management Services
Agreement; provided, however, that the scope of such arbitration shall be
-------- -------
limited to conforming with the purpose and intent of this Section 8.2(d)
and the arbitrator will have no authority to suspend or terminate this
Management Services Agreement. If a court of competent jurisdiction
compels or requires a party hereto to refrain from performing its duties
and obligations hereunder, or a party's performance hereunder shall be
directly violative of a court order directed at such party, then, to the
extent necessary to comply with such court order, this Management Services
Agreement shall be deemed suspended. In no event shall such suspension be
construed to relieve either party's obligation under this Section 8.2(d)
and the parties will immediately commence good faith negotiations regarding
a new service arrangement or compensation structure that is in compliance
with any such court order, which arrangement or structure will allocate the
economic aspects of the relationship between the parties in a manner as
nearly as possible as that intended by this Management Services Agreement.
(ii) Notwithstanding anything herein to the contrary, if Section
6.1 and/or Section 6.2 of this Management Services Agreement are found to
be illegal, unenforceable, void, against public policy or forbidden by law,
they shall be replaced as described in Section 9.12 hereof.
8.3 Effects of Termination. Upon termination of this Management Services
----------------------
Agreement, as heretofore provided, the "Term," as defined herein shall end, and
neither party shall have any further obligations hereunder except for (i)
obligations accruing prior to the date of termination, including, without
limitation, payment of the Management Fees, Office Expense and Practice Expense
relating to services provided prior to the termination of this Management
Services Agreement, except to the extent determined not to be payable in
connection with such termination, (ii) obligations, promises or covenants set
forth herein that are expressly set forth herein to extend beyond the Term under
the circumstances giving rise to such termination, including, without
limitation, indemnity, confidentiality and noncompetition provisions, which
provisions shall survive the expiration or termination of this Management
Services Agreement by Business Manager for cause, and (iii) the applicable
obligations of Practice and Business Manager described in Section 8.4 or 8.5
hereof. In effectuating the provisions of this Section 8.3, Practice
specifically
45
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acknowledges and agrees that Business Manager shall continue to collect and
receive on behalf of Practice all cash collections from accounts receivable in
existence at the time this Management Services Agreement is terminated, it being
understood that such cash collections will be applied in accordance with Section
4.9 hereof, and will represent, in part, compensation to Business Manager for
management services already rendered and compensation on accounts receivable
purchased by Business Manager. Upon the expiration or termination of this
Management Services Agreement for any reason or cause whatsoever, Business
Manager shall surrender to Practice all books and records pertaining to
Practice's medical practice.
8.4 Repurchase Obligation. Upon termination of this Management Services
---------------------
Agreement by Business Manager for Business Manager Cause or by Practice without
Practice Cause, Business Manager shall have the right, but not the obligation,
to require Practice to comply with the terms and conditions of this Section 8.4.
In the event Business Manager exercises such right by delivering written notice
to Practice within sixty (60) days of such termination, then Practice shall be
required to:
(a) Purchase from Business Manager at the greater of book or fair
market value the intangible assets, deferred charges and all other amounts on
the books of Business Manager relating to the Management Services Agreement and
Predecessor Management Services Agreements, as adjusted, through the last day of
the month most recently ended prior to the date of such termination in
accordance with GAAP to reflect amortization or depreciation of the intangible
assets, deferred charges or covenants;
(b) Purchase from Business Manager any real estate owned by Business
Manager and used as an Office or Offices at the greater of the appraised fair
market value thereof or the then book value thereof. In the event of any
repurchase of real property, the appraised value shall be determined by Business
Manager and Practice, each selecting a duly qualified appraiser, who in turn
will agree on a third appraiser. This agreed-upon appraiser shall perform the
appraisal which shall be binding on both parties. In the event either party
fails to select an appraiser within fifteen (15) days of the selection of an
appraiser by the other party, the appraiser selected by the other party shall
make the selection of the third-party appraiser;
(c) Purchase at the greater of book or fair market value all
improvements, additions, or leasehold improvements that have been made by
Business Manager at any Office and that relate solely to the performance of
Business Manager's obligations under this Management Services Agreement;
(d) Assume all debt and all contracts, payables and leases that are
obligations of Business Manager and that relate principally to the performance
of Business Manager's obligations under this Management Services Agreement or
the properties leased or subleased hereunder as Offices by Business Manager; and
(e) Purchase from Business Manager at the greater of book or fair
market value all of the equipment listed in the Purchase Agreements or the
exhibits thereto, including all replacements and additions thereto made by
Business Manager pursuant to the performance of its
46
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obligations under the Predecessor Management Services Agreements and this
Management Services Agreement, and all other assets, including inventory,
supplies, and tangibles with respect to the Offices, and intangibles, set forth
on the books of Business Manager as adjusted through the last day of the month
most recently ended prior to the date of such termination in accordance with
GAAP to reflect operations of the Offices, depreciation, amortization and other
adjustments of assets shown on the books of Business Manager.
In the event Business Manager exercises its rights pursuant to this Section 8.4,
Practice shall have the obligation to purchase all, and not less than all, of
the items listed in subparagraphs (a) through (e) above. In no event, however,
shall this Section 8.4 be construed as enabling Practice to repurchase any
assets acquired from any Regional Practice pursuant to any applicable Purchase
Agreement, which relate directly or indirectly to the ambulatory surgical
centers owned and operated by Practice immediately prior to the effective date
of the Predecessor Management Services Agreements (collectively, the "ASC
Assets"). The ASC Assets are expressly excluded from the assets enumerated in
subparagraphs (a) through (e) above and Practice shall have no right to
repurchase the ASC Assets under this Section 8.4, unless Business Manager shall
so elect in writing, in which case Practice shall be required to repurchase the
ASC Assets at the greater of the then book or fair market value. For purposes
of this Article 8, "fair market value" of a particular item shall be an amount
mutually agreed upon by Practice and Business Manager. If Practice and Business
Manager are unable to reach agreement on such value after ten (10) days of
deliberations, then such fair market value shall be determined by an
independent, duly qualified appraiser mutually agreed upon by Practice and
Business Manager. If Practice and Business Manager cannot agree upon an
appraiser within ten (10) days, then each party shall select a duly qualified
appraiser, who in turn will select a third appraiser. This agreed-upon
appraiser shall perform the appraisal which shall be binding upon both parties.
All expenses of such appraisal shall be borne fifty percent (50%) by Business
Manager and fifty percent (50%) by Practice.
8.5 Repurchase Option. Upon termination of this Management Services
-----------------
Agreement by Practice for Practice Cause pursuant to Section 8.2(b) hereof,
Practice shall have the right, but not the obligation, to:
(a) Purchase from Business Manager at the then book value the
intangible assets, deferred charges and all other amounts on the books of
Business Manager relating to the Management Services Agreement and Predecessor
Management Services Agreements, as adjusted, through the last day of the month
most recently ended prior to the date of such termination in accordance with
GAAP to reflect amortization or depreciation of the intangible assets, deferred
charges or covenants;
(b) Purchase from Business Manager of any real estate owned by
Business Manager and used as an Office or Offices at the then appraised fair
market value thereof. In the event of any repurchase of real property, the
appraised value shall be determined in accordance with the appraisal mechanism
described in Section 8.4 hereof;
(c) Purchase at the then book value all improvements, additions or
leasehold improvements that have been made by Business Manager at any Office or
Offices and that relate
47
<PAGE>
solely to the performance of Business Manager's obligations under this
Management Services Agreement;
(d) Assume all debt and all contracts, payables and leases that are
obligations of Business Manager and that relate principally to the performance
of Business Manager's obligations under this Management Services Agreement or
the properties leased or subleased by Business Manager; and
(e) Purchase from Business Manager at the then book value all of the
equipment listed in the Purchase Agreements or an exhibit thereto, including all
replacements and additions thereto made by Business Manager pursuant to the
performance of its obligations under this Management Services Agreement, and all
other tangible assets, including inventory and supplies, set forth on the books
of Business Manager as adjusted through the last day of the month most recently
ended prior to the date of such termination in accordance with GAAP to reflect
operations of the Offices, depreciation, amortization and other adjustments of
assets shown on the books of Business Manager.
In the event Practice exercises its rights pursuant to this Section 8.5,
Practice shall have the obligation to purchase all, and not less than all, of
the items listed in subparagraphs (a) through (e). The ASC Assets are expressly
excluded from the assets enumerated in subparagraphs (a) through (e) above and
Practice shall have no right to repurchase the ASC Assets under this Section 8.5
unless Business Manager shall so elect in writing, in which case Practice shall
be required to repurchase the ASC Assets at the greater of the then book or fair
market value. In lieu of paying cash for the items described in this Section
8.5, Practice shall have the option of contributing to Business Manager that
number of shares of Series A Convertible Preferred Stock, par value $.01 per
share ("NovaMed Stock") of NovaMed Eyecare, Inc., the parent company of Business
Manager ("NovaMed Parent"), which, based on the then fair market value of such
shares, determined in accordance with a consistent application of the valuation
procedure established under Section 4.2(b) of the Services Agreement, equals the
cash amount required pursuant to this Section 8.5.
8.6 Closing of Repurchase. Except as expressly provided in Section 8.5
---------------------
hereof, Practice shall pay cash for the repurchased assets. The amount of the
purchase price shall be reduced by the amount of debt and liabilities of
Business Manager, if any, assumed by Practice. Practice and, if required by
law, any Physician associated with Practice, shall execute such documents as may
be required, (i) for Practice to assume the liabilities set forth in Section
8.4(d) or 8.5(d) hereof, as applicable, and (ii) for Practice to indemnify or
remove Business Manager from any such assumed liability. Business Manager shall
execute such documents as may be required to convey the assets, free and clear
of all liens (except for those liens securing indebtedness assumed by Practice).
The closing date for the repurchase shall be determined by mutual agreement of
Practice and Business Manager but shall in no event occur later than sixty (60)
days from the date of the notice of termination. The termination of this
Management Services Agreement shall become effective upon the closing of the
sale of the assets under Section 8.4 or 8.5 hereof, as the case may be, and all
parties shall be released from any restrictive covenants provided for in Section
5.7 hereof on such closing date. From and after any termination, each party
shall provide the other
48
<PAGE>
party with reasonable access to the books and records then owned by it to permit
such requesting party to satisfy reporting and contractual obligations that may
be required of it.
8.7 Rights and Remedies. In the event of a material breach of this
-------------------
Management Services Agreement by either party hereunder, the nonbreaching party
shall have, in addition to any other rights and remedies contained in this
Management Services Agreement, all rights and remedies available to such party
at law or equity. Without limiting the generality of the foregoing, the parties
acknowledge and agree that Business Manager entered into this Management
Services Agreement with the understanding that the Term of this Management
Services Agreement would be thirty-seven (37) years. In the event of a material
breach hereunder by Practice, the parties acknowledge and agree that the actual
damages to be suffered by Business Manager will be difficult to ascertain.
Practice recognizes that, in the event Practice shall fail to perform, observe
or discharge any of its duties, obligations or liabilities under this Management
Services Agreement, any remedy at law may prove to be inadequate relief to
Business Manager. Therefore, Practice agrees that, if Business Manager so elects
and in addition to any other remedies available at law or equity, Business
Manager shall be entitled to temporary and permanent injunctive relief in any
such case without the necessity of proving actual damages, to specific
performance of any provision hereof.
8.8 Interpretation. The purpose and intent of this Article 8 is to
--------------
establish the limited instances in which a party may terminate this Management
Services Agreement. Unless the parties mutually agree to terminate this
Management Services Agreement, neither party shall be entitled to terminate this
Management Services Agreement prior to the expiration of the Term unless a
party's breach gives rise to a termination for Business Manager Cause or
Practice Cause pursuant to Section 8.2(a) or (b) hereof, as the case may be.
Nothing in this Agreement (including Section 8.4 hereof) shall be construed as
permitting Practice to terminate this Agreement without Practice Cause.
ARTICLE 9
MISCELLANEOUS
9.1 Administrative Services Only. Nothing in this Management Services
----------------------------
Agreement is intended or shall be construed to allow Business Manager to
exercise control or direction over the manner or method by which Practice and
its Physicians and Optometrists perform Medical Services or other professional
health care services. The rendition of all Medical Services, including, but not
limited to, the prescription or administration of medicine and drugs shall be
the sole responsibility of Practice and its Physicians and Optometrists, and
Business Manager shall not interfere in any manner or to any extent therewith.
Nothing contained herein shall be construed to permit Business Manager to engage
in the practice of medicine, it being the sole intention of the parties hereto
that the services to be rendered to Practice by Business Manager are solely for
the purpose of providing nonmedical management and administrative services to
Practice to enable Practice to devote its full time and energies to the
professional conduct of its medical practice and provision of Medical Services
to its patients and not to administration or practice management. Practice,
through the Physicians and Optometrists, shall be responsible for and shall have
complete
49
<PAGE>
authority, responsibility, supervision and control over the opticians and other
employees of Business Manager providing services in connection with the Non-
Ophthalmic Business, consistent with the requirements necessary to satisfy the
"in-office ancillary service exception" to the Stark Act.
9.2 Status of Contractor. It is expressly acknowledged that the parties
--------------------
hereto are "independent contractors," and nothing in this Management Services
Agreement is intended and nothing shall be construed to allow either party to
exercise control or direction over the manner or method by which the other party
performs the services that are the subject matter of this Management Services
Agreement; provided that the services to be provided hereunder shall be
furnished in a manner consistent with the standards governing such services and
the provisions of this Management Services Agreement. Each party understands
and agrees that (i) neither party will withhold on behalf of the other party any
sums for income tax, unemployment insurance, social security or any other
withholding pursuant to any law or requirement of any governmental body or make
available any of the benefits afforded to its employees, (ii) all of such
payments, withholdings and benefits, if any, are the sole responsibility of the
party incurring the liability, and (iii) each party will indemnify and hold the
other harmless from any and all loss or liability arising with respect to such
payments, withholdings and benefits, if any.
9.3 Notices. Any notice, demand or communication required, permitted or
-------
desired to be given hereunder shall be in writing and shall be served on the
parties at the following respective addresses:
Practice:
Hunkeler Eye Centers-Chicago, L.L.C.
980 North Michigan Avenue
Suite 1620
Chicago, Illinois 60611
Facsimile: (312) 664-4250
Attention:Managers
with a copy to:
Sachnoff & Weaver, Ltd.
30 South Wacker Drive, Suite 2900
Chicago, Illinois 60606
Facsimile: (312) 207-6400
Attention:William E. Doran, Esq.
Business Manager:
NovaMed Eyecare Management, LLC
980 North Michigan Avenue, Suite 1620
Chicago, Illinois 60611
50
<PAGE>
Facsimile: (312) 664-4250
Attention: Stephen J. Winjum
John W. Lawrence, Jr.
with a copy to:
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661
Facsimile: (312) 902-1061
Attention: Steven V. Napolitano, Esq.
or to such other address, or to the attention of such other person or officer,
as any party may by written notice designate. Any notice, demand, or
communication required, permitted or desired to be given hereunder shall be sent
either (a) by hand delivery, in which case notice shall be deemed received when
actually delivered, (b) by prepaid certified or registered first class mail,
return receipt requested, in which case notice shall be deemed received five
calendar days after deposit, postage prepaid in the United States Mail, (c) by
facsimile if also delivered by hand, or deposited in the United States Mail,
postage prepaid, registered or certified mail, on or before two (2) business
days after its delivery by facsimile, in which case notice shall be deemed
received one (1) business day after the facsimile transmission, or (d) by a
nationally recognized overnight courier, in which case notice shall be deemed
received one business day after prepaid deposit with such courier.
9.4 Governing Law and Consent to Jurisdiction. This Management Services
-----------------------------------------
Agreement shall be governed by the laws of the State of Illinois applicable to
agreements to be performed wholly within the State of Illinois. Illinois law
was chosen by the parties after negotiation to govern interpretation of this
Management Services Agreement because Cook County, Illinois is the seat of
management for Business Manager. The parties hereto agree that if a controversy
or claim between them arises out of or in relation to this Management Services
Agreement and results in any litigation or special proceeding, the state and
federal courts located in Cook County, Illinois shall have jurisdiction to hear
and decide such matter, and the parties hereto hereby submit to the jurisdiction
of such courts.
9.5 Assignment. Except as may be herein specifically provided to the
----------
contrary, this Management Services Agreement shall inure to the benefit of, and
be binding upon, the parties hereto and their respective legal representatives,
successors and permitted assigns; provided, however, Practice may not assign
-------- -------
this Management Services Agreement without the prior written consent of Business
Manager, which consent may be withheld in Business Manager's discretion. The
sale, transfer, pledge or assignment of any of the voting interests of Practice
held by any Practice-Owner or the issuance by Practice of common or other voting
interests to any other person, or any combination of such transactions within a
period of one (1) year, such that the existing Practice-Owners in Practice
immediately prior to such transactions or the beginning of the one-year period,
as applicable, fail to maintain a majority of the voting interests in Practice
shall be deemed an attempted assignment by Practice, and shall be null and void
unless consented to in
51
<PAGE>
writing by Business Manager prior to any such transfer or issuance. Any breach
of the above provision, whether or not void or voidable, shall constitute a
material breach of this Management Services Agreement, and in the event of such
breach, Business Manager may terminate this Management Services Agreement upon
twenty-four (24) hours' notice to Practice. The rights and obligations of
Business Manager under this Management Services Agreement shall not be
assignable without Practice Consent, which consent shall not be unreasonably
withheld or delayed; provided, however, that Business Manager shall have the
-------- -------
right to assign its rights, duties and obligations hereunder without Practice
Consent, (i) to any Affiliate of Business Manager (provided such assignment
shall not release Business Manager from any of its obligations hereunder), which
Affiliates will include, without limitation, NovaMed Parent or any direct or
indirect majority owned subsidiary of NovaMed Parent; (ii) pursuant to a
reorganization, merger, consolidation or the sale of all or substantially all of
the capital stock or assets of Business Manager (or any other transaction
substantially similar in effect); provided further, however, that nothing
-------- -------
contained herein shall prohibit Business Manager from engaging, in the ordinary
course of business, one or more reputable subcontractors to perform certain
functions of Business Manager; and (iii) as collateral assignment of its rights
(but not its duties) to any financial institution or other entity.
9.6 Waiver of Breach. The waiver by either party of a breach or violation
----------------
of any provision of this Management Services Agreement shall not operate as, or
be construed to constitute, a waiver of any subsequent breach of the same or
another provision hereof.
9.7 Enforcement. In the event either party resorts to legal action to
-----------
enforce or interpret any provision of this Management Services Agreement, the
prevailing party shall be entitled to recover the costs and expenses of such
action so incurred, including, without limitation, reasonable attorneys' fees.
9.8 Gender and Number. Whenever the context of this Management Services
-----------------
Agreement requires, the gender of all words herein shall include the masculine,
feminine and neuter, and the number of all words herein shall include the
singular and plural.
9.9 Additional Assurances. Except as may be specifically provided herein
---------------------
to the contrary, the provisions of this Management Services Agreement shall be
self-operative and shall not require further agreement by the parties; provided,
--------
however, at the request of either party, the other party shall execute such
- -------
additional instruments and take such additional acts as are reasonable, and as
the requesting party may reasonably deem necessary, to effectuate this
Management Services Agreement.
9.10 Consents, Approvals, and Exercise of Discretion. Whenever this
-----------------------------------------------
Management Services Agreement requires any consent or approval to be given by
either party, or either party must or may exercise discretion, and except where
specifically set forth to the contrary, the parties agree that such consent or
approval shall not be unreasonably withheld or delayed, and that such discretion
shall be reasonably exercised.
9.11 Force Majeure. Subject to Section 8.2(d) hereof, neither party
-------------
shall be liable or deemed to be in default for any delay or failure in
performance under this Management Services
52
<PAGE>
Agreement or other interruption of service deemed to result, directly or
indirectly, from acts of God, civil or military authority, acts of public enemy,
war, accidents, explosions, earthquakes, floods, failure of transportation,
strikes or other work interruptions by either party's employees, or any other
similar cause beyond the reasonable control of either party unless such delay or
failure in performance is expressly addressed elsewhere in this Management
Services Agreement.
9.12 Severability.
------------
(a) The parties hereto have negotiated and prepared the terms of this
Management Services Agreement in good faith with the intent that each and
every one of the terms, covenants and conditions herein be binding upon and
inure to the benefit of the respective parties. Accordingly, if any one or
more of the terms, provisions, promises, covenants or conditions of this
Management Services Agreement or the application thereof to any person or
circumstance shall be adjudged to any extent invalid, unenforceable, void
or voidable for any reason whatsoever by a court of competent jurisdiction
or an arbitration tribunal, such provision shall be as narrowly construed
as possible, and each and all of the remaining terms, provisions, promises,
covenants and conditions of this Management Services Agreement or their
application to other persons or circumstances shall not be affected thereby
and shall be valid and enforceable to the fullest extent permitted by law.
To the extent this Management Services Agreement is in violation of
applicable law, then the parties agree to negotiate in good faith to amend
the Management Services Agreement, to the extent possible consistent with
its purposes, to conform to law. Without limiting the foregoing, Business
Manager shall not challenge this Management Services Agreement on the
grounds that it violates state law prohibitions against fee splitting
and/or corporate practice of medicine.
(b) In the event (but solely in the event) that Section 6.1 or
Section 6.2 of this Management Services Agreement is declared to be
illegal, unenforceable, against public policy, or forbidden by law, by any
local, state or federal agency or department, any court of competent
jurisdiction or arbitration tribunal ("Findings"), the parties shall agree,
pursuant to good faith negotiations as contemplated in Section 9.12(a)
hereof, upon an alternative to Section 6.1 and Section 6.2. Until the
parties reach such an agreement, and perpetually in the event the parties
do not reach such an agreement, Section 6.1 and Section 6.2 and the
Management Fee shall be replaced, effective immediately upon the Findings
by a fixed annual Management Fee, payable in equal monthly installments
("Alternate Management Fee") on or before the fifteenth (15th) business
day of each month from the date of the Findings forward. Said Alternate
Management Fee shall be in an amount per annum equal to the actual
aggregate Management Fee for the most recently completed year prior to the
year in which the Findings occurred (the year during which the Findings
occur shall be referred to herein as the "Base Year"), beginning as of the
date of the Findings (the "Base Fee"), plus any applicable Inflation
Adjustment Fee (as defined below) and any applicable Increased Service Fee
(as defined below).
(i) Inflation Adjustment Fee. Beginning with the first annual
------------------------
anniversary of the date of the Findings, and as of each annual anniversary
thereafter during the Term,
53
<PAGE>
the Inflation Adjustment Fee ("Inflation Adjustment Fee") for the next
twelve (12) months will be calculated as follows:
(a) The Base Fee shall be multiplied by a fraction, the
numerator of which is the increase in the Consumer Price Index ("CPI")
from January of the Base Year through the January immediately
preceding the anniversary of the Findings for which the Inflation
Adjustment Fee is being determined and the denominator of which is the
CPI as of January of the Base Year; and
(b) The amount determined in (a), above, shall be divided
by 12 and the resulting quotient shall be the monthly Inflation
Adjustment Fee for the next twelve (12) months. The Inflation
Adjustment Fee may be eliminated for a particular year under Section
9.12(b)(ii)(b).
(ii) Increased Service Fee.
---------------------
(a) Within ninety (90) days after each calendar year
following the Findings, the parties shall determine whether Business
Manager is entitled to receive an additional fee under this Section
9.12(b)(ii) ("Increased Service Fee"). The Increased Service Fee is
paid in recognition of the increase in the level of services provided
by Business Manager over the level of services upon which the Base Fee
is based. The Increased Service Fee is equal to twenty-five percent
(25%) of the excess of the total Office Expense for such year over the
Office Expense for the Base Year (the "Increase Service Fee Base"),
provided that, if the Findings rendered during 1999, the Base Year
Office Expense shall be annualized to give effect to the fact that
this Management Services Agreement was in effect for only part of the
Base Year. The Increase Service Fee is subject to reduction under
Sections 9.12(b)(ii)(b) and (c). The Increased Service Fee, if
earned, shall be paid to Business Manager in nine (9) equal monthly
installments beginning on April 1 of the year following the year for
which the Increased Service Fee is earned. The first year with
respect to which Business Manager is eligible to earn the Increased
Service Fee is the calendar year immediately following the Base Year,
payable, if earned, beginning on April 1 of the second calendar year
following the Base Year.
(b) Each year, the Policy Board shall specify certain
objectives for Business Manager and the amount or percentage by which
the Increased Service Fee will be reduced if one or more of the
objectives are not met. Furthermore, the Policy Board, in its good
faith discretion, may determine whether, in light of the amount of the
Increased Service Fee, the Inflation Adjustment Fee is not
appropriate. Upon such a decision, Business Manager shall not receive
an Inflation Adjustment Fee for that year.
(c) To ensure that Business Manager effectively manages the
Office Expense, the Increased Service Fee otherwise payable with
respect to a given year will be reduced to an amount such that the
Increased Service Fee does not
54
<PAGE>
exceed twenty percent (20%) of Practice's increase in profit for such
year over the previous year.
(d) Each year, the Policy Board, in its good faith
discretion may agree that certain items shall be excluded from the
amount of the annual Office Expense or from the Increase Service Fee
Base used to calculate the Increased Service Fee. Without limiting
the foregoing, if Practice makes a capital expenditure that is not
approved by the Policy Board or included in the Budget, all revenues
and costs (including, but not limited to, operating costs and staffing
costs) associated with the asset shall, unless the parties otherwise
agree, be excluded from all calculations relative to the determination
of the Increased Service Fee. To the extent that Practice's net
collected revenues for the Base Year (as annualized, if the Base Year
is 1999) or Office Expense for the Base Year (as annualized, if the
Base Year is 1999) is not fairly representative of Practice's Base
Year operations, then either party can request that a different amount
be used and if the parties cannot agree the amounts shall be
determined pursuant to Article 7 hereof.
9.13 Divisions and Headings. The divisions of this Management Services
----------------------
Agreement into articles, sections and subsections, and the use of captions and
headings in connection therewith is solely for convenience and shall not affect
in any way the meaning or interpretation of this Management Services Agreement.
9.14 Amendments and Management Services Agreement Execution. This
------------------------------------------------------
Management Services Agreement and amendments hereto shall be in writing and
executed in multiple copies on behalf of Practice and Business Manager by their
respective duly authorized officers and Representatives. Each multiple copy
shall be deemed an original, but all multiple copies together shall constitute
one and the same instrument. No amendment shall be effective unless signed by
both parties hereto.
9.15 Entire Management Services Agreement. With respect to the subject
------------------------------------
matter of this Management Services Agreement, this Management Services Agreement
supersedes all previous contracts, including, without limitation, the
Predecessor Management Services Agreements, and constitutes the entire agreement
between the parties. Notwithstanding the foregoing, execution of this Management
Services Agreement will not impair or otherwise limit the ability of either
party to enforce the provisions of the Predecessor Management Services
Agreements with respect to obligations accruing under the Predecessor Management
Services Agreement prior to the Effective Date of this Management Services
Agreement, including, without limitation, payment of fees and expenses relating
to services provided prior to the Effective Date of this Management Services
Agreement, except to the extent determined not to be payable in connection with
the execution of this Management Services Agreement. Neither party shall be
entitled to benefits other than those specified herein. Except as otherwise
provided herein, no prior oral statements or contemporaneous negotiations or
understandings or prior written material not specifically incorporated herein
shall be of any force and effect, and no changes in or additions to this
Management Services Agreement shall be recognized unless incorporated herein by
amendment as provided herein, such amendment to become effective on the date
stipulated in such amendment.
55
<PAGE>
The parties specifically acknowledge that, in entering into and executing this
Management Services Agreement, the parties rely solely upon the representations
and agreements contained in this Management Services Agreement and no others.
56
<PAGE>
IN WITNESS WHEREOF, Practice and Business Manager have caused this
Management Services Agreement to be executed by their duly authorized
representatives, all as of the day and year first above written.
PRACTICE:
HUNKELER EYE CENTERS-CHICAGO, L.L.C.,
a Delaware limited liability company
By: /s/ Kent A. Kirk
----------------------------------
Name: Kent A. Kirk
--------------------------------
Title: Manager
-------------------------------
BUSINESS MANAGER:
NOVAMED EYECARE MANAGEMENT, LLC,
a Delaware limited liability company
By: /s/ Stephen J. Winjum
----------------------------------
Stephen J. Winjum,
President
<PAGE>
TABLE OF EXHIBITS
-----------------
EXHIBIT 1.4 BUDGET
EXHIBIT 1.19 LOCATIONS
EXHIBIT 1.33(b) PHYSICIAN-EMPLOYEES AND OPTOMETRISTS INCLUDEDIN PRACTICE
EXPENSE
EXHIBIT 1.33(g) EQUIPMENT
EXHIBIT 1.57 PURCHASE AGREEMENTS
EXHIBIT 1.59(a) FORM OF SERVICES AGREEMENTS
EXHIBIT 1.59(b) LIST OF SERVICES AGREEMENTS
EXHIBIT 3.1(b) MEMBERS OF POLICY BOARD
EXHIBIT 4.8(a) FORM OF BILLING AND COLLECTION AGREEMENT
EXHIBIT 4.8(b) FORM OF POWER OF ATTORNEY
EXHIBIT 5.1A FORM OF EMPLOYMENT AGREEMENT (PHYSICIAN PRACTICE-OWNERS)
EXHIBIT 5.1B LIST OF INITIAL PRACTICE-OWNERS
EXHIBIT 5.2A FORM OF EMPLOYMENT AGREEMENT (PHYSICIAN EMPLOYEES)
EXHIBIT 5.8 PRACTICE D/B/A's
<PAGE>
EXHIBIT 1.4
BUDGET
See Attached
<PAGE>
Hunkeler Eye Centers - Chicago, L.L.C
_______________________________________________________________________________
1999 MSA Budget
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Description Jan Feb Mar Apr May Jun
- --------------------------------- ----------------- ----------------- -----------------
Principal Services
Revenue
- -------
Principal Services revenue * * * * * *
ASC facility revenue * * * * * *
Optical revenue - glasses * * * * * *
Optical revenue - contacts * * * * * *
Optometric revenue * * * * * *
Other revenue * * * * * *
Contractual adjustments * * * * * *
* * * * * *
* * * * * *
Other Revenue * * * * * *
Principal Services Budgeted Revenue * * * * * *
Expenses
- --------
Salaries and Wages:
Center Staff Salaries: * * * * * *
----------------------
Administration * * * * * *
Technician * * * * * *
Nurses * * * * * *
Other salaries * * * * * *
Overtime pay * * * * * *
* * * * * *
Payroll Taxes & Benefits
------------------------
Vacation & leave pay * * * * * *
Bonuses * * * * * *
Incentive compensation * * * * * *
FICA Tax * * * * * *
SUI * * * * * *
FUI * * * * * *
Other payroll taxes * * * * * *
Labor allocation * * * * * *
401k Match * * * * * *
Life & Disability ins. * * * * * *
Employee Health ins. * * * * * *
Benefits %
Total Salaries & Wages * * * * * *
MD/OD Compensation * * * * * *
* * * * * *
Pharmaceuticals and supplies: * * * * * *
Principal Services supplies * * * * * *
ASC - general * * * * * *
ASC - refractive * * * * * *
Pillar point fees * * * * * *
Optical COS - glasses * * * * * *
Optical COS - contacts * * * * * *
Optometric supplies * * * * * *
Total Pharmac. & Supplies * * * * * *
</TABLE>
* Confidential portions omitted and filed separately with the commission.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Description Jul Aug Sep Oct Nov Dec Total 1998 %
- ---------------------------------------------------------------------------------------------- -------------------
Principal Services
Revenue
- -------
Principal Services revenue * * * * * * * * * * *
ASC facility revenue * * * * * * * * * * *
Optical revenue - glasses * * * * * * * * * * *
Optical revenue - contacts * * * * * * * * * * *
Optometric revenue * * * * * * * * * * *
Other revenue * * * * * * * * * *
Contractual adjustments * * * * * * * * * *
* * * * * * * * * *
* * * * * * * * * *
Other Revenue * * * * * * * * * *
Principal Services Budgeted Revenue * * * * * * * * * * *
Expenses
- --------
Salaries and Wages:
Center Staff Salaries: * * * * * * * * * *
----------------------
Administration * * * * * * * * * *
Technician * * * * * * * * * *
Nurses * * * * * * * * * *
Other salaries * * * * * * * * * *
Overtime pay * * * * * * * * * * #VALUE!
* * * * * * * * * *
Payroll Taxes & Benefits
------------------------
Vacation & leave pay * * * * * * * * * *
Bonuses * * * * * * * * * *
Incentive compensation * * * * * * * * * *
FICA Tax * * * * * * * * * *
SUI * * * * * * * * * *
FUI * * * * * * * * * *
Other payroll taxes * * * * * * * * * *
Labor allocation * * * * * * * * * *
401k Match * * * * * * * * * *
Life & Disability ins. * * * * * * * * * *
Employee Health ins. * * * * * * * * * *
#VALUE!
Benefits % #VALUE!
Total Salaries & Wages * * * * * * * * * * *
MD/OD Compensation * * * * * * * * * * *
* * * * * * * * * * *
Pharmaceuticals and supplies: * * * * * * * * * * *
Principal Services supplies * * * * * * * * * * *
ASC - general * * * * * * * * * * *
ASC - refractive * * * * * * * * * * *
Pillar point fees * * * * * * * * * * *
Optical COS - glasses * * * * * * * * * * *
Optical COS - contacts * * * * * * * * * * *
Optometric supplies * * * * * * * * * * *
Total Pharmac. & Supplies * * * * * * * * * * *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Hunkeler Eye Centers - Chicago, L.L.C
- ------------------------------------------------------------------------------------------------------------
1999 MSA Budget
Description Jan Feb Mar Apr May Jun Jul Aug Sep
- ---------------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Services * * * * * * * * *
G&A expenses: * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Office & Administrative: * * * * * * * * *
Office Supplies * * * * * * * * *
Office supplies * * * * * * * * *
Software/computer expense * * * * * * * * *
Food service * * * * * * * * *
Bank charges * * * * * * * * *
Credit card fees * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Postage & freight * * * * * * * * *
Employee & patient programs * * * * * * * * *
Continuing education (1) * * * * * * * * *
Dues and subscriptions * * * * * * * * *
Telephone * * * * * * * * *
Utilities * * * * * * * * *
Printing * * * * * * * * *
Misc. office expense * * * * * * * * *
Total Office & Admin. Expenses * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Marketing: * * * * * * * * *
Advertising * * * * * * * * *
Marketing-Other * * * * * * * * *
Total Marketing * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Professional and Service Fees: * * * * * * * * *
Legal * * * * * * * * *
Accounting * * * * * * * * *
Other prof. consulting * * * * * * * * *
Collection fees * * * * * * * * *
Answering service * * * * * * * * *
Linens & uniforms * * * * * * * * *
Other services * * * * * * * * *
Temporary services * * * * * * * * *
Total Professional Fees * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Rental Expense: * * * * * * * * *
Building rent * * * * * * * * *
Other office rent & parking * * * * * * * * *
Equipment leases * * * * * * * * *
Optical equipment rent * * * * * * * * *
Total Rent Expense * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Repairs & Maintenance: * * * * * * * * *
Building maintenance * * * * * * * * *
Repairs-equipment * * * * * * * * *
Non-capitalized tools * * * * * * * * *
Total Repairs & Maint. * * * * * * * * *
</TABLE>
<TABLE>
<CAPTION>
Description Oct Nov Dec Total 1998 %
- ---------------------------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
Principal Services * * * * * * * *
G&A expenses: * * * * * * * *
* * * * * * * *
* * * * * * * *
Office & Administrative: * * * * * * * *
Office Supplies * * * * * * * *
Office supplies * * * * * * * *
Software/computer expense * * * * * * * *
Food service * * * * * * * *
Bank charges * * * * * * * *
Credit card fees * * * * * * * *
* * * * * * * *
* * * * * * * *
Postage & freight * * * * * * * *
Employee & patient programs * * * * * * * *
Continuing education (1) * * * * * * * *
Dues and subscriptions * * * * * * * *
Telephone * * * * * * * *
Utilities * * * * * * * *
Printing * * * * * * * *
Misc. office expense * * * * * * * *
Total Office & Admin. Expenses * * * * * * * *
* * * * * * * *
* * * * * * * *
Marketing: * * * * * * * *
Advertising * * * * * * * *
Marketing-Other * * * * * * * *
Total Marketing * * * * * * * *
* * * * * * * *
* * * * * * * *
Professional and Service Fees: * * * * * * * *
Legal * * * * * * * *
Accounting * * * * * * * *
Other prof. consulting * * * * * * * *
Collection fees * * * * * * * *
Answering service * * * * * * * *
Linens & uniforms * * * * * * * *
Other services * * * * * * * *
Temporary services * * * * * * * *
Total Professional Fees * * * * * * * *
* * * * * * * *
* * * * * * * *
Rental Expense: * * * * * * * *
Building rent * * * * * * * *
Other office rent & parking * * * * * * * *
Equipment leases * * * * * * * *
Optical equipment rent * * * * * * * *
Total Rent Expense * * * * * * * *
* * * * * * * *
* * * * * * * *
Repairs & Maintenance: * * * * * * * *
Building maintenance * * * * * * * *
Repairs-equipment * * * * * * * *
Non-capitalized tools * * * * * * * *
Total Repairs & Maint. * * * * * * * *
</TABLE>
* Confidential portions omitted and filed separately with the commission.
<PAGE>
<TABLE>
<CAPTION>
Hunkeler Eye Centers - Chicago, L.L.C
- ------------------------------------------------------------------------------------------------------------
1999 MSA Budget
Description Jan Feb Mar Apr May Jun Jul Aug Sep
- ---------------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Services * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Taxes and insurance: * * * * * * * * *
MalPrincipal Services * * * * * * * * *
Liability & casualty * * * * * * * * *
Workers' compensation ins. * * * * * * * * *
D&O * * * * * * * * *
Key Man Life * * * * * * * * *
Other insurance * * * * * * * * *
Property tax * * * * * * * * *
Sales & Use tax * * * * * * * * *
Property tax * * * * * * * * *
Other taxes * * * * * * * * *
Total Taxes & Ins. * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Other Expenses: * * * * * * * * *
Travel & entertainment (1) * * * * * * * * *
Recruitment & relocation * * * * * * * * *
Auto & Van * * * * * * * * *
Contracted patient transport. * * * * * * * * *
Donations and gifts * * * * * * * * *
Allocated IT/Computing costs * * * * * * * * *
Other * * * * * * * * *
Total Other Expense * * * * * * * * *
* * * * * * * * *
Total G&A expenses * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Depreciation & Amortization: * * * * * * * * *
Building depreciation * * * * * * * * *
Equipment depreciation * * * * * * * * *
Goodwill amortization * * * * * * * * *
Other intangible amortization * * * * * * * * *
Amortization of deferred charges * * * * * * * * *
* * * * * * * * *
Total Depr. and Amortization * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Interest (income) and expense: * * * * * * * * *
Depository Interest * * * * * * * * *
Investment Income * * * * * * * * *
Bank Line Interest Expense * * * * * * * * *
Cap. Lease Interest Expense * * * * * * * * *
Other Interest Expense * * * * * * * * *
* * * * * * * * *
Total Interest (income)/expense * * * * * * * * *
Principal Services Budgeted Office Expense * * * * * * * * *
</TABLE>
<TABLE>
<CAPTION>
Description Oct Nov Dec Total 1998 %
- ---------------------------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
Principal Services * * * * * * * *
* * * * * * * *
* * * * * * * *
Taxes and insurance: * * * * * * * *
MalPrincipal Services * * * * * * * *
Liability & casualty * * * * * * * *
Workers' compensation ins. * * * * * * * *
D&O * * * * * * * *
Key Man Life * * * * * * * *
Other insurance * * * * * * * *
Property tax * * * * * * * *
Sales & Use tax * * * * * * * *
Property tax * * * * * * * *
Other taxes * * * * * * * *
Total Taxes & Ins. * * * * * * * *
* * * * * * * *
* * * * * * * *
Other Expenses: * * * * * * * *
Travel & entertainment (1) * * * * * * * *
Recruitment & relocation * * * * * * * *
Auto & Van * * * * * * * *
Contracted patient transport. * * * * * * * *
Donations and gifts * * * * * * * *
Allocated IT/Computing costs * * * * * * * *
Other * * * * * * * *
Total Other Expense * * * * * * * *
* * * * * * * *
Total G&A expenses * * * * * * * *
* * * * * * * *
* * * * * * * *
Depreciation & Amortization: * * * * * * * *
Building depreciation * * * * * * * *
Equipment depreciation * * * * * * * *
Goodwill amortization * * * * * * * *
Other intangible amortization * * * * * * * *
Amortization of deferred charges * * * * * * * *
* * * * * * * *
Total Depr. and Amortization * * * * * * * *
* * * * * * * *
* * * * * * * *
Interest (income) and expense: * * * * * * * *
Depository Interest * * * * * * * *
Investment Income * * * * * * * *
Bank Line Interest Expense * * * * * * * *
Cap. Lease Interest Expense * * * * * * * *
Other Interest Expense * * * * * * * *
* * * * * * * *
Total Interest (income)/expense * * * * * * * *
Principal Services Budgeted Office Expense * * * * * * * *
</TABLE>
* Confidential portions omitted and filed separately with the commission.
<PAGE>
<TABLE>
<CAPTION>
Hunkeler Eye Centers - Chicago, L.L.C
- ------------------------------------------------------------------------------------------------------------
1999 MSA Budget
Description Jan Feb Mar Apr May Jun Jul Aug Sep
- ---------------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Services * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Principal Services Budgeted * * * * * * * * *
Practice Expense * * * * * * * * *
* * * * * * * * *
Principal Services Monthly Fee * * * * * * * * *
* * * * * * * * *
</TABLE>
<TABLE>
<CAPTION>
Description Oct Nov Dec Total 1998 %
- ---------------------------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
Principal Services * * * * * * * *
* * * * * * * *
* * * * * * * *
Principal Services Budgeted * * * * * * * *
Principal Expense * * * * * * * *
* * * * * * * *
Principal Services Monthly Fee * * * * * * * *
* * * * * * * *
</TABLE>
* Confidential portions omitted and filed separately with the commission.
<PAGE>
Hunkeler Eye Centers - Chicago, L.L.C.
________________________________________________________________________________
1999 MSA Budget
<TABLE>
<CAPTION>
Description Jan Feb Mar Apr May Jun
- --------------------------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-Ophthalmic Business * * * * * *
* * * * * *
Revenue * * * * * *
- ------- * * * * * *
Practice revenue * * * * * *
ASC facility revenue * * * * * *
Optical revenue * * * * * *
Optometric revenue * * * * * *
Alliance revenue * * * * * *
Research & Consulting * * * * * *
Other revenue * * * * * *
* * * * * *
* * * * * *
Laboratory revenue * * * * * *
* * * * * *
Non-Ophthalmic Business Budgeted Revenue * * * * * *
* * * * * *
Expenses * * * * * *
- -------- * * * * * *
Salaries and Wages: * * * * * *
Center Staff Salaries: * * * * * *
----------------------
Administration * * * * * *
Technician/Nurses * * * * * *
PSR/Front Desk * * * * * *
Other salaries * * * * * *
Overtime pay * * * * * *
* * * * * *
Payroll Taxes & Benefits * * * * * *
------------------------
Vacation & leave pay * * * * * *
Bonuses * * * * * *
Incentive compensation * * * * * *
FICA Tax * * * * * *
SUI * * * * * *
FUI * * * * * *
Other payroll taxes * * * * * *
Labor allocation * * * * * *
401k Match * * * * * *
Life & Disability ins. * * * * * *
Employee Health ins. * * * * * *
* * * * * *
Benefits % * * * * * *
Total Salaries & Wages * * * * * *
* * * * * *
MD/OD Compensation * * * * * *
* * * * * *
* * * * * *
Pharmaceuticals and supplies: * * * * * *
Medical Supplies * * * * * *
COS - Glasses * * * * * *
COS - Contacts * * * * * *
COS - adjustments * * * * * *
Laboratory fees * * * * * *
Discounts & allowances * * * * * *
Optical - Other * * * * * *
Total Pharmac. & Supplies * * * * * *
</TABLE>
<TABLE>
Description Jul Aug Sep Oct Nov Dec Total 1998 %
- --------------------------------- ----------------------------------------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Non-Ophthalmic Business * * * * * * * * * * *
* * * * * * * * * * *
Revenue * * * * * * * * * * *
- ------- * * * * * * * * * * *
Practice revenue * * * * * * * * * * *
ASC facility revenue * * * * * * * * * * *
Optical revenue * * * * * * * * * * *
Optometric revenue * * * * * * * * * * *
Alliance revenue * * * * * * * * * * *
Research & Consulting * * * * * * * * * * *
Other revenue * * * * * * * * * * *
* * * * * * * * * * *
* * * * * * * * * * *
Laboratory revenue * * * * * * * * * * *
* * * * * * * * * * *
Non-Ophthalmic Business Budgeted Revenue * * * * * * * * * * *
* * * * * * * * * * *
Expenses * * * * * * * * * * *
- -------- * * * * * * * * * * *
Salaries and Wages: * * * * * * * * * * *
Center Staff Salaries: * * * * * * * * * * *
----------------------
Administration * * * * * * * * * * *
Technician/Nurses * * * * * * * * * * *
PSR/Front Desk * * * * * * * * * * *
Other salaries * * * * * * * * * * *
Overtime pay * * * * * * * * * * *
* * * * * * * * * * *
Payroll Taxes & Benefits * * * * * * * * * * *
------------------------
Vacation & leave pay * * * * * * * * * * *
Bonuses * * * * * * * * * * *
Incentive compensation * * * * * * * * * * *
FICA Tax * * * * * * * * * * *
SUI * * * * * * * * * * *
FUI * * * * * * * * * * *
Other payroll taxes * * * * * * * * * * *
Labor allocation * * * * * * * * * * *
401k Match * * * * * * * * * * *
Life & Disability ins. * * * * * * * * * * *
Employee Health ins. * * * * * * * * * * *
* * * * * * * * * * *
Benefits % * * * * * * * * * * *
Total Salaries & Wages * * * * * * * * * * *
* * * * * * * * * * *
MD/OD Compensation * * * * * * * * * * *
* * * * * * * * * * *
* * * * * * * * * * *
Pharmaceuticals and supplies: * * * * * * * * * * *
Medical Supplies * * * * * * * * * * *
COS - Glasses * * * * * * * * * * *
COS - Contacts * * * * * * * * * * *
COS - adjustments * * * * * * * * * * *
Laboratory fees * * * * * * * * * * *
Discounts & allowances * * * * * * * * * * *
Optical - Other * * * * * * * * * * *
Total Pharmac. & Supplies * * * * * * * * * * *
</TABLE>
* Confidential portions omitted and filed separately with the commission.
5
<PAGE>
<TABLE>
<CAPTION>
Hunkeler Eye Centers - Chicago, L.L.C.
- ------------------------------------------------------------------------------------------------------------
1999 MSA Budget
Description Jan Feb Mar Apr May Jun Jul Aug Sep
- ---------------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-Ophthalmic Business * * * * * * * * *
G&A expenses: * * * * * * * * *
* * * * * * * * *
Office & Administrative: * * * * * * * * *
Office Supplies * * * * * * * * *
Office supplies * * * * * * * * *
Software/computer expense * * * * * * * * *
Food service * * * * * * * * *
Bank charges * * * * * * * * *
Credit card fees * * * * * * * * *
* * * * * * * * *
Postage & freight * * * * * * * * *
Employee & patient programs * * * * * * * * *
Continuing education * * * * * * * * *
Dues and subscriptions * * * * * * * * *
Telephone * * * * * * * * *
Utilities * * * * * * * * *
Printing * * * * * * * * *
Misc. office expense * * * * * * * * *
Total Office & Admin. Expenses * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Marketing: * * * * * * * * *
Advertising * * * * * * * * *
Marketing - Other * * * * * * * * *
Total Marketing * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Professional and Service Fees: * * * * * * * * *
Legal * * * * * * * * *
Accounting * * * * * * * * *
Other prof. consulting * * * * * * * * *
Collection fees * * * * * * * * *
Answering service * * * * * * * * *
Linens & uniforms * * * * * * * * *
Other services * * * * * * * * *
Temporary services * * * * * * * * *
Total Professional Fees * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Rental Expense: * * * * * * * * *
Building rent * * * * * * * * *
Other office rent & parking * * * * * * * * *
Equipment leases * * * * * * * * *
Optical equipment rent * * * * * * * * *
Total Rent Expense * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Repairs & Maintenance: * * * * * * * * *
Building maintenance * * * * * * * * *
Repairs - equipment * * * * * * * * *
Non-capitalized tools * * * * * * * * *
Total Repairs & Maint. * * * * * * * * *
</TABLE>
<TABLE>
<CAPTION>
Hunkeler Eye Centers - Chicago, L.L.C.
- ------------------------------------------------------------------------------------------------------------
1999 MSA Budget
Description Oct Nov Dec Total 1998 %
- ---------------------------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
Non-Ophthalmic Business * * * * * * * *
G&A expenses: * * * * * * * *
* * * * * * * *
Office & Administrative: * * * * * * * *
Office Supplies * * * * * * * *
Office supplies * * * * * * * *
Software/computer expense * * * * * * * *
Food service * * * * * * * *
Bank charges * * * * * * * *
Credit card fees * * * * * * * *
* * * * * * * *
Postage & freight * * * * * * * *
Employee & patient programs * * * * * * * *
Continuing education * * * * * * * *
Dues and subscriptions * * * * * * * *
Telephone * * * * * * * *
Utilities * * * * * * * *
Printing * * * * * * * *
Misc. office expense * * * * * * * *
Total Office & Admin. Expenses * * * * * * * *
* * * * * * * *
Marketing: * * * * * * * *
Advertising * * * * * * * *
Marketing - Other * * * * * * * *
Total Marketing * * * * * * * *
* * * * * * * *
* * * * * * * *
Professional and Service Fees: * * * * * * * *
Legal * * * * * * * *
Accounting * * * * * * * *
Other prof. consulting * * * * * * * *
Collection fees * * * * * * * *
Answering service * * * * * * * *
Linens & uniforms * * * * * * * *
Other services * * * * * * * *
Temporary services * * * * * * * *
Total Professional Fees * * * * * * * *
* * * * * * * *
* * * * * * * *
Rental Expense: * * * * * * * *
Building rent * * * * * * * *
Other office rent & parking * * * * * * * *
Equipment leases * * * * * * * *
Optical equipment rent * * * * * * * *
Total Rent Expense * * * * * * * *
* * * * * * * *
* * * * * * * *
Repairs & Maintenance: * * * * * * * *
Building maintenance * * * * * * * *
Repairs - equipment * * * * * * * *
Non-capitalized tools * * * * * * * *
Total Repairs & Maint. * * * * * * * *
</TABLE>
* Confidential portions omitted and filed separately with the commission.
6
<PAGE>
<TABLE>
<CAPTION>
Hunkeler Eye Centers - Chicago, L.L.C.
- ------------------------------------------------------------------------------------------------------------
1999 MSA Budget
Description Jan Feb Mar Apr May Jun Jul Aug Sep
- ---------------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-Ophthalmic Business * * * * * * * * *
* * * * * * * * *
Taxes and Insurance: * * * * * * * * *
Malpractice * * * * * * * * *
Liability & casualty * * * * * * * * *
Workers' compensation ins. * * * * * * * * *
D&O * * * * * * * * *
Key Man Life * * * * * * * * *
Other insurance * * * * * * * * *
Property tax * * * * * * * * *
Sales & Use tax * * * * * * * * *
Property tax * * * * * * * * *
Other taxes * * * * * * * * *
Total Taxes & Ins. * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Other Expenses: * * * * * * * * *
Travel & entertainment * * * * * * * * *
Recruitment & relocation * * * * * * * * *
Auto & Van * * * * * * * * *
Contracted patient transport. * * * * * * * * *
Donations and gifts * * * * * * * * *
Allocated IT/Computing costs * * * * * * * * *
Other * * * * * * * * *
Total Other Expense * * * * * * * * *
* * * * * * * * *
Total G&A expenses * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Depreciation & Amortization: * * * * * * * * *
Building depreciation * * * * * * * * *
Equipment depreciation * * * * * * * * *
Goodwill amortization * * * * * * * * *
Other intangible amortization * * * * * * * * *
Amortization of deferred charges * * * * * * * * *
* * * * * * * * *
Total Depr. and Amortization * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Interest (Income) and expense: * * * * * * * * *
Depository Interest * * * * * * * * *
Investment Income * * * * * * * * *
Bank Line Interest Expense * * * * * * * * *
Cap. Lease Interest Expense * * * * * * * * *
Other Interest Expense * * * * * * * * *
* * * * * * * * *
Total Interest (Income)/expense * * * * * * * * *
* * * * * * * * *
Non-Ophthalmic Business Budgeted * * * * * * * * *
* * * * * * * * *
Office Expense * * * * * * * * *
</TABLE>
<TABLE>
<CAPTION>
Hunkeler Eye Centers - Chicago, L.L.C.
- ------------------------------------------------------------------------------------------------------------
1999 MSA Budget
Description Oct Nov Dec Total 1998 %
- ---------------------------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
Non-Ophthalmic Business * * * * * * * *
* * * * * * * *
Taxes and Insurance: * * * * * * * *
Malpractice * * * * * * * *
Liability & casualty * * * * * * * *
Workers' compensation ins. * * * * * * * *
D&O * * * * * * * *
Key Man Life * * * * * * * *
Other insurance * * * * * * * *
Property tax * * * * * * * *
Sales & Use tax * * * * * * * *
Property tax * * * * * * * *
Other taxes * * * * * * * *
Total Taxes & Ins. * * * * * * * *
* * * * * * * *
* * * * * * * *
Other Expenses: * * * * * * * *
Travel & entertainment * * * * * * * *
Recruitment & relocation * * * * * * * *
Auto & Van * * * * * * * *
Contracted patient transport. * * * * * * * *
Donations and gifts * * * * * * * *
Allocated IT/Computing costs * * * * * * * *
Other * * * * * * * *
Total Other Expense * * * * * * * *
* * * * * * * *
Total G&A expenses * * * * * * * *
* * * * * * * *
* * * * * * * *
Depreciation & Amortization: * * * * * * * *
Building depreciation * * * * * * * *
Equipment depreciation * * * * * * * *
Goodwill amortization * * * * * * * *
Other intangible amortization * * * * * * * *
Amortization of deferred charges * * * * * * * *
* * * * * * * *
Total Depr. and Amortization * * * * * * * *
* * * * * * * *
* * * * * * * *
Interest (Income) and expense: * * * * * * * *
Depository Interest * * * * * * * *
Investment Income * * * * * * * *
Bank Line Interest Expense * * * * * * * *
Cap. Lease Interest Expense * * * * * * * *
Other Interest Expense * * * * * * * *
* * * * * * * *
Total Interest (Income)/expense * * * * * * * *
* * * * * * * *
Non-Ophthalmic Business Budgeted * * * * * * * *
* * * * * * * *
Office Expense * * * * * * * *
</TABLE>
* Confidential portions omitted and filed separately with the commission.
7
<PAGE>
<TABLE>
<CAPTION>
Hunkeler Eye Centers - Chicago, L.L.C.
- ------------------------------------------------------------------------------------------------------------
1999 MSA Budget
Description Jan Feb Mar Apr May Jun Jul Aug Sep
- ---------------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-Ophthalmic Business * * * * * * * * *
* * * * * * * * *
Non-Ophthalmic Business Budgeted * * * * * * * * *
Practice Expense * * * * * * * * *
* * * * * * * * *
Non-Ophthalmic Business Monthly Fee * * * * * * * * *
</TABLE>
<TABLE>
<CAPTION>
Hunkeler Eye Centers - Chicago, L.L.C.
- ------------------------------------------------------------------------------------------------------------
1999 MSA Budget
Description Oct Nov Dec Total 1998 %
- ---------------------------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
Non-Ophthalmic Business * * * * * * * *
* * * * * * * *
Non-Ophthalmic Business Budgeted * * * * * * * *
Practice Expense * * * * * * * *
* * * * * * * *
Non-Ophthalmic Business Monthly Fee * * * * * * * *
</TABLE>
* Confidential portions omitted and filed separately with the commission.
8
<PAGE>
EXHIBIT 1.19
LOCATIONS
. 7427 Lake Street
River Forest, Illinois
(Dr. Bauer)
<PAGE>
EXHIBIT 1.33(b)
PHYSICIAN-EMPLOYEES AND OPTOMETRISTS INCLUDED
IN PRACTICE EXPENSE
Robert J. Heidenry, M.D.
<PAGE>
EXHIBIT 1.33(g)
EQUIPMENT
See Attached
<PAGE>
EXHIBIT 1.57
PURCHASE AGREEMENTS
NovaMed EyeCare Management, L.L.C., entered into a Purchase Agreement with
each of the following entities for purchase of such entities' nonmedical assets,
with each of the Purchase Agreements being effective as of January 1, 1996:
Brodersen - Williams Eye Institute, P.C.
Deschamps Eye Care, P.C.
Walter I. Fried, Ph.D., M.D., J.C.
Kirk Eye Center, S.C.
Northshore Eye Associates, Ltd.
Northwest Ophthalmology Associates, S.C.
<PAGE>
EXHIBIT 1.59(a)
FORM OF SERVICES AGREEMENTS
See Attached
<PAGE>
EXHIBIT 1.59(b)
LIST OF SERVICES AGREEMENTS
Each Services Agreement is of even date herewith, unless otherwise noted.
Practice is a party to a Services Agreement with each of the following entities:
Brodersen-Williams Eye Institute, P.C.
Deschamps Eye Care, P.C.
Walter I. Fried, Ph.D., M.D., S.C.
Kirk Eye Center, S.C.
S. Kirk, S.C.
Northshore Eye Associates, Ltd.
Kathleen M. Scarpulla, M.D., S.C.
Northwest Ophthalmology Associates, S.C.
Lawrence D. Wolin, M.D., S.C.
<PAGE>
EXHIBIT 3.1(b)
MEMBERS OF POLICY BOARD
Practice-Owner Representatives
------------------------------
Kent A. Kirk, M.D.
Walter I Fried, Ph.D., M.D.
Business Manager Representatives
--------------------------------
E. Michele Vickery
James Williams
<PAGE>
EXHIBIT 4.8(a)
FORM OF BILLING AND COLLECTION AGREEMENT
See Attached
<PAGE>
EXHIBIT 4.8(b)
FORM OF POWER OF ATTORNEY
See Attached
<PAGE>
EXHIBIT 5.1A
FORM OF EMPLOYMENT AGREEMENT (PHYSICIAN PRACTICE-OWNERS)
See Attached
<PAGE>
EXHIBIT 5.1B
LIST OF INITIAL PRACTICE-OWNERS
Brodersen-Williams Eye Institute, P.C.
Deschamps Eye Care, P.C.
Walter I. Fried, Ph.D., M.D., S.C.
Kirk Eye Center, S.C.
S. Kirk, S.C.
Northwest Ophthalmology Associates, S.C.
Kathleen M. Scarpulla, M.D., S.C.
Northshore Eye Associates, Ltd.
Lawrence D. Wolin, M.D., S.C.
Ann K. Williams, M.D.
<PAGE>
EXHIBIT 5.1C
FORM EMPLOYMENT AGREEMENT
(PHYSICIAN SHAREHOLDERS OF PRACTICE-OWNERS)
<PAGE>
EXHIBIT 5.2A
FORM OF EMPLOYMENT AGREEMENT (PHYSICIAN EMPLOYEES)
See Attached
<PAGE>
EXHIBIT 5.8
PRACTICE D/B/A's
Brodersen-Williams Eye Institute, P.C.
Deschamps Eye Care, P.C.
Walter I. Fried, Ph.D., M.D., S.C.
Kirk Eye Center, S.C.
S. Kirk, S.C.
Northshore Eye Associates, Ltd.
Northwest Ophthalmology Associates, S.C.
Lawrence D. Wolin, M.D., S.C.
<PAGE>
EXHIBIT 10.13
AMENDED AND RESTATED
MANAGEMENT SERVICES AGREEMENT
BY AND BETWEEN
NOVAMED MANAGEMENT OF KANSAS CITY, INC.
a Missouri corporation
AND
HUNKELER EYE CENTERS, P.C.
a Missouri professional corporation
EFFECTIVE June 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C>
ARTICLE I
DEFINITIONS...................................................................................... 3
1.1 Adjustments............................................................................. 3
1.2 Affiliate............................................................................... 3
1.3 Ancillary Revenue....................................................................... 3
1.4 Budget.................................................................................. 3
1.5 Business Manager........................................................................ 3
1.6 Business Manager Consent................................................................ 3
1.7 Business Manager Expense................................................................ 4
1.8 Capitation/Case Rate Revenues........................................................... 4
1.9 Confidential Information................................................................ 5
1.10 Depository Account...................................................................... 5
1.11 Designated Allied Health Professionals.................................................. 5
1.12 Dispensary Business..................................................................... 5
1.13 Dispensary Business Budgeted Office Expense. ........................................... 5
1.14 Dispensary Business Budgeted Practice Expense........................................... 6
1.15 Dispensary Business Budgeted Revenue.................................................... 6
1.16 Dispensary Business Management Fee. .................................................... 6
1.17 Dispensary Business Monthly Fee......................................................... 6
1.18 Dispensary Business Monthly Office Expense.............................................. 6
1.19 Dispensary Business Monthly Practice Expense............................................ 6
1.20 Dispensary Business Office Expense...................................................... 6
1.21 Dispensary Business Revenue............................................................. 6
1.22 EyeCare Midwest......................................................................... 6
1.23 EyeCare Midwest MSA..................................................................... 6
1.24 GAAP.................................................................................... 6
1.25 Managed Care Contract................................................................... 6
1.26 Management Fee.......................................................................... 7
1.27 Management Services..................................................................... 7
1.28 Management Services Agreement........................................................... 7
1.29 Medical Advisory Board.................................................................. 7
1.30 Medical Services........................................................................ 7
1.31 Monthly Office Expense.................................................................. 7
1.32 Monthly Practice Expense................................................................ 7
1.33 Office.................................................................................. 7
1.34 Office Expense.......................................................................... 7
1.35 Optometrist............................................................................. 10
1.36 Original Transaction Agreements......................................................... 10
1.37 Physician............................................................................... 10
1.38 Physician Discretionary Expenses........................................................ 10
1.39 Physician-Employee...................................................................... 10
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page No.
<S> <C>
1.40 Physician-Shareholder.................................................................... 10
1.41 Policy Board............................................................................. 10
1.42 Practice................................................................................. 11
1.43 Practice Account......................................................................... 11
1.44 Practice Consent......................................................................... 11
1.45 Practice Expense......................................................................... 11
1.46 Practice Territory....................................................................... 11
1.47 Predecessor Professional Corporation..................................................... 11
1.48 Preexisting Obligation Payments.......................................................... 11
1.49 Principal Services....................................................................... 11
1.50 Principal Services Budgeted Office Expense. ............................................. 12
1.51 Principal Services Budgeted Practice Expense............................................. 12
1.52 Principal Services Budgeted Revenue...................................................... 12
1.53 Principal Services Management Fee........................................................ 12
1.54 Principal Services Monthly Fee........................................................... 12
1.55 Principal Services Monthly Office Expense................................................ 12
1.56 Principal Services Monthly Practice Expense.............................................. 12
1.57 Principal Services Office Expense........................................................ 12
1.58 Principal Services Revenue............................................................... 12
1.59 Professional Services Revenue............................................................ 12
1.60 Regional Practices....................................................................... 12
1.61 Representatives.......................................................................... 12
1.62 Stark Act................................................................................ 12
1.63 Subcontractor Costs...................................................................... 13
1.64 Term..................................................................................... 13
ARTICLE II
APPOINTMENT AND AUTHORITY OF BUSINESS MANAGER..................................................... 13
2.1 Appointment.............................................................................. 13
2.2 Authority................................................................................ 13
2.3 Patient Referrals........................................................................ 13
2.4 Internal Practice Matters................................................................ 14
2.5 Practice of Medicine..................................................................... 14
ARTICLE III
RESPONSIBILITIES OF THE POLICY BOARD
................................................................................................. 14
3.1 Formation and Operation of the Policy Board.............................................. 14
3.2 Duties and Responsibilities of the Policy Board.......................................... 15
3.3 Medical Decisions........................................................................ 16
ARTICLE IV
COVENANTS AND RESPONSIBILITIES OF BUSINESS MANAGER................................................ 17
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page No.
<S> <C>
4.1 Office and Equipment..................................................................... 17
4.2 Medical Supplies......................................................................... 18
4.3 Support Services......................................................................... 18
4.4 Quality Assurance, Risk Management, and Utilization Review............................... 18
4.5 Licenses and Permits..................................................................... 18
4.6 Personnel................................................................................ 19
4.7 Contract Negotiations.................................................................... 19
4.8 Billing and Collection................................................................... 19
4.9 Priority of Payments. ................................................................... 22
4.10 Fiscal Matters........................................................................... 23
4.11 Reports and Records...................................................................... 25
4.12 Recruitment of Physicians and Optometrists............................................... 25
4.13 Confidential and Proprietary Information................................................. 25
4.14 Insurance................................................................................ 26
4.15 Facility................................................................................. 27
4.16 No Warranty.............................................................................. 27
ARTICLE V
COVENANTS AND RESPONSIBILITY OF PRACTICE.......................................................... 28
5.1 Organization and Operation............................................................... 28
5.2 Practice Personnel....................................................................... 29
5.3 Professional Standards................................................................... 30
5.4 Medical Services......................................................................... 30
5.5 Peer Review/Quality Assurance............................................................ 31
5.6 Confidential and Proprietary Information................................................. 31
5.7 Noncompetition........................................................................... 32
5.8 Name, Trademark.......................................................................... 34
5.9 Medical Advisory Board................................................................... 34
5.10 Indemnification of Business Manager...................................................... 34
5.11 Indemnification of Practice.............................................................. 35
ARTICLE VI
FINANCIAL ARRANGEMENT............................................................................. 35
6.1 Definitions.............................................................................. 35
6.2 Management Fee........................................................................... 38
6.3 Reasonable Value......................................................................... 38
6.4 Payment of Management Fee................................................................ 38
6.5 Accounts Receivable...................................................................... 38
6.6 Disputes Regarding Fees.................................................................. 39
ARTICLE VII
TERM AND TERMINATION.............................................................................. 40
7.1 Initial and Renewal Term................................................................. 40
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page No.
<S> <C>
7.2 Termination.............................................................................. 40
7.3 Effects of Termination................................................................... 42
7.4 Repurchase Obligation.................................................................... 42
7.5 Repurchase Option........................................................................ 44
7.6 Closing of Repurchase.................................................................... 45
7.7 Rights and Remedies...................................................................... 45
7.8 Interpretation........................................................................... 46
ARTICLE VIII
MEDIATION AND ARBITRATION......................................................................... 46
ARTICLE IX
MISCELLANEOUS..................................................................................... 47
9.1 Administrative Services Only............................................................. 47
9.2 Status of Contractor..................................................................... 47
9.3 Notices.................................................................................. 47
9.4 Governing Law............................................................................ 49
9.5 Assignment............................................................................... 49
9.6 Waiver of Breach......................................................................... 49
9.7 Enforcement.............................................................................. 49
9.8 Gender and Number........................................................................ 50
9.9 Additional Assurances.................................................................... 50
9.10 Consents, Approvals, and Exercise of Discretion.......................................... 50
9.11 Force Majeure............................................................................ 50
9.12 Severability............................................................................. 50
9.13 Divisions and Headings................................................................... 50
9.14 Amendments and Management Services Agreement Execution................................... 51
9.15 Entire Management Services Agreement..................................................... 51
</TABLE>
iv
<PAGE>
AMENDED AND RESTATED
MANAGEMENT SERVICES AGREEMENT
THIS AMENDED AND RESTATED MANAGEMENT SERVICES AGREEMENT ("Management
Services Agreement") is made and entered into effective as of June 1, 1999 (the
"Effective Date"), by and between NovaMed Management of Kansas City, Inc., a
Missouri corporation ("Business Manager"), and Hunkeler Eye Centers, P.C., a
Missouri professional corporation ("Practice").
RECITALS
This Management Services Agreement is made with reference to the following
facts:
A. Practice is a validly existing Missouri professional corporation,
formed for and engaged in the conduct of a medical practice, and the provision
of medical services to the general public in and around the Kansas City
metropolitan area through individual physicians who are licensed to practice
medicine in the States of Missouri and Kansas and who are employed or otherwise
retained by Practice.
B. As of the Effective Date, Practice shall also be engaged in the
business of selling prescription and non-prescription eyewear, contact lenses
and other related optical products (the "Dispensary Business").
C. Business Manager is a validly existing Missouri corporation which is
in the business of providing physician practice management services to medical
practices.
D. In order to allow Practice to focus its energies, expertise and time
on the practice of medicine and on the delivery of medical services to patients,
and to delegate the business functions of its medical practice to persons with
business expertise, since February 28, 1997 (the "Original Effective Date"),
Business Manager has provided administrative, financial and management services
to Practice pursuant to a Management Services Agreement dated February 28, 1997,
as amended from time to time (the "Original HEC MSA").
E. EyeCare Midwest, LLC ("EyeCare Midwest") is a validly existing
Missouri limited liability company, formed for and engaged in the conduct of a
medical and optometric practice, and the provision of medical and optometric
services to the general public in and around the Kansas City metropolitan area
through individual physicians and optometrists who are licensed to practice
medicine and optometry, respectively, in the State of Missouri and who are
employed or otherwise retained by EyeCare Midwest.
<PAGE>
F. Since July 25, 1998, Business Manager has provided administrative,
financial and management services to EyeCare Midwest pursuant to a Management
Services Agreement dated July 25, 1998 (the "EyeCare Midwest MSA").
G. In order to facilitate, among other things: (i) a focus on growth in
refractive surgery; (ii) more effective marketing; (iii) more efficient
leveraging of the existing infrastructure; (iv) enhanced recruiting and hiring
of physicians and other personnel; (v) further integration of subspecialists;
(vi) opportunities for intra-market acquisitions; (vii) joint managed care
contracting efforts; and (viii) such other objectives as may be determined by
the parties, Practice, Business Manager and EyeCare Midwest have decided to: (i)
make certain physician owners/employees of EyeCare Midwest shareholders and
employees of Practice, rather than owners and employees of EyeCare Midwest, by
EyeCare Midwest redeeming the ownership interests of such physician owners for
certain medical assets of EyeCare Midwest, which medical assets shall in turn be
used to purchase stock of Practice, and by terminating the employment agreements
of such physician owners with EyeCare Midwest and having such physicians execute
new employment agreements with Practice of even date herewith, resulting in such
physicians practicing medicine through Practice rather than EyeCare Midwest;
(ii) terminate the EyeCare Midwest MSA; (iii) have Practice and EyeCare Midwest
enter into an independent contractor agreement whereby the optometrists
remaining in EyeCare Midwest will provide services exclusively for and on behalf
of Practice; (iv) have Practice take over the office locations of EyeCare
Midwest so that from the Effective Date forward, such locations shall be Offices
of Practice; and (v) amend and restate the Original HEC MSA as set forth herein
to reflect the foregoing.
H. Practice desires to continue to engage Business Manager to provide all
management, administrative and business services as are necessary or appropriate
for the day-to-day administration of the nonmedical aspects of Practice's
medical practice, and to engage Business Manager to provide all management,
administrative and business services as are necessary or appropriate for the
day-to-day administration of the nonmedical aspects of the Dispensary Business,
including the provision of all non-medical assets necessary or appropriate for
the operation of Practice's medical practice and Dispensary Business, and
Business Manager desires to continue to provide such services upon the terms and
conditions hereinafter set forth.
I. Practice and Business Manager have determined a fair market value for
the services to be rendered by Business Manager and, based on this fair market
value, have developed a formula for compensating Business Manager that will
allow the parties to establish and continue a relationship permitting each party
to devote its skills and expertise to the appropriate responsibilities and
functions.
J. Business Manager is willing to commit significant resources to
Practice based upon the representation and warranty of Practice that the
shareholders of Practice as of the Effective Date intend to continue to practice
medicine for Practice in the Practice Territory (as hereinafter defined) during
the term of this Management Services Agreement pursuant to employment agreements
between Practice and each Physician-Shareholder (the "Employment Agreements").
2
<PAGE>
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
When used in this Management Services Agreement, the following terms shall
have the meanings set forth below.
1.1 Adjustments. The term "Adjustments" shall mean any adjustments on an
-----------
accrual basis in accordance with GAAP for uncollectible accounts, Medicare,
Medicaid and other payor contractual adjustments, discounts, worker's
compensation adjustments, professional courtesies and other reductions in
collectible revenue. On a continual basis, Business Manager and Practice agree
that Principal Services Revenue and Dispensary Business Revenue will be adjusted
to cause amounts from such revenues to be stated at their net realizable value
in accordance with GAAP.
1.2 Affiliate. The term "Affiliate" shall mean any person, firm or entity
---------
which directly or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with, any other person (including
members of such person's family), firm or entity.
1.3 Ancillary Revenue. The term "Ancillary Revenue" shall mean all other
-----------------
revenue of Practice, Physicians and Optometrists actually recorded each month
(net of Adjustments) which is not Professional Services Revenue or Dispensary
Business Revenue and shall include, without limitation, any revenues of Practice
or its Physicians and Optometrists which are derived from professionally related
activities such as expert witness fees, and any royalties, honoraria or the like
from authored documents or speeches.
1.4 Budget. The term "Budget" shall mean an operating budget and capital
------
expenditure budget for each fiscal year for each of the Dispensary Business and
the Principal Services, as prepared by Business Manager and adopted by Practice
in accordance with Section 4.10 hereof. The mid-year Budget shall be attached
hereto and incorporated herein as Exhibit 1.4. Each succeeding Budget
-----------
subsequently adopted pursuant to Section 4.10 hereof shall also be incorporated
herein.
1.5 Business Manager. The term "Business Manager" shall mean NovaMed
----------------
Management of Kansas City, Inc., a Missouri corporation, or any permitted
successor or assign under Section 9.5 hereof.
1.6 Business Manager Consent. The term "Business Manager Consent" shall
------------------------
mean the consent granted by any of Business Manager's representatives to the
Policy Board. When any provision of this Management Services Agreement requires
Business Manager Consent, such consent shall not be unreasonably withheld or
delayed and shall be binding on Business Manager.
3
<PAGE>
1.7 Business Manager Expense. The term "Business Manager Expense" shall
------------------------
mean any expense or cost incurred by Business Manager which does not relate
directly to the provision of services to Practice. Such expenses or costs shall
include, without limitation:
(a) all salaries, benefits and other direct costs (including payroll
and other withholding taxes) of executive officers and management personnel of
Business Manager or employees of Business Manager who devote substantially all
of their time and effort to the operations of Business Manager in the aggregate
rather than the operations of any particular practice affiliated with Business
Manager;
(b) the expense of using, leasing, maintaining or repairing the
corporate offices of Business Manager;
(c) the cost of capital to finance the general business obligations of
Business Manager, and any costs associated with raising such capital; and
(d) the costs of any consultants or advisors who provide services for
Business Manager in connection with its business operations, such as accounting,
financial and legal services, other than those services which constitute an
Office Expense pursuant to Section 1.34 hereof. Except as otherwise
contemplated in this Agreement, no Business Manager Expense shall be allocated
to or against Practice pursuant to Article 2 or otherwise without the express
written consent of the Practice.
1.8 Capitation/Case Rate Revenues. The term "Capitation/Case Rate
-----------------------------
Revenues" shall mean all revenues from managed care organizations, third party
payors or employers in which payments are based on a per member, case rate or
other similar basis (i.e., all payments which are not based on a fee-for-service
payment methodology or discounted fee-for-service reimbursement methodology) for
the medical needs of a subscribing patient. Capitation/Case Rate revenues shall
include any associated plan payments received, such as patient co-payments,
incentive bonuses or incentive fund penalties. All Capitation/Case Rate
Revenues shall be allocated in good faith on an actuarial basis as follows:
(a) Dispensary Business Capitation. The portion, if any, of payments
------------------------------
designated for Dispensary Business goods sold by Practice; Dispensary Business
Capitation shall be Dispensary Business Revenue;
(b) Professional Services Capitation. The portion of payments
--------------------------------
designated for physician services currently performed by Practice; Professional
Services Capitation shall be Professional Services Revenues; and
(c) Subcontractor Capitation Revenues. The portion of payments
---------------------------------
designated for physicians, optometrists or other medical or optometric services
that will be Subcontractor Costs (e.g., reinsurance, hospitalization, surgical
facility fees, etc.), including incentive bonuses or penalties, and an estimate
for incurred but not reported claims. The Policy Board shall
4
<PAGE>
determine how Subcontractor Capitation Revenues are accounted for under this
Management Services Agreement.
Subject to the approval of the Policy Board, Business Manager shall develop and
implement an appropriate allocation methodology for each Capitation/Case Rate
Revenues contract.
1.9 Confidential Information. The term "Confidential Information" shall
------------------------
mean any and all financial, technical, commercial or other information of
Business Manager or Practice, as appropriate (whether written or oral),
including, without limitation, all information, notes, studies, patient lists
and records, reports, analyses, financial statements, compilations, studies,
forms, business or management methods, marketing data, fee schedules, peer
review information, credentialing information, quality assurance and utilization
review information, interpretations, information technology systems and
programs, projections, forecasts or trade secrets of Business Manager or of
Practice, as applicable, whether or not such Confidential Information is
disclosed or otherwise made available to one party by the other party pursuant
to this Management Services Agreement. Confidential Information shall also
include the terms and provisions of this Management Services Agreement and any
transactions consummated or documents executed by the parties pursuant to this
Management Services Agreement. Confidential Information does not include any
information that (i) is or becomes generally available to and known by the
public (other than as a result of an unpermitted disclosure directly or
indirectly by the receiving party or its affiliates, advisors or
Representatives); (ii) is or becomes available to the receiving party on a
nonconfidential basis from a source other than the furnishing party or its
affiliates, advisors or Representatives, provided that such source is not and
was not bound by a confidentiality agreement with or other obligation of secrecy
to the furnishing party of which the receiving party has knowledge at the time
of such disclosure; or (iii) has already been developed, or is hereafter
independently acquired or developed, by the receiving party without violating
any confidentiality agreement with or other obligation of secrecy to the
furnishing party.
1.10 Depository Account. The term "Depository Account" shall mean that
------------------
bank account selected by Business Manager, retained in Business Manager's name
and over which Business Manager has sole control, and which is referred to in
Section 4.8 hereof.
1.11 Designated Allied Health Professionals. The term "Designated Allied
--------------------------------------
Health Professionals" shall mean those medical professionals other than
Physicians and Optometrists whose services must be rendered "incident to" a
Physician's services in order to be billable under the Medicare program.
1.12 Dispensary Business. The term "Dispensary Business" shall have the
-------------------
meaning set forth in the Recitals hereto; provided, however, that the sale of
contact lenses shall be a part of Professional Services Revenues and not
Dispensary Business.
1.13 Dispensary Business Budgeted Office Expense. The term "Dispensary
-------------------------------------------
Business Budgeted Office Expense" shall have the meaning set forth in Section
6.1 hereof.
5
<PAGE>
1.14 Dispensary Business Budgeted Practice Expense. The term "Dispensary
---------------------------------------------
Business Budgeted Practice Expense" shall have the meaning set forth in Section
6.1 hereof.
1.15 Dispensary Business Budgeted Revenue. The term "Dispensary Business
------------------------------------
Budgeted Revenue" shall have the meaning set forth in Section 6.1 hereof.
1.16 Dispensary Business Management Fee. The term "Dispensary Business
----------------------------------
Management Fee" shall have the meaning set forth in Section 6.1 hereof.
1.17 Dispensary Business Monthly Fee. The term "Dispensary Business
-------------------------------
Monthly Fee" shall have the meaning set forth in Section 6.1 hereof.
1.18 Dispensary Business Monthly Office Expense. The term "Dispensary
------------------------------------------
Business Monthly Office Expense" shall have the meaning set forth in Section 6.1
hereof.
1.19 Dispensary Business Monthly Practice Expense. The term "Dispensary
--------------------------------------------
Business Monthly Practice Expense" shall have the meaning set forth in Section
6.1 hereof.
1.20 Dispensary Business Office Expense. The term "Dispensary Business
----------------------------------
Monthly Office Expense" shall have the meaning set forth in Section 6.1 hereof.
1.21 Dispensary Business Revenue. The term "Dispensary Business Revenue"
---------------------------
shall mean all revenues of the Dispensary Business of the Practice, including
revenues generated by independent contractors, recorded on an accrual basis
under GAAP (net of Adjustments); provided, however, that Dispensary Business
Revenue shall not include any revenues related to the sale of contact lenses.
1.22 EyeCare Midwest. The term "EyeCare Midwest" shall have the meaning
---------------
attributed thereto in the recitals of this Management Services Agreement.
1.23 EyeCare Midwest MSA. The term "EyeCare Midwest MSA" shall mean the
-------------------
management services agreement dated as of July 25, 1998 by and between EyeCare
Midwest and Business Manager, and which shall be terminated as of the Effective
Date.
1.24 GAAP. The term "GAAP" shall mean generally accepted accounting
----
principles set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants,
statements and pronouncements of the Financial Accounting Standards Board, or
other statements, practices and procedures as may be approved by a significant
segment of the accounting profession, which are applicable to the circumstances
as of the date of the determination.
1.25 Managed Care Contract. The term "Managed Care Contract" shall include
---------------------
any Capitation/Case Rate Revenues contract, or any contracts based on a fee-for-
service payment methodology or discounted fee-for-service reimbursement
methodology and other agreements with third party payors, alternative delivery
systems or other purchasers of group health care services.
6
<PAGE>
1.26 Management Fee. The term "Management Fee" shall mean the amount
--------------
determined pursuant to Section 6.1 hereof.
1.27 Management Services. The term "Management Services" shall mean the
-------------------
business, administrative and management services to be provided to Practice by
Business Manager under this Agreement including, without limitation, the
provision of equipment, supplies, support services, nonphysician personnel,
office space, management, administration, financial recordkeeping and reporting,
information systems and all other business office services necessary for the
nonmedical operations of Practice.
1.28 Management Services Agreement. The term "Management Services
-----------------------------
Agreement" shall mean this Amended and Restated Management Services Agreement by
and between Practice and Business Manager and any amendments hereto.
1.29 Medical Advisory Board. The term "Medical Advisory Board" shall have
----------------------
the meaning set forth in Section 5.9 hereof.
1.30 Medical Services. The term "Medical Services" shall mean the practice
----------------
of ophthalmology, optometry and other related eye care services, including,
without limitation, clinical research services, as provided by Practice through
Physicians and Optometrists, as the case may be.
1.31 Monthly Office Expense. The term "Monthly Office Expense" shall have
----------------------
the meaning set forth in Section 6.1 hereof.
1.32 Monthly Practice Expense. The term "Monthly Practice Expense" shall
------------------------
have the meaning set forth in Section 6.1 hereof.
1.33 Office. The term "Office" shall mean any office spaces, clinics,
------
facilities or satellite facilities that Business Manager owns, leases or
otherwise procures for the exclusive use of Practice, including, without
limitation, any office space, clinic, facility or satellite facility that, prior
to the Effective Date, was used by EyeCare Midwest.
1.34 Office Expense. The term "Office Expense" shall mean all expenses
--------------
incurred by Business Manager or Practice, in accordance with GAAP, in the
provision of services to Practice and the operation of the Offices. Except as
specifically enumerated below, Office Expense shall not include any state or
federal income tax liability of Practice or Physician-Shareholders, or any other
expense that is a Practice Expense or a Business Manager Expense. Without
limitation, Office Expense shall include:
(a) the salaries, benefits and other direct costs (including payroll
and other withholding taxes) of all employees of Business Manager who are either
located at, devote substantially all of their time and effort to, or for which
time is allocated specifically for a function to support, Practice;
7
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(b) the salaries, benefits and other direct costs (including payroll
and other withholding taxes) of all Optometrists and Physician-Employees,
including those costs associated with procuring Optometrists through an
independent contractor agreement with EyeCare Midwest, but excluding the
salaries, benefits and other direct costs (including payroll and other
withholding taxes) of all Physician-Shareholders; provided, however, that in the
event any Physician-Shareholder shall fail, for any reason, to work full time in
the performance of his or her duties as described in such Physician-
Shareholder's Employment Agreement for a period exceeding two (2) consecutive
months, whether or not such failure (i) gives rise to termination rights
pursuant to such Employment Agreement or (ii) occurs prior to or after the
termination of the Initial Term (as such term is defined in Section 4.1 of such
Employment Agreement) then the expenses described in this Section 1.34(b) shall
thereafter be categorized as a Practice Expense, but only to the extent of the
services of any Physician-Employees and/or Optometrists that are necessary to
replace the revenues and productivity lost by such Physician-Shareholder's
failure to work on a full-time basis, as determined by the Policy Board;
(c) except as otherwise provided in Section 5.4, the direct or
reasonably allocated costs of providing locum tenens coverage with respect to
----- ------
any Optometrists or Physician-Employees as may be necessary pursuant to Section
5.4 hereof, which costs shall include, without limitation, the salaries,
benefits and other direct costs of any Physician-Employees and Optometrists
retained by Practice for such purposes;
(d) the direct or reasonably allocated reasonable costs of any
employee or consultant that provides services at the direction of Business
Manager, with Practice Consent, for improved performance of Practice, such as
management, billings and collections, business office consultation, training,
and accounting and legal services;
(e) the direct or reasonably allocated reasonable costs and out-of-
pocket expenses of Business Manager or Practice associated with the recruitment
of Office personnel, Physician-Employees and Optometrists of Practice;
(f) all reasonable and customary business insurance expenses of
Practice, Physicians, Optometrists, Designated Allied Health Professionals and
the Office, including, without limitation, professional and general liability
insurance;
(g) without duplication of expenses included pursuant to any other
subparagraph of this Section 1.34, the expense of using, leasing, maintaining,
repairing, purchasing or otherwise procuring the Office and related equipment
(including any leasehold improvements), including, without limitation, any
depreciation expense, any personal property taxes assessed against assets
utilized for the benefit of Practice, and any and all expenses relating to the
equipment listed on Exhibit 1.34(g) attached hereto and incorporated herein, but
---------------
excluding any Preexisting Obligation Payments;
8
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(h) without duplication of expenses included pursuant to any other
subparagraph of this Section 1.34, the cost of capital, whether as actual
interest on indebtedness incurred on behalf of Practice or as reasonable imputed
interest on capital advanced by Business Manager to finance or refinance
obligations of Practice, purchase medical or nonmedical equipment, renovate the
Office, or finance new ventures of Practice, but excluding any Preexisting
Obligation Payments;
(i) the Management Fee;
(j) the direct or reasonably allocated costs relating to sales or
marketing activities or materials, including, without limitation, brochures,
pamphlets, displays, direct mail, promotional materials, patient screening,
network directories, signs, video and audio tapes, equipment, media, development
costs and consulting services;
(k) the direct or reasonably allocated costs of obtaining, maintaining
and supporting Managed Care Contracts;
(l) the direct or reasonably allocated costs relating to any third
party service agreements for the general day-to-day operations of Office and
Practice, which services shall include, without limitation, maintenance, patient
transportation, janitorial, answering services, landscaping, snow removal and
uniform rental;
(m) with Practice Consent, the direct or reasonably allocated travel
expenses of Business Manager associated with attending meetings, conferences or
seminars primarily benefitting Practice;
(n) the cost of medical supplies (including, without limitation,
drugs, pharmaceuticals, products, substances or medical devices), office
supplies, inventory (including, without limitation, inventory for the Dispensary
Business) and utilities;
(o) direct costs, not to exceed budgeted allowances, for professional
dues, subscriptions, continuing medical education expenses and travel costs for
continuing medical education or other business travel of Practice employees;
(p) all direct or reasonably allocated costs relating to the operation
of the Offices, including without limitation, expenses relating to utilities;
and
(q) a licensing and access fee for each Windows terminal to cover
expenses relating to capital equipment and maintenance, system installation and
training, telecommunications and wide area networking, installation and support
of software provided by Business Manager, and support and system administration;
provided, however, that capital equipment and support fees will be adjusted
accordingly to the extent PCS and/or notebooks are utilized in lieu of Windows
terminals; provided further that Business Manager shall have the discretion to
-------- -------
adjust this fee annually provided that such adjustments are consistently applied
by Business Manager on a company-wide basis.
9
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1.35 Optometrist. The term "Optometrist" shall mean each individually
-----------
licensed doctor of optometry who is employed or otherwise retained by or
associated with Practice, each of whom shall meet at all times the
qualifications described in Sections 5.2 and 5.3 hereof.
1.36 Original Transaction Agreements. The term "Original Transaction
-------------------------------
Agreements" shall mean collectively (i) the Agreement and Plan of Reorganization
dated July 25, 1998 (the "Reorganization Agreement") by and among NovaMed
Holdings Inc.. which has since been merged into and replaced by NovaMed Eyecare,
Inc. ("NovaMed Parent"), Business Manager, Wiles & Moyes EyeCare Midwest, P.C.,
a Missouri professional corporation, f/k/a EyeCare Midwest, P.C. ("ECM-PC") and
the Shareholders of ECM-PC; (ii) the Asset Purchase Agreement dated July 25,
1998 (the "Eye Care Professionals Purchase Agreement") by and among NovaMed
Parent, Business Manager, Eye Care Professionals, P.C. ("Eye Care
Professionals"), and the Shareholder of Eye Care Professionals; (iii) the Asset
Purchase Agreement dated July 25, 1998 (the "Bennett EyeCare Purchase
Agreement") by and among NovaMed Parent, Business Manager, Bennett-EyeCare
Midwest Optical, L.L.C. ("Bennett EyeCare"), and the members of Bennett EyeCare
(the Reorganization Agreement, the Eye Care Professionals Purchase Agreement and
the Bennett EyeCare Purchase Agreement shall be referred to collectively herein
as the "ECM Transaction Agreements"); and (iv) the Stock Purchase Agreement
dated February 28, 1997 by and among NovaMed Parent and the then shareholders of
Business Manager (the "Stock Purchase Agreement").
1.37 Physician. The term "Physician" shall mean each individual licensed
---------
to practice medicine in the States of Missouri and/or Kansas who is employed or
otherwise retained by or associated with Practice, each of whom shall meet at
all times the qualifications described in Sections 5.2 and 5.3 hereof.
1.38 Physician Discretionary Expenses. The term "Physician Discretionary
--------------------------------
Expenses" shall mean any expenses or debt obligations of Practice or Physicians
which are not included in the Budget or approved by Business Manager and shall
include, without limitation, the following: accounting, consulting or legal
expenses incurred by Practice without coordinating such engagement through
Business Manager; professional dues, subscriptions, continuing medical education
expenses and travel costs for continuing medical education in excess of budgeted
allowances for such items and any equipment obtained by Practice without the
approval of the Policy Board as set forth in Section 4.1(d) hereof; and other
discretionary business expenses incurred directly by Physicians or Practice.
1.39 Physician-Employee. The term "Physician-Employee" shall mean any
------------------
Physician employed by Practice, but shall not include Physician-Shareholders.
1.40 Physician-Shareholder. The term "Physician-Shareholder" shall mean
---------------------
any Physician who is employed by, and an owner of, Practice.
1.41 Policy Board. The term "Policy Board" shall refer to the body
------------
responsible for developing and implementing management and administrative
policies for the overall operation of the Regional Practices.
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1.42 Practice. The term "Practice" is defined in the introductory
--------
paragraph of this Management Services Agreement.
1.43 Practice Account. The term "Practice Account" shall mean that bank
----------------
account selected by Practice, maintained in Practice's name and over which
Practice has sole control, and which is referred to in Section 4.8 hereof.
1.44 Practice Consent. The term "Practice Consent" shall mean the consent
----------------
granted by any of Practice's authorized Representatives who is not an officer or
employee of Business Manager. When any provision of this Management Services
Agreement requires Practice Consent, such consent shall not be unreasonably
withheld or delayed and shall be binding on Practice.
1.45 Practice Expense. The term "Practice Expense" shall mean an expense
----------------
incurred by Business Manager or Practice and for which Practice, and not
Business Manager, is financially liable. Practice Expense shall include, without
limitation, such items as Preexisting Obligation Payments, Physician
Discretionary Expenses, salaries, benefits and other direct costs of all
Physician-Shareholders (including, without limitation, any severance payments or
other obligations due and owing from Practice to any terminated Physician-
Shareholders), any costs of providing locum tenens coverage designated as a
----- ------
Practice Expense pursuant to Section 5.4 hereof, and any other expenses incurred
by Practice and Physician-Shareholders which are not in the Budget or are in
excess of budgeted allowances.
1.46 Practice Territory. The term "Practice Territory" shall mean the
------------------
counties of Jackson, Clay and Platte in Missouri, and Johnson, Wyandotte and
Leavenworth in Kansas.
1.47 Predecessor Professional Corporation. The term "Predecessor
------------------------------------
Professional Corporation" shall mean Hunkeler Eye Centers, P.C., the entity, the
shares of which were exchanged pursuant to the Stock Purchase Agreement, that
was the predecessor in interest to Practice.
1.48 Preexisting Obligation Payments. The term "Preexisting Obligation
-------------------------------
Payments" shall mean (i) the expense for principal and interest amortization of
debt obligations of Practice or any Physician-Shareholders that were not assumed
by Business Manager under the Original Transaction Agreements which existed
prior to the execution of this Management Services Agreement and (ii) lease
payments and other costs relating to any outstanding debt, obligations or
liabilities of Practice or any Physician-Shareholder that were not assumed by
Business Manager under the Original Transaction Agreements which existed prior
to the execution of this Management Services Agreement, and which include,
without limitation, the items set forth on Exhibit 1.48 attached hereto and
------------
incorporated herein.
1.49 Principal Services. The term "Principal Services" shall mean all
------------------
services performed by or on behalf of Practice which generate Professional
Services Revenues or Ancillary Revenues.
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1.50 Principal Services Budgeted Office Expense. The term "Principal
------------------------------------------
Services Budgeted Office Expense" shall have the meaning set forth in Section
6.1 hereof.
1.51 Principal Services Budgeted Practice Expense. The term "Principal
--------------------------------------------
Services Budgeted Practice Expense" shall have the meaning set forth in Section
6.1 hereof.
1.52 Principal Services Budgeted Revenue. The term "Principal Services
-----------------------------------
Budgeted Revenue" shall have the meaning set forth in Section 6.1 hereof.
1.53 Principal Services Management Fee. The term "Principal Services
---------------------------------
Management Fee" shall have the meaning set forth in Section 6.1 hereof.
1.54 Principal Services Monthly Fee. The term "Principal Services Monthly
------------------------------
Fee" shall have the meaning set forth in Section 6.1 hereof.
1.55 Principal Services Monthly Office Expense. The term "Principal
-----------------------------------------
Services Monthly Office Expense" shall have the meaning set forth in Section 6.1
hereof.
1.56 Principal Services Monthly Practice Expense. The term "Principal
-------------------------------------------
Services Monthly Practice Expense" shall have the meaning set forth in Section
6.1 hereof.
1.57 Principal Services Office Expense. The term "Principal Services
---------------------------------
Office Expense" shall have the meaning set forth in Section 6.1 hereof.
1.58 Principal Services Revenue. The term "Principal Services Revenue"
--------------------------
shall mean the sum of Professional Services Revenue and Ancillary Revenue.
1.59 Professional Services Revenue. The term "Professional Services
-----------------------------
Revenue" shall mean the sum of: (i) all professional fees actually recorded
each month on an accrual basis under GAAP (net of Adjustments) as a result of
Medical Services and related health care services rendered by Physicians,
Optometrists and Designated Allied Health Professionals, whether rendered in an
outpatient or inpatient setting, which fees shall include any revenues related
to the sale of contact lenses, as well as customary professional fees for the
fitting of contact lenses; (ii) all fees relating to the performance of clinical
research services; and (iii) Professional Services Capitation allocated to
Professional Services Revenue.
1.60 Regional Practices. The term "Regional Practices" is defined in
------------------
Section 3.1(a) hereof.
1.61 Representatives. The term "Representatives" shall mean a party's
---------------
officers, directors, managers, employees, or other agents or representatives.
1.62 Stark Act. The term "Stark Act" shall refer to Section 1877 of the
---------
Social Security Act.
12
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1.63 Subcontractor Costs. The term "Subcontractor Costs" shall mean the
-------------------
amounts payable to third parties for providing goods or medical services for
Capitation/Case Rate Revenues contracts.
1.64 Term. The term "Term" shall mean the initial term and any renewal
----
terms of this Management Services Agreement as described in Section 7.1 hereof.
ARTICLE II
APPOINTMENT AND AUTHORITY OF BUSINESS MANAGER
2.1 Appointment. Practice hereby appoints Business Manager as its sole
-----------
and exclusive agent for the management and administration of the business
functions and business affairs of the medical practice, including the optical
dispensaries of, and the clinical research services performed by, Practice, and
Business Manager hereby accepts such appointment, subject at all times to the
terms and conditions of this Management Services Agreement.
2.2 Authority. Consistent with the provisions of this Management Services
---------
Agreement, Business Manager shall have the responsibility and commensurate
authority to provide Management Services to Practice. Subject to the terms and
conditions of this Management Services Agreement, Practice expressly authorizes
Business Manager to provide the Management Services in any manner Business
Manager deems appropriate to meet the day-to-day requirements of the business
functions of Practice. In connection with Business Manager's provision of
Management Services, Practice also expressly authorizes Business Manager to
negotiate and execute on behalf of Practice any and all contracts related to the
provision of such Management Services; provided, however that, subject to
Section 4.7 hereof, Business Manager shall have no authority to negotiate and
execute on behalf of Practice contracts that relate specifically to the
provision of Medical Services. The parties acknowledge and agree that Practice,
through its Physicians, shall be responsible for and shall have complete
authority, responsibility, supervision and control over the provision of all
Medical Services and other professional health care services performed for
patients, and that all diagnoses, treatments, procedures and other professional
health care services shall be provided and performed exclusively by or under the
supervision of Physicians in such manner as such Physicians, in their sole
discretion, deem appropriate. Business Manager shall have and exercise
absolutely no control or supervision over the provision of Medical Services.
Except as provided in Section 4.7 hereof, with respect to any agreement relating
specifically to Medical Services, and subject to the approval of the Policy
Board pursuant to Section 3.2(e), Practice shall, to the extent commercially
practicable, give Business Manager and the Policy Board thirty (30) days' prior
notice of Practice's intent to execute any such agreement obligating Practice to
perform Medical Services or otherwise creating a binding legal obligation on
Practice to perform Medical Services.
2.3 Patient Referrals. Business Manager and Practice agree that the
-----------------
benefits afforded either party hereunder are not payment for, and are not in any
way contingent upon the referral, admission or any other arrangement for, the
provision of any item or service offered by Business Manager or Practice.
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2.4 Internal Practice Matters. Except as otherwise provided herein,
-------------------------
matters involving the internal governance, control or finances of Practice,
including specifically the allocation of professional income among Physician-
Shareholders, Physician-Employees and Optometrists of Practice, and tax and
investment planning, shall remain the sole responsibility of Practice,
Physician-Shareholders, Physician-Employees and Optometrists.
2.5 Practice of Medicine. The parties acknowledge that Business Manager
--------------------
is not authorized or qualified to engage in any activity that may be construed
or deemed to constitute the practice of medicine. To the extent that any act or
service required to be performed by Business Manager hereunder should be
construed by a court of competent jurisdiction or by the Board of Medical
Examiners of the States of Missouri and/or Kansas to constitute the practice of
medicine, Business Manager's requirement to perform that act or service shall be
deemed waived and unenforceable.
ARTICLE III
RESPONSIBILITIES OF THE POLICY BOARD
3.1 Formation and Operation of the Policy Board.
-------------------------------------------
(a) Structure of Policy Board. Practice hereby acknowledges that it
-------------------------
is or may become one of a group of ophthalmology practices located in the Kansas
City metropolitan area which is affiliated with Business Manager (Practice and
such other practices shall be collectively referred to herein as "Regional
Practices"); provided, that as of the Effective Date, EyeCare Midwest shall no
longer be a Regional Practice. The Regional Practices and Business Manager have
established a Policy Board which is responsible for overseeing the overall
operations of the nonmedical aspects of each Regional Practice's facilities and,
subject to Section 3.3 hereof, certain medical issues. The Policy Board shall
consist of four (4) members, each of whom shall serve a one-year term. Business
Manager shall designate, in its sole discretion, two (2) members of the Policy
Board, and the Regional Practices shall collectively designate two (2) members
of the Policy Board. The Policy Board members designated by the Regional
Practices shall be Physician-Shareholders of a Regional Practice. Except as
otherwise expressly provided herein, the act of a majority of the members of the
Policy Board shall be the act of the Policy Board. Either Business Manager or
the Regional Practices may request, upon thirty (30) days' written notice to
such other party, the expansion of the Policy Board from four (4) members to six
(6) members, with Business Manager having three (3) representatives and the
Regional Practices collectively having three (3) representatives. In such an
event, each of Business Manager and the Regional Practices shall appoint an
additional representative to the Policy Board.
(b) Appointment of Members. As of the Effective Date, the Policy
----------------------
Board consists of the members set forth on Exhibit 3.1 attached hereto and
-----------
incorporated herein. Annually and at least thirty (30) days prior to the
commencement of each fiscal year of Business Manager, each of Business Manager
and the Regional Practices (collectively) shall deliver to the board of
directors of Business Manager a list of two (2) designees to the Policy Board to
serve as members of the Policy Board for the upcoming fiscal year. In the event
that either Business Manager or the
14
<PAGE>
Regional Practices fail to deliver the list of designees by the required date,
then such party's representatives on the Policy Board shall remain the same for
the upcoming fiscal year. Any vacancies created, whether by death, incapacity or
resignation of a designee, shall be filled by the party which appointed such
designee by no later than fifteen (15) business days after the date of receipt
by all of the Regional Practices of notice from Business Manager that such
vacancy exists and must be filled. If the applicable party shall fail to
designate a replacement member to the Policy Board within the required time
period, then the other party shall have the right to designate the replacement
member and such replacement member shall serve on the Policy Board until his or
her successor is duly appointed pursuant to this Section 3.1(b). In any case in
which the Regional Practices shall be required to designate a member or members
to the Policy Board, a previously appointed designee of the Regional Practices
shall convene a meeting or collect the written votes of the Representatives of
the Regional Practices to select such designee or designees. Each Regional
Practice shall be entitled to one vote per designee to be appointed by the
Regional Practice and those designees receiving a plurality of the votes shall
serve as the representatives of the Regional Practices on the Policy Board. Each
of Business Manager and the Regional Practices shall have the discretion, at any
time and upon ten (10) days notice to such other party, to remove any of its
designated representatives from the Policy Board and replace such representative
with a new designee.
(c) Actions of the Policy Board. The Policy Board meetings shall be
---------------------------
held as mutually agreed, but at least semiannually, in Kansas City, Missouri.
Meetings may be called by any two (2) members of the Policy Board upon notice to
Business Manager. Notice of each such meeting, stating the place, date and hour
of the meeting, shall then be delivered by Business Manager to each member of
the Policy Board not less than seventy-two (72) hours prior to such meeting;
provided, however, that such notice may be delivered in a shorter time frame if
the circumstances surrounding such meeting reasonably dictate such shorter
notice. Meetings shall be open to any Physician-Shareholder and any officer,
director or employee (as designated by Business Manager) of Business Manager.
Members of the Policy Board may participate in a meeting by means of conference
telephone. Attendance at any meeting in person or by proxy, or participation in
a meeting by means of conference telephone, shall constitute a waiver of notice
thereof. Any action required to be taken at a meeting of the Policy Board may
be taken without a meeting and without a vote if a consent in writing, setting
forth the action to be taken, is signed by all of the members of the Policy
Board, unless such action is medical in nature, in which case such consent need
be signed only by all of the Physician members of the Policy Board.
3.2 Duties and Responsibilities of the Policy Board. The Policy Board
-----------------------------------------------
shall have the following duties, obligations and authority:
(a) Capital Improvements and Expansion. Subject to the items
----------------------------------
specifically enumerated in the Budget as determined in accordance with Section
4.10(a) hereof, any renovation and expansion plans and capital expenditures with
respect to the Office, or the priority of such capital expenditures, shall be
reviewed and approved by the Policy Board and shall be based upon economic
feasibility, physician support, productivity and then-current market conditions.
15
<PAGE>
(b) Marketing and Advertising. The Policy Board shall explore
-------------------------
potential joint marketing and other advertising of the services performed at the
Regional Practices' facilities.
(c) Collection Policies. As a part of the annual operating budget, in
-------------------
consultation with Practice and Business Manager, the Policy Board shall review
and approve the collection policies for the Dispensary Business of, and for all
Medical Services and ancillary services provided by, Practice.
(d) Provider and Payor Relationships. Subject to Sections 4.7 and 4.8
--------------------------------
hereof, decisions regarding the establishment or maintenance of relationships
with institutional health care providers and third party payors shall be
approved by the Policy Board in consultation with Practice and Business Manager.
The Policy Board shall review and approve such discounted fee schedules,
including capitated fee arrangements, and shall approve allocations of
Capitation/Case Rate Revenues.
(e) Strategic Planning. The Policy Board shall recommend long-term
------------------
strategic planning objectives for Practice; provided, however, that the Policy
Board shall not engage in recommending any horizontal marketing allocations
between practices.
(f) Physician and Optometrist Hiring. Subject to the items
--------------------------------
specifically enumerated in the Budget as determined in accordance with Section
4.10(a) hereof, the Policy Board shall recommend to Practice the number and type
of Physicians and Optometrists required for the efficient operation of
Practice's facilities. Practice shall have the right to accept or reject any
recommendation of the Policy Board on this matter and Practice shall retain the
number and type of Physicians and Optometrists as it shall deem necessary in its
sole discretion. The Policy Board may review and suggest variations to the
restrictive covenants in any Employment Agreement.
(g) Fee Dispute Resolution. Upon written submission by Practice of a
----------------------
dispute concerning Management Fees, the Policy Board shall consider, develop and
attempt to implement a resolution of such dispute.
(h) Employee Relations. Upon submission by Practice or any Physician
------------------
or Optometrist of a written complaint or concern regarding any employee of
Business Manager performing services for Practice hereunder, the Policy Board
shall consider, develop and attempt to implement a resolution of such complaint
or concern.
(i) Grievance Referrals. The Policy Board shall consider and make
-------------------
recommendations to Practice regarding any disputes pertaining to matters not
specifically addressed in this Management Services Agreement as referred to it
by Practice.
3.3 Medical Decisions. Notwithstanding anything to the contrary contained
-----------------
in Section 3.2 above, all medical decisions addressed by the Policy Board will
be made solely by Physician members of the Policy Board.
16
<PAGE>
ARTICLE IV
COVENANTS AND RESPONSIBILITIES OF BUSINESS MANAGER
During the Term, Business Manager shall provide all Management Services
which are necessary or appropriate for the day-to-day administration of the
nonmedical aspects of Practice's operations (including the Dispensary Business),
including, without limitation, those services set forth in this Article 4 in
accordance with all laws, rules, regulations and guidelines applicable to the
provision of Management Services.
4.1 Office and Equipment.
--------------------
(a) Subject to Section 4.1(b) hereof, as necessary or appropriate, and
after taking into consideration the professional concerns of Practice, Business
Manager shall lease, acquire or otherwise procure an Office in a location or
locations reasonably acceptable to Practice and shall permit Practice to use the
Office. Any Office procured by Business Manager for use by Practice shall be
procured at commercially reasonable rates.
(b) In the event Practice is the lessee of the Office under a lease
with an unrelated and nonaffiliated lessor, Business Manager may require
Practice to assign such lease to Business Manager upon receipt of consent from
the lessor, and, in such event, Business Manager shall assume Practice's
obligations thereunder from and after the date of such assignment. Practice
shall use its best efforts to assist in obtaining the lessor's consent to the
assignment. Upon request, Practice shall execute any instruments and shall take
any acts that Business Manager deems necessary to accomplish the assignment of
the lease. Any expenses incurred in effectuating the assignment shall be an
Office Expense.
(c) Business Manager shall provide all nonmedical equipment, fixtures,
office supplies, information systems, furniture and furnishings reasonably
deemed necessary by Business Manager for the operation of the Office and for the
provision of Medical Services and the operation of the Dispensary Business,
including all replacements and upgrades thereof at the discretion of Business
Manager. Without limiting the foregoing, with respect to information systems,
Practice acknowledges and agrees that Business Manager will have the discretion
to determine the timing and extent of the upgrade and/or replacement of
Practice's information systems from time to time during the Term; provided, that
if the cost thereof exceeds the amount set forth in the then current Budget,
Business Manager shall obtain Practice Consent, which consent may not be
unreasonably withheld.
(d) Business Manager shall provide or cause to be provided (including
financing arrangements with respect thereto) all medical equipment reasonably
required by Practice.
(e) Business Manager shall be responsible for all necessary repair and
maintenance of the Office as an Office Expense, consistent with Business
Manager's responsibilities under the terms of any lease or other use
arrangement. Business Manager shall also be responsible for all necessary
repair, maintenance and replacement of all equipment relating to the Office,
except for any such repairs, maintenance and replacement necessitated by the
17
<PAGE>
negligence or willful misconduct of Practice, its Physicians or other personnel
employed by Practice, in which event any such repair or replacement shall be a
Practice Expense and not an Office Expense.
(f) Assets acquired by Business Manager pursuant to the ECM
Transaction Agreements which are located at the Creekwood Medical Plaza office
or the Liberty, Missouri office shall not be relocated by Business Manager
without Practice Consent.
4.2 Medical Supplies. Business Manager shall order, procure, purchase and
----------------
provide on behalf of, and as agent for, Practice all necessary and reasonably
desirable medical supplies and optical dispensary supplies and inventory unless
otherwise prohibited by federal and/or state law, and shall appropriately
respond to any reasonable inquiries or requests by Physicians for the need to
order or repair such supplies. Business Manager shall ensure that the Office is
adequately stocked at all times with medical supplies that are reasonably
necessary or appropriate for the operation of Practice and required for the
provision of Medical Services and optical dispensary supplies and inventory that
are reasonably necessary or appropriate for the operation of the Dispensary
Business. The ultimate oversight, supervision and ownership of all medical
supplies is and shall remain the sole responsibility of Practice. As used in
this Section 4.2, the term "medical supplies" shall mean all drugs,
pharmaceuticals, products, substances, items or devices whose purchase,
possession, maintenance, administration, prescription or security requires the
authorization or order of a licensed health care provider or requires a permit,
registration, certification or other governmental authorization held by a
licensed health care provider as specified under any federal and/or state law.
4.3 Support Services. Business Manager shall provide or arrange for all
----------------
printing, stationery, telephone, facsimile, office supplies, forms, postage,
duplication or photocopying services, and other support services as are
reasonably necessary or appropriate for the operation of the Office and the
provision of Medical Services and the operation of the Dispensary Business
therein.
4.4 Quality Assurance, Risk Management, and Utilization Review. Business
----------------------------------------------------------
Manager shall assist Practice in Practice's establishment and implementation of
procedures to ensure the consistency, quality, appropriateness and medical
necessity of Medical Services provided by Practice, and shall provide
administrative support for Practice's overall quality assurance, risk management
and utilization review programs. Business Manager shall use its commercially
reasonable efforts to perform these tasks in a manner to ensure the
confidentiality of, and the privileged status afforded to, these programs and
procedures to the fullest extent allowable under state and federal law.
4.5 Licenses and Permits. Business Manager shall, on behalf of and in the
--------------------
name of Practice, coordinate all development and planning processes, and assist
in the application for, and use reasonable efforts to assist Practice in
obtaining and maintaining, all federal, state and local licenses, certifications
and regulatory permits required for, or in connection with, the operation of
Practice, the equipment located at the Office, and any laboratory and optical
dispensary of
18
<PAGE>
Practice, other than those relating to the provision of Medical Services or the
administration of drugs by Physicians.
4.6 Personnel. Except as specifically provided in Section 5.2(b) hereof,
---------
Business Manager shall, consistent with the Budget, employ or otherwise retain
and shall be responsible for selecting, hiring, training, supervising and
terminating, all nonphysician personnel as Business Manager reasonably deems
necessary and appropriate for Business Manager's performance of its duties and
obligations under this Management Services Agreement. Business Manager shall
have sole responsibility for determining the salaries, providing employee
benefits, and for withholding any sums for income tax, unemployment insurance,
worker's compensation coverage, social security or any other withholding
required by applicable law or governmental requirement.
4.7 Contract Negotiations. Business Manager shall advise Practice with
---------------------
respect to and negotiate, either directly or on Practice's behalf, as
appropriate, all contractual arrangements with third parties as are reasonably
necessary and appropriate for Practice's provision of Medical Services and for
Practice's operation of the Dispensary Business, including, without limitation,
Managed Care Contracts. Practice hereby constitutes and appoints Business
Manager as Practice's agent for the purpose of negotiating and executing on
behalf of Practice and its Physicians any Managed Care Contract approved by the
Policy Board, as well as any modifications, extensions and renewals of such
Managed Care Contracts. Practice also designates Business Manager as Practice's
agent for the further purpose of giving and receiving notices required or
permitted to be given and received under such Managed Care Contracts. Any
notice received by Business Manager on behalf of Practice shall be transmitted
to Practice as soon as practicable. Business Manager may engage such
consultants as Business Manager deems necessary and appropriate to pursue and
negotiate Managed Care Contracts for Practice, and Practice authorizes Business
Manager to negotiate, for approval by the Policy Board, agreements for
Subcontractor Costs. Notwithstanding the foregoing, upon approval of the Policy
Board of any Managed Care Contract, Business Manager shall deliver a copy of
such contract to Practice (or a description of the principal terms and
conditions thereof) for its review and approval. Practice may accept or reject
any Managed Care Contract by delivering notice to Business Manager within five
(5) days of its receipt of such contract (or a description thereof). Practice's
failure to respond within such five-day period shall be deemed an acceptance of
the Managed Care Contract for all purposes.
4.8 Billing and Collection. On behalf of and for the account of Practice,
----------------------
Business Manager shall (i) establish and maintain credit, billing and collection
policies and procedures, (ii) timely bill and collect all professional and other
fees for all billable Medical Services provided by Practice, Physicians or
Optometrists and for all goods sold by Practice in connection with the
Dispensary Business, all for application solely in accordance with the Budget,
and (iii) perform all cash management services on behalf of Practice which
Business Manager shall deem commercially reasonable. Business Manager shall
advise and consult with Practice regarding the fees for Medical Services and
ancillary services provided by Practice; it being understood, however, that
Practice shall establish the fees to be charged for Medical Services and that
Business Manager shall have no authority whatsoever with respect to the
establishment of such fees. In connection with the billing, collection and cash
management services to be provided hereunder, and throughout the Term (and
thereafter as provided in Section 7.3 hereof), Practice hereby grants
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to Business Manager an exclusive special power of attorney and appoints Business
Manager as Practice's exclusive true and lawful agent and attorney-in-fact, and
Business Manager hereby accepts such special power of attorney and appointment,
for the following purposes:
(a) To bill Practice's patients, in Practice's name and on Practice's
behalf, for all billable Medical Services provided or arranged by Practice to
patients and for all goods sold by Practice in connection with the Dispensary
Business, unless such billing would cause Practice to be in violation of the
Stark Act, any state referral ban or any other applicable federal, state or
local law or regulation;
(b) To bill, in Practice's name and on Practice's behalf, all claims
for payment, reimbursement or indemnification from Blue Cross/Blue Shield,
insurance companies, Medicare, Medicaid and all other third-party payors or
fiscal intermediaries for all covered billable Medical Services provided or
arranged by Practice to patients and for all goods sold by Practice in
connection with the Dispensary Business, unless such billing would cause
Practice to be in violation of the Stark Act, any state referral ban or any
other applicable federal, state or local law or regulation;
(c) Subject to applicable law, and excluding receivables for Medicare
and Medicaid services, to collect and receive, as the agent of Practice, in
Business Manager's name and for Business Manager's account all accounts
receivable of Practice purchased by Business Manager, including, without
limitation, Purchased Receivables (as defined in Section 6.5 hereof), and to
deposit such collections into the Depository Account;
(d) Subject to subparagraph (e) below, to collect and receive, in
Practice's name and on Practice's behalf, all accounts receivable generated by
such billings and claims for reimbursement that have not been purchased by
Business Manager, and to administer such accounts at its reasonable discretion
on Practice's behalf, which administration shall include, without limitation,
(i) extending the time of payment of any such accounts for cash, credit or
otherwise; (ii) with Practice Consent, discharging or releasing the obligors of
any such accounts; (iii) with Practice Consent, suing, assigning or selling at a
discount such accounts to collection agencies; or (iv) with Practice Consent,
taking other measures to require the payment of any such accounts.
(e) To collect all government program receivables after such amounts
have been received and deposited into the Practice Account. Once deposited in
the Practice Account, Practice hereby authorizes the government receivables to
be automatically swept into the Depository Account as provided in Section
4.8(f), below. Practice shall cause the institution at which it maintains the
aforementioned Practice Account to provide Business Manager with copies of all
bank statements prepared with respect to such account.
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(f) To deposit all amounts collected into the Depository Account which
shall be in the name of Business Manager, but in which Business Manager will
account for such funds on a separate and distinct basis from any other funds
deposited into such account by other Regional Practices. Moreover, subject to
Business Manager's authority to discharge its responsibilities under this
Agreement, Practice shall retain all rights in and to such deposited funds
irrespective of their deposit into the Depository Account; provided, however,
that Practice shall have no rights in or to funds in the Depository Account that
have been collected and received pursuant to Section 4.8(c). The parties hereto
acknowledge and agree that Business Manager is performing cash management
services on behalf of Practice by collecting all such amounts in the Depository
Account and making any distributions, withdrawals and payments therefrom as
required in this Management Services Agreement. The parties further acknowledge
and agree that in performing such services for Practice, Business Manager is
acting as Practice's agent pursuant to the power of attorney set forth in this
Section 4.8, and, except as expressly provided herein, all rights to such funds
shall remain with Practice. Practice covenants, and shall cause each Physician
and Optometrist to covenant, to forward any payments, notes, checks, money
orders, insurance payments and any other instruments received for Medical
Services provided and goods sold in connection with the Dispensary Business on
or after the Original Effective Date by or on behalf of Practice or any of the
Physicians or Optometrists to Business Manager for deposit in the Depository
Account, or to directly deposit any such payments into the Depository Account.
Business Manager shall have the right, at any time and from time to time, to
withdraw funds from the Practice Account and all owners of the Practice Account
shall execute a revocable standing transfer order (the "Transfer Order") under
which the bank maintaining the Practice Account shall daily transfer the entire
balance of the Practice Account to the Depository Account. Practice and
Business Manager hereby agree to execute from time to time such documents and
instructions as shall be required by the bank maintaining the Practice Account
to effect the foregoing provisions and to extend or amend such documents and
instructions as reasonably required to effect the intent of this Section 4.8.
Any action or threatened action by Practice that materially interferes with or
could materially interfere with the operation of this Section 4.8, including but
not limited to, (A) any failure to deposit into, or to allow or permit Business
Manager to withdraw any funds from, the Practice Account; (B) any withdrawal of
any funds from the Practice Account not authorized by the express terms of this
Management Services Agreement or any other written agreement executed by each of
the parties; or (C) any revocation of or attempt to revoke the Transfer Order
(otherwise than upon expiration or termination of this Management Services
Agreement), will constitute a breach of this Agreement and will entitle Business
Manager, in addition to any other remedies it may have at law or in equity, to
seek a court ordered assignment of the rights provided to Business Manager
pursuant to this Section 4.8 and to distribute account debtor letters to
nongovernmental Payors instructing them to make payment directly to and in the
name of Business Manager for services rendered by Practice. In the manner set
forth in Section 4.9 hereof, Business Manager shall disburse such deposited
funds to creditors and other persons on behalf of Practice, maintaining records
of such receipt and disbursement of funds.
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(g) To take possession of, and endorse in the name of Practice, solely
for deposit into the Practice Account or into the Depository Account, as
provided in this Section 4.8, any notes, checks, money orders, insurance
payments and any other instruments received as payment for Medical Services,
ancillary services and for goods sold in connection with the Dispensary
Business.
(h) To sign checks, drafts, bank notes or other instruments on behalf
of Practice, and to make withdrawals from the Depository Account for payments
specified in this Management Services Agreement or as requested from time to
time by Practice.
Throughout the Term (and as provided in Section 7.3 hereof), Practice hereby
grants to Business Manager an exclusive special power of attorney for the
purposes stated herein and appoints Business Manager as Practice's exclusive
true and lawful agent and attorney-in-fact, and Business Manager hereby accepts
such special power of attorney and appointment, to deposit into the Depository
Account as and when received all funds, fees and revenues generated from
Practice's provision of Medical Services and ancillary services on or after the
Original Effective Date and collected by Business Manager and for all goods sold
by Practice in connection with the Dispensary Business on or after the Original
Effective Date and collected by the Business Manager, and to make withdrawals
from Depository Account solely for payments specified in this Management
Services Agreement, including any Preexisting Obligation Payments directly
affecting property used in or relating to the Office, and/or as requested from
time to time by Practice. Upon request of Business Manager, Practice shall
execute and deliver to the financial institution where the Depository Account is
maintained, such additional documents or instruments as may be necessary to
evidence or effect the special and limited power of attorney granted to Business
Manager by Practice pursuant to this Section 4.8. The special and limited power
of attorney granted herein shall be coupled with an interest and shall be
irrevocable during the term hereof, except with Business Manager Consent. The
irrevocable power of attorney shall expire on the later of the termination of
this Management Services Agreement, the collection, sale or release of all
accounts receivable purchased by Business Manager, or the payment of all
Management Fees due to Business Manager as of such date pursuant to Section 6.2
hereof. If Business Manager assigns this Management Services Agreement in
accordance with its terms, then Practice shall execute a power of attorney in
favor of the assignee and in the form of Exhibit 4.8 attached hereto.
-----------
4.9 Priority of Payments. As of the Original Effective Date, all revenue
--------------------
of Practice derived from Medical Services and ancillary services provided on and
after the Original Effective Date and from sales of goods in connection with the
Dispensary Business on and after the Original Effective Date (collectively,
"Post-Original Effective Date Revenues") shall be deposited into the Depository
Account (or, in the alternative, identified or segregated in such a manner as to
permit the Post-Original Effective Date Revenues to be deposited into the
Depository Account when and as directed by Business Manager) for distribution in
accordance with this Section 4.9; provided, however, that revenues to be used to
pay Practice Expenses shall be deposited into a separate account in the name of
Practice. From and after the Original Effective Date, each month Business
Manager shall apply, or retain on behalf of Practice, funds that are in the
Depository Account (or another applicable account) in the following order of
priority:
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(a) to Business Manager, in satisfaction of Office Expense, except the
Management Fee;
(b) as directed by Practice, in satisfaction of Monthly Practice
Expense; and
(c) to Business Manager, in satisfaction of the Management Fee.
4.10 Fiscal Matters.
--------------
(a) Annual Budget.
-------------
(i) Mid-Year Budget. A mid-year Budget shall be agreed upon
---------------
by the parties before the execution of this Management Services Agreement
and shall be attached hereto and made a part hereof.
(ii) Process for Succeeding Budgets. Annually and at least
------------------------------
forty-five (45) days prior to the commencement of each fiscal year of
Business Manager, Business Manager, in consultation with the Policy Board,
shall prepare and deliver to Practice for its approval a proposed Budget,
setting forth an estimate of Practice's revenues and expenses for the
upcoming fiscal year (including, without limitation, the Dispensary
Business Budgeted Practice Expense, the Principal Services Budgeted
Practice Expense, the Dispensary Business Monthly Fee and the Principal
Services Monthly Fee). Practice shall review the proposed Budget and
either approve the proposed Budget or request any changes within fifteen
(15) days after receiving the proposed Budget. The Budget shall be adopted
upon mutual agreement of Business Manager and Practice after reasonable
review and comment and may be revised or modified only in consultation with
Business Manager. Once approved by both Business Manager and Practice,
each succeeding Budget shall be attached hereto and made a part hereof.
(iii) Deadlock. In the event the parties are unable to agree on
--------
a Budget by the beginning of the fiscal year (a "Deadlock"), then until an
agreement is reached, the Budget for the prior year shall be deemed to be
adopted as the Budget for the current year. Notwithstanding the foregoing,
the Policy Board, in its judgment, may impose reductions on a consistent
basis to each of Budgeted Practice Expense and the Monthly Fee in the event
that the Policy Board makes a determination that general economic
conditions and/or regulatory developments adversely affecting the Medical
Services provided by Practice render the present levels of the Budgeted
Practice Expense and the Monthly Fee impractical. For purposes of
illustration only, and without limitation, such general economic conditions
and/or regulatory developments could include proposed or actual cuts in
Medicare/Medicaid reimbursement for procedures that are a material
component of the Medical Services performed by Practice. Following
resolution of any Deadlock, Budgeted Practice Expense and the Monthly Fee
(and the corresponding Monthly Practice Expense and Management Fee as
calculated in Article 6 hereof) shall be recomputed retroactive to the
beginning of the fiscal year based upon the parameters agreed to in the new
Budget, and appropriate adjustments in payments owing to Practice and/or
Business Manager, as
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the case may be, resulting from such recomputation shall be made promptly.
Notwithstanding the foregoing, if after six months the parties are still
unable to agree on a Budget, then the dispute shall be submitted to
arbitration in accordance with Article 8 hereof; provided, however, that
the scope of such arbitration shall be limited to the parties resolving the
dispute relating to the Budget and shall not address or rule in any manner
on matters relating to any alleged breaches by either party hereto or any
potential remedies therefor. Until the arbitrator renders a judgment or the
dispute is otherwise resolved, the adjustments described in this Section
4.10(a)(iii) shall continue to apply. Notwithstanding anything to the
contrary contained herein, nothing in this Section 4.10(a)(iii) shall
affect the payment of Office Expense, which shall be paid in full in
accordance with the provisions of this Management Services Agreement. For
purposes of Section 4.10(a)(iii) and (iv), "Budgeted Practice Expense" and
"Monthly Fee" shall refer to either Principal Services or Dispensary
Business, as appropriate.
(iv) Modifications to Budget. The Budget may be modified at
-----------------------
any time by mutual agreement of Practice and Business Manager, which
modifications may include, without limitation, modifications to the Monthly
Fee and Budgeted Practice Expense in the event that additional Physicians
or Optometrists become affiliated with Practice during the calendar year.
(b) Accounting and Financial Records. Business Manager shall
--------------------------------
establish and administer adequate accounting procedures, controls and systems
for the development, preparation and safekeeping of administrative and financial
records in connection with the performance of its duties and responsibilities
hereunder, all of which shall be prepared and maintained in accordance with GAAP
and applicable laws and regulations. Business Manager shall provide Practice
with the following:
(i) Monthly Reports. As soon as practicable, and in any
---------------
event no later than fifteen (15) days after the end of each calendar month,
Business Manager shall furnish to Practice a monthly statement reflecting
the computation for the Dispensary Business Monthly Practice Expense,
Principal Services Monthly Practice Expense, the Dispensary Business
Management Fee and the Principal Services Management Fee. Within forty-five
(45) days after the end of each month, Business Manager shall provide
Practice with a monthly statement reflecting the accounting activity for
Practice prepared in accordance with GAAP.
(ii) Annual Financial Statements. As soon as practicable, and
---------------------------
in any event no later than one hundred twenty (120) days after the end of
each calendar year, Business Manager shall furnish to Practice audited
financial statements of Business Manager, consisting of a balance sheet and
related statements of income, changes in members' equity and cash flow, all
of which (taken as a whole) shall reflect the financial status of Business
Manager as of the end of such calendar year, and shall be prepared in
accordance with GAAP consistently applied.
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(c) Review of Expenditures. A Representative of Practice shall have
----------------------
the right to review all expenditures related to the operation of Practice, but
Practice shall not have the power to prohibit or invalidate any expenditure that
is consistent with the Budget.
(d) Tax Matters. Business Manager and Practice acknowledge and agree
-----------
that, to the extent that any of the services to be provided by Business Manager
hereunder may be subject to any state sales and use taxes, Business Manager may
have a legal obligation to collect such taxes from Practice and to remit same to
the appropriate tax collection authorities. Practice agrees to pay, as an
Office Expense and in addition to the payment of the Management Fee, the
applicable state sales and use taxes in respect of the portion of the Management
Fees attributable to such services.
4.11 Reports and Records.
-------------------
(a) Medical Records. Business Manager shall advise and assist
---------------
Practice as to the establishment, monitoring and maintenance of procedures and
policies for the timely creation, preparation, filing and retrieval of all
medical records generated by Practice in connection with Practice's provision of
Medical Services; and, subject to applicable law, shall ensure that medical
records are promptly available to Physicians and any other appropriate persons.
All such medical records shall be retained and maintained in accordance with all
applicable state and federal laws. All medical records are, and will remain, the
property and Confidential Information of Practice and its patients.
(b) Other Reports and Records. Business Manager shall create, prepare
-------------------------
and file such additional reports and records as are reasonably necessary or
appropriate for Practice's provision of Medical Services, and shall be prepared
to analyze and interpret such reports and records upon the request of Practice.
4.12 Recruitment of Physicians and Optometrists. Upon Practice's request,
------------------------------------------
Business Manager shall perform all administrative services reasonably necessary
or appropriate to recruit potential Physicians and Optometrists to become
employees or independent contractors of Practice. Business Manager shall provide
Practice with model agreements to document Practice's employment, retention or
other service arrangements with such individuals. It is and will remain the
sole and complete responsibility of Practice to interview, select, contract
with, supervise, control and terminate all Physicians and Optometrists
performing Medical Services or other professional services, and Business Manager
shall have no authority whatsoever with respect to such activities.
4.13 Confidential and Proprietary Information.
----------------------------------------
(a) Business Manager will not disclose any Confidential Information of
Practice to other persons without Practice Consent. Business Manager will not,
directly or indirectly, use such Confidential Information in a manner
detrimental to Practice, and Business Manager will keep such Confidential
Information confidential and will ensure that its affiliates and advisors who
have access to such Confidential Information comply with these nondisclosure
obligations.
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Notwithstanding the foregoing, Business Manager may disclose Confidential
Information to those of its Representatives who need to know Confidential
Information for the purposes of this Management Services Agreement, it being
understood and agreed to by Business Manager that such Representatives will be
informed of the confidential nature of the Confidential Information, will agree
to be bound by this Section 4.13, and will be directed by Business Manager not
to disclose to any other person any Confidential Information. Business Manager
shall be responsible for any breach of this Section 4.13 by its affiliates,
advisors or Representatives. If Business Manager is required (by
interrogatories, requests for information or documents, subpoenas, civil
investigative demands or similar legal processes) to disclose or produce any
Confidential Information furnished in the course of its dealings with Practice
or its affiliates, advisors or Representatives, Business Manager will (i)
provide Practice with prompt prior notice thereof and copies, if possible, and,
if not, a description, of the request and the Confidential Information requested
or required to be produced so that Practice may seek an appropriate protective
order or other protections to enforce the provisions of this Section 4.13, or,
alternatively, waive compliance with the provisions of this Section 4.13, and
(ii) consult with Practice as to whether Practice should attempt to resist or
narrow such request. If Business Manager is compelled to disclose or produce
Confidential Information concerning Practice or, in the alternative, be liable
for contempt or suffer other censure or penalty, Business Manager may disclose
or produce such Confidential Information without liability hereunder; provided,
however, that Business Manager shall give Practice notice of the Confidential
Information to be so disclosed or produced, and a copy of the request therefor,
as far in advance of its disclosure or production as is reasonably practicable
and shall use its commercially reasonable efforts to obtain, to the greatest
extent practicable, an order or other reliable assurance that confidential
treatment will be accorded to such Confidential Information so required to be
disclosed or produced.
(b) Notwithstanding clause (a) above, Business Manager may share,
subject to the restrictions of this Section 4.13(b), with other professional
corporations, associations, medical practices or health care delivery entities,
the statistics of Practice, including utilization review data, quality assurance
data, cost data, outcomes data or other Practice data. Business Manager may
disclose such statistics to other medical groups with whom Business Manager has
a management relationship, to managed care providers or other third party payors
for the purpose of obtaining or maintaining third party payor contracts, or to
financial analysts and underwriters. In addition, Business Manager may disclose
all Practice-related information necessary or desirable in connection with any
public or private offering of any security of Business Manager, but no such data
will disclose or divulge patient identifying information.
4.14 Insurance.
---------
(a) Business Manager's Insurance. Throughout the Term, Business
----------------------------
Manager shall, as an Office Expense, obtain and maintain with commercial
carriers, through self-insurance or some combination thereof and in a manner
consistent with good business practice, appropriate workers' compensation
coverage for Business Manager's employed personnel provided to Practice pursuant
to this Management Services Agreement, and professional, casualty and
comprehensive general and vicarious liability insurance covering Business
Manager, the Office, Business Manager's personnel and all of Business Manager's
equipment in such amounts, on such basis and
26
<PAGE>
upon such terms and conditions as Business Manager deems appropriate. Upon the
request of Practice, Business Manager shall provide Practice with a certificate
evidencing such insurance coverage and Business Manager shall use commercially
reasonable efforts to list Practice as an additional insured. Business Manager
may also carry, as an Office Expense, key person life and disability insurance
on any Physician in amounts determined reasonable and sufficient by Business
Manager, but only upon the express written permission of Practice. Business
Manager shall be the owner and beneficiary of any such insurance; provided,
however, that benefits paid under any such policies relating to any Physician
shall be Professional Services Revenue, and relating to any Optometrist shall be
Dispensary Business Revenue.
(b) Professional and General Liability Insurance of Practice.
--------------------------------------------------------
Business Manager shall obtain and maintain, on behalf of Practice and as an
Office Expense, professional and comprehensive general liability insurance
covering Practice and each of Physicians and Optometrists. The comprehensive
general liability coverage shall be in the minimum amount of One Million Dollars
($1,000,000) for each occurrence and Two Million Dollars ($2,000,000) annual
aggregate; and professional liability coverage shall be in the minimum amount of
One Million Dollars ($1,000,000) for each occurrence and Three Million Dollars
($3,000,000) annual aggregate, or any other higher minimum coverage requirements
established by law. The insurance policy or policies shall provide for at least
(30) days' advance written notice to Business Manager and Practice from the
insurer as to any alteration of coverage, cancellation or proposed cancellation
for any cause. Business Manager shall cause to be issued to Practice a
certificate of such insurer or insurers reflecting such coverage and either
party hereunder shall provide notice to the other party promptly upon receipt of
any notice canceling or proposing to cancel the insurance coverage of Practice,
or any Physician or Optometrist for any reason. Upon the termination of this
Management Services Agreement for any reason, Practice shall obtain and maintain
as a Practice Expense "tail" professional liability coverage, in the amounts
specified in this Section 4.14(b) for an extended reporting period of ten years,
and Practice shall be responsible for paying all premiums for "tail" insurance
coverage.
(c) Health Insurance. Business Manager shall, to the extent such
----------------
coverage is available from Business Manager's current insurance carrier, make
available to, and accessible by, Physicians and Optometrists health benefits
under any health benefit program maintained by Business Manager. If any
Physician or Optometrist elects such coverage, subject to Section 1.34(b)
hereof, the cost of such coverage shall be deemed an Office Expense for any
Optometrist or Physician-Employee, and a Practice Expense for any Physician-
Shareholder.
4.15 Facility. Business Manager will explore potentially establishing an
--------
outpatient ambulatory surgery center in the Kansas City metropolitan area north
of the Missouri River, and, subject to Business Manager's strategic planning
directives, business plan and general business conditions, Business Manager will
make a good faith effort to assess and finalize whether to pursue a plan to
establish such a facility in such area by June 30, 2000.
4.16 No Warranty. Practice acknowledges that Business Manager has not made
-----------
and will not make any express or implied warranties or representations that the
services provided by Business Manager will result in any particular amount or
level of revenue or income to Practice.
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ARTICLE V
COVENANTS AND RESPONSIBILITY OF PRACTICE
5.1 Organization and Operation. Practice, as a continuing condition of
--------------------------
Business Manager's obligations under this Management Services Agreement, shall
at all times during the Term be and remain legally organized and operated to
provide Medical Services in a manner consistent with all state and federal laws.
(a) Employment of Physicians.
------------------------
(i) Practice shall operate and maintain within the Practice
Territory a full-time practice of medicine specializing in the provision of
Medical Services, and shall maintain and enforce employment agreements in
the form of Exhibit 5.1 (the "Employment Agreements") with Physician-
-----------
Shareholders, including, without limitation, the Physician-Shareholders
identified in Exhibit 5.1A; provided, however, that the Employment
------------ -------- -------
Agreements with any Physician-Shareholders not employed by Practice as of
the Effective Date (i.e. any Physician-Shareholders other than the
Physician-Shareholders identified in Exhibit 5.1A) shall not be required to
------------
contain any liquidated damages or noncompetition buyouts unless Practice
determines otherwise; provided further that such liquidated damages
-------- -------
provisions shall not be required in any Employment Agreements with the
Physician-Shareholders identified in Exhibit 5.1A for periods from and
------------
after the Initial Term (as defined in each such Physician-Shareholder's
Employment Agreement) it being understood that the provision shall in no
way alter the noncompetition provisions set forth in any Physician-
Shareholder Employment Agreement. Except as permitted by Section 3.1 of
the Employment Agreements, Practice shall not amend the Employment
Agreements in any material manner or waive any material rights of Practice
thereunder without the prior written approval of Business Manager.
Recognizing that Business Manager would not have entered into this
Management Services Agreement but for Practice's covenant to maintain
Employment Agreements with Physician-Shareholders, and subject to
subparagraphs (ii) and (iii) below, Practice shall pay to Business Manager,
in addition to the Management Fee, any damages, compensation, payment or
settlement received by Practice from a Physician-Shareholder who terminates
his or her Employment Agreement without Physician Cause (as defined in the
Employment Agreement) or whose Employment Agreement is terminated by
Practice for Practice Cause (as defined in the Employment Agreement) or for
any other material breaches of the Employment Agreements (such damages
being collectively referred to herein as the "Business Manager Damages").
Business Manager agrees that payment to Business Manager of the liquidated
damages collected by Practice in accordance with the terms of the
Employment Agreement shall satisfy in full any Business Manager Damages but
shall not constitute a buyout or release of the noncompetition and
nonsolicitation covenants of the Employment Agreement unless the Physician-
Shareholder in fact purchases a release from such covenants as contemplated
therein; provided, further, that such purchase shall be allocated in the
manner set forth in Section 5.1(a)(iii) below.
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(ii) Notwithstanding the provisions of Section 5.1(a)(i) above,
or any other provision to the contrary contained herein, Practice shall
have a period of not less than forty-five (45) days following the
occurrence of any event described in Section 5.1(a)(i) above that entitles
Business Manager to receive Business Manager Damages to take such actions
to cure the breach of any Employment Agreement by a Physician-Shareholder
(which actions to cure may, without limitation, include retention of
additional Physicians to replace the levels of revenue and income
previously generated by the Physician-Shareholder causing such breach);
provided, however, that the determination of whether or not such breach has
been cured shall be made by Business Manager in its good faith discretion,
and provided further, that Practice shall in no event be permitted to cure
any breach that results from a breach by a Physician-Shareholder of any
noncompetition provision contained in his or her Employment Agreement.
(iii) In connection with Practice's obligations pursuant to
Section 5.1(a)(i) hereof, to the extent Business Manager Damages consist of
any payments made by a Physician-Shareholder pursuant to Section 6.5 of the
Employment Agreement to procure release from the noncompetition covenants
set forth in Article 6 of such Physician-Shareholder's Employment
Agreement, then Practice shall only be required to pay Business Manager
fifty percent (50%) of such release payment, with Practice retaining the
balance. The foregoing retention rights of Practice are limited to the
release payments pursuant to Section 6.5 of the Employment Agreement and
shall not apply to any other Business Manager Damages payable by Practice
to Business Manager pursuant to Section 5.1(a)(i) hereof.
(b) Corporate Governance. Throughout the Term of this Management
--------------------
Services Agreement, Practice shall maintain and enforce written buy-sell
agreements with the Physician-Shareholders specified in Exhibit 5.1A, and shall
------------
cause all new shareholders of Practice to execute such agreements prior to
becoming a shareholder of Practice. As a condition precedent to the execution
of this Management Services Agreement, the Physician-Shareholders have amended
their existing buy-sell agreement, or executed a new buy-sell agreement, which
addresses the concepts set forth on Exhibit 5.1B to the satisfaction of Business
------------
Manager and its counsel. Practice will also maintain its articles of
incorporation and bylaws in accordance with applicable law, including, without
limitation, any laws governing the transferability of shares from disqualified
owners to qualified owners. Throughout the Term of this Management Services
Agreement, Practice shall not, without the prior written consent of Business
Manager, amend such documents or waive any rights with respect to such
transferability in any manner.
5.2 Practice Personnel.
------------------
(a) Physician Personnel and Optometrists. Practice shall retain the
------------------------------------
number of Physicians and Optometrists as is reasonably necessary and appropriate
in the sole discretion of Practice for the provision of Medical Services. Each
Physician shall hold and maintain a valid and unrestricted license to practice
medicine in the States of Missouri and/or Kansas, and shall be competent, in the
reasonable opinion of Practice, in the practice of ophthalmology. Each
Optometrist shall hold and maintain a valid and unrestricted license to practice
optometry in the
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States of Missouri and/or Kansas, and shall be competent, in the reasonable
opinion of Practice, in such practice. Practice shall enter into and maintain
with each such retained Physician and Optometrist a written employment agreement
substantially in the form of either Exhibit 5.1 for Physician-Shareholders or
-----------
Exhibit 5.2A-1 for Physician-Employees and Exhibit 5.2A-2 for employed
- -------------- --------------
Optometrists, or a written independent contractor agreement substantially in the
form of Exhibit 5.2B for Physicians, Optometrists, or other persons or entities
-------------
that provide, or employ individuals who provide, Medical Services as independent
contractors. Practice will neither commit nor permit to remain outstanding any
breach of such employment agreement or independent contractor agreement that
would allow any Physician, Optometrist, or other entity to terminate for cause.
Regardless of whether the compensation is a Practice Expense or Office Expense,
Practice shall be responsible for paying the compensation and benefits, as
applicable, for all Physicians, Optometrists, and any other physician personnel
or other contracted or affiliated physicians, and for withholding any sums for
income tax, unemployment insurance, social security or any other withholding
required by applicable law. If requested, Business Manager shall, on behalf and
at the direction of Practice, administer the compensation with respect to such
individuals in accordance with the written agreement between Practice and each
Physician or Optometrist. Business Manager shall neither control nor direct any
Physician, Optometrist or other entity in the performance of Medical Services
for patients.
(b) Nonphysician Personnel. Business Manager shall retain all
----------------------
nonphysician personnel necessary for the operation of Practice and such
nonphysician personnel shall be under Business Manager's control, supervision
and direction in the performance of their duties, except for (i) Designated
Allied Health Professionals, who shall perform their duties under the
supervision and control of Physicians, consistent with the requirements
necessary to meet the "incident to" provisions of the Medicare program, and (ii)
opticians and others providing services in Practice's optical dispensary, who
shall perform their duties under the supervision and control of Physicians and
Optometrists.
5.3 Professional Standards. As a continuing condition of Business
----------------------
Manager's obligations hereunder, each Physician, Optometrist and any other
physician personnel retained by Practice to provide Medical Services must comply
with, be controlled and governed by, and otherwise provide Medical Services in
accordance with, all applicable federal, state and municipal laws, rules,
regulations, ordinances and orders, and the ethical standards and standards of
care of the medical community wherein the principal office of each Physician or
Optometrist is located. In addition, each Physician and any other physician
personnel retained by Practice to provide Medical Services must obtain and
retain appropriate admitting privileges at local area hospitals or health care
facilities which are reasonably adequate for Physician to perform Medical
Services. Procurement of temporary staff privileges pending the completion of
the medical staff approval process shall satisfy this provision, provided
Physician actively pursues full admitting privileges and actually receives full
admitting privileges within a reasonable time.
5.4 Medical Services. Practice shall use reasonable efforts to ensure that
----------------
Physicians and Optometrists are available to provide Medical Services to
patients. In the event that Physicians or Optometrists are not available to
provide the relevant Medical Services coverage, Practice shall engage and retain
locum tenens coverage. Physicians and Optometrists retained on a locum tenens
- ----- ------ ----- ------
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<PAGE>
basis shall meet all of the requirements of Section 5.3 hereof and the cost of
providing locum tenens coverage shall be an Office Expense unless such locum
----- ------ -----
tenens coverage is attributable to a Physician-Shareholder exceeding the maximum
- ------
amount of vacation, and personal and educational leave days allowable under such
Physician-Shareholder's Employment Agreement, in which case the cost of such
coverage attributable to such Physician-Shareholder shall be a Practice Expense.
With the assistance of Business Manager, Practice, Physicians and Optometrists
shall be responsible for scheduling the relevant coverage of all medical and
eye-related procedures. Practice shall use its best efforts to develop and
promote Practice.
5.5 Peer Review/Quality Assurance. Practice shall adopt a peer
-----------------------------
review/quality assurance program to monitor and evaluate the quality and cost-
effectiveness of Medical Services provided by Physicians and Optometrists of
Practice, the cost of which shall be an Office Expense. Upon request of
Practice, Business Manager shall provide administrative assistance to Practice
in performing its peer review/quality assurance activities, but only if such
assistance can be provided in a manner consistent with maintaining the
confidentiality and privileged status of the processes and actions of the peer
review/quality assurance process of Practice.
5.6 Confidential and Proprietary Information. Practice will not disclose
----------------------------------------
any Confidential Information of Business Manager without Business Manager's
express written authorization. Such Confidential Information will not be used
in any way directly or indirectly detrimental to Business Manager, and Practice
will keep such Confidential Information confidential and will ensure that its
affiliates and advisors who have access to such Confidential Information comply
with these nondisclosure obligations. Notwithstanding the foregoing, Practice
may disclose Confidential Information to those of its Representatives who need
to know Confidential Information for the purposes of this Management Services
Agreement, it being understood and agreed to by Practice that such
Representatives will be informed of the confidential nature of the Confidential
Information, will agree to be bound by this Section 5.6, and will be directed by
Practice not to disclose to any other person any Confidential Information.
Practice shall be responsible for any breach of this Section 5.6 by its
affiliates, advisors or Representatives. If Practice is required (by
interrogatories, requests for information or documents, subpoenas, civil
investigative demands or similar processes) to disclose or produce any
Confidential Information furnished in the course of its dealings with Business
Manager or its affiliates, advisors or Representatives, Practice will (i)
provide Business Manager with prompt prior notice thereof and copies, if
possible, and, if not, a description, of the request and the Confidential
Information requested or required to be produced so that Business Manager may
seek an appropriate protective order or other protections to enforce the
provisions of this Section 5.6, or, alternatively, waive compliance with the
provisions of this Section 5.6 and (ii) consult with Business Manager as to the
advisability of Business Manager's taking of legally available steps to resist
or narrow such request. Practice further agrees that if, in the absence of a
protective order or the receipt of a waiver hereunder, Practice is nonetheless,
in the written opinion of its legal counsel, compelled to disclose or produce
Confidential Information concerning Business Manager to any tribunal or to stand
liable for contempt or suffer other censure or penalty, Practice may disclose or
produce such Confidential Information to such tribunal legally authorized to
request and receive such Confidential Information without liability hereunder;
provided, however, that Practice shall give Business Manager notice of the
Confidential Information to be so disclosed or produced, and a
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<PAGE>
copy of the request therefor, as far in advance of its disclosure or production
as is practicable and shall use its best efforts to obtain, to the greatest
extent practicable, an order or other reliable assurance that confidential
treatment will be accorded to such Confidential Information so required to be
disclosed or produced.
5.7 Noncompetition. Practice hereby recognizes and acknowledges that
--------------
Business Manager has incurred and will continue to incur substantial costs in,
and devote substantial resources to, providing the equipment (including, without
limitation, lasers, mirokeratomes and/or other equipment used to perform vision
correction procedures), support services, personnel, management, administration,
and other items and services that are the subject matter of this Management
Services Agreement, including, without limitation, devoting significant
resources to developing Practice's laser vision correction practice, and that in
the process of providing services under this Management Services Agreement,
Practice will be privy to financial and Confidential Information of Business
Manager and other Regional Practices, to which Practice would not otherwise be
exposed. The parties also recognize that the services to be provided by
Business Manager will be feasible only if Practice operates an active practice
to which Physicians associated with Practice devote their full professional time
and attention. Practice agrees and acknowledges that the noncompetition
covenants described hereunder are necessary for the protection of Business
Manager, and that Business Manager would not have entered into this Management
Services Agreement without the following covenants:
(a) During the Term of this Management Services Agreement and except
for the performance of Medical Services and ancillary services at Offices
contemplated by, or subject to, this Management Services Agreement or as
expressly agreed to by Business Manager in writing, Practice shall not
establish, operate or provide Medical Services at any other medical office,
clinic or other health care facility. During the Term of this Management
Services Agreement and except for the operation of the Dispensary Business at
Offices contemplated by, or subject to, this Management Services Agreement or as
expressly agreed to by Business Manager in writing, Practice shall not
establish, operate or engage in a Dispensary Business at any other office or
facility. During the Term of this Management Services Agreement, Practice shall
not acquire, by purchase, lease or otherwise, any medical or non-medical
equipment, including, without limitation, lasers, microkeratomes and/or other
equipment used to perform vision correction procedures, except from or through
Business Manager or with the express written consent of Business Manager.
(b) Except as specifically agreed to by Business Manager in writing,
Practice commits and agrees that during the Term of this Management Services
Agreement and, if this Agreement terminates other than for expiration of the
Term or by Practice for cause under Section 7.2(b), for a period of five (5)
years from the termination date of this Management Services Agreement, Practice
shall not directly or indirectly own (excluding ownership of less than five
percent (5%) of the equity of any publicly traded entity), manage, operate,
control, contract with, or otherwise be associated with, lend funds to, lend its
name to, or maintain any interest whatsoever in any enterprise (i) having to do
with the provision, distribution, promotion or advertising of any type of
management or administrative services or products to third parties in
competition with Business Manager; and/or (ii) offering any type of service or
product in the
32
<PAGE>
Practice Territory to third parties similar to those offered by Business Manager
to Practice. Notwithstanding the above restriction, nothing herein shall
prohibit Practice or any of its holders from providing management and
administrative services to its or their own medical practices after the
termination of this Management Services Agreement.
(c) The written Employment Agreements described in Section 5.1 hereof
shall contain covenants of Physician-Shareholders whereby they agree: (i) not to
compete with Practice within the Practice Territory for one (1) year after
termination of the employment agreement, except in the event Physician
terminates such agreement for Physician Cause or certain buyout rights are
exercised and (ii) not to acquire, by purchase, lease or otherwise, any medical
or non-medical equipment, including, without limitation, lasers, microkeratomes
and/or other equipment, used to perform vision correction procedures, during the
term of the applicable Employment Agreement and for one (1) year after
termination of the applicable Employment Agreement, except from or through
Business Manager, or with the express written consent of Business Manager.
(d) Unless waived by Business Manager, and except as done in
connection with the Original Transaction Agreements, Practice shall obtain and
enforce formal written agreements with Physician-Employees, Optometrists and
other entities in the form of Exhibit 5.2A or Exhibit 5.2B, as applicable,
------------ ------------
pursuant to which the Physician-Employees, Optometrists, and other entities
agree: (i) not to compete with Practice within the Practice Territory for one
(1) year after termination of the written agreements, except in the event the
Physician-Employee, Optometrist, or other entity terminates such agreement for
Physician Cause or otherwise "for cause," as defined in the applicable written
agreement, and (ii) not to acquire, by purchase, lease or otherwise, any medical
or non-medical equipment, including, without limitation, lasers, microkeratomes
and/or other equipment, used to perform vision correction procedures, during the
term of the applicable Employment Agreement and for one (1) year after
termination of the applicable Employment Agreement, except from or through
Business Manager, or with the express written consent of Business Manager.
(e) Practice understands and acknowledges that the provisions in
Section 5.6 hereof and this Section 5.7 are designed to preserve the goodwill of
Business Manager and the goodwill of the individual Physicians and Optometrists
of Practice. Accordingly, if Practice breaches any obligation of Section 5.6
hereof or this Section 5.7, in addition to any other remedies available under
this Management Services Agreement at law or in equity, Business Manager shall
be entitled to enforce this Management Services Agreement by injunctive relief
and by specific performance of this Management Services Agreement, such relief
to be without the necessity of posting a bond, cash or otherwise. Additionally,
nothing in this paragraph shall limit Business Manager's right to recover any
other damages to which it is entitled as a result of Practice's breach. If any
provision of the covenants herein is held by a court of competent jurisdiction
to be unenforceable due to an excessive time period, geographic area or
restricted activity, the covenant shall be reformed to comply with such time
period, geographic area or restricted activity that would be held enforceable.
5.8 Name, Trademark. Practice represents and warrants that Practice
---------------
conducts its professional practice under the name of, and only under the name of
"Hunkeler Eye Centers,
33
<PAGE>
P.C.," and any registered d/b/a's, and that such name is the name of Practice
under state law. Practice covenants and promises that, without the prior written
consent of Business Manager, Practice will not:
(a) take any action or omit to take any action that would result in
the change or loss of the name;
(b) license, sell, give or otherwise transfer the name, or the right
to use the name, to any medical practice, physician, professional corporation or
any other entity; or
(c) cease conducting the professional practice of Practice under the
name.
5.9 Medical Advisory Board. The board of directors of Business Manager
----------------------
has appointed a medical advisory board (the "Medical Advisory Board") to provide
a general forum for review and analysis of medical and clinical issues affecting
the Regional Practices and all other medical practices with which Business
Manager has entered into a Management Services Agreement or similar agreement.
The Medical Advisory Board consists of at least three Doctors of Ophthalmology,
one of whom is designated as the "Medical Director," and may include, at the
discretion of the board of directors of Business Manager, one or more Doctors of
Optometry, Registered Nurses or other health care professionals. The Vice
President Clinical Operations of Business Manager, and/or such other designee as
Business Manager shall select, attends meetings of the Medical Advisory Board on
a consulting basis. Members of the Medical Advisory Board serve for one-year
terms and are appointed or re-appointed for such term during the first meeting
of the board of directors of Business Manager held for each calendar year. The
board of directors of Business Manager may name additional members, remove any
member, or fill any vacancy created by the resignation, death or disability of
any member, of the Medical Advisory Board during any duly called meeting of such
board of directors. Notwithstanding anything to the contrary contained herein,
the Medical Advisory Board will serve in a solely advisory capacity and the
ultimate authority over medical decisions affecting Practice shall reside with
Practice's Physician-Shareholders.
5.1 Indemnification of Business Manager. Practice shall hold Business
-----------------------------------
Manager, its Affiliates, Representatives, successors and assigns and each of
them harmless from and against any and all losses, damages, fines, costs,
claims, judgments, proceedings, expenses or liabilities (including, without
limitation, reasonable attorneys' fees, paralegal fees, and costs and expenses
thereof) arising out of, or attributable to, or which result from, any claim of
a third party with respect to, (a) the operation of the Dispensary Business or
the performance of Medical Services (including, without limitation, malpractice
claims) or the performance of any intentional acts, negligent acts or omissions
by Practice and/or its members, employees and/or independent contractors (other
than Business Manager) and (b) any miscoding or other error in medical service
or optical dispensary documentation by Practice or its Physicians or
Optometrists resulting in false or inaccurate billings, to the extent that such
miscoding or error is prosecuted by any governmental entity or agency of
competent jurisdiction, or is due to the gross negligence, willful misconduct or
intentional act of the Practice or its Physicians or Optometrists. To the
extent there
34
<PAGE>
is a penalty that is not due to the gross negligence, willful misconduct or
intentional act of Practice or its Physicians or Optometrists, such penalty
shall be treated as an Office Expense.
5.11 Indemnification of Practice. Business Manager shall hold Practice,
---------------------------
its Affiliates, Representatives, successors and assigns and each of them
harmless from and against any and all losses, damages, fines, costs, claims,
judgments, proceedings, expenses or liabilities (including, without limitation,
reasonable attorneys' fees, paralegal fees, and costs and expenses thereof)
arising out of, or attributable to, or which result from, any claim of a third
party with respect to, (a) the performance of Management Services or the
performance of any intentional acts, negligent acts or omissions by Business
Manager and/or its shareholders, officers, employees and/or independent
contractors (other than Practice), and (b) any miscoding or other error in
medical service documentation by Business Manager or its employees resulting in
false or inaccurate billings, to the extent that such miscoding or error is
prosecuted by any governmental entity or agency of competent jurisdiction or is
due to the gross negligence, willful misconduct or intentional act of Business
Manager or its employees. To the extent there is a penalty that is not due to
the gross negligence, willful misconduct or intentional act of Business Manager
or its employees, such penalty shall be treated as an Office Expense.
ARTICLE VI
FINANCIAL ARRANGEMENT
6.1 Definitions. For purposes of this Article 6, capitalized terms used
-----------
herein shall have the meanings ascribed as follows:
(a) Dispensary Business Budgeted Office Expense. The term "Dispensary
-------------------------------------------
Business Budgeted Office Expense" shall mean, for any month, the Dispensary
Business Office Expense (other than the Dispensary Business Management Fee)
established in the Budget for such month.
(b) Dispensary Business Budgeted Practice Expense. The term
---------------------------------------------
"Dispensary Business Budgeted Practice Expense" shall mean, for any month, the
Dispensary Business Practice Expense (as defined in the Budget) established in
the Budget for such month.
(c) Dispensary Business Budgeted Revenue. The term "Dispensary
------------------------------------
Business Budgeted Revenue" shall mean, for any month, the Dispensary Business
Revenue established in the Budget for such month.
(d) Dispensary Business Management Fee. The term "Dispensary Business
----------------------------------
Management Fee" shall be, for any month, the * except in the event that either
(i) * or (ii) * for such month, in which case the "Dispensary Business
Management Fee" for such month shall be *.
- -------------
* Confidential portions omitted and filed separately with the commission.
35
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*.
(e) Dispensary Business Monthly Fee. The term "Dispensary Business
-------------------------------
Monthly Fee" shall be for any month, the * for such month.
(f) Dispensary Business Monthly Office Expense. The term "Dispensary
------------------------------------------
Business Monthly Office Expense" for any month shall mean the amount of
Dispensary Business Budgeted Office Expense for such month, plus or minus any
difference between (i) the actual Dispensary Business Office Expense incurred by
or on behalf of Practice for such month, as measured in accordance with GAAP
(other than the Dispensary Business Management Fee), and (ii) Dispensary
Business Budgeted Office Expense for such month.
(g) Dispensary Business Monthly Practice Expense. The term
--------------------------------------------
"Dispensary Business Monthly Practice Expense" shall mean, for any month, the*
for such month, except in the event that either (i) * or (ii) *, in which case
the term "Dispensary Business Monthly Practice Expense" for such month shall
mean *.
(h) Dispensary Business Office Expense. The term "Dispensary Business
----------------------------------
Office Expense" shall mean all Office Expenses, operating and non-operating,
which constitute direct expenses to produce Dispensary Business Revenue, as
determined consistent with the Budget; provided that any disagreement over
whether an expense constitutes a direct expense to produce Dispensary Business
Revenue shall be resolved by the Policy Board; provided, further, that expenses
related to the sale of contact lenses shall not be included in Dispensary
Business Office Expense.
(i) Management Fee. The term "Management Fee" shall mean, for any
--------------
month, the sum of the Dispensary Business Management Fee for such month and the
Principal Services Management Fee for such month.
(j) Monthly Office Expense. The term "Monthly Office Expense" shall
----------------------
mean, for any month, the sum of the Dispensary Business Monthly Office Expense
for such month and the Principal Services Monthly Office Expense for such month.
- -----------------
* Confidential portions omitted and filed separately with the commission.
36
<PAGE>
(k) Monthly Practice Expense. The term "Monthly Practice Expense"
------------------------
shall mean, for any month, the sum of the Dispensary Business Monthly Practice
Expense for such month and the Principal Services Monthly Practice Expense for
such month.
(l) Principal Services Budgeted Office Expense. The term "Principal
------------------------------------------
Services Budgeted Office Expense" shall mean, for any month, the Principal
Services Office Expense (other than the Principal Services Management Fee)
established in the Budget for such month.
(m) Principal Services Budgeted Practice Expense. The term "Principal
--------------------------------------------
Services Budgeted Practice Expense" shall mean, for any month, the Principal
Services Practice Expense (as defined in the Budget) established in the Budget
for such month.
(n) Principal Services Budgeted Revenue. The term "Principal Services
-----------------------------------
Budgeted Revenue" shall mean, for any month, the amount of Principal Services
Revenue established in the Budget for such month.
(o) Principal Services Management Fee. The term "Principal Services
---------------------------------
Management Fee" shall be, for any month, the *, except in the event that
either (i) * or (ii) *, in which case the "Principal Services Management
Fee" for such month shall be *.
(p) Principal Services Monthly Fee. The term "Principal Services
------------------------------
Monthly Fee" shall mean, for any month, the * for such month.
(q) Principal Services Monthly Office Expense. The term "Principal
-----------------------------------------
Services Monthly Office Expense" shall mean, for any month, the amount of
Principal Services Budgeted Office Expense for such month, plus or minus any
difference between (i) the actual Principal Services Office Expense incurred by
or on behalf of Practice for such month, as measured in accordance with GAAP
(other than the Principal Services Management Fee), and (ii) Principal Services
Budgeted Office Expense for such month.
(r) Principal Services Monthly Practice Expense. The term "Principal
-------------------------------------------
Services Monthly Practice Expense" shall mean, for any month, the * for such
month, except in the event that either (i) * or (ii) *, in which case the
term "Principal Services Monthly Practice Expense" for such month shall mean *
- -------------
* Confidential portions omitted and filed separately with the commission.
37
<PAGE>
*.
(s) Principal Services Office Expense. The term "Principal Services
---------------------------------
Office Expense" for any month shall mean all Office Expenses for such month,
including expenses related to the sale of contact lenses, other than Dispensary
Business Office Expenses for such month.
6.2 Management Fee. Practice and Business Manager agree to the
--------------
compensation set forth herein as being paid to Business Manager in consideration
of a substantial commitment made by Business Manager hereunder and that such
fees are fair and reasonable. In the priority established by Section 4.9
hereof, Business Manager will be paid the following:
(a) the amount of all Office Expense (other than the Dispensary
Business Management Fee and the Principal Services Management Fee) for the
previous month, paid on behalf of Practice; and
(b) the Management Fee for the previous month.
6.3 Reasonable Value. Payment of the Management Fee is not intended to be
----------------
and shall not be interpreted or applied as permitting Business Manager to share
in Practice's fees for Medical Services or any other services, but is
acknowledged as the parties' negotiated agreement as to the reasonable fair
market value of the equipment, contract analysis and support, other support
services, purchasing, personnel, office space, management, administration,
strategic management and other items and services furnished by Business Manager
pursuant to this Management Services Agreement, after giving effect to the
nature and volume of the services required and the risks assumed by Business
Manager. The parties agree that it is appropriate to calculate and apply
separate fees for the management of the Dispensary Business and Principal
Services, due to (i) the amount of Business Manager Expense incurred by
Business Manager in connection with the management of the operations of the
Dispensary Business, (ii) the fair market value of the management services
provided by Business Manager with respect to each of the Dispensary Business and
financial services and (iii) the nature and volume of the services required and
the risks assumed by Business Manager with respect to each of the Dispensary
Business and Principal Services.
6.4 Payment of Management Fee. To facilitate the payment of the
-------------------------
Management Fee as provided in Section 6.2 hereof, and subject to the priority of
payment methodology set forth in Section 4.9 hereof, Practice hereby expressly
authorizes Business Manager to make withdrawals of the Management Fee from the
Depository Account as such fee becomes due and payable during the Term and
thereafter as provided in Section 7.3 hereof.
6.5 Accounts Receivable. Unless otherwise prohibited by law, to assure
-------------------
that Practice receives the entire amount of professional fees for its services
and to assist Practice in maintaining reasonable cash flow for the payment of
Office Expense, Practice hereby agrees to sell, and
- --------------
* Confidential portions omitted and filed separately with the commission.
38
<PAGE>
Business Manager hereby agrees to purchase, with respect to any month during the
Term and with recourse to Practice for the amount of the purchase, accounts
receivable of Practice (the "Purchased Receivables") (i) in an amount equal to
the difference, if any, between (A) the sum of the Monthly Office Expense and
the Monthly Practice Expense paid or accrued by Business Manager for such month
and (B) the amount of cash collections deposited into the Depository Account
during such month and used to pay all or any portion of the Office Expenses and
the Monthly Practice Expense, by transferring such amount into the Depository
Account, and (ii) in an amount equal to the difference, if any, between the
Management Fee and the amount of cash collections deposited into the Depository
Account during such month and used to pay all or any portion of the Management
Fee, in satisfaction of Practice's obligation to pay Business Manager the
Management Fee. The consideration paid to Business Manager for the purchase
shall be an amount equal to the Principal Services Revenue and Dispensary
Business Revenue with respect to the Purchased Receivables, computed in
accordance with GAAP on an accrual basis net of Adjustments. Although it is the
intention of the parties that Business Manager purchase and thereby become the
owner of the Purchased Receivables of Practice, in the event such purchase shall
be ineffective for any reason, to secure the payment and performance of
Practice's obligations hereunder, Practice is hereby concurrently and
irrevocably granting, giving, assigning and pledging to Business Manager all of
Practice's assets and accounts receivable. This Management Services Agreement
shall constitute a security agreement with respect to Practice's assets and
accounts receivable and may be filed under the Uniform Commercial Code in each
state in which Practice does business. Practice shall cooperate with Business
Manager and execute all agreements or documents, including any security
agreements and financing statements, in connection with the granting of such
security interest to Business Manager or at Business Manager's option, its
lenders, that such persons deem necessary or appropriate. All collections with
respect to the Purchased Receivables by Business Manager shall be received by
Business Manager as the agent of Practice and shall be endorsed to Business
Manager and deposited in a bank account at a bank designated by Business
Manager. To the extent Practice comes into possession of any payments in respect
of the Purchased Receivables, Practice shall direct such payments to Business
Manager for deposit in bank accounts designated by Business Manager. Without
limiting the foregoing, to ensure that a reasonable cash flow is maintained for
the payment of Office Expenses hereunder, Practice shall not, except as
expressly contemplated herein, sell, assign, transfer, pledge, mortgage or in
any way encumber, the accounts receivable of Practice without the express
written consent of Business Manager.
6.6 Disputes Regarding Fees.
-----------------------
(a) It is the parties' intent that any disputes regarding Business
Manager's calculation of or accounting for fees under Section 4.10(b) and under
this Article 6 shall be resolved to the extent possible by good faith
negotiations. To that end, the parties agree that if Practice in good faith
believes that Business Manager has failed to accurately make such calculations
or conduct such accounting, and that as a result of such failure, Practice is
entitled to a set-off or reduction in its Management Fees, Practice shall give
Business Manager notice of the perceived failure and request in the notice a
set-off or reduction in Management Fees. Business Manager and Practice shall
then negotiate the dispute in good faith, and if an agreement is reached, the
parties shall implement the resolution without further action.
39
<PAGE>
(i) If the parties cannot reach a resolution within thirty
(30) days, and the amount at issue is $25,000 or less, then the dispute
shall be submitted to the Policy Board. The Policy Board shall then
consider, develop and implement a resolution of such dispute which shall be
final and binding upon Practice and Business Manager.
(ii) If the amount in dispute is greater than $25,000, and
Business Manager and Practice fail to resolve the dispute, then such
dispute shall be submitted by either party to binding arbitration as
described by Article 9 of the Purchase Agreement. The parties hereto
expressly acknowledge and agree that any arbitration regarding a dispute
under this Section (b)(ii) shall be limited solely to the determination of
the amount of fees due and owing either party, and shall not address or
rule in any manner on matters relating to any alleged breaches by either
party hereto or any potential remedies therefor.
(b) In the event Business Manager fails to perform any of its
material obligations in accordance with and as required under Sections 4.1(a),
(c) and (e), 4.2, 4.3, 4.8(a), (b), (d) and (f), 4.9 and 4.10(b), and Business
Manager fails to perform such material obligations within thirty (30) days after
its receipt of written notice from Practice specifying any such deficiency in
detail (or shall fail to diligently pursue efforts to cure to the extent such
obligation cannot be reasonably performed within such thirty day period), then
Practice shall be entitled to retain a third party to perform such obligation,
and setoff the reasonable out-of-pocket costs relating thereto against the
Management Fee payable to Business Manager pursuant to this Article 6 hereof. In
the event Practice retains a third party to perform such obligation, Business
Manager shall have the continuing right to resume performance of such
obligation, and upon doing so, Practice shall terminate its relationship with
such third party.
ARTICLE VII
TERM AND TERMINATION
7.1 Initial and Renewal Term. The Term of this Management Services
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Agreement will be for an initial period of forty (40) years after the Original
Effective Date, and shall be automatically renewed for successive five (5) year
periods thereafter, provided that neither Business Manager nor Practice shall
have given notice of termination of this Management Services Agreement at least
one hundred twenty (120) days before the end of the initial term or any renewal
term, or unless otherwise terminated as provided in Section 7.2 hereof.
7.2 Termination.
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(a) Termination By Business Manager. Business Manager may terminate
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this Management Services Agreement upon the occurrence of any one of the
following events which shall be deemed to be "for cause:"
(i) The suspension, restriction, revocation or cancellation,
within a one-year period, for a period of greater than one hundred eighty
(180) days, of any three (3) or more Physicians' licenses to practice
medicine in the States of Missouri and/or Kansas;
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(ii) Practice's loss or suspension of its Medicare or Medicaid
provider number, and/or Practice's restriction from treating patients of
the Medicare or Medicaid programs for a period of six (6) months;
(iii) The dissolution of Practice (other than in connection with
a reorganization of Practice), or the filing by Practice of a petition in
voluntary bankruptcy, an assignment for the benefit of creditors, or other
action taken voluntarily under any state or federal statute for the
protection of debtors;
(iv) The filing against Practice of an involuntary petition
under any bankruptcy statute, or the appointment of a custodian, receiver,
trustee or assignee for the benefit of creditors, and such condition shall
continue undischarged or undismissed for sixty (60) days; and
(v) Practice materially defaults in the performance of any of
its material duties or obligations hereunder, and shall fail to cure such
default within sixty (60) days after Practice receives notice from Business
Manager specifying the nature of such default.
(b) Termination By Practice. Practice may terminate this Management
-----------------------
Services Agreement upon any of the following occurrences which shall be deemed
to be "for cause":
(i) In the event that a court of competent jurisdiction makes
a final determination that Business Manager has materially breached a
fiduciary duty owed to Practice, Practice may terminate this Management
Services Agreement upon ten (10) days' notice to Business Manager; or
(ii) With ten (10) days' notice to Business Manager, in the
event Business Manager (A) intentionally and in bad faith misappropriates
Practice's funds, or (B) misapplies Practice's funds and fails to correct
such misapplication within thirty (30) days of receipt of notice from
Practice describing with particularity the misapplication.
(c) Termination by Agreement. In the event Practice and Business
------------------------
Manager shall mutually agree in writing, this Management Services Agreement may
be terminated on the date specified in such written agreement.
(d) Legislative, Regulatory or Administrative Change. In the event
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there shall be a change in the Medicare or Medicaid statutes, state or federal
statutes, case law, regulations or general instructions, the interpretation of
any of the foregoing, the adoption of new federal or state legislation, or a
change in any third-party reimbursement system, any of which are reasonably
likely to materially and adversely affect the manner in which either party may
perform or be compensated for its services under this Management Services
Agreement or which shall make this Management Services Agreement unlawful, the
parties shall immediately enter into good faith negotiations regarding a new
service arrangement or basis for compensation for the services furnished
pursuant to this Management Services Agreement that complies with the law,
regulation or policy and that approximates as closely as possible the economic
position of the parties prior
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to the change. If good faith negotiations cannot resolve the matter, it shall be
submitted to arbitration in accordance with Article 8 of this Management
Services Agreement; provided, however, that the scope of such arbitration shall
be limited to conforming with the purpose and intent of this Section 7.2(d) and
the arbitrator will have no authority to suspend or terminate this Management
Services Agreement. If a court of competent jurisdiction compels or requires a
party hereto to refrain from performing its duties and obligations hereunder, or
a party's performance hereunder shall be directly violative of a court order
directed at such party, then, to the extent necessary to comply with such court
order, this Management Services Agreement shall be deemed suspended. In no event
shall such suspension be construed to relieve either party's obligation under
this Section 7.2(d) and the parties will immediately commence good faith
negotiations regarding a new service arrangement or compensation structure that
is in compliance with any such court order, which arrangement or structure will
allocate the economic aspects of the relationship between the parties in a
manner as nearly as possible as that intended by this Management Services
Agreement.
7.3 Effects of Termination. Upon termination of this Management Services
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Agreement, as heretofore provided, neither party shall have any further
obligations hereunder except for (i) obligations accruing prior to the date of
termination, including, without limitation, payment of the Management Fees,
Office Expense and Practice Expense relating to services provided prior to the
termination of this Management Services Agreement, (ii) obligations, promises or
covenants set forth herein that are expressly set forth herein to extend beyond
the Term under the circumstances giving rise to such termination, including,
without limitation, indemnity, confidentiality and noncompetition provisions and
Section 7.7, which provisions shall survive the expiration or termination of
this Management Services Agreement by Business Manager for cause, and (iii) the
applicable obligations of Practice and Business Manager described in Section 7.4
or 7.5 hereof. In effectuating the provisions of this Section 7.3, Practice
specifically acknowledges and agrees that Business Manager shall continue to
collect and receive on behalf of Practice all cash collections from accounts
receivable in existence at the time this Management Services Agreement is
terminated, it being understood that such cash collections will be applied in
accordance with Section 4.9 hereof, and will represent, in part, compensation to
Business Manager for management services already rendered and compensation on
accounts receivable purchased by Business Manager. Upon the expiration or
termination of this Management Services Agreement for any reason or cause
whatsoever, Business Manager shall surrender to Practice all books and records
pertaining to Practice's medical practice.
7.4 Repurchase Obligation. Upon termination of this Management Services
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Agreement by Business Manager for cause or by Practice without cause, Business
Manager shall have the right, but not the obligation, to require Practice to
comply with the terms and conditions of this Section 7.4. In the event Business
Manager exercises such right by delivering notice to Practice within sixty (60)
days of such termination, then Practice shall be required to:
(a) Purchase from Business Manager at the greater of book or fair
market value the intangible assets, deferred charges and all other amounts on
the books of Business Manager relating to the Management Services Agreement as
adjusted, through the last day of the month
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most recently ended prior to the date of such termination in accordance with
GAAP to reflect amortization or depreciation of the intangible assets, deferred
charges or covenants;
(b) Purchase from Business Manager any real estate owned by Business
Manager and used as an Office at the greater of the appraised fair market value
thereof or the then book value thereof. In the event of any repurchase of real
property, the appraised value shall be determined by Business Manager and
Practice, each selecting a duly qualified appraiser, who in turn will agree on a
third appraiser. This agreed-upon appraiser shall perform the appraisal which
shall be binding on both parties. In the event either party fails to select an
appraiser within fifteen (15) days of the selection of an appraiser by the other
party, the appraiser selected by the other party shall make the selection of the
third-party appraiser;
(c) Purchase at the greater of book or fair market value all
improvements, additions, or leasehold improvements that have been made by
Business Manager at any Office and that relate solely to the performance of
Business Manager's obligations under this Management Services Agreement;
(d) Assume all debt and all contracts, payables and leases that are
obligations of Business Manager and that relate principally to the performance
of Business Manager's obligations under this Management Services Agreement or
the properties leased or subleased hereunder as an Office by Business Manager;
and
(e) Purchase from Business Manager: (i) at book value all of the
equipment listed in the ECM Transaction Agreements or the exhibits thereto and
(ii) at the greater of book or fair market value all of the equipment which (A)
was owned by the Predecessor Professional Corporation (but not any subsidiary
thereof) immediately prior to the effective date of the Stock Purchase Agreement
and (B) was owned by Business Manager immediately following the consummation of
the Stock Purchase Agreement, including all replacements and additions thereto
made by Business Manager pursuant to the performance of its obligations under
this Management Services Agreement, and all other assets, including inventory
and supplies, and tangibles and intangibles, set forth on the books of Business
Manager as adjusted through the last day of the month most recently ended prior
to the date of such termination in accordance with GAAP to reflect operations of
the Office, depreciation, amortization and other adjustments of assets shown on
the books of Business Manager.
In the event Business Manager exercises its rights pursuant to this Section 7.4,
Practice shall have the obligation to purchase all, and not less than all, of
the items listed in subparagraphs (a) through (e) above. In no event, however,
shall this Section 7.4 be construed as enabling Practice to repurchase any
assets owned by any subsidiaries of Predecessor Professional Corporation or used
in connection with the operation of the ambulatory surgery centers owned and
operated by subsidiaries of Predecessor Professional Corporation prior to the
effective date of the Stock Purchase Agreement (the "ASC Assets "). The ASC
Assets are expressly excluded from the assets enumerated in subparagraphs (a)
through (e) above, and Practice shall have no right to repurchase the ASC Assets
under this Section 7.4, unless Business Manager shall so elect in writing, in
which case Practice shall be required to repurchase the ASC Assets at the
greater of
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the then book or fair market value. For purposes of this Article 7, "fair market
value" of a particular item shall be an amount mutually agreed upon by Practice
and Business Manager. If Practice and Business Manager are unable to reach
agreement on such value after ten (10) days of deliberations, then such fair
market value shall be determined by an independent, duly qualified appraiser
mutually agreed upon by Practice and Business Manager. If Practice and Business
Manager cannot agree upon an appraiser within ten (10) days, then each party
shall select a duly qualified appraiser, who in turn will select a third
appraiser. This agreed-upon appraiser shall perform the appraisal which shall be
binding upon both parties. All expenses of such appraisal shall be borne fifty
percent (50%) by Business Manager and fifty percent (50%) by Practice.
7.5 Repurchase Option. Upon termination of this Management Services
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Agreement by Practice for cause pursuant to Section 7.2(b) hereof, by Business
Manager without cause or upon expiration of the Term, Practice shall have the
right, but not the obligation, to:
(a) Purchase from Business Manager at book value the intangible
assets, deferred charges and all other amounts on the books of Business Manager
relating to the Management Services Agreement as adjusted, through the last day
of the month most recently ended prior to the date of such termination in
accordance with GAAP to reflect amortization or depreciation of the intangible
assets, deferred charges or covenants;
(b) Purchase from Business Manager any real estate owned by Business
Manager and used as an Office at the greater of the appraised fair market value
or then book value thereof. In the event of any repurchase of real property, the
appraised value shall be determined in accordance with the appraisal mechanism
described in Section 7.4 hereof;
(c) Purchase at book value all improvements, additions or leasehold
improvements that have been made by Business Manager at any Office and that
relate solely to the performance of Business Manager's obligations under this
Management Services Agreement;
(d) Assume all debt and all contracts, payables and leases that are
obligations of Business Manager and that relate principally to the performance
of Business Manager's obligations under this Management Services Agreement or
the properties leased or subleased by Business Manager; and
(e) Purchase from Business Manager: (i) at book value all of the
equipment listed in the ECM Transaction Agreements or the exhibits thereto, and
(ii) at the greater of book or fair market value all of the equipment which (A)
was owned by the Predecessor Professional Corporation (but not any subsidiary
thereof) immediately prior to the effective date of the Stock Purchase Agreement
and (B) was owned by Business Manager immediately following the Consummation of
the Stock Purchase Agreement, including all replacements and additions thereto
made by Business Manager pursuant to the performance of its obligations under
this Management Services Agreement, and all other tangible assets, including
inventory and supplies, set forth on the books of Business Manager as adjusted
through the last day of the month most recently ended prior to the date of such
termination in accordance with GAAP to reflect operations of the Office,
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depreciation, amortization and other adjustments of assets shown on the books of
Business Manager.
In the event Practice exercises its rights pursuant to this Section 7.5,
Practice shall have the obligation to purchase all, and not less than all, of
the items listed in subparagraphs (a) through (e). In no event, however, shall
this Section 7.5 be construed as enabling Practice to repurchase the ASC Assets.
The ASC Assets are expressly excluded from the assets enumerated in
subparagraphs (a) through (e) above and Practice shall have no right to
repurchase the ASC Assets under this Section 7.5 unless Business Manager shall
so elect in writing, in which case Practice shall be required to repurchase the
ASC Assets at fair market value. In lieu of paying cash for the items described
in this Section 7.5 or under Section 7.4, Practice shall have the option of
using Stock (as defined in the Original Transaction Agreements) contributed by
the Physician-Shareholders to Practice to transfer to Business Manager that
number of shares of Stock (as such term is defined in the Original Transaction
Agreements) which, based on the then fair market value of such shares
(determined in accordance with a consistent application of the valuation
procedure established under Section 4.2(g) of the Employment Agreements), equals
the cash amount required pursuant to this Section 7.5. or under Section 7.4.
7.6 Closing of Repurchase. Except as expressly provided in Section 7.5
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hereof, Practice shall pay cash for the repurchased assets. The amount of the
purchase price shall be reduced by the amount of debt and liabilities of
Business Manager, if any, assumed by Practice. Practice and, if required by
law, any Physician associated with Practice, shall execute such documents as may
be required, (i) for Practice to assume the liabilities set forth in Section
7.4(d) or 7.5(d) hereof, as applicable, and (ii) for Practice to indemnify or
remove Business Manager from any liability with respect to such repurchased
asset with respect to any property leased or subleased by Business Manager.
Business Manager shall execute such documents as may be required to convey the
assets, free and clear of all liens (except for those liens assumed by
Practice). The closing date for the repurchase shall be determined by mutual
agreement of Practice and Business Manager but shall in no event occur later
than one hundred eighty (180) days from the date of notice of termination. The
termination of this Management Services Agreement shall become effective upon
the closing of the sale of the assets under Section 7.4 or 7.5 hereof, as the
case may be, and all parties shall be released from any restrictive covenants
provided for in Section 5.7 hereof on such closing date. From and after any
termination, each party shall provide the other party with reasonable access to
the books and records then owned by it to permit such requesting party to
satisfy reporting and contractual obligations that may be required of it.
7.7 Rights and Remedies. In the event of a material breach of this
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Management Services Agreement by either party hereunder, the nonbreaching party
shall have, in addition to any other rights and remedies contained in this
Management Services Agreement, all rights and remedies available to such party
at law or equity. Without limiting the generality of the foregoing, the parties
acknowledge and agree that Business Manager entered into this Management
Services Agreement with the understanding that the Term of this Management
Services Agreement would be forty years. In the event of a material breach
hereunder by Practice, the parties acknowledge and agree that the actual damages
to be suffered by Business Manager will be difficult to ascertain.
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Practice recognizes that, in the event Practice shall fail to perform, observe
or discharge any of its duties, obligations or liabilities under this Management
Services Agreement, any remedy at law may prove to be inadequate relief to
Business Manager. Therefore, Practice agrees that, if Business Manager so elects
and in addition to any other remedies available at law or equity, Business
Manager shall be entitled to temporary and permanent injunctive relief in any
such case without the necessity of proving actual damages, to specific
performance of any provision hereof. In addition to all other remedies of
Business Manager for any material breach hereunder by Practice, and without
limiting any and all rights set forth herein, Business Manager may set-off any
and all amounts which are due or which Business Manager reasonably believes will
become due and owing to Business Manager under this Agreement and against any
and all amounts which are held in escrow pursuant to the terms and conditions of
an Escrow Agreement by and among Business Manager, Practice, certain Physician-
Shareholders of Practice, and Harris Trust and Savings Bank dated as of March 3,
1997, and an Amended and Restated Escrow Agreement by and among Business
Manager, Practice, certain Physician-Shareholders of Practice and EyeCare
Midwest LLC, and Harris Trust and Savings Bank dated as of the Effective Date.
7.8 Interpretation. The purpose and intent of this Article 7 is to
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establish the limited instances in which a party may terminate this Management
Services Agreement. Unless the parties mutually agree to terminate this
Management Services Agreement, neither party shall be entitled to terminate this
Management Services Agreement prior to the expiration of the Term unless a
party's breach gives rise to a termination "for cause" pursuant to Section
7.2(a) or (b) hereof, as the case may be. Nothing in this Management Services
Agreement (including Section 7.4 hereof) shall be construed as permitting
Practice to terminate this Management Services Agreement without cause.
ARTICLE VII
MEDIATION AND ARBITRATION
The parties hereto shall negotiate in good faith to resolve any
controversy, dispute, claim or disagreement arising out of or relating to this
Management Services Agreement or the breach of this Management Services
Agreement. Any such dispute, controversy, disagreement or claim (including,
without limitation, tort claims, requests for provisional remedies or other
interim relief, and issues as to arbitrability of any matter) arising from any
provision in this Management Services Agreement which specifically provides for
arbitration as a potential remedy, that cannot be settled through negotiation
shall be settled (a) first, by the parties trying in good faith to settle the
dispute by mediation under the Commercial Mediation Rules of the American
Arbitration Association ("AAA") (such mediation session to be held in Kansas
City, Missouri and to commence within fifteen (15) days after the appointment of
the mediator by the AAA), and (b) if the dispute, controversy, disagreement or
claim cannot be settled by mediation, then by arbitration administered by the
AAA under its Commercial Arbitration Rules (such arbitration to be held in
Kansas City, Missouri before a single arbitrator mutually agreed upon by the
parties hereto and to commence with fifteen (15) days after the appointment of
the arbitrator by the AAA), and judgment on the award rendered by the arbitrator
may be entered in any court having jurisdiction thereof. The parties
acknowledge that all other disputes arising under this Management Services
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Agreement, including, without limitation, any allegations of breach by either
party, shall not be subject to arbitration.
ARTICLE IX
MISCELLANEOUS
9.1 Administrative Services Only. Nothing in this Management Services
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Agreement is intended or shall be construed to allow Business Manager to
exercise control or direction over the manner or method by which Practice and
its Physicians and Optometrists perform Medical Services or other professional
health care services. The rendition of all Medical Services, including, but not
limited to, the prescription or administration of medicine and drugs shall be
the sole responsibility of Practice and its Physicians and Optometrists, and
Business Manager shall not interfere in any manner or to any extent therewith.
Nothing contained herein shall be construed to permit Business Manager to engage
in the practice of medicine, it being the sole intention of the parties hereto
that the services to be rendered to Practice by Business Manager are solely for
the purpose of providing nonmedical management and administrative services to
Practice to enable Practice to devote its full time and energies to the
professional conduct of its medical practice and provision of Medical Services
to its patients and not to administration or practice management. Practice,
through the Physicians and Optometrists, shall be responsible for and shall have
complete authority, responsibility, supervision and control over the opticians
and other employees of Business Manager providing services in connection with
the Dispensary Business, consistent with the requirements necessary to satisfy
the "in-office ancillary services exception" to the Stark Act.
9.2 Status of Contractor. It is expressly acknowledged that the parties
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hereto are "independent contractors," and nothing in this Management Services
Agreement is intended and nothing shall be construed to allow either party to
exercise control or direction over the manner or method by which the other party
performs the services that are the subject matter of this Management Services
Agreement; provided that the services to be provided hereunder shall be
furnished in a manner consistent with the standards governing such services and
the provisions of this Management Services Agreement. Each party understands
and agrees that (i) neither party will withhold on behalf of the other party any
sums for income tax, unemployment insurance, social security or any other
withholding pursuant to any law or requirement of any governmental body or make
available any of the benefits afforded to its employees, (ii) all of such
payments, withholdings and benefits, if any, are the sole responsibility of the
party incurring the liability, and (iii) each party will indemnify and hold the
other harmless from any and all loss or liability arising with respect to such
payments, withholdings and benefits, if any.
9.3 Notices. Any notice, demand or communication required, permitted or
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desired to be given hereunder shall be in writing and shall be served on the
parties at the following respective addresses:
Practice:
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Hunkeler Eye Centers, P.C.
4321 Washington
Suite 6000
Kansas City, Missouri 64111
Facsimile: (816) 931-4733
Attention: Physician members of Policy Board
with a copy to:
Lathrop & Gage L.C.
2345 Grand Boulevard
Kansas City, Missouri 64108
Facsimile: (816) 292-2001
Attention: Judith Weaver, Esq.
Business Manager:
NovaMed Management of Kansas City,
Inc.
980 North Michigan Avenue, Suite 1620
Chicago, Illinois 60611
Facsimile: (312) 664-4250
Attention: Stephen J. Winjum
John W. Lawrence, Jr.
with a copy to:
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661
Facsimile: (312) 902-1061
Attention: Steven V. Napolitano, Esq.
or to such other address, or to the attention of such other person or officer,
as any party may by written notice designate. Any notice, demand, or
communication required, permitted or desired to be given hereunder shall be sent
either (a) by hand delivery, in which case notice shall be deemed received when
actually delivered, (b) by prepaid certified or registered first class mail,
return receipt requested, in which case notice shall be deemed received five
calendar days after deposit, postage prepaid in the United States Mail, (c) by
facsimile if also delivered by hand, or deposited in the United States Mail,
postage prepaid, registered or certified mail, on or before two (2) business
days after its delivery by facsimile, in which case notice shall be deemed
received one (1) business day after the facsimile transmission, or (d) by a
nationally recognized overnight courier, in which case notice shall be deemed
received one business day after prepaid deposit with such courier.
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9.4 Governing Law. This Management Services Agreement shall be governed
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by the laws of the State of Missouri applicable to agreements to be performed
wholly within the State of Missouri. Missouri law was chosen by the parties
after negotiation to govern interpretation of this Management Services
Agreement.
9.5 Assignment. Except as may be herein specifically provided to the
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contrary, this Management Services Agreement shall inure to the benefit of, and
be binding upon, the parties hereto and their respective legal representatives,
successors and permitted assigns.
(a) Practice may not assign this Management Services Agreement without
the prior written consent of Business Manager, which consent may be withheld in
Business Manager's discretion. The sale, transfer, pledge or assignment of any
of the voting interests of Practice held by any Physician-Shareholder or the
issuance by Practice of voting interests to any other person, or any combination
of such transactions within a period of one (1) year, such that the existing
Physician-Shareholders in Practice immediately prior to such transactions or the
beginning of the one-year period, as applicable, fail to maintain a majority of
the voting interests in Practice shall be deemed an attempted assignment by
Practice, and shall be null and void unless consented to in writing by Business
Manager prior to any such transfer or issuance. Any breach of this provision,
whether or not void or voidable, shall constitute a material breach of this
Management Services Agreement, and in the event of such breach, Business Manager
may terminate this Management Services Agreement upon thirty (30) days' notice
to Practice. The parties agree Business Manager or any transferee shall have
the right to (i) assign its rights and obligations hereunder to any third party
and (ii) collaterally assign its interest in this Management Services Agreement
and its other rights hereunder to any financial institution or other third party
without the consent of Practice.
(b) Business Manager or permitted assignee shall have the right to
assign its rights, duties and obligations hereunder without the consent of
Practice;
(i) to any Affiliate of Business Manager or, NovaMed Parent,
including without limitation any direct or indirect majority owned subsidiary of
NovaMed Parent;
(ii) in connection with and in contemplation of a
reorganization, merger, consolidation or sale of all or substantially all of the
capital stock or assets of NovaMed Parent (or any other transaction
substantially similar in effect); and
(iii) as a collateral assignment of its rights (but not its
duties) to any financial institution or other entity.
9.6 Waiver of Breach. The waiver by either party of a breach or violation
----------------
of any provision of this Management Services Agreement shall not operate as, or
be construed to constitute, a waiver of any subsequent breach of the same or
another provision hereof.
9.7 Enforcement. In the event either party resorts to legal action to
-----------
enforce or interpret any provision of this Management Services Agreement, the
prevailing party shall be entitled to
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recover the costs and expenses of such action so incurred, including, without
limitation, reasonable attorneys' fees.
9.8 Gender and Number. Whenever the context of this Management Services
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Agreement requires, the gender of all words herein shall include the masculine,
feminine and neuter, and the number of all words herein shall include the
singular and plural.
9.9 Additional Assurances. Except as may be specifically provided herein
---------------------
to the contrary, the provisions of this Management Services Agreement shall be
self-operative and shall not require further agreement by the parties; provided,
however, at the request of either party, the other party shall execute such
additional instruments and take such additional acts as are reasonable, and as
the requesting party may reasonably deem necessary, to effectuate this
Management Services Agreement.
9.10 Consents, Approvals, and Exercise of Discretion. Whenever this
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Management Services Agreement requires any consent or approval to be given by
either party, or either party must or may exercise discretion, and except where
specifically set forth to the contrary, the parties agree that such consent or
approval shall not be unreasonably withheld or delayed, and that such discretion
shall be reasonably exercised.
9.11 Force Majeure. Neither party shall be liable or deemed to be in
-------------
default for any delay or failure in performance under this Management Services
Agreement or other interruption of service deemed to result, directly or
indirectly, from acts of God, civil or military authority, acts of public enemy,
war, accidents, explosions, earthquakes, floods, failure of transportation,
strikes or other work interruptions by either party's employees, or any other
similar cause beyond the reasonable control of either party unless such delay or
failure in performance is expressly addressed elsewhere in this Management
Services Agreement.
9.12 Severability. The parties hereto have negotiated and prepared the
------------
terms of this Management Services Agreement in good faith with the intent that
each and every one of the terms, covenants and conditions herein be binding upon
and inure to the benefit of the respective parties. Accordingly, if any one or
more of the terms, provisions, promises, covenants or conditions of this
Management Services Agreement or the application thereof to any person or
circumstance shall be adjudged to any extent invalid, unenforceable, void or
voidable for any reason whatsoever by a court of competent jurisdiction, such
provision shall be as narrowly construed as possible, and each and all of the
remaining terms, provisions, promises, covenants and conditions of this
Management Services Agreement or their application to other persons or
circumstances shall not be affected thereby and shall be valid and enforceable
to the fullest extent permitted by law. To the extent this Management Services
Agreement is in violation of applicable law, then the parties agree to negotiate
in good faith to amend the Management Services Agreement, to the extent possible
consistent with its purposes, to conform to law.
9.13 Divisions and Headings. The divisions of this Management Services
----------------------
Agreement into articles, sections and subsections, and the use of captions and
headings in connection
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therewith is solely for convenience and shall not affect in any way the meaning
or interpretation of this Management Services Agreement.
9.14 Amendments and Management Services Agreement Execution. This
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Management Services Agreement and amendments hereto shall be in writing and
executed in multiple copies on behalf of Practice and Business Manager by their
respective duly authorized officers and Representatives. Each multiple copy
shall be deemed an original, but all multiple copies together shall constitute
one and the same instrument.
9.15 Entire Management Services Agreement. With respect to the subject
------------------------------------
matter of this Management Services Agreement, this Management Services Agreement
amends and restates, and supersedes all previous contracts, including, without
limitation, the Original HEC MSA (which this Management Services Agreement
amends and restates) and the EyeCare Midwest MSA, and constitutes the entire
agreement between the parties. Notwithstanding the foregoing, execution of this
Management Services Agreement will not impair or otherwise limit the ability of
either party to enforce the provisions of the Original HEC MSA or the EyeCare
Midwest MSA with respect to obligations accruing under the Original HEC MSA or
the EyeCare Midwest MSA prior to the Effective Date of this Management Services
Agreement, including, without limitation, payment of fees and expenses relating
to services provided prior to the Effective Date of this Management Services
Agreement, except to the extent determined not to be payable in connection with
the execution of this Management Services Agreement. Neither party shall be
entitled to benefits other than those specified herein. Except as otherwise
provided herein, no prior oral statements or contemporaneous negotiations or
understandings or prior written material not specifically incorporated herein
shall be of any force and effect, and no changes in or additions to this
Management Services Agreement shall be recognized unless incorporated herein by
amendment as provided herein, such amendment to become effective on the date
stipulated in such amendment. The parties specifically acknowledge that, in
entering into and executing this Management Services Agreement, the parties rely
solely upon the representations and agreements contained in this Management
Services Agreement and no others.
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IN WITNESS WHEREOF, Practice and Business Manager have caused this
Management Services Agreement to be executed by their duly authorized
representatives, all as of the day and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
SPECIFICALLY ENFORCED BY THE PARTIES.
PRACTICE:
HUNKELER EYE CENTERS, P.C.
By: /s/ John D. Hunkeler
-------------------------------------
Name: John D. Hunkeler
-----------------------------------
Title: President
----------------------------------
BUSINESS MANAGER:
NOVAMED MANAGEMENT OF KANSAS CITY, INC.,
a Missouri corporation
By: /s/ Stephen J. Winjum
-----------------------------------
Stephen J. Winjum,
President
Business Manager shall have the right to utilize NovaMed EyeCare
Management, L.L.C. ("NovaMed Management") to provide Management Services
pursuant to this Agreement. NovaMed Management shall assist Business Manager in
rendering Management Services under this Agreement and, to the extent Business
Manager does not have the ability to provide such Management Services, NovaMed
Management shall provide and, to the extent necessary, guarantee the performance
of, any and all obligations of Business Manager.
NOVAMED EYECARE MANAGEMENT, LLC, a Delaware
limited liability company
By: /s/ Stephen J. Winjum
-----------------------------------
Stephen J. Winjum,
President
<PAGE>
EXHIBIT 1.4
MID-YEAR BUDGET
See Attached
<PAGE>
Hunkeler Eye Centers, P.C.
_______________________________________________________________________________
1999 MSA Budget
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Description Jan Feb Mar Apr May Jun
- --------------------------------- ----------------- ----------------- -----------------
Principal Services
Revenue
- -------
Principal Services revenue * * * * * *
ASC facility revenue * * * * * *
Optical revenue - glasses * * * * * *
Optical revenue - contacts * * * * * *
Optometric revenue * * * * * *
Other revenue * * * * * *
Contractual adjustments * * * * * *
* * * * * *
* * * * * *
Other Revenue * * * * * *
Principal Services Budgeted Revenue * * * * * *
Expenses
- --------
Salaries and Wages:
Center Staff Salaries: * * * * * *
----------------------
Administration * * * * * *
Technician * * * * * *
Nurses * * * * * *
Other salaries * * * * * *
Overtime pay * * * * * *
* * * * * *
Payroll Taxes & Benefits
------------------------
Vacation & leave pay * * * * * *
Bonuses * * * * * *
Incentive compensation * * * * * *
FICA Tax * * * * * *
SUI * * * * * *
FUI * * * * * *
Other payroll taxes * * * * * *
Labor allocation * * * * * *
401k Match * * * * * *
Life & Disability ins. * * * * * *
Employee Health ins. * * * * * *
Benefits %
Total Salaries & Wages * * * * * *
MD/OD Compensation * * * * * *
* * * * * *
Pharmaceuticals and supplies: * * * * * *
Principal Services supplies * * * * * *
ASC - general * * * * * *
ASC - refractive * * * * * *
Pillar point fees * * * * * *
Optical COS - glasses * * * * * *
Optical COS - contacts * * * * * *
Optometric supplies * * * * * *
Total Pharmac. & Supplies * * * * * *
</TABLE>
* Confidential portions omitted and filed separately with the commission.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Description Jul Aug Sep Oct Nov Dec Total 1998 %
- ---------------------------------------------------------------------------------------------- -------------------
Principal Services
Revenue
- -------
Principal Services revenue * * * * * * * * * * *
ASC facility revenue * * * * * * * * * * *
Optical revenue - glasses * * * * * * * * * * *
Optical revenue - contacts * * * * * * * * * * *
Optometric revenue * * * * * * * * * * *
Other revenue * * * * * * * * * *
Contractual adjustments * * * * * * * * * *
* * * * * * * * * *
* * * * * * * * * *
Other Revenue * * * * * * * * * *
Principal Services Budgeted Revenue * * * * * * * * * * *
Expenses
- --------
Salaries and Wages:
Center Staff Salaries: * * * * * * * * * *
----------------------
Administration * * * * * * * * * *
Technician * * * * * * * * * *
Nurses * * * * * * * * * *
Other salaries * * * * * * * * * *
Overtime pay * * * * * * * * * * #VALUE!
* * * * * * * * * *
Payroll Taxes & Benefits
------------------------
Vacation & leave pay * * * * * * * * * *
Bonuses * * * * * * * * * *
Incentive compensation * * * * * * * * * *
FICA Tax * * * * * * * * * *
SUI * * * * * * * * * *
FUI * * * * * * * * * *
Other payroll taxes * * * * * * * * * *
Labor allocation * * * * * * * * * *
401k Match * * * * * * * * * *
Life & Disability ins. * * * * * * * * * *
Employee Health ins. * * * * * * * * * *
#VALUE!
Benefits % #VALUE!
Total Salaries & Wages * * * * * * * * * * *
MD/OD Compensation * * * * * * * * * * *
* * * * * * * * * * *
Pharmaceuticals and supplies: * * * * * * * * * * *
Principal Services supplies * * * * * * * * * * *
ASC - general * * * * * * * * * * *
ASC - refractive * * * * * * * * * * *
Pillar point fees * * * * * * * * * * *
Optical COS - glasses * * * * * * * * * * *
Optical COS - contacts * * * * * * * * * * *
Optometric supplies * * * * * * * * * * *
Total Pharmac. & Supplies * * * * * * * * * * *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Hunkeler Eye Centers, P.C.
- ------------------------------------------------------------------------------------------------------------
1999 MSA Budget
Description Jan Feb Mar Apr May Jun Jul Aug Sep
- ---------------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Services * * * * * * * * *
G&A expenses: * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Office & Administrative: * * * * * * * * *
Office Supplies * * * * * * * * *
Office supplies * * * * * * * * *
Software/computer expense * * * * * * * * *
Food service * * * * * * * * *
Bank charges * * * * * * * * *
Credit card fees * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Postage & freight * * * * * * * * *
Employee & patient programs * * * * * * * * *
Continuing education (1) * * * * * * * * *
Dues and subscriptions * * * * * * * * *
Telephone * * * * * * * * *
Utilities * * * * * * * * *
Printing * * * * * * * * *
Misc. office expense * * * * * * * * *
Total Office & Admin. Expenses * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Marketing: * * * * * * * * *
Advertising * * * * * * * * *
Marketing-Other * * * * * * * * *
Total Marketing * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Professional and Service Fees: * * * * * * * * *
Legal * * * * * * * * *
Accounting * * * * * * * * *
Other prof. consulting * * * * * * * * *
Collection fees * * * * * * * * *
Answering service * * * * * * * * *
Linens & uniforms * * * * * * * * *
Other services * * * * * * * * *
Temporary services * * * * * * * * *
Total Professional Fees * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Rental Expense: * * * * * * * * *
Building rent * * * * * * * * *
Other office rent & parking * * * * * * * * *
Equipment leases * * * * * * * * *
Optical equipment rent * * * * * * * * *
Total Rent Expense * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Repairs & Maintenance: * * * * * * * * *
Building maintenance * * * * * * * * *
Repairs-equipment * * * * * * * * *
Non-capitalized tools * * * * * * * * *
Total Repairs & Maint. * * * * * * * * *
</TABLE>
<TABLE>
<CAPTION>
Description Oct Nov Dec Total 1998 %
- ---------------------------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
Principal Services * * * * * * * *
G&A expenses: * * * * * * * *
* * * * * * * *
* * * * * * * *
Office & Administrative: * * * * * * * *
Office Supplies * * * * * * * *
Office supplies * * * * * * * *
Software/computer expense * * * * * * * *
Food service * * * * * * * *
Bank charges * * * * * * * *
Credit card fees * * * * * * * *
* * * * * * * *
* * * * * * * *
Postage & freight * * * * * * * *
Employee & patient programs * * * * * * * *
Continuing education (1) * * * * * * * *
Dues and subscriptions * * * * * * * *
Telephone * * * * * * * *
Utilities * * * * * * * *
Printing * * * * * * * *
Misc. office expense * * * * * * * *
Total Office & Admin. Expenses * * * * * * * *
* * * * * * * *
* * * * * * * *
Marketing: * * * * * * * *
Advertising * * * * * * * *
Marketing-Other * * * * * * * *
Total Marketing * * * * * * * *
* * * * * * * *
* * * * * * * *
Professional and Service Fees: * * * * * * * *
Legal * * * * * * * *
Accounting * * * * * * * *
Other prof. consulting * * * * * * * *
Collection fees * * * * * * * *
Answering service * * * * * * * *
Linens & uniforms * * * * * * * *
Other services * * * * * * * *
Temporary services * * * * * * * *
Total Professional Fees * * * * * * * *
* * * * * * * *
* * * * * * * *
Rental Expense: * * * * * * * *
Building rent * * * * * * * *
Other office rent & parking * * * * * * * *
Equipment leases * * * * * * * *
Optical equipment rent * * * * * * * *
Total Rent Expense * * * * * * * *
* * * * * * * *
* * * * * * * *
Repairs & Maintenance: * * * * * * * *
Building maintenance * * * * * * * *
Repairs-equipment * * * * * * * *
Non-capitalized tools * * * * * * * *
Total Repairs & Maint. * * * * * * * *
</TABLE>
* Confidential portions omitted and filed separately with the commission.
<PAGE>
<TABLE>
<CAPTION>
Hunkeler Eye Centers, P.C.
- ------------------------------------------------------------------------------------------------------------
1999 MSA Budget
Description Jan Feb Mar Apr May Jun Jul Aug Sep
- ---------------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Services * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Taxes and insurance: * * * * * * * * *
MalPrincipal Services * * * * * * * * *
Liability & casualty * * * * * * * * *
Workers' compensation ins. * * * * * * * * *
D&O * * * * * * * * *
Key Man Life * * * * * * * * *
Other insurance * * * * * * * * *
Property tax * * * * * * * * *
Sales & Use tax * * * * * * * * *
Property tax * * * * * * * * *
Other taxes * * * * * * * * *
Total Taxes & Ins. * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Other Expenses: * * * * * * * * *
Travel & entertainment (1) * * * * * * * * *
Recruitment & relocation * * * * * * * * *
Auto & Van * * * * * * * * *
Contracted patient transport. * * * * * * * * *
Donations and gifts * * * * * * * * *
Allocated IT/Computing costs * * * * * * * * *
Other * * * * * * * * *
Total Other Expense * * * * * * * * *
* * * * * * * * *
Total G&A expenses * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Depreciation & Amortization: * * * * * * * * *
Building depreciation * * * * * * * * *
Equipment depreciation * * * * * * * * *
Goodwill amortization * * * * * * * * *
Other intangible amortization * * * * * * * * *
Amortization of deferred charges * * * * * * * * *
* * * * * * * * *
Total Depr. and Amortization * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Interest (income) and expense: * * * * * * * * *
Depository Interest * * * * * * * * *
Investment Income * * * * * * * * *
Bank Line Interest Expense * * * * * * * * *
Cap. Lease Interest Expense * * * * * * * * *
Other Interest Expense * * * * * * * * *
* * * * * * * * *
Total Interest (income)/expense * * * * * * * * *
Principal Services Budgeted Office Expense * * * * * * * * *
</TABLE>
<TABLE>
<CAPTION>
Description Oct Nov Dec Total 1998 %
- ---------------------------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
Principal Services * * * * * * * *
* * * * * * * *
* * * * * * * *
Taxes and insurance: * * * * * * * *
MalPrincipal Services * * * * * * * *
Liability & casualty * * * * * * * *
Workers' compensation ins. * * * * * * * *
D&O * * * * * * * *
Key Man Life * * * * * * * *
Other insurance * * * * * * * *
Property tax * * * * * * * *
Sales & Use tax * * * * * * * *
Property tax * * * * * * * *
Other taxes * * * * * * * *
Total Taxes & Ins. * * * * * * * *
* * * * * * * *
* * * * * * * *
Other Expenses: * * * * * * * *
Travel & entertainment (1) * * * * * * * *
Recruitment & relocation * * * * * * * *
Auto & Van * * * * * * * *
Contracted patient transport. * * * * * * * *
Donations and gifts * * * * * * * *
Allocated IT/Computing costs * * * * * * * *
Other * * * * * * * *
Total Other Expense * * * * * * * *
* * * * * * * *
Total G&A expenses * * * * * * * *
* * * * * * * *
* * * * * * * *
Depreciation & Amortization: * * * * * * * *
Building depreciation * * * * * * * *
Equipment depreciation * * * * * * * *
Goodwill amortization * * * * * * * *
Other intangible amortization * * * * * * * *
Amortization of deferred charges * * * * * * * *
* * * * * * * *
Total Depr. and Amortization * * * * * * * *
* * * * * * * *
* * * * * * * *
Interest (income) and expense: * * * * * * * *
Depository Interest * * * * * * * *
Investment Income * * * * * * * *
Bank Line Interest Expense * * * * * * * *
Cap. Lease Interest Expense * * * * * * * *
Other Interest Expense * * * * * * * *
* * * * * * * *
Total Interest (income)/expense * * * * * * * *
Principal Services Budgeted Office Expense * * * * * * * *
</TABLE>
* Confidential portions omitted and filed separately with the commission.
<PAGE>
<TABLE>
<CAPTION>
Hunkeler Eye Centers, P.C.
- ------------------------------------------------------------------------------------------------------------
1999 MSA Budget
Description Jan Feb Mar Apr May Jun Jul Aug Sep
- ---------------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Services * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Principal Services Budgeted * * * * * * * * *
Practice Expense * * * * * * * * *
* * * * * * * * *
Principal Services Monthly Fee * * * * * * * * *
* * * * * * * * *
</TABLE>
<TABLE>
<CAPTION>
Description Oct Nov Dec Total 1998 %
- ---------------------------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
Principal Services * * * * * * * *
* * * * * * * *
* * * * * * * *
Principal Services Budgeted * * * * * * * *
Principal Expense * * * * * * * *
* * * * * * * *
Principal Services Monthly Fee * * * * * * * *
* * * * * * * *
</TABLE>
* Confidential portions omitted and filed separately with the commission.
<PAGE>
Hunkeler Eye Centers, P.C.
________________________________________________________________________________
1999 MSA Budget
<TABLE>
<CAPTION>
Description Jan Feb Mar Apr May Jun
- --------------------------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-Ophthalmic Business * * * * * *
* * * * * *
Revenue * * * * * *
- ------- * * * * * *
Practice revenue * * * * * *
ASC facility revenue * * * * * *
Optical revenue * * * * * *
Optometric revenue * * * * * *
Alliance revenue * * * * * *
Research & Consulting * * * * * *
Other revenue * * * * * *
* * * * * *
* * * * * *
Laboratory revenue * * * * * *
* * * * * *
Non-Ophthalmic Business Budgeted Revenue * * * * * *
* * * * * *
Expenses * * * * * *
- -------- * * * * * *
Salaries and Wages: * * * * * *
Center Staff Salaries: * * * * * *
----------------------
Administration * * * * * *
Technician/Nurses * * * * * *
PSR/Front Desk * * * * * *
Other salaries * * * * * *
Overtime pay * * * * * *
* * * * * *
Payroll Taxes & Benefits * * * * * *
------------------------
Vacation & leave pay * * * * * *
Bonuses * * * * * *
Incentive compensation * * * * * *
FICA Tax * * * * * *
SUI * * * * * *
FUI * * * * * *
Other payroll taxes * * * * * *
Labor allocation * * * * * *
401k Match * * * * * *
Life & Disability ins. * * * * * *
Employee Health ins. * * * * * *
* * * * * *
Benefits % * * * * * *
Total Salaries & Wages * * * * * *
* * * * * *
MD/OD Compensation * * * * * *
* * * * * *
* * * * * *
Pharmaceuticals and supplies: * * * * * *
Medical Supplies * * * * * *
COS - Glasses * * * * * *
COS - Contacts * * * * * *
COS - adjustments * * * * * *
Laboratory fees * * * * * *
Discounts & allowances * * * * * *
Optical - Other * * * * * *
Total Pharmac. & Supplies * * * * * *
</TABLE>
<TABLE>
Description Jul Aug Sep Oct Nov Dec Total 1998 %
- --------------------------------- ----------------------------------------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Non-Ophthalmic Business * * * * * * * * * * *
* * * * * * * * * * *
Revenue * * * * * * * * * * *
- ------- * * * * * * * * * * *
Practice revenue * * * * * * * * * * *
ASC facility revenue * * * * * * * * * * *
Optical revenue * * * * * * * * * * *
Optometric revenue * * * * * * * * * * *
Alliance revenue * * * * * * * * * * *
Research & Consulting * * * * * * * * * * *
Other revenue * * * * * * * * * * *
* * * * * * * * * * *
* * * * * * * * * * *
Laboratory revenue * * * * * * * * * * *
* * * * * * * * * * *
Non-Ophthalmic Business Budgeted Revenue * * * * * * * * * * *
* * * * * * * * * * *
Expenses * * * * * * * * * * *
- -------- * * * * * * * * * * *
Salaries and Wages: * * * * * * * * * * *
Center Staff Salaries: * * * * * * * * * * *
----------------------
Administration * * * * * * * * * * *
Technician/Nurses * * * * * * * * * * *
PSR/Front Desk * * * * * * * * * * *
Other salaries * * * * * * * * * * *
Overtime pay * * * * * * * * * * *
* * * * * * * * * * *
Payroll Taxes & Benefits * * * * * * * * * * *
------------------------
Vacation & leave pay * * * * * * * * * * *
Bonuses * * * * * * * * * * *
Incentive compensation * * * * * * * * * * *
FICA Tax * * * * * * * * * * *
SUI * * * * * * * * * * *
FUI * * * * * * * * * * *
Other payroll taxes * * * * * * * * * * *
Labor allocation * * * * * * * * * * *
401k Match * * * * * * * * * * *
Life & Disability ins. * * * * * * * * * * *
Employee Health ins. * * * * * * * * * * *
* * * * * * * * * * *
Benefits % * * * * * * * * * * *
Total Salaries & Wages * * * * * * * * * * *
* * * * * * * * * * *
MD/OD Compensation * * * * * * * * * * *
* * * * * * * * * * *
* * * * * * * * * * *
Pharmaceuticals and supplies: * * * * * * * * * * *
Medical Supplies * * * * * * * * * * *
COS - Glasses * * * * * * * * * * *
COS - Contacts * * * * * * * * * * *
COS - adjustments * * * * * * * * * * *
Laboratory fees * * * * * * * * * * *
Discounts & allowances * * * * * * * * * * *
Optical - Other * * * * * * * * * * *
Total Pharmac. & Supplies * * * * * * * * * * *
</TABLE>
* Confidential portions omitted and filed separately with the commission.
5
<PAGE>
<TABLE>
<CAPTION>
Hunkeler Eye Centers, P.C.
- ------------------------------------------------------------------------------------------------------------
1999 MSA Budget
Description Jan Feb Mar Apr May Jun Jul Aug Sep
- ---------------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-Ophthalmic Business * * * * * * * * *
G&A expenses: * * * * * * * * *
* * * * * * * * *
Office & Administrative: * * * * * * * * *
Office Supplies * * * * * * * * *
Office supplies * * * * * * * * *
Software/computer expense * * * * * * * * *
Food service * * * * * * * * *
Bank charges * * * * * * * * *
Credit card fees * * * * * * * * *
* * * * * * * * *
Postage & freight * * * * * * * * *
Employee & patient programs * * * * * * * * *
Continuing education * * * * * * * * *
Dues and subscriptions * * * * * * * * *
Telephone * * * * * * * * *
Utilities * * * * * * * * *
Printing * * * * * * * * *
Misc. office expense * * * * * * * * *
Total Office & Admin. Expenses * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Marketing: * * * * * * * * *
Advertising * * * * * * * * *
Marketing - Other * * * * * * * * *
Total Marketing * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Professional and Service Fees: * * * * * * * * *
Legal * * * * * * * * *
Accounting * * * * * * * * *
Other prof. consulting * * * * * * * * *
Collection fees * * * * * * * * *
Answering service * * * * * * * * *
Linens & uniforms * * * * * * * * *
Other services * * * * * * * * *
Temporary services * * * * * * * * *
Total Professional Fees * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Rental Expense: * * * * * * * * *
Building rent * * * * * * * * *
Other office rent & parking * * * * * * * * *
Equipment leases * * * * * * * * *
Optical equipment rent * * * * * * * * *
Total Rent Expense * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Repairs & Maintenance: * * * * * * * * *
Building maintenance * * * * * * * * *
Repairs - equipment * * * * * * * * *
Non-capitalized tools * * * * * * * * *
Total Repairs & Maint. * * * * * * * * *
</TABLE>
<TABLE>
<CAPTION>
Hunkeler Eye Centers, P.C.
- ------------------------------------------------------------------------------------------------------------
1999 MSA Budget
Description Oct Nov Dec Total 1998 %
- ---------------------------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
Non-Ophthalmic Business * * * * * * * *
G&A expenses: * * * * * * * *
* * * * * * * *
Office & Administrative: * * * * * * * *
Office Supplies * * * * * * * *
Office supplies * * * * * * * *
Software/computer expense * * * * * * * *
Food service * * * * * * * *
Bank charges * * * * * * * *
Credit card fees * * * * * * * *
* * * * * * * *
Postage & freight * * * * * * * *
Employee & patient programs * * * * * * * *
Continuing education * * * * * * * *
Dues and subscriptions * * * * * * * *
Telephone * * * * * * * *
Utilities * * * * * * * *
Printing * * * * * * * *
Misc. office expense * * * * * * * *
Total Office & Admin. Expenses * * * * * * * *
* * * * * * * *
Marketing: * * * * * * * *
Advertising * * * * * * * *
Marketing - Other * * * * * * * *
Total Marketing * * * * * * * *
* * * * * * * *
* * * * * * * *
Professional and Service Fees: * * * * * * * *
Legal * * * * * * * *
Accounting * * * * * * * *
Other prof. consulting * * * * * * * *
Collection fees * * * * * * * *
Answering service * * * * * * * *
Linens & uniforms * * * * * * * *
Other services * * * * * * * *
Temporary services * * * * * * * *
Total Professional Fees * * * * * * * *
* * * * * * * *
* * * * * * * *
Rental Expense: * * * * * * * *
Building rent * * * * * * * *
Other office rent & parking * * * * * * * *
Equipment leases * * * * * * * *
Optical equipment rent * * * * * * * *
Total Rent Expense * * * * * * * *
* * * * * * * *
* * * * * * * *
Repairs & Maintenance: * * * * * * * *
Building maintenance * * * * * * * *
Repairs - equipment * * * * * * * *
Non-capitalized tools * * * * * * * *
Total Repairs & Maint. * * * * * * * *
</TABLE>
* Confidential portions omitted and filed separately with the commission.
6
<PAGE>
<TABLE>
<CAPTION>
Hunkeler Eye Centers, P.C.
- ------------------------------------------------------------------------------------------------------------
1999 MSA Budget
Description Jan Feb Mar Apr May Jun Jul Aug Sep
- ---------------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-Ophthalmic Business * * * * * * * * *
* * * * * * * * *
Taxes and Insurance: * * * * * * * * *
Malpractice * * * * * * * * *
Liability & casualty * * * * * * * * *
Workers' compensation ins. * * * * * * * * *
D&O * * * * * * * * *
Key Man Life * * * * * * * * *
Other insurance * * * * * * * * *
Property tax * * * * * * * * *
Sales & Use tax * * * * * * * * *
Property tax * * * * * * * * *
Other taxes * * * * * * * * *
Total Taxes & Ins. * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Other Expenses: * * * * * * * * *
Travel & entertainment * * * * * * * * *
Recruitment & relocation * * * * * * * * *
Auto & Van * * * * * * * * *
Contracted patient transport. * * * * * * * * *
Donations and gifts * * * * * * * * *
Allocated IT/Computing costs * * * * * * * * *
Other * * * * * * * * *
Total Other Expense * * * * * * * * *
* * * * * * * * *
Total G&A expenses * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Depreciation & Amortization: * * * * * * * * *
Building depreciation * * * * * * * * *
Equipment depreciation * * * * * * * * *
Goodwill amortization * * * * * * * * *
Other intangible amortization * * * * * * * * *
Amortization of deferred charges * * * * * * * * *
* * * * * * * * *
Total Depr. and Amortization * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Interest (Income) and expense: * * * * * * * * *
Depository Interest * * * * * * * * *
Investment Income * * * * * * * * *
Bank Line Interest Expense * * * * * * * * *
Cap. Lease Interest Expense * * * * * * * * *
Other Interest Expense * * * * * * * * *
* * * * * * * * *
Total Interest (Income)/expense * * * * * * * * *
* * * * * * * * *
Non-Ophthalmic Business Budgeted * * * * * * * * *
* * * * * * * * *
Office Expense * * * * * * * * *
</TABLE>
<TABLE>
<CAPTION>
Hunkeler Eye Centers, P.C.
- ------------------------------------------------------------------------------------------------------------
1999 MSA Budget
Description Oct Nov Dec Total 1998 %
- ---------------------------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
Non-Ophthalmic Business * * * * * * * *
* * * * * * * *
Taxes and Insurance: * * * * * * * *
Malpractice * * * * * * * *
Liability & casualty * * * * * * * *
Workers' compensation ins. * * * * * * * *
D&O * * * * * * * *
Key Man Life * * * * * * * *
Other insurance * * * * * * * *
Property tax * * * * * * * *
Sales & Use tax * * * * * * * *
Property tax * * * * * * * *
Other taxes * * * * * * * *
Total Taxes & Ins. * * * * * * * *
* * * * * * * *
* * * * * * * *
Other Expenses: * * * * * * * *
Travel & entertainment * * * * * * * *
Recruitment & relocation * * * * * * * *
Auto & Van * * * * * * * *
Contracted patient transport. * * * * * * * *
Donations and gifts * * * * * * * *
Allocated IT/Computing costs * * * * * * * *
Other * * * * * * * *
Total Other Expense * * * * * * * *
* * * * * * * *
Total G&A expenses * * * * * * * *
* * * * * * * *
* * * * * * * *
Depreciation & Amortization: * * * * * * * *
Building depreciation * * * * * * * *
Equipment depreciation * * * * * * * *
Goodwill amortization * * * * * * * *
Other intangible amortization * * * * * * * *
Amortization of deferred charges * * * * * * * *
* * * * * * * *
Total Depr. and Amortization * * * * * * * *
* * * * * * * *
* * * * * * * *
Interest (Income) and expense: * * * * * * * *
Depository Interest * * * * * * * *
Investment Income * * * * * * * *
Bank Line Interest Expense * * * * * * * *
Cap. Lease Interest Expense * * * * * * * *
Other Interest Expense * * * * * * * *
* * * * * * * *
Total Interest (Income)/expense * * * * * * * *
* * * * * * * *
Non-Ophthalmic Business Budgeted * * * * * * * *
* * * * * * * *
Office Expense * * * * * * * *
</TABLE>
* Confidential portions omitted and filed separately with the commission.
7
<PAGE>
<TABLE>
<CAPTION>
Hunkeler Eye Centers, P.C.
- ------------------------------------------------------------------------------------------------------------
1999 MSA Budget
Description Jan Feb Mar Apr May Jun Jul Aug Sep
- ---------------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-Ophthalmic Business * * * * * * * * *
* * * * * * * * *
Non-Ophthalmic Business Budgeted * * * * * * * * *
Practice Expense * * * * * * * * *
* * * * * * * * *
Non-Ophthalmic Business Monthly Fee * * * * * * * * *
</TABLE>
<TABLE>
<CAPTION>
Hunkeler Eye Centers, P.C.
- ------------------------------------------------------------------------------------------------------------
1999 MSA Budget
Description Oct Nov Dec Total 1998 %
- ---------------------------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
Non-Ophthalmic Business * * * * * * * *
* * * * * * * *
Non-Ophthalmic Business Budgeted * * * * * * * *
Practice Expense * * * * * * * *
* * * * * * * *
Non-Ophthalmic Business Monthly Fee * * * * * * * *
</TABLE>
* Confidential portions omitted and filed separately with the commission.
8
<PAGE>
EXHIBIT 1.34(g)
EQUIPMENT
. Personal Property Leases (as defined in the Original Transaction Agreements).
<PAGE>
EXHIBIT 1.48
PREEXISTING OBLIGATION PAYMENTS
. Any liabilities and obligations relating to severance and deferred
compensation obligations set forth in any employment agreement with any
Optometrist or Physician-Employee.
. any Excluded Liabilities (as defined in the Original Transaction Agreements).
<PAGE>
EXHIBIT 3.1
MEMBERS OF POLICY BOARD
Regional Practice Representatives
---------------------------------
John Hunkeler, M.D.
Stephen B. Wiles, M.D.
Business Manager Representatives
--------------------------------
E. Michele Vickery
Daniel O. Wagster
<PAGE>
EXHIBIT 4.8
POWER OF ATTORNEY
See Attached
<PAGE>
EXHIBIT 5.1
FORM OF EMPLOYMENT AGREEMENT (SHAREHOLDERS)
See Attached
<PAGE>
EXHIBIT 5.1A
LIST OF PHYSICIAN-SHAREHOLDERS
The following are the Physician-Shareholders as of the Effective Date of
this Management Services Agreement:
Timothy B. Cavanaugh, M.D.
Clifton D. Cokingtin, M.D.
Daniel S. Durrie, M.D.
William A. Godfrey, M.D.
John D. Hunkeler, M.D.
Jemshed A. Khan, M.D.
Scott J. McKnight, M.D.
Andrew L. Moyes, M.D.
Robert A. Rymer, M.D.
Steven M. Silverstein, M.D.
Michael C. Stiles, M.D.
Robert K. Weir, M.D.
Stephen B. Wiles, M.D.
<PAGE>
EXHIBIT 5.1B
FORM OF BUY-SELL AGREEMENT
The Buy-Sell Agreement referenced in Section 5.1(b) will address the following
concepts to the satisfaction of Business Manager and its counsel:
Applicable state statutes generally require that the shares of a
professional corporation held by a physician-shareholder be
transferred to a person qualified to render professional medical
services if (i) such shareholder dies, (ii) such shareholder becomes a
disqualified person, or (iii) the shares of a professional corporation
are transferred by operation of law or court decree to a disqualified
person. Illinois law requires that the articles of incorporation, by-
laws or a separate agreement provide for the purchase or redemption of
the shares of any shareholder upon death or disqualification.
Accordingly, the Buy-Sell Agreement must contain a provision providing
for (i) redemption, (ii) cross-purchase, or (iii) a combination
thereof, in the case of a shareholder's death or disqualification. In
addition, the transfer of shares to disqualified persons must be
specifically prohibited.
A provision must also be included which governs succession in the
case of death or disqualification of the last remaining shareholder of
the professional corporation. Business Manager and Practice will work
together to structure an arrangement mutually acceptable to both
parties.
Specifically, the Buy-Sell Agreement will incorporate the provisions set
forth in the form of agreement attached hereto as Schedule 1.
<PAGE>
SCHEDULE 1
TO
EXHIBIT 5.1B
Definitions.
- -----------
"Act" means the [applicable state Medical Corporation Act or Professional
Corporation Act].
"NovaMed" means NovaMed EyeCare Management, LLC, a Delaware limited
liability company.
"NovaMed Agreement" means that certain ___________ Agreement dated as of
_________ __, 199_, by and among the Corporation, the Members and NovaMed.
["Partnership" means the limited partnership formed pursuant to that
certain Limited Partnership Agreement by and between __________ and __________,
dated ______________.] [If applicable]
"Selling Member" means a Member affected by a Triggering Event other than a
Final Triggering Event.
"Shares" means the shares of common stock of the Corporation, and any
shares of any other class of stock, presently authorized and issued or which the
Corporation may hereafter authorize and issue, including subscription and other
purchase rights relative to any such shares of stock and all securities and
obligations convertible into such shares of stock, in each case whether now or
hereafter issued.
"Transfer" means any sale, gift, bequest, distribution, disposition,
assignment, pledge or any other voluntary or involuntary transfer, disposition
or encumbrance, including any disposition by operation of law.
"Triggering Event" means any of the following events:
(a) the death of a Member;
(b) the disability of a Member (which is defined as a Member's
inability to engage in the practice of medicine for ninety (90) days
within any period of one hundred eighty (180) consecutive days);
(c) the disqualification of a Member from the practice of
medicine;
(d) the termination of a Member's employment or active
involvement with the Corporation for any reason; or
<PAGE>
(e) the voluntary or involuntary transfer, transfer by operation
of law (including without limitation a transfer in connection with a
divorce or bankruptcy), or any other transfer or attempted transfer of
Shares or any right or interest therein in violation of this
Agreement.
Restriction on Transfer.
-----------------------
Each Member agrees not to make any Transfer of Shares that he or she now
owns or may hereafter own, outright or beneficially, except in accordance with
and as expressly permitted in this Agreement. Except as expressly permitted in
this Agreement, no Transfer of Shares may be made by any Member without the
prior written consent of the remaining Members, and no such Transfer shall be
effective unless and until the Transferee agrees in writing to be subject to and
bound by all of the terms, conditions and restrictions of this Agreement and the
NovaMed Agreement by signing a counterpart hereof and thereof. Any Transfer of
Shares not in strict compliance with this Agreement shall be null and void ab
--
initio.
- ------
Additional Members.
------------------
The parties hereto acknowledge and agree that from time to time other
physicians may acquire Shares in the Corporation. Notwithstanding the
foregoing, the Corporation shall not issue any Shares to another person unless
such person agrees in writing to be subject to and bound by all of the terms,
conditions and restrictions of this Agreement and the NovaMed Agreement by
signing a counterpart hereof and thereof.
Licensing Requirement.
---------------------
Under no circumstances shall any Transfer or issuance of Shares of the
Corporation to an additional member be valid unless the proposed new or
additional member is a licensed physician in good standing under the laws of the
State of Missouri, except as otherwise permitted under the Act.
Final Triggering Event.
----------------------
(a) Application. Upon the occurrence of a Triggering Event affecting all
-----------
Members simultaneously or affecting the last remaining Member(s) (each, a "Final
Triggering Event"), the following provisions shall apply and shall supersede any
other provision contained in this Agreement relating to cross-purchases or
redemptions of a Selling Member's Shares.
(b) Repurchase of Shares. Promptly upon the occurrence of a Final
--------------------
Triggering Event, but in any event not later than within three (3) days, the
Member(s) to whom such Final Triggering Event relates and any Selling Member
with respect to whom this Section __ supersedes the application of any other
provision of this Agreement pursuant to subsection (a) above, and/or such
Members' estates, transferees or other representatives (all such Members or such
Members' estates, transferees or other representatives, as the case may be,
hereinafter referred to as "Terminating Members") shall notify NovaMed's Medical
Director of the occurrence of such Final Triggering Event, and NovaMed's Medical
Director shall have the right to purchase Shares in
<PAGE>
accordance with subsection (c) below or to designate a New Member of accordance
with the provisions of the NovaMed Agreement. Upon such designation, the
Terminating Members shall (i) sell to the Corporation, and the Corporation shall
purchase from each such Terminating Member, ninety-nine percent (99%) of all
Shares then held by each such Terminating Member, and (ii) sell to NovaMed's
Medical Director or the New Member (as defined in the NovaMed Agreement), as the
case may be, and NovaMed's Medical Director or such New Member, as the case may
be, shall purchase from each such Terminating Member, the remainder of the
Shares then held by each such Terminating Member, in accordance with the
provisions of this Section __.
(c) Purchase Price. The purchase price to be paid for each Terminating
--------------
Member's Shares (the "Purchase Price") shall be as follows:
(i) The Purchase Price for the Shares to be purchased by the
Corporation shall consist of each Terminating Member's pro rata share
of the [Partnership] interests held by the Corporation.
(ii) The Purchase Price for the Shares to be purchased by
NovaMed's Medical Director or the New Member, as the case may be,
shall be an amount equal to ______________________________________.
(d) Closing. The closing of any purchase and sale pursuant to this
-------
Section __ (the "Closing") shall take place within [thirty (30)] days after the
Final Triggering Event at the principal office of the Corporation or at such
other place as the parties to such purchase and sale may mutually agree. At the
Closing, each Terminating Member shall deliver certificates for the Shares to be
purchased, duly endorsed in blank, and such Shares shall be conveyed (i) to the
Corporation effective as of the close of business of the day of the Final
Triggering Event, and (ii) to NovaMed's Medical Director or the New Member, as
the case may be, effective as of the opening of business on the day after the
Final Triggering Event, in each case free and clear of all claims, liens,
encumbrances and other rights of third parties, and the Corporation and
NovaMed's Medical Director or the New Member, as the case may be, shall deliver
the Purchase Price in the form of instruments of transfer, in form and substance
satisfactory to the Terminating Members, assigning and transferring to the
Terminating Members, effective as of the date of the Final Triggering Event,
each Terminating Member's share of the [Partnership] interests and all of the
Corporation's right, title and interest therein, free and clear of all claims,
liens, encumbrances and other rights of third parties, or in immediately
available funds, as applicable.
(e) Taxable Year. The Corporation's taxable year shall be closed as of
------------
the close of business of the day of the Final Triggering Event.
(f) Violation of Law. In the event that the consummation of the
----------------
purchase and sale of Shares as contemplated under this Section __ violates
applicable law, the Terminating Members and NovaMed's Medical Director shall in
good faith negotiate and consummate an alternative transaction structure,
including without limitation, the purchase of the Corporation's assets and
assumption of the Corporation's liabilities by NovaMed's Medical Director or his
designee, which will allow (i) the continuation of the Corporation's business by
the Corporation or a successor entity, (ii) the continued performance by the
Corporation or a successor entity and NovaMed of
<PAGE>
their respective obligations under that certain Management Services Agreement by
and between NovaMed and the Corporation, dated as of _______ __, 199_, and (iii)
the transfer of the [Partnership] interests held by the Corporation to the
Terminating Members.
(g) NovaMed's Failure to Designate New Member. In the event that
-----------------------------------------
NovaMed's Medical Director fails to elect to purchase Shares or to designate a
New Member as required pursuant to the NovaMed Agreement, the provisions of this
Section __ shall not be binding on the Corporation or the Terminating Members.
Legend on Certificates.
----------------------
The certificates representing all Shares now or hereafter owned by the
Members shall be subject to the terms of this Agreement, and shall bear the
following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
MEMBERS' AGREEMENT, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THE CORPORATION. THE SHARES MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED, OR OTHERWISE
DISPOSED OF EXCEPT IN STRICT ACCORDANCE WITH THE TERMS OF THE
MEMBERS' AGREEMENT. BY ACCEPTING THE SHARES OF STOCK EVIDENCED BY
THIS CERTIFICATE, THE HOLDER AGREES TO BE BOUND BY THE MEMBERS'
AGREEMENT.
Termination.
-----------
This Agreement and all restrictions on the transfer of Shares created
hereby shall terminate upon the bankruptcy or receivership of the Corporation or
the execution by all parties hereto of a written instrument terminating this
Agreement. Termination of this Agreement for any reason shall not affect any
right or remedy existing hereunder prior to the effective date of termination.
Binding Effect. This Agreement is binding upon, and shall inure to the
--------------
benefit of, the Corporation, its successors, and assigns and to the Members and
their respective heirs, personal representatives, successors, and assigns.
<PAGE>
EXHIBIT 5.2A-1
FORM OF EMPLOYMENT AGREEMENT (NON-SHAREHOLDERS)
See Attached
<PAGE>
EXHIBIT 5.2A-2
FORM OF EMPLOYMENT AGREEMENT
EMPLOYED OPTOMETRISTS
<PAGE>
EXHIBIT 5.2B
FORM OF INDEPENDENT CONTRACTOR AGREEMENT
See Attached
<PAGE>
Exhibit 10.14
AMENDED AND RESTATED
MANAGEMENT SERVICES AGREEMENT
BY AND BETWEEN
NOVAMED EYECARE MANAGEMENT, LLC,
a Delaware limited liability company
AND
ILLINOIS EYE SPECIALISTS, LTD.
an Illinois professional corporation
AMENDED AND RESTATED
EFFECTIVE AS OF NOVEMBER 17, 1997
<PAGE>
TABLE OF CONTENTS
Page No.
--------
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE I DEFINITIONS............................................... 2
1.1 Adjustments................................................... 2
1.2 Affiliate..................................................... 2
1.3 Ancillary Revenue............................................. 2
1.4 Budget........................................................ 2
1.5 Budgeted Adjusted Gross Revenue............................... 3
1.6 Business Manager Consent...................................... 3
1.7 Business Manager Expense...................................... 3
1.8 Capitation/Case Rate Revenues................................. 3
1.9 Confidential Information...................................... 4
1.10 Contribution and Exchange Agreement........................... 4
1.11 Depository Account............................................ 4
1.12 Designated Allied Health Professionals........................ 5
1.13 Dispensary Business........................................... 5
1.14 Dispensary Business Budgeted Office Expense................... 5
1.15 Dispensary Business Budgeted Practice Expense................. 5
1.16 Dispensary Business Budgeted Revenue......................... 5
1.17 Dispensary Business Management Fee............................ 5
1.18 Dispensary Business Monthly Fee............................... 5
1.19 Dispensary Business Monthly Office Expense.................... 5
1.20 Dispensary Business Monthly Practice Expense.................. 5
1.21 Dispensary Business Office Expense............................ 5
1.22 Dispensary Business Revenue................................... 5
1.23 GAAP.......................................................... 5
1.24 Managed Care Contract......................................... 6
1.25 Management Fee................................................ 6
1.26 Management Services........................................... 6
1.27 Management Services Agreement................................. 6
1.28 Intentionally deleted......................................... 6
1.29 Medical Advisory Board........................................ 6
1.30 Medical Services.............................................. 6
1.31 Monthly Office Expense........................................ 6
1.32 Monthly Practice Expense...................................... 6
1.33 Office. 6
1.34 Office Expense................................................ 6
1.35 Optometrist................................................... 8
1.36 Physician..................................................... 8
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
1.37 Physician Discretionary Expenses.............................. 9
1.38 Physician-Employee............................................ 9
1.39 Physician-Shareholder......................................... 9
1.40 Policy Board.................................................. 9
1.41 Practice...................................................... 9
1.42 Practice Consent.............................................. 9
1.43 Practice Expense.............................................. 9
1.44 Practice Territory............................................ 9
1.45 Preexisting Obligation Payments............................... 10
1.46 Principal Services............................................ 10
1.47 Principal Services Budgeted Office Expense.................... 10
1.48 Principal Services Budgeted Practice Expense.................. 10
1.49 Principal Services Budgeted Revenue........................... 10
1.50 Principal Services Management Fee............................. 10
1.51 Principal Services Monthly Fee................................ 10
1.52 Principal Services Monthly Office Expense..................... 10
1.53 Principal Services Monthly Practice Expense................... 10
1.54 Principal Services Office Expense............................. 10
1.55 Principal Services Revenue.................................... 10
1.56 Professional Services Revenues................................ 10
1.57 Regional Practices............................................ 11
1.58 Representatives............................................... 11
1.59 Stark Act..................................................... 11
1.60 Subcontractor Costs........................................... 11
1.61 Term. 11
ARTICLE II APPOINTMENT AND AUTHORITY OF BUSINESS MANAGER............ 11
2.1 Appointment................................................... 11
2.2 Authority..................................................... 11
2.3 Patient Referrals............................................. 12
2.4 Internal Practice Matters..................................... 12
2.5 Practice of Medicine.......................................... 12
ARTICLE III RESPONSIBILITIES OF THE POLICY BOARD.................... 12
3.1 Formation and Operation of the Policy Board................... 12
3.2 Duties and Responsibilities of the Policy Board............... 14
3.3 Medical Decisions............................................. 15
ARTICLE IV COVENANTS AND RESPONSIBILITIES OF BUSINESS MANAGER....... 15
4.1 Office and Equipment.......................................... 15
4.2 Medical Supplies.............................................. 16
4.3 Support Services.............................................. 16
4.4 Quality Assurance, Risk Management, and Utilization Review.... 16
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
4.5 Licenses and Permits.......................................... 17
4.6 Personnel..................................................... 17
4.7 Contract Negotiations......................................... 17
4.8 Billing and Collection........................................ 17
4.9 Priority of Payments.......................................... 20
4.10 Fiscal Matters................................................ 20
4.11 Reports and Records........................................... 23
4.12 Recruitment of Physicians and Optometrists.................... 23
4.13 Confidential and Proprietary Information...................... 23
4.14 Insurance..................................................... 24
4.15 No Warranty................................................... 25
ARTICLE V COVENANTS AND RESPONSIBILITY OF PRACTICE.................. 25
5.1 Organization and Operation.................................... 25
5.2 Practice Personnel............................................ 26
5.3 Professional Standards........................................ 27
5.4 Medical Services.............................................. 28
5.5 Peer Review/Quality Assurance................................. 28
5.6 Confidential and Proprietary Information...................... 28
5.7 Noncompetition................................................ 29
5.8 Name, Trademark............................................... 30
5.9 Medical Advisory Board........................................ 31
5.10 Indemnification of Business Manager........................... 31
ARTICLE VI FINANCIAL ARRANGEMENT.................................... 31
6.1 Definitions................................................... 31
6.2 Management Fee................................................ 34
6.3 Reasonable Value.............................................. 34
6.4 Payment of Management Fee..................................... 35
6.5 Accounts Receivable........................................... 35
6.6 Disputes Regarding Fees....................................... 35
ARTICLE VII TERM AND TERMINATION.................................... 36
7.1 Initial and Renewal Term...................................... 36
7.2 Termination................................................... 36
7.3 Effects of Termination........................................ 38
7.4 Repurchase Obligation......................................... 38
7.5 Repurchase Option............................................. 40
7.6 Closing of Repurchase......................................... 41
7.7 Rights and Remedies........................................... 41
7.8 Interpretation................................................ 42
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE VIII MISCELLANEOUS.......................................... 42
8.1 Administrative Services Only.................................. 42
8.2 Status of Contractor.......................................... 43
8.3 Notices....................................................... 43
8.4 Governing Law................................................. 44
8.5 Assignment.................................................... 44
8.6 Arbitration................................................... 45
8.7 Waiver of Breach.............................................. 45
8.8 Enforcement................................................... 45
8.9 Gender and Number............................................. 45
8.10 Additional Assurances......................................... 45
8.11 Consents, Approvals, and Exercise of Discretion............... 46
8.12 Force Majeure................................................. 46
8.13 Severability.................................................. 46
8.14 Divisions and Headings........................................ 46
8.15 Amendments and Management Services Agreement Execution........ 46
8.16 Entire Management Services Agreement.......................... 46
</TABLE>
iv
<PAGE>
AMENDED AND RESTATED
MANAGEMENT SERVICES AGREEMENT
THIS AMENDED AND RESTATED MANAGEMENT SERVICES AGREEMENT is made and entered
into effective as of November 17, 1997 (the "Effective Date"), by and between
NovaMed Eyecare Management, LLC, a Delaware limited liability company ("Business
Manager"), and Illinois Eye Specialists, Ltd., an Illinois professional
corporation ("Practice"), and amends, restates and replaces in its entirety that
certain Management Services Agreement previously made and entered into effective
as of December 1, 1996 (the "Original Date"), by and between Business Manager
and Practice.
RECITALS
This Management Services Agreement is made with reference to the following
facts:
A. Practice is a validly existing Illinois professional corporation,
formed for and engaged in the conduct of a medical practice and the provision of
medical services to the general public in and around the St. Louis metropolitan
area through individual physicians who are licensed to practice medicine in the
State of Illinois and who are employed or otherwise retained by Practice.
B. Practice is also engaged in the business of selling prescription and
non-prescription eyewear, contact lenses and other related optical products (the
"Dispensary Business").
C. Business Manager is a validly existing Delaware limited liability
company which is in the business of providing physician practice management
services to medical practices.
D. Business Manager and Practice previously have entered into a Management
Services Agreement dated as of December 1, 1996 (the "Original Management
Services Agreement").
E. Practice desires to focus its energies, expertise and time on the
practice of medicine and on the delivery of medical services to patients, and
desires to delegate the business functions of its medical practice to persons
with business expertise.
F. Practice desires to engage Business Manager to provide all management,
administrative and business services as are necessary or appropriate for the
day-to-day administration of the nonmedical aspects of Practice's medical
practice and Dispensary Business, including the provision of all non-medical
assets necessary or appropriate for the operator of Practice's medical practice
and Dispensary Business, and Business Manager desires to provide such services
upon the terms and conditions hereinafter set forth.
G. Practice and Business Manager have determined a fair market value for
the services to be rendered by Business Manager and, based on this fair market
value, have developed a formula for compensating Business Manager that will
allow the parties to establish a relationship
<PAGE>
permitting each party to devote its skills and expertise to the appropriate
responsibilities and functions.
H. Business Manager is willing to commit significant resources to Practice
based upon the representation and warranty of Practice that the current
shareholders of Practice will continue to practice medicine for Practice in the
Practice Territory (as hereinafter defined) during the term of this Management
Services Agreement pursuant to employment agreements between Practice and each
Physician-Shareholder (the "Employment Agreements").
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
When used in this Management Services Agreement, the following terms shall
have the meanings set forth below.
1.1 Adjustments. The term "Adjustments" shall mean any adjustments on
-----------
an accrual basis in accordance with GAAP for uncollectible accounts, Medicare,
Medicaid and other payor contractual adjustments, discounts, worker's
compensation adjustments, professional courtesies and other reductions in
collectible revenue.
1.2 Affiliate. The term "Affiliate" shall mean any person, firm or
---------
entity which directly or indirectly, through one or more intermediaries,
controls or is controlled by, or is under common control with, any other person
(including members of such person's family), firm or entity.
1.3 Ancillary Revenue. The term "Ancillary Revenue" shall mean all
-----------------
other revenue of Practice, Physicians and Optometrists actually recorded each
month (net of Adjustments) which is not Professional Services Revenue or
Dispensary Business Revenue and shall include, without limitation, any revenues
of Practice or its Physicians and Optometrists which are derived from
professionally related activities such as expert witness fees, and any
royalties, honoraria or the like from authored documents or speeches.
1.4 Budget. The term "Budget" shall mean an operating budget and
------
capital expenditure budget for each fiscal year for each of the Dispensary
Business and the Principal Services, as prepared by Business Manager and adopted
by Practice in accordance with Section 4.10 hereof. The initial Budget shall be
attached hereto and incorporated herein as Exhibit 1.4. Each succeeding Budget
-----------
subsequently adopted pursuant to Section 4.10 hereof shall also be incorporated
herein.
2
<PAGE>
1.5 Budgeted Adjusted Gross Revenue. The term "Budgeted Adjusted Gross
-------------------------------
Revenue" shall have the meaning set forth in Section 6.1 hereof.
1.6 Business Manager Consent. The term "Business Manager Consent" shall
------------------------
mean the consent granted by any of Business Manager's representatives to the
Policy Board. When any provision of this Management Services Agreement requires
Business Manager Consent, such consent shall not be unreasonably withheld or
delayed and shall be binding on Business Manager.
1.7 Business Manager Expense. The term "Business Manager Expense" shall
------------------------
mean any expense or cost incurred by Business Manager which does not relate
directly to the provision of services to Practice. Such expenses or costs shall
include, without limitation:
(a) all salaries, benefits and other direct costs (including payroll
and other withholding taxes) of executive officers and management personnel of
Business Manager or employees of Business Manager who devote substantially all
of their time and effort to the operations of Business Manager in the aggregate
rather than the operations of any particular practice affiliated with Business
Manager;
(b) the expense of using, leasing, maintaining or repairing the
offices of Business Manager;
(c) the cost of capital to finance the general business obligations
of Business Manager, and any costs associated with raising such capital; and
(d) the costs of any consultants or advisors who provide services for
Business Manager in connection with its business operations, such as accounting,
financial and legal services, other than those services which constitute Office
Expense pursuant to Section 1.34 hereof.
1.8 Capitation/Case Rate Revenues. The term "Capitation/Case Rate
-----------------------------
Revenues" shall mean all revenues from managed care organizations, third party
payors or employers in which payments are based on a per member, case rate or
other similar basis (i.e., all payments which are not based on a fee-for-service
payment methodology or discounted fee-for-service reimbursement methodology) for
the medical needs of a subscribing patient. Capitation/Case Rate revenues shall
include any associated plan payments received such as patient co-payments,
incentive bonuses or incentive fund penalties. All Capitation/Case Rate
Revenues shall be allocated in good faith on an actuarial basis as follows:
(a) Dispensary Business Capitation. The portion, if any, of payments
------------------------------
designated for Dispensary Business goods sold by Practice; Dispensary Business
Capitation shall be Dispensary Business Revenue;
3
<PAGE>
(b) Professional Services Capitation. The portion of payments
--------------------------------
designated for physician services currently performed by Practice; Professional
Services Capitation shall be Professional Services Revenues; and
(c) Subcontractor Capitation Revenues. The portion of payments
---------------------------------
designated for physicians, optometrists or other medical or optometric services
that will be Subcontractor Costs (e.g., reinsurance, hospitalization, surgical
facility fees, etc.), including incentive bonuses or penalties, and an estimate
for incurred but not reported claims; Subcontractor Capitation Revenues shall
not be Professional Services Revenues.
Subject to the approval of the Policy Board, Business Manager shall develop and
implement an appropriate allocation methodology for each Capitation/Case Rate
Revenues contract.
1.9 Confidential Information. The term "Confidential Information"
------------------------
shall mean any and all financial, technical, commercial or other information of
Business Manager or Practice, as appropriate (whether written or oral),
including, without limitation, all information, notes, studies, patient lists
and records, reports, analyses, financial statements, compilations, studies,
forms, business or management methods, marketing data, fee schedules, peer
review information, credentialing information, quality assurance and utilization
review information, interpretations, projections, forecasts or trade secrets of
Business Manager or of Practice, as applicable, whether or not such Confidential
Information is disclosed or otherwise made available to one party by the other
party pursuant to this Management Services Agreement. Confidential Information
shall also include the terms and provisions of this Management Services
Agreement and any transactions consummated or documents executed by the parties
pursuant to this Management Services Agreement. Confidential Information does
not include any information that (i) is or becomes generally available to and
known by the public (other than as a result of an unpermitted disclosure
directly or indirectly by the receiving party or its affiliates, advisors or
Representatives); (ii) is or becomes available to the receiving party on a
nonconfidential basis from a source other than the furnishing party or its
affiliates, advisors or Representatives, provided that such source is not and
was not bound by a confidentiality agreement with or other obligation of secrecy
to the furnishing party of which the receiving party has knowledge at the time
of such disclosure; or (iii) has already been developed, or is hereafter
independently acquired or developed, by the receiving party without violating
any confidentiality agreement with or other obligation of secrecy to the
furnishing party.
1.10 Contribution and Exchange Agreement. The term "Contribution and
-----------------------------------
Exchange Agreement" shall mean that certain Asset Contribution and Exchange
Agreement dated November 27, 1996 by and among Business Manager, Practice, Eyes
of Illinois Surgery Center, S.C. and Physician-Shareholders.
1.11 Depository Account. The term "Depository Account" shall mean the
------------------
bank account referred to in Section 4.8 hereof.
4
<PAGE>
1.12 Designated Allied Health Professionals. The term "Designated Allied
--------------------------------------
Health Professionals" shall mean those medical professionals other than
Physicians and Optometrists whose services must be rendered "incident to" a
Physician's services in order to be billable under the Medicare program.
1.13 Dispensary Business. The term "Dispensary Business" shall have the
-------------------
meaning set forth in the Recitals hereto.
1.14 Dispensary Business Budgeted Office Expense. The term "Dispensary
-------------------------------------------
Business Budgeted Office Expense" shall have the meaning set forth in Section
6.1 hereof.
1.15 Dispensary Business Budgeted Practice Expense. The term "Dispensary
---------------------------------------------
Business Budgeted Practice Expense" shall have the meaning set forth in Section
6.1 hereof.
1.16 Dispensary Business Budgeted Revenue. The term "Dispensary Business
-------------------------------------
Budgeted Revenue" shall have the meaning set forth in Section 6.1 hereof.
1.17 Dispensary Business Management Fee. The term "Dispensary Business
----------------------------------
Management Fee" shall have the meaning set forth in Section 6.1 hereof.
1.18 Dispensary Business Monthly Fee. The term "Dispensary Business
-------------------------------
Monthly Fee" shall have the meaning set forth in Section 6.1 hereof.
1.19 Dispensary Business Monthly Office Expense. The term "Dispensary
------------------------------------------
Business Monthly Office Expense" shall have the meaning set forth in Section 6.1
hereof.
1.20 Dispensary Business Monthly Practice Expense. The term "Dispensary
--------------------------------------------
Business Monthly Practice Expense" shall have the meaning set forth in Section
6.1 hereof.
1.21 Dispensary Business Office Expense. The term "Dispensary Business
----------------------------------
Monthly Office Expense" shall have the meaning set forth in Section 6.1 hereof.
1.22 Dispensary Business Revenue. The term "Dispensary Business
---------------------------
Revenue" shall mean all revenues of the Dispensary Business of the Practice
recorded on an accrual basis under GAAP (net of Adjustments).
1.23 GAAP. The term "GAAP" shall mean generally accepted accounting
----
principles set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants,
statements and pronouncements of the Financial Accounting Standards Board, or
other statements, practices and procedures as may be approved by a significant
segment of the accounting profession, which are applicable to the circumstances
as of the date of the determination.
5
<PAGE>
1.24 Managed Care Contract. The term "Managed Care Contract" shall
---------------------
include any Capitation/Case Rate Revenues contract, or any contracts based on a
fee-for-service payment methodology or discounted fee-for-service reimbursement
methodology and other agreements with third party payors, alternative delivery
systems or other purchasers of group health care services.
1.25 Management Fee. The term "Management Fee" shall mean the amount
--------------
determined pursuant to Section 6.1.
1.26 Management Services. The term "Management Services" shall mean the
-------------------
business, administrative and management services to be provided for Practice
including, without limitation, the provision of equipment, supplies, support
services, nonphysician personnel, office space, management, administration,
financial recordkeeping and reporting, information systems and all other
business office services necessary for the nonmedical operations of Practice.
1.27 Management Services Agreement. The term "Management Services
-----------------------------
Agreement" shall mean this Management Services Agreement by and between Practice
and Business Manager and any amendments hereto.
1.28 Intentionally deleted.
----------------------
1.29 Medical Advisory Board. The term "Medical Advisory Board" shall have
----------------------
the meaning set forth in Section 5.9 hereof.
1.30 Medical Services. The term "Medical Services" shall mean the
----------------
practice of ophthalmology, optometry and other related eye care services as
provided by Practice through Physicians and Optometrists, as the case may be.
1.31 Monthly Office Expense. The term "Monthly Office Expense" shall
----------------------
have the meaning set forth in Section 6.1 hereof.
1.32 Monthly Practice Expense. The term "Monthly Practice Expense"
------------------------
shall have the meaning set forth in Section 6.1 hereof.
1.33 Office. The term "Office" shall mean any office space, clinic,
------
facility or satellite facilities that Business Manager owns, leases or otherwise
procures for the exclusive use of Practice.
1.34 Office Expense. The term "Office Expense" shall mean all expenses
--------------
incurred by Business Manager or Practice in the provision of services to
Practice. Except as specifically enumerated below, Office Expense shall not
include any state or federal income tax liability of Practice or Physician-
Shareholders, or any other expense that is a Practice Expense or a Business
Manager Expense. Without limitation, Office Expense shall include:
6
<PAGE>
(a) the salaries, benefits and other direct costs (including payroll
and other withholding taxes) of all employees of Business Manager who are either
located at, devote substantially all of their time and effort to, or for which
time is allocated specifically for a function to support, Practice;
(b) the salaries, benefits and other direct costs (including payroll
and other withholding taxes) of all Physician-Employees and Optometrists, but
excluding the salaries, benefits and other direct costs (including payroll and
other withholding taxes) of Physician-Shareholders; provided, however, that in
the event any Physician-Shareholder shall fail, for any reason, to work full-
time in the performance of his or her duties as described in such Physician-
Shareholder's Employment Agreement for a period exceeding two (2) consecutive
months, whether or not such failure (i) gives rise to termination rights
pursuant to such Employment Agreement or (ii) occurs prior to or after the
termination of the Initial Term (as such term is defined in Section 4.1 of such
Employment Agreement), then the expenses described in this Section 1.34(b) shall
thereafter be categorized as Practice Expense;
(c) except as otherwise provided in Section 5.4 hereof, the direct or
reasonably allocated costs of providing such locum tenens coverage as may be
----- ------
necessary pursuant to Section 5.4 hereof, which costs shall include, without
limitation, the salaries, benefits and other direct costs of any Physicians or
Optometrists retained by Practice for such purposes;
(d) the direct or reasonably allocated costs of any employee or
consultant that provides services at the direction of Business Manager with
Practice Consent for improved performance of Practice, such as management,
billings and collections, business office consultation, training, and accounting
and legal services;
(e) reasonable recruitment costs and out-of-pocket expenses of
Business Manager or Practice associated with the recruitment of additional
Physician-Employees and Optometrists of Practice;
(f) all reasonable and customary business insurance expenses of
Practice, Physicians, Optometrists, Designated Allied Health Professionals and
the Office, including, without limitation, general liability insurance and the
Physician-Shareholders' professional liability insurance;
(g) without duplication of expenses included pursuant to any other
subparagraph of this Section 1.34, the expense of using, leasing, maintaining,
repairing, purchasing or otherwise procuring the Office and related equipment
(including any leasehold improvements), including, without limitation, any
depreciation expense and any and all expenses relating to the equipment listed
on Exhibit 1.34(g) attached hereto and incorporated herein, but excluding any
---------------
Preexisting Obligation Payments;
7
<PAGE>
(h) without duplication of expenses included pursuant to any other
subparagraph of this Section 1.34, the cost of capital, whether as actual
interest on indebtedness incurred on behalf of Practice or as reasonable imputed
interest on capital advanced by Business Manager to finance or refinance
obligations of Practice, purchase medical or nonmedical equipment, renovate the
Office, or finance new ventures of Practice, but excluding any Preexisting
Obligation Payments;
(i) the Base Management Fee;
(j) the direct or reasonably allocated costs relating to sales or
marketing activities or materials, including, without limitation, brochures,
pamphlets, displays, direct mail, promotional materials, patient screening,
network directories, signs, video and audio tapes, equipment, media, development
costs and consulting services;
(k) the direct or reasonably allocated costs of obtaining,
maintaining and supporting Managed Care Contracts;
(l) the direct or reasonably allocated costs relating to any third
party service agreements for the general day-to-day operations of Office and
Practice, which services shall include, without limitation, maintenance, patient
transportation, janitorial, answering services, landscaping, snow removal and
uniform rental;
(m) subject to obtaining Practice Consent, the direct or reasonably
allocated travel expenses of Business Manager associated with attending
meetings, conferences or seminars primarily benefitting Practice;
(n) the cost of medical supplies (including, without limitation,
drugs, pharmaceuticals, products, substances or medical devices), office
supplies, inventory (including, without limitation, inventory for the Dispensary
Business) and utilities; and
(0) direct costs, not to exceed budgeted allowances, for professional
dues, subscriptions, continuing medical education expenses and travel costs for
continuing medical education or other business travel of Practice employees.
1.35 Optometrist. The term "Optometrist" shall mean each individually
-----------
licensed doctor of optometry who is employed or otherwise retained by or
associated with Practice, each of whom shall meet at all times the
qualifications described in Sections 5.2 and 5.3 hereof.
1.36 Physician. The term "Physician" shall mean each individual
---------
licensed to practice medicine in the State of Illinois who is employed or
otherwise retained by or associated with Practice, each of whom shall meet at
all times the qualifications described in Sections 5.2 and 5.3 hereof.
8
<PAGE>
1.37 Physician Discretionary Expenses. The term "Physician
--------------------------------
Discretionary Expenses" shall mean any expenses or debt obligations of Practice
or Physicians which are not included in the Budget or approved by Business
Manager and shall include, without limitation, the following: accounting,
consulting or legal expenses incurred by Practice without coordinating such
engagement through Business Manager; professional dues, subscriptions,
continuing medical education expenses and travel costs for continuing medical
education in excess of budgeted allowances for such items and any equipment
obtained by Practice without the approval of the Policy Board as set forth in
Section 4.1(d) hereof; and other discretionary business expenses incurred
directly by Physicians or Practice.
1.38 Physician-Employee. The term "Physician-Employee" shall mean any
------------------
Physician employed by Practice, but shall not include Physician-Shareholders.
1.39 Physician-Shareholder. The term "Physician-Shareholder" shall mean
---------------------
any Physician who is employed by, and a shareholder of, Practice.
1.40 Policy Board. The term "Policy Board" shall refer to the body
------------
responsible for developing an implementing management and administrative
policies for the overall operation of the Regional Practices.
1.41 Practice. The term "Practice" is defined in the introductory
--------
paragraph of this Management Services Agreement.
1.42 Practice Consent. The term "Practice Consent" shall mean the
----------------
consent granted by any of Practice's authorized Representatives who is not an
officer or employee of Business Manager. When any provision of this Management
Services Agreement requires Practice Consent, such consent shall not be
unreasonably withheld or delayed and shall be binding on Practice.
1.43 Practice Expense. The term "Practice Expense" shall mean an
----------------
expense incurred by Business Manager or Practice and for which Practice, and not
Business Manager, is financially liable. Practice Expense shall include,
without limitation, such items as Preexisting Obligation Payments, Physician
Discretionary Expenses, salaries, benefits and other direct costs of Physician-
Shareholders, any costs of providing locum tenens coverage designated as a
----- ------
Practice Expense pursuant to Section 5.4 hereof, and any other expenses incurred
by Practice and Physician-Shareholders which are not in the Budget or are in
excess of budgeted allowances.
1.44 Practice Territory. The term "Practice Territory" shall mean the
------------------
geographic area within a seven and one-half (7-1/2) mile radius of any present
or future locations of Practice; provided, however, that the Western boundary of
the Practice Territory shall be the Mississippi River.
9
<PAGE>
1.45 Preexisting Obligation Payments. The term "Preexisting Obligation
-------------------------------
Payments" shall mean (i) the expense for principal and interest amortization of
debt obligations of Practice or any Physician-Shareholder relating to the
operation of Practice which existed prior to the execution of this Management
Services Agreement and (ii) lease payments and other costs relating to any
outstanding debt, obligations or liabilities of Practice or any Physician-
Shareholder relating to the operation of Practice which existed prior to the
execution of this Management Services Agreement, and which include, without
limitation, the items set forth on Exhibit 1.45 attached hereto and incorporated
------------
herein.
1.46 Principal Services. The term "Principal Services" shall mean all
------------------
services performed by or on behalf of Practice which generate Professional
Services Revenues or Ancillary Revenues.
1.47 Principal Services Budgeted Office Expense. The term "Principal
------------------------------------------
Services Budgeted Office Expense" shall have the meaning set forth in Section
6.1 hereof.
1.48 Principal Services Budgeted Practice Expense. The term "Principal
--------------------------------------------
Services Budgeted Practice Expense" shall have the meaning set forth in Section
6.1 hereof.
1.49 Principal Services Budgeted Revenue. The term "Principal Services
-----------------------------------
Budgeted Revenue" shall have the meaning set forth in Section 6.1 hereof.
1.50 Principal Services Management Fee. The term "Principal Services
---------------------------------
Management Fee" shall have the meaning set forth in Section 6.1 hereof.
1.51 Principal Services Monthly Fee. The term "Principal Services Monthly
------------------------------
Fee" shall have the meaning set forth in Section 6.1 hereof.
1.52 Principal Services Monthly Office Expense. The term "Principal
-----------------------------------------
Services Monthly Office Expense" shall have the meaning set forth in Section
6.1 hereof.
1.53 Principal Services Monthly Practice Expense. The term "Principal
-------------------------------------------
Services Monthly Practice Expense" shall have the meaning set forth in Section
6.1 hereof.
1.54 Principal Services Office Expense. The term "Principal Services
---------------------------------
Office Expense" shall have the meaning set forth in Section 6.1 hereof.
1.55 Principal Services Revenue. The term "Principal Services Revenue"
--------------------------
shall mean the sum of Professional Services Revenue and Ancillary Revenue.
1.56 Professional Services Revenues. The term "Professional Services
------------------------------
Revenues" shall mean the sum of (i) all professional fees actually recorded each
month on an accrual basis under GAAP (net of Adjustments) as a result of Medical
Services and related health care services
10
<PAGE>
rendered by Physicians, Optometrists and Designated Allied Health Professionals,
whether rendered in an outpatient or inpatient setting, as well as customary
professional fees for the fitting of contact lenses, and (ii) Professional
Services Capitation allocated to Professional Service Revenues.
1.57 Regional Practices. The term "Regional Practices" is defined in
------------------
Section 3.1(a) hereof.
1.58 Representatives. The term "Representatives" shall mean a party's
---------------
officers, directors, employees, or other agents or representatives.
1.59 Stark Act. The term "Stark Act" shall refer to Section 1877 of
---------
the Social Security Act.
1.60 Subcontractor Costs. The term "Subcontractor Costs" shall mean the
-------------------
amounts payable to third parties for providing goods or medical services for
Capitation/Case Rate Revenues contracts.
1.61 Term. The term "Term" shall mean the initial term and any renewal
----
terms of this Management Services Agreement as described in Section 7.1 hereof.
ARTICLE II
APPOINTMENT AND AUTHORITY OF BUSINESS MANAGER
2.1 Appointment. Practice hereby appoints Business Manager as its sole
-----------
and exclusive agent for the management and administration of the business
functions and business affairs of the medical practice, including the optical
dispensaries of Practice, and Business Manager hereby accepts such appointment,
subject at all times to the terms and conditions of this Management Services
Agreement.
2.2 Authority. Consistent with the provisions of this Management
---------
Services Agreement, Business Manager shall have the responsibility and
commensurate authority to provide Management Services to Practice. Subject to
the terms and conditions of this Management Services Agreement, Practice
expressly authorizes Business Manager to provide the Management Services in any
manner Business Manager deems appropriate to meet the day-to-day requirements of
the business functions of Practice. In connection with Business Manager's
provision of Management Services, Practice also expressly authorizes Business
Manager to negotiate and execute on behalf of Practice any and all contracts
related to the provision of such Management Services; provided, however that,
subject to Section 4.7 hereof, Business Manager shall have no authority to
negotiate and execute on behalf of Practice contracts that relate specifically
to the provision of Medical Services. The parties acknowledge and agree that
Practice, through its Physicians, shall be responsible for and shall have
complete authority, responsibility, supervision
11
<PAGE>
and control over the provision of all Medical Services and other professional
health care services performed for patients, and that all diagnoses, treatments,
procedures and other professional health care services shall be provided and
performed exclusively by or under the supervision of Physicians in such manner
as such Physicians, in their sole discretion, deem appropriate. Business Manager
shall have and exercise absolutely no control or supervision over the provision
of Medical Services. Except as provided in Section 4.7 hereof, with respect to
any agreement relating specifically to Medical Services, and subject to the
approval of the Policy Board pursuant to Section 3.2(e), Practice shall, to the
extent practicable, give Business Manager and the Policy Board thirty (30) days'
prior notice of Practice's intent to execute any such agreement obligating
Practice to perform Medical Services or otherwise creating a binding legal
obligation on Practice to perform Medical Services.
2.3 Patient Referrals. Business Manager and Practice agree that the
-----------------
benefits afforded either party hereunder are not payment for, and are not in any
way contingent upon the referral, admission or any other arrangement for, the
provision of any item or service offered by Business Manager or Practice.
2.4 Internal Practice Matters. Except as otherwise provided herein,
-------------------------
matters involving the internal governance, control or finances of Practice,
including specifically the allocation of professional income among Physician-
Shareholders, Physician-Employees and Optometrists of Practice, and tax and
investment planning, shall remain the sole responsibility of Practice,
Physician-Shareholders, Physician-Employees and Optometrists.
2.5 Practice of Medicine. The parties acknowledge that Business
--------------------
Manager is not authorized or qualified to engage in any activity that may be
construed or deemed to constitute the practice of medicine. To the extent that
any act or service required to be performed by Business Manager hereunder should
be construed by a court of competent jurisdiction or by the Board of Medical
Examiners of the State of Illinois to constitute the practice of medicine,
Business Manager's requirement to perform that act or service shall be deemed
waived and unenforceable.
ARTICLE III
RESPONSIBILITIES OF THE POLICY BOARD
3.1 Formation and Operation of the Policy Board.
-------------------------------------------
(a) Structure of Policy Board. Practice hereby acknowledges that it
-------------------------
is one of a group of ophthalmology practices located in the St. Louis
Metropolitan Statistical Area (MSA No. 243) which is affiliated with Business
Manager (Practice and such other practices shall be collectively referred to
herein as "Regional Practices"). The Regional Practices and Business Manager
have established a Policy Board which is responsible for overseeing the overall
operations of the nonmedical aspects of each Regional Practice's facilities and,
subject to Section 3.3 hereof, certain medical issues. The Policy Board shall
consist of four (4) members, with each
12
<PAGE>
of the Business Manager and Regional Practices designating two (2) members. Each
member of the Policy Board shall serve a one-year term. The Policy Board members
designated by the Regional Practices shall be Physician-Shareholders of a
Regional Practice. Except as otherwise expressly provided herein, the act of a
majority of the members of the Policy Board shall be the act of the Policy
Board.
(b) Appointment of Members. The Policy Board shall consist of the
----------------------
members set forth on Exhibit 3.1 attached hereto and incorporated herein.
-----------
Thereafter, annually and at least thirty (30) days prior to the commencement of
each calendar year, each of Business Manager and the Regional Practices shall
deliver to the Operating Board of Business Manager a list of two (2) designees
to the Policy Board to serve as members of the Policy Board for the upcoming
calendar year. In the event that either Business Manager or the Regional
Practices fail to deliver the list of designees by the required date, then such
party's representatives on the Policy Board shall remain the same for the
upcoming calendar year. Any vacancies created, whether by death, incapacity or
resignation of a designee, shall be filled by the party which appointed such
designee by no later than fifteen (15) business days after the date of receipt
by all of the Regional Practices of notice from Business Manager that such
vacancy exists and must be filled. If the applicable party shall fail to
designate a replacement member to the Policy Board within the required time
period, then the other party shall have the right to designate the replacement
member and such replacement member shall serve on the Policy Board until his or
her successor is duly appointed pursuant to this Section 3.1(b). In any case in
which the Regional Practices shall be required to designate a member or members
to the Policy Board, a previously appointed designee of the Regional Practices
shall convene a meeting or collect the written votes of the Representatives of
the Regional Practices to select such designee or designees. Each Regional
Practice shall be entitled to one vote per designee to be appointed and those
designees receiving a plurality of the votes shall serve as the representatives
of the Regional Practices on the Policy Board.
(c) Actions of the Policy Board. The Policy Board meetings shall be
---------------------------
held as mutually agreed, but at least semiannually, in St. Louis, Missouri.
Meetings may be called by any two (2) members of the Policy Board upon notice to
Business Manager. Notice of each such meeting, stating the place, date and hour
of the meeting, shall then be delivered by Business Manager to each member of
the Policy Board not less than seventy-two (72) hours prior to such meeting.
Meetings shall be open to any Physician-Shareholder and any officer, director or
employee (as designated by Business Manager) of Business Manager. Members of
the Policy Board may participate in a meeting by means of conference telephone.
Attendance at any meeting in person or by proxy, or participation in a meeting
by means of conference telephone, shall constitute a waiver of notice thereof.
Any action required to be taken at a meeting of the Policy Board may be taken
without a meeting and without a vote if a consent in writing, setting forth the
action to be taken, is signed by all of the members of the Policy Board, unless
such action is medical in nature, in which case such consent need be signed only
by all of the Physician members of the Policy Board.
13
<PAGE>
3.2 Duties and Responsibilities of the Policy Board. The Policy Board
-----------------------------------------------
shall have the following duties, obligations and authority:
(a) Capital Improvements and Expansion. Subject to the items
----------------------------------
specifically enumerated in the Budget as determined in accordance with Section
4.10(a) hereof, any renovation and expansion plans and capital expenditures with
respect to the Office, or the priority of such capital expenditures, shall be
reviewed and approved by the Policy Board and shall be based upon economic
feasibility, physician support, productivity and then-current market conditions.
(b) Marketing and Advertising. The Policy Board shall explore
-------------------------
potential joint marketing and other advertising of the services performed at the
Regional Practices' facilities.
(c) Collection Policies. As a part of the annual operating budget, in
-------------------
consultation with Practice and Business Manager, the Policy Board shall review
and approve the collection policies for the Dispensary Business of, and for all
Medical Services and ancillary services provided by Practice.
(d) Provider and Payor Relationships. Subject to Sections 4.7 and 4.8
--------------------------------
hereof, decisions regarding the establishment or maintenance of relationships
with institutional health care providers and third party payors shall be
approved by the Policy Board in consultation with Practice and Business Manager.
The Policy Board shall review and approve such discounted fee schedules,
including capitated fee arrangements, and shall approve allocations of
Capitation/Case Rate Revenues.
(e) Strategic Planning. The Policy Board shall recommend long-term
------------------
strategic planning objectives for Practice; provided, however, that the Policy
Board shall not engage in recommending any horizontal marketing allocations
between practices.
(f) Physician and Optometrist Hiring. Subject to the items
--------------------------------
specifically enumerated in the Budget as determined in accordance with Section
4.10(a) hereof, the Policy Board shall recommend to Practice the number and type
of Physicians and Optometrists required for the efficient operation of
Practice's facilities. Practice shall have the right to accept or reject any
recommendation of the Policy Board on this matter and Practice shall retain the
number and type of Physicians and Optometrists as it shall deem necessary in its
sole discretion. The Policy Board shall review and approve any variations to
the restrictive covenants in any Employment Agreement.
(g) Fee Dispute Resolution. Upon written submission by Practice of a
----------------------
dispute concerning Management Fees, the Policy Board shall consider, develop and
attempt to implement a resolution of such dispute.
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(h) Employee Relations. Upon submission by Practice or any Physician
------------------
or Optometrist of a written complaint or concern regarding any employee of
Business Manager performing services for Practice hereunder, the Policy Board
shall consider, develop and attempt to implement a resolution of such complaint
or concern.
(i) Grievance Referrals. The Policy Board shall consider and make
-------------------
recommendations to Practice regarding any disputes pertaining to matters not
specifically addressed in this Management Services Agreement as referred to it
by Practice.
3.3 Medical Decisions. Notwithstanding anything to the contrary
-----------------
contained in Section 3.2 above, all medical decisions addressed by the Policy
Board will be made solely by Physician members of the Policy Board.
ARTICLE IV
COVENANTS AND RESPONSIBILITIES OF BUSINESS MANAGER
During the Term, Business Manager shall provide all Management Services
which are necessary or appropriate for the day-to-day administration of the
nonmedical aspects of Practice's operations (including the Dispensary Business),
including, without limitation, those services set forth in this Article IV in
accordance with all laws, rules, regulations and guidelines applicable to the
provision of Management Services.
4.1 Office and Equipment.
--------------------
(a) Subject to Section 4.1(b) hereof, as necessary or appropriate, and
after taking into consideration the professional concerns of Practice, Business
Manager shall lease, acquire or otherwise procure an Office in a location or
locations reasonably acceptable to Practice and shall permit Practice to use the
Office. Any Office procured by Business Manager for use by Practice shall be
procured at commercially reasonable rates.
(b) In the event Practice is the lessee of the Office under a lease
with an unrelated and nonaffiliated lessor, Business Manager may require
Practice to assign such lease to Business Manager upon receipt of consent from
the lessor, and, in such event, Business Manager shall assume Practice's
obligations thereunder from and after the date of such assignment. Practice
shall use its best efforts to assist in obtaining the lessor's consent to the
assignment. Upon request, Practice shall execute any instruments and shall take
any acts that Business Manager deems necessary to accomplish the assignment of
the lease. Any expenses incurred in effectuating the assignment shall be an
Office Expense.
(c) Business Manager shall provide all nonmedical equipment, fixtures,
office supplies, furniture and furnishings reasonably deemed necessary by
Business Manager for the
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operation of the Office and for the provision of Medical Services and the
operation of the Dispensary Business.
(d) Business Manager shall provide or cause to be provided (including
financing arrangements with respect thereto) all medical equipment reasonably
required by Practice.
(e) Business Manager shall be responsible for all necessary repair and
maintenance of the Office as an Office Expense, consistent with Business
Manager's responsibilities under the terms of any lease or other use
arrangement. Business Manager shall also be responsible for all necessary
repair, maintenance and replacement of all equipment relating to the Office,
except for any such repairs, maintenance and replacement necessitated by the
negligence or willful misconduct of Practice, its Physicians or other personnel
employed by Practice, in which event any such repair or replacement shall be a
Practice Expense and not an Office Expense.
4.2 Medical Supplies. Business Manager shall order, procure, purchase
----------------
and provide on behalf of, and as agent for, Practice all necessary and
reasonably desirable medical supplies and optical dispensary supplies and
inventory unless otherwise prohibited by federal and/or state law, and shall
appropriately respond to any reasonable inquiries or requests by Physicians for
the need to order or repair such supplies. Business Manager shall ensure that
the Office is adequately stocked at all times with medical supplies that are
reasonably necessary or appropriate for the operation of Practice and required
for the provision of Medical Services and optical dispensary supplies and
inventory that are reasonably necessary or appropriate for the operation of the
Dispensary Business. The ultimate oversight, supervision and ownership of all
medical supplies is and shall remain the sole responsibility of Practice. As
used in this Section 4.2, the term "medical supplies" shall mean all drugs,
pharmaceuticals, products, substances, items or devices whose purchase,
possession, maintenance, administration, prescription or security requires the
authorization or order of a licensed health care provider or requires a permit,
registration, certification or other governmental authorization held by a
licensed health care provider as specified under any federal and/or state law.
4.3 Support Services. Business Manager shall provide or arrange for
----------------
all printing, stationery, telephone, facsimile, office supplies, forms, postage,
duplication or photocopying services, and other support services as are
reasonably necessary or appropriate for the operation of the Office and the
provision of Medical Services and the operation of the Dispensary Business
therein.
4.4 Quality Assurance, Risk Management, and Utilization Review.
----------------------------------------------------------
Business Manager shall assist Practice in Practice's establishment and
implementation of procedures to ensure the consistency, quality, appropriateness
and medical necessity of Medical Services provided by Practice, and shall
provide administrative support for Practice's overall quality assurance, risk
management and utilization review programs. Business Manager shall use its
commercially reasonable efforts to perform these tasks in a manner to ensure the
confidentiality of, and the
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privileged status afforded to, these programs and procedures to the fullest
extent allowable under state and federal law.
4.5 Licenses and Permits. Business Manager shall, on behalf of and in
--------------------
the name of Practice, coordinate all development and planning processes, and
assist in the application for, and use reasonable efforts to assist Practice in
obtaining and maintaining, all federal, state and local licenses, certifications
and regulatory permits required for, or in connection with, the operation of
Practice, the equipment located at the Office, and any optical dispensary of
Practice, other than those relating to the provision of Medical Services or the
administration of drugs by Physicians.
4.6 Personnel. Except as specifically provided in Section 5.2(b)
---------
hereof, Business Manager shall, consistent with the Budget, employ or otherwise
retain and shall be responsible for selecting, hiring, training, supervising and
terminating, all nonphysician personnel as Business Manager reasonably deems
necessary and appropriate for Business Manager's performance of its duties and
obligations under this Management Services Agreement. Business Manager shall
have sole responsibility for determining the salaries, providing employee
benefits, and for withholding any sums for income tax, unemployment insurance,
worker's compensation coverage, social security or any other withholding
required by applicable law or governmental requirement.
4.7 Contract Negotiations. Business Manager shall advise Practice with
---------------------
respect to and negotiate, either directly or on Practice's behalf, as
appropriate, all contractual arrangements with third parties as are reasonably
necessary and appropriate for Practice's provision of Medical Services and for
Practice's operation of the Dispensary Business, including, without limitation,
Managed Care Contracts. Practice hereby constitutes and appoints Business
Manager as Practice's agent for the purpose of negotiating and executing on
behalf of Practice and its Physicians any Managed Care Contract approved by the
Policy Board, as well as any modifications, extensions and renewals of such
Managed Care Contracts. Practice also designates Business Manager as Practice's
agent for the further purpose of giving and receiving notices required or
permitted to be given and received under such Managed Care Contracts. Any
notice received by Business Manager on behalf of Practice shall be transmitted
to Practice as soon as practicable. Business Manager may engage such
consultants as Business Manager deems necessary and appropriate to pursue and
negotiate Managed Care Contracts for Practice, and Practice authorizes Business
Manager to negotiate, for approval by the Policy Board, agreements for
Subcontractor Costs. Notwithstanding the foregoing, upon approval of the Policy
Board of any Managed Care Contract, Business Manager shall deliver a copy of
such contract to Practice (or a description of the principal terms and
conditions thereof) for its review and approval. Practice may accept or reject
any Managed Care Contract by delivering written notice to Business Manager
within five (5) days of its receipt of such contract (or description).
Practice's failure to respond within such five-day period shall be deemed an
acceptance of the Managed Care Contract for all purposes.
4.8 Billing and Collection. On behalf of and for the account of
----------------------
Practice, Business Manager shall (i) establish and maintain credit, billing and
collection policies and procedures, (ii) timely bill and collect all
professional and other fees for all billable Medical Services provided by
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Practice, Physicians or Optometrists and for all goods sold by Practice in
connection with the Dispensary Business, all for application solely in
accordance with the Budget, and (iii) perform all cash management services on
behalf of Practice which Business Manager shall deem commercially reasonable.
Business Manager shall advise and consult with Practice regarding the fees for
Medical Services and ancillary services provided by Practice; it being
understood, however, that Practice shall establish the fees to be charged for
Medical Services and that Business Manager shall have no authority whatsoever
with respect to the establishment of such fees. In connection with the billing,
collection and cash management services to be provided hereunder, and throughout
the Term (and thereafter as provided in Section 7.3 hereof), Practice hereby
grants to Business Manager an exclusive special power of attorney and appoints
Business Manager as Practice's exclusive true and lawful agent and attorney-in-
fact, and Business Manager hereby accepts such special power of attorney and
appointment, for the following purposes:
(a) To bill Practice's patients, in Practice's name and on Practice's
behalf, for all billable Medical Services provided or arranged by Practice to
patients and for all goods sold by practice in connection with the Dispensary
Business, unless such billing would cause Practice to be in violation of the
Stark Act, any state referral ban or any other applicable federal, state or
local law or regulation;
(b) To bill, in Practice's name and on Practice's behalf, all claims
for payment, reimbursement or indemnification from Blue Cross/Blue Shield,
insurance companies, Medicare, Medicaid and all other third-party payors or
fiscal intermediaries for all covered billable Medical Services provided or
arranged by Practice to patients and for all goods sold by Practice in
connection with the Dispensary Business, unless such billing would cause
Practice to be in violation of the Stark Act, any state referral ban or any
other applicable federal, state or local law or regulation;
(c) Subject to applicable law, and excluding receivables for Medicare
and Medicaid Services, to collect and receive, as the Agent of Practice, in
Business Manager's name and for Business Manager's account all accounts
receivable of Practice purchased by Business Manager, including, without
limitation, Purchased Receivables (as defined in Section 6.5 hereof) and to
deposit such collections in an account selected by Business Manager and
maintained in Business Manager's name;
(d) Subject to subparagraph (e) below, to collect and receive, in
Practice's name and on Practice's behalf, all accounts receivable generated by
such billings and claims for reimbursement that have not been purchased by
Business Manager, and to administer such accounts at its reasonable discretion
on Practice's behalf, which administration shall include, without limitation,
(i) extending the time of payment of any such accounts for cash, credit or
otherwise; (ii) with Practice Consent, discharging or releasing the obligors of
any such accounts; (iii) with Practice Consent, suing, assigning or selling at a
discount such accounts to collection agencies; or (iv) with Practice Consent,
taking other measures to require the payment of any such accounts.
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(e) To collect all government program receivables after such amounts
have been received and deposited into an account maintained in Practice's name
and over which Practice has sole control. Once deposited into such account,
Practice hereby authorizes the government receivables to be automatically swept
into the Depository Account.
(f) To deposit all amounts collected into the Depository Account which
shall be in the name of Business Manager, but in which Business Manager shall
account for such funds on a separate and distinct basis from any other funds
deposited into such account by other Regional Practices; moreover, Practice
shall retain all rights in and to such deposited funds irrespective of their
deposit into the Depository Account. The parties hereto acknowledge and agree
that Business Manager is performing cash management services on behalf of
Practice by collecting all such amounts in the Depository Account and making any
distributions, withdrawals and payments therefrom as required in this Management
Services Agreement. The parties further acknowledge and agree that in
performing such services for Practice, Business Manager is acting as Practice's
agent pursuant to the power of attorney set forth in this Section 4.8, and,
except as expressly provided herein, all rights to such funds shall remain with
Practice. Practice covenants to transfer and deliver to Business Manager for
deposit into Depository Account, or covenants that Practice itself will make
such deposit of, all funds received by Practice from patients or third party
payors for Medical Services provided on or after the Effective Date and for all
goods sold in connection with the Dispensary Business on or after the Effective
Date. Upon receipt by Business Manager of any funds from patients or third
party payors or from Practice pursuant hereto for Medical Services provided on
or after the Effective Date or for goods sold in connection with the Dispensary
Business on or after the Effective Date, Business Manager shall deposit same
into the Depository Account as soon as commercially practicable. In the manner
set forth in Section 4.9 hereof, Business Manager shall disburse such deposited
funds to creditors and other persons on behalf of Practice, maintaining records
of such receipt and disbursement of funds.
(g) To take possession of, and endorse in the name of Practice, solely
for deposit into the Depository Account, any notes, checks, money orders,
insurance payments and any other instruments received as payment for Medical
Services and ancillary services and for goods sold in connection with the
Dispensary Business.
(h) To sign checks, drafts, bank notes or other instruments on behalf
of Practice, and to make withdrawals from the Depository Account for payments
specified in this Management Services Agreement or as requested from time to
time by Practice.
Throughout the Term (and as provided in Section 7.3 hereof), Practice hereby
grants to Business Manager an exclusive special power of attorney for the
purposes stated herein and appoints Business Manager as Practice's exclusive
true and lawful agent and attorney-in-fact, and Business Manager hereby accepts
such special power of attorney and appointment, to deposit into the Depository
Account as and when received all funds, fees and revenues generated from
Practice's provision of Medical Services and ancillary services on or after the
Effective Date and collected by Business Manager and for all goods sold by
Practice in connection with the Dispensary
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Business on or after the Effective Date and collected by the Business Manager,
and to make withdrawals from Depository Account solely for payments specified in
this Management Services Agreement, including any Preexisting Obligation
Payments directly affecting property used in or relating to the Office, and/or
as requested from time to time by Practice. Upon request of Business Manager,
Practice shall execute and deliver to the financial institution where the
Depository Account is maintained, such additional documents or instruments as
may be necessary to evidence or effect the special and limited power of attorney
granted to Business Manager by Practice pursuant to this Section 4.8. The
special and limited power of attorney granted herein shall be coupled with an
interest and shall be irrevocable during the term hereof, except with Business
Manager Consent. The irrevocable power of attorney shall expire on the later of
the termination of this Management Services Agreement, the collection, sale or
release of all accounts receivable purchased by Business Manager, and the
payment of all Management Fees due to Business Manager as of such date pursuant
to Section 6.2 hereof. If Business Manager assigns this Management Services
Agreement in accordance with its terms, then Practice shall execute a power of
attorney in favor of the assignee and in the form of Exhibit 4.8 attached
-----------
hereto.
4.9 Priority of Payments. As of the Effective Date, all revenue of
--------------------
Practice derived from Medical Services and ancillary services provided on and
after the Effective Date and from sales of goods in connection with the
Dispensary Business on and after the Effective Date (collectively, "Post-
Effective Date Revenues") shall be deposited into the Depository Account (or, in
the alternative, identified or segregated in such a manner as to permit the
Post-Effective Date Revenues to be deposited into the Depository Account when
and as directed by Business Manager) for distribution in accordance with this
Section 4.9. From and after the Effective Date, each month Business Manager
shall apply, or retain on behalf of Practice, funds that are in the Depository
Account in the following order of priority:
(a) to Business Manager, in satisfaction of Office Expense,
except the Base Management Fee;
(b) as directed by Practice, in satisfaction of Monthly Practice
Expense; and
(c) to Business Manager, in satisfaction of the Base Management
Fee.
4.10 Fiscal Matters.
--------------
(a) Annual Budget.
-------------
(i) Initial Budget. The initial Budget shall be agreed upon by
--------------
the parties before the execution of this Management Services Agreement and
shall be attached hereto and made a part hereof.
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(ii) Process for Succeeding Budgets. Annually and at least
------------------------------
forty-five (45) days prior to the commencement of each fiscal year of
Business Manager, Business Manager, in consultation with the Policy Board,
shall prepare and deliver to Practice for Practice's approval a proposed
Budget, setting forth an estimate of Practice's revenues and expenses for
the upcoming fiscal year (including, without limitation, the Dispensary
Business Budgeted Practice Expense, the Principal Services Budgeted
Practice Expense, the Dispensary Business Monthly Fee and the Principal
Services Monthly Fee). Practice shall review the proposed Budget and either
approve the proposed Budget or request any changes within fifteen (15) days
after receiving the proposed Budget. The Budget shall be adopted upon
mutual agreement of Business Manager and Practice after reasonable review
and comment and may be revised or modified only in consultation with
Business Manager. Once approved by both Business Manager and Practice, each
succeeding Budget shall be attached hereto and made a part hereof.
(iii) Deadlock. In the event the parties are unable to agree on
--------
a Budget by the beginning of the fiscal year (a "Deadlock"), then until an
agreement is reached, the Budget for the prior year shall be deemed to be
adopted as the Budget for the current year. Notwithstanding the foregoing,
the Policy Board, in its judgment, may impose reductions on a consistent
basis to each of Budgeted Practice Expense and the Monthly Fee in the event
that the Policy Board makes a determination that general economic
conditions and/or regulatory developments adversely affecting the Medical
Services provided by Practice or the Dispensary Business render the present
levels of the Budgeted Practice Expense and the Monthly Fee impractical.
For purposes of illustration only, and without limitation, such general
economic conditions and/or regulatory developments could include proposed
or actual cuts in Medicare/Medicaid reimbursement for procedures that are a
material component of the Medical Services performed by Practice. Following
resolution of any Deadlock, Budgeted Practice Expense and the Monthly Fee
(and the corresponding Monthly Practice Expense and Management Fee as
calculated in Article VI hereof) shall be recomputed retroactive to the
beginning of the fiscal year based upon the parameters agreed to in the new
Budget, and appropriate adjustments in payments owing to Practice and/or
Business Manager, as the case may be, resulting from such recomputation
shall be made promptly. Notwithstanding the foregoing, if after six months
the parties are still unable to agree on a Budget, then the dispute shall
be submitted to arbitration in accordance with Section 8.6 hereof. Until
the arbitrator renders a judgment or the dispute is otherwise resolved, the
adjustments described in this Section 4.10(a)(iii) shall continue to apply.
Notwithstanding anything to the contrary contained herein, nothing in this
Section 4.10(a)(iii) shall affect the payment of Office Expense, which
shall be paid in full in accordance with the provisions of this Agreement.
For purposes of this Section 4.10(iii) and (iv), "Budgeted Practice
Expense" and "Monthly Fee" shall refer to either Principal Services or
Dispensary Business, as applicable.
(iv) Modifications to Budget. The Budget may be modified at any
-----------------------
time by mutual agreement of Practice and Business Manager, which
modifications may include,
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without limitation, modifications to the Monthly Fee and Budgeted Practice
Expense in the event that additional Physicians or Optometrists become
affiliated with Practice during the calendar year.
(b) Accounting and Financial Records. Business Manager shall
--------------------------------
establish and administer adequate accounting procedures, controls and systems
for the development, preparation and safekeeping of administrative and financial
records in connection with the performance of its duties and responsibilities
hereunder, all of which shall be prepared and maintained in accordance with GAAP
and applicable laws and regulations. Business Manager shall provide Practice
with the following:
(i) Monthly Reports. As soon as practicable, and in any event
---------------
no later than fifteen (15) days after the end of each calendar month,
Business Manager shall furnish to Practice a monthly statement reflecting
the computation for the Dispensary Business Monthly Practice Expense,
Principal Services Monthly Practice Expense, the Dispensary Business
Management Fee and the Principal Services Management Fee. Within forty-five
(45) days after the end of each month, Business Manager shall provide
Practice with a monthly statement reflecting the accounting activity for
Practice prepared in accordance with GAAP.
(ii) Annual Financial Statements. As soon as practicable, and
---------------------------
in any event no later than one hundred twenty (120) days after the end of
each calendar year, Business Manager shall furnish to Practice audited
financial statements, consisting of a balance sheet and related statements
of income, changes in members' equity and cash flow, all of which (taken as
a whole) shall reflect the financial status of Business Manager as of the
end of such calendar year, and shall be prepared in accordance with GAAP
consistently applied.
(c) Review of Expenditures. A Representative of Practice shall have
----------------------
the right to review all expenditures related to the operation of Practice, but
Practice shall not have the power to prohibit or invalidate any expenditure that
is consistent with the Budget.
(d) Tax Matters. Business Manager and Practice acknowledge and agree
-----------
that, to the extent that any of the services to be provided by Business Manager
hereunder may be subject to any state sales and use taxes, Business Manager may
have a legal obligation to collect such taxes from Practice and to remit same to
the appropriate tax collection authorities. Practice agrees to pay, in addition
to the payment of the Management Fee, the applicable state sales and use taxes
in respect of the portion of the Management Fees attributable to such services.
22
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4.11 Reports and Records.
-------------------
(a) Medical Records. Business Manager shall advise and assist
---------------
Practice as to the establishment, monitoring and maintenance of procedures and
policies for the timely creation, preparation, filing and retrieval of all
medical records generated by Practice in connection with Practice's provision of
Medical Services; and, subject to applicable law, shall ensure that medical
records are promptly available to Physicians and any other appropriate persons.
All such medical records shall be retained and maintained in accordance with all
applicable state and federal laws. All medical records are, and will remain, the
property and Confidential Information of Practice and its patients.
(b) Other Reports and Records. Business Manager shall create, prepare
-------------------------
and file such additional reports and records as are reasonably necessary or
appropriate for Practice's provision of Medical Services, and shall be prepared
to analyze and interpret such reports and records upon the request of Practice.
4.12 Recruitment of Physicians and Optometrists. Upon Practice's
------------------------------------------
request, Business Manager shall perform all administrative services reasonably
necessary or appropriate to recruit potential Physicians and Optometrists to
become employees of Practice. Business Manager shall provide Practice with
model agreements to document Practice's employment, retention or other service
arrangements with such individuals. It is and will remain the sole and complete
responsibility of Practice to interview, select, contract with, supervise,
control and terminate all Physicians and Optometrists performing Medical
Services or other professional services, and Business Manager shall have no
authority whatsoever with respect to such activities.
4.13 Confidential and Proprietary Information.
----------------------------------------
(a) Business Manager will not disclose any Confidential Information of
Practice to other persons without Practice Consent. Business Manager will not,
directly or indirectly, use such Confidential Information in a manner
detrimental to Practice, and Business Manager will keep such Confidential
Information confidential and will ensure that its affiliates and advisors who
have access to such Confidential Information comply with these nondisclosure
obligations. Notwithstanding the foregoing, Business Manager may disclose
Confidential Information to those of its Representatives who need to know
Confidential Information for the purposes of this Management Services Agreement,
it being understood and agreed to by Business Manager that such Representatives
will be informed of the confidential nature of the Confidential Information,
will agree to be bound by this Section 4.13, and will be directed by Business
Manager not to disclose to any other person any Confidential Information.
Business Manager shall be responsible for any breach of this Section 4.13 by its
affiliates, advisors or Representatives. If Business Manager is required (by
interrogatories, requests for information or documents, subpoenas, civil
investigative demands or similar legal processes) to disclose or produce any
Confidential Information furnished in the course of its dealings with Practice
or its affiliates, advisors or Representatives, Business Manager will (i)
provide Practice with prompt prior notice thereof and
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copies, if possible, and, if not, a description, of the request and the
Confidential Information requested or required to be produced so that Practice
may seek an appropriate protective order or other protections to enforce the
provisions of this Section 4.13, or, alternatively, waive compliance with the
provisions of this Section 4.13, and (ii) consult with Practice as to whether
Practice should attempt to resist or narrow such request. If Business Manager is
compelled to disclose or produce Confidential Information concerning Practice
or, in the alternative, be liable for contempt or suffer other censure or
penalty, Business Manager may disclose or produce such Confidential Information
without liability hereunder; provided, however, that Business Manager shall give
Practice written notice of the Confidential Information to be so disclosed or
produced, and a copy of the request therefor, as far in advance of its
disclosure or production as is reasonably practicable and shall use its
commercially reasonable efforts to obtain, to the greatest extent practicable,
an order or other reliable assurance that confidential treatment will be
accorded to such Confidential Information so required to be disclosed or
produced.
(b) Notwithstanding clause (a) above, Business Manager may share,
subject to the restrictions of this Section 4.13(b), with other professional
corporations, associations, medical practices or health care delivery entities,
the statistics of Practice, including utilization review data, quality assurance
data, cost data, outcomes data or other Practice data. Business Manager may
disclose such statistics to other medical groups with whom Business Manager has
a management relationship, to managed care providers or other third party payors
for the purpose of obtaining or maintaining third party payor contracts, or to
financial analysts and underwriters. In addition, Business Manager may disclose
all Practice-related information necessary or desirable in connection with any
public or private offering of any security of Business Manager, but no such data
will disclose or divulge patient identifying information.
4.14 Insurance.
---------
(a) Business Manager's Insurance. Throughout the Term, Business
----------------------------
Manager shall, as an Office Expense, obtain and maintain with commercial
carriers, through self-insurance or some combination thereof and in a manner
consistent with good business practice, appropriate workers' compensation
coverage for Business Manager's employed personnel provided to Practice pursuant
to this Management Services Agreement, and professional, casualty and
comprehensive general and vicarious liability insurance covering Business
Manager, the Office, Business Manager's personnel and all of Business Manager's
equipment in such amounts, on such basis and upon such terms and conditions as
Business Manager deems appropriate. Upon the request of Practice, Business
Manager shall provide Practice with a certificate evidencing such insurance
coverage and Business Manager shall use commercially reasonable efforts to list
Practice as an additional insured. Business Manager may also carry key person
life and disability insurance on any Physician in amounts determined reasonable
and sufficient by Business Manager, the expense of which shall be an Office
Expense only upon the express written permission of Practice. Business Manager
shall be the owner and beneficiary of any such insurance.
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(b) Professional and General Liability Insurance of Practice.
--------------------------------------------------------
Business Manager shall obtain and maintain, on behalf of Practice and as an
Office Expense, professional and comprehensive general liability insurance
covering Practice and each of Physicians and Optometrists. The comprehensive
general liability coverage shall be in the minimum amount of one million dollars
($1,000,000) for each occurrence and two million dollars ($2,000,000) annual
aggregate; and professional liability coverage shall be in the minimum amount of
one million dollars ($1,000,000) for each occurrence and three million dollars
($3,000,000) annual aggregate, or any other higher minimum coverage requirements
established by law. The insurance policy or policies shall provide for at least
(30) days' advance written notice to Business Manager and Practice from the
insurer as to any alteration of coverage, cancellation or proposed cancellation
for any cause. Business Manager shall cause to be issued to Practice a
certificate of such insurer or insurers reflecting such coverage and either
party hereunder shall provide written notice to the other party promptly upon
receipt of any notice canceling or proposing to cancel the insurance coverage of
Practice, or any Physician or Optometrist for any reason. Upon the termination
of this Management Services Agreement for any reason, Practice shall obtain and
maintain as a Practice Expense "tail" professional liability coverage, in the
amounts specified in this Section 4.14(b) for an extended reporting period of
ten years, and Practice shall be responsible for paying all premiums for "tail"
insurance coverage.
(c) Health Insurance. Business Manager shall, to the extent such
----------------
coverage is available from Business Manager's current insurance carrier, make
available to, and accessible by, Physicians and Optometrists health benefits
under any health benefit program maintained by Business Manager. If any
Physician or Optometrist elects such coverage, subject to Section 1.30(b), the
cost of such coverage shall be deemed an Office Expense for any Physician-
Employee or Optometrist, and a Practice Expense for any Physician-Shareholder.
4.15 No Warranty. Practice acknowledges that Business Manager has not
-----------
made and will not make any express or implied warranties or representations that
the services provided by Business Manager will result in any particular amount
or level of revenue or income to Practice.
ARTICLE V
COVENANTS AND RESPONSIBILITY OF PRACTICE
5.1 Organization and Operation. Practice, as a continuing condition of
--------------------------
Business Manager's obligations under this Management Services Agreement, shall
at all times during the Term be and remain legally organized and operated to
provide Medical Services in a manner consistent with all state and federal laws.
(a) Employment of Physicians.
------------------------
(i) Practice shall operate and maintain within the Practice
Territory a full-time practice of medicine specializing in the provision of
Medical Services, and shall
25
<PAGE>
maintain and enforce employment agreements in the form of Exhibit 5.1 (the
-----------
"Employment Agreements") with Physician-Shareholders, including, without
limitation, the initial Physician-Shareholders identified in Exhibit 5.1A.
------------
Practice shall not amend the Employment Agreements in any material manner
or waive any material rights of Practice thereunder without the prior
written approval of Business Manager. Recognizing that Business Manager
would not have entered into this Management Services Agreement but for
Practice's covenant to maintain Employment Agreements with Physician-
Shareholders, and subject to subparagraph (ii) below, Practice shall pay to
Business Manager, in addition to the Management Fee, any damages,
compensation, payment or settlement received by Practice from a Physician
who terminates his or her Employment Agreement without Physician Cause (as
defined in the Employment Agreement) or whose Employment Agreement is
terminated by Practice for Practice Cause (as defined in the Employment
Agreement) or for any other material breaches of the Employment Agreements
(such damages being collectively referred to herein as the "Business
Manager Damages").
(ii) Notwithstanding the provisions of Section 5.1(a)(i) above,
or any other provision to the contrary contained herein, Practice shall
have a period of not less than forty-five (45) days following the
occurrence of any event described in Section 5.1(a)(i) above that entitles
Business Manager to receive Business Manager Damages to take such actions
to cure the breach of any Employment Agreement by a Physician-Shareholder
(which actions to cure may, without limitation, include retention of
additional Physicians to replace the levels of revenue and income
previously generated by the Physician causing such breach); provided,
however, that the determination of whether or not such breach has been
cured shall be made by Business Manager in its good faith discretion, and
provided further, that Practice shall in no event be permitted to cure any
breach that results from a breach by a Physician-Shareholder of any non-
competition provision contained in any Employment Agreement.
(b) Corporate Governance. Throughout the Term of this Management
--------------------
Services Agreement, Practice shall maintain and enforce written Buy-Sell
Agreements with Physician-Shareholders specified in Exhibit 5.1A, and shall
------------
cause all new shareholders of Practice to execute such agreements prior to
becoming a shareholder in Practice. As a condition precedent to the execution
of this Management Services Agreement, the Physician-Shareholders have amended
their existing Buy-Sell Agreement, or executed a new Buy-Sell Agreement, which
addresses the concepts set forth on Exhibit 5.1B to the satisfaction of Business
------------
Manager and its counsel. Practice will also maintain its articles of
incorporation and by-laws in accordance with applicable law, including, without
limitation, any laws governing the transferability of shares from disqualified
shareholders to qualified shareholders. Throughout the Term of this Management
Services Agreement, Practice shall not, without the prior written consent of
Business Manager, amend such documents or waive any rights thereunder in any
manner.
26
<PAGE>
5.2 Practice Personnel.
------------------
(a) Physician Personnel and Optometrists. Practice shall retain the
------------------------------------
number of Physicians and Optometrists as is reasonably necessary and appropriate
in the sole discretion of Practice for the provision of Medical Services. Each
Physician shall hold and maintain a valid and unrestricted license to practice
medicine in the state of Illinois, and shall be competent, in the reasonable
opinion of Practice, in the practice of ophthalmology. Each Optometrist shall
hold and maintain a valid and unrestricted license to practice optometry in the
state of Illinois, and shall be competent, in the reasonable opinion of
Practice, in such practice. Practice shall enter into and maintain with each
such retained Physician and Optometrist a written employment agreement
substantially in the form of either Exhibit 5.1 for Physician-Shareholders or
-----------
Exhibit 5.2A for Physician-Employees. Practice will neither commit nor permit
- ------------
to remain outstanding any breach of such employment agreement that would allow
any Physician or Optometrist to terminate for cause. Regardless of whether the
compensation is a Practice Expense or Office Expense, Practice shall be
responsible for paying the compensation and benefits, as applicable, for all
Physicians, Optometrists, and any other physician personnel or other contracted
or affiliated physicians, and for withholding any sums for income tax,
unemployment insurance, social security or any other withholding required by
applicable law. If requested, Business Manager shall, on behalf and at the
direction of Practice, administer the compensation with respect to such
individuals in accordance with the written agreement between Practice and each
Physician or Optometrist. Business Manager shall neither control nor direct any
Physician or Optometrist in the performance of Medical Services for patients.
(b) Nonphysician Personnel. Business Manager shall retain all
----------------------
nonphysician personnel necessary for the operation of Practice and such
nonphysician personnel shall be under Business Manager's control, supervision
and direction in the performance of their duties, except for (i) Designated
Allied Health Professionals, who shall perform their duties under the
supervision and control of Physicians, consistent with the requirements
necessary to meet the "incident to" provisions of the Medicare program, and (ii)
opticians and others providing services in Practice's optical dispensary, who
shall perform their duties under the supervision and control of Physicians and
Optometrists.
5.3 Professional Standards. As a continuing condition of Business
----------------------
Manager's obligations hereunder, each Physician, Optometrist and any other
physician personnel retained by Practice to provide Medical Services must comply
with, be controlled and governed by, and otherwise provide Medical Services in
accordance with, all applicable federal, State and municipal laws, rules,
regulations, ordinances and orders, and the ethical standards and standards of
care of the medical community wherein the principal office of each Physician or
Optometrist is located. In addition, each Physician and any other physician
personnel retained by Practice to provide Medical Services must obtain and
retain appropriate admitting privileges at local area hospitals or health care
facilities which are reasonably adequate for Physician to perform Medical
Services. Procurement of temporary staff privileges pending the completion of
the medical staff approval
27
<PAGE>
process shall satisfy this provision, provided Physician actively pursues full
admitting privileges and actually receives full admitting privileges within a
reasonable time.
5.4 Medical Services. Practice shall use reasonable efforts to ensure
----------------
that Physicians and Optometrists are available to provide Medical Services to
patients. In the event that Physicians or Optometrists are not available to
provide the relevant Medical Services coverage, Practice shall engage and retain
locum tenens coverage. Physicians and Optometrists retained on a locum tenens
- ----- ------ ----- ------
basis shall meet all of the requirements of Section 5.3 hereof, and the cost of
providing locum tenens coverage shall be an Office Expense, unless such locum
----- ------ -----
tenens coverage is attributable to a Physician-Shareholder exceeding the maximum
- ------
amount of vacation, personal and educational leave days allowable under such
Physician-Shareholder's Employment Agreement, in which case the cost of such
coverage shall be a Practice Expense. With the assistance of Business Manager,
Practice, Physicians and Optometrists shall be responsible for scheduling the
relevant coverage of all medical and eye-related procedures. Practice shall use
its best efforts to develop and promote Practice.
5.5 Peer Review/Quality Assurance. Practice shall adopt a peer
-----------------------------
review/quality assurance program to monitor and evaluate the quality and cost-
effectiveness of Medical Services provided by Physicians and Optometrists of
Practice. Upon request of Practice, Business Manager shall provide
administrative assistance to Practice in performing its peer review/quality
assurance activities, but only if such assistance can be provided in a manner
consistent with maintaining the confidentiality and privileged status of the
processes and actions of the peer review/quality assurance process of Practice.
5.6 Confidential and Proprietary Information. Practice will not
----------------------------------------
disclose any Confidential Information of Business Manager without Business
Manager's express written authorization. Such Confidential Information will not
be used in any way directly or indirectly detrimental to Business Manager, and
Practice will keep such Confidential Information confidential and will ensure
that its affiliates and advisors who have access to such Confidential
Information comply with these nondisclosure obligations. Notwithstanding the
foregoing, Practice may disclose Confidential Information to those of its
Representatives who need to know Confidential Information for the purposes of
this Management Services Agreement, it being understood and agreed to by
Practice that such Representatives will be informed of the confidential nature
of the Confidential Information, will agree to be bound by this Section 5.6, and
will be directed by Practice not to disclose to any other person any
Confidential Information. Practice shall be responsible for any breach of this
Section 5.6 by its affiliates, advisors or Representatives. If Practice is
required (by interrogatories, requests for information or documents, subpoenas,
civil investigative demands or similar processes) to disclose or produce any
Confidential Information furnished in the course of its dealings with Business
Manager or its affiliates, advisors or Representatives, Practice will (i)
provide Business Manager with prompt prior notice thereof and copies, if
possible, and, if not, a description, of the request and the Confidential
Information requested or required to be produced so that Business Manager may
seek an appropriate protective order or other protections to enforce the
provisions of this Section 5.6,
28
<PAGE>
or, alternatively, waive compliance with the provisions of this Section 5.6 and
(ii) consult with Business Manager as to the advisability of Business Manager's
taking of legally available steps to resist or narrow such request. Practice
further agrees that if, in the absence of a protective order or the receipt of a
waiver hereunder, Practice is nonetheless, in the written opinion of its legal
counsel, compelled to disclose or produce Confidential Information concerning
Business Manager to any tribunal or to stand liable for contempt or suffer other
censure or penalty, Practice may disclose or produce such Confidential
Information to such tribunal legally authorized to request and receive such
Confidential Information without liability hereunder; provided, however, that
Practice shall give Business Manager written notice of the Confidential
Information to be so disclosed or produced, and a copy of the request therefor,
as far in advance of its disclosure or production as is practicable and shall
use its best efforts to obtain, to the greatest extent practicable, an order or
other reliable assurance that confidential treatment will be accorded to such
Confidential Information so required to be disclosed or produced.
5.7 Noncompetition. Practice hereby recognizes and acknowledges that
--------------
Business Manager will incur substantial costs in providing the equipment,
support services, personnel, management, administration, and other items and
services that are the subject matter of this Management Services Agreement and
that in the process of providing services under this Management Services
Agreement, Practice will be privy to financial and Confidential Information of
Business Manager and other Regional Practices, to which Practice would not
otherwise be exposed. The parties also recognize that the services to be
provided by Business Manager will be feasible only if Practice operates an
active practice to which Physicians associated with Practice devote their full
professional time and attention. Practice agrees and acknowledges that the
noncompetition covenants described hereunder are necessary for the protection of
Business Manager, and that Business Manager would not have entered into this
Management Services Agreement without the following covenants:
(a) During the Term of this Management Services Agreement and except
for the performance of Medical Services and ancillary services at the Office as
contemplated by this Management Services Agreement or as expressly agreed to by
Business Manager in writing, Practice shall not establish, operate or provide
Medical Services at a medical office, clinic or other health care facility
anywhere within the Practice Territory. During the Term of this Management
Services Agreement and except for the operation of the Dispensary Business at
Offices contemplated by, or subject to, this Management Services Agreement or as
expressly agreed to by Business Manager in writing, Practice shall not
establish, operate or engage in a Dispensary Business at any other office or
facility.
(b) Except as specifically agreed to by Business Manager in writing,
Practice commits and agrees that during the Term of this Management Services
Agreement and for a period of five (5) years from the termination date of this
Management Services Agreement, except in the event Practice terminates this
Management Services Agreement for cause pursuant to Section 7.2(b) hereof,
Practice shall not directly or indirectly own (excluding ownership of less five
percent (5%) of the equity of any publicly traded entity), manage, operate,
control, or otherwise
29
<PAGE>
be associated with, lend funds to, lend its name to, or maintain any interest
whatsoever in any enterprise (i) having to do with the provision, distribution,
promotion or advertising of any type of management or administrative services or
products to third parties in competition with Business Manager; and/or (ii)
offering any type of service or product in the Practice Territory to third
parties similar to those offered by Business Manager to Practice.
Notwithstanding the above restriction, nothing herein shall prohibit Practice or
any of its holders from providing management and administrative services to its
or their own medical practices after the termination of this Management Services
Agreement.
(c) The written Employment Agreements described in Section 5.1 hereof
shall contain covenants of Physician-Shareholder whereby they agree not to
compete with Practice within the Practice Territory for one (1) year after
termination of the employment agreement, except in the event Physician
terminates such agreement for Physician Cause or certain buyout rights are
exercised.
(d) Practice shall obtain and enforce formal written agreements with
Physician-Employees and Optometrists in the form of Exhibit 5.2A, pursuant to
------------
which the employees agree not to compete with Practice within the Practice
Territory for one (1) year after termination of the employment agreement, except
in the event Physician terminates such agreement for Physician Cause.
(e) Practice understands and acknowledges that the provisions in
Section 5.6 hereof and this Section 5.7 are designed to preserve the goodwill of
Business Manager and the goodwill of the individual Physicians and Optometrists
of Practice. Accordingly, if Practice breaches any obligation of Section 5.6
hereof or this Section 5.7, in addition to any other remedies available under
this Management Services Agreement at law or in equity, Business Manager shall
be entitled to enforce this Management Services Agreement by injunctive relief
and by specific performance of the Management Services Agreement, such relief to
be without the necessity of posting a bond, cash or otherwise. Additionally,
nothing in this paragraph shall limit Business Manager's right to recover any
other damages to which it is entitled as a result of Practice's breach. If any
provision of the covenants herein is held by a court of competent jurisdiction
to be unenforceable due to an excessive time period, geographic area or
restricted activity, the covenant shall be reformed to comply with such time
period, geographic area or restricted activity that would be held enforceable.
5.8 Name, Trademark. Practice represents and warrants that Practice
---------------
conducts its professional practice under the name of, and only under the name of
"Illinois Eye Specialists," that such name is the name of Practice under state
law, and that Practice is the licensee of such name under the Contribution and
Exchange Agreement. Practice covenants and promises that, without the prior
written consent of Business Manager, Practice will not:
(a) take any action or omit to take any action that would result in
the change or loss of the name;
30
<PAGE>
(b) license, sell, give or otherwise transfer the name, or the right
to use the name, to any medical practice, physician, professional corporation or
any other entity; or
(c) cease conducting the professional practice of Practice under the
name.
5.9 Medical Advisory Board. The Operating Board of Business Manager has
----------------------
appointed a medical advisory board (the "Medical Advisory Board") to provide a
general forum for review and analysis of medical and clinical issues affecting
the Regional Practices and all other medical practices with which Business
Manager has entered into a Management Services Agreement or similar agreement.
The Medical Advisory Board consists of at least three Doctors of Ophthalmology,
one of whom is designated as the "Medical Director," and may include, at the
discretion of the Operating Board of Business Manager, one or more Doctors of
Optometry, Registered Nurses or other health care professionals. The Vice
President Clinical Operations of Business Manager, and/or such other designee as
Business Manager shall select, attends meetings of the Medical Advisory Board on
a consulting basis. Members of the Medical Advisory Board serve for one-year
terms and are appointed or re-appointed for such term during the first meeting
of the Operating Board of Business Manager held for each calendar year. The
Operating Board of Business Manager may name additional members, remove any
member, or fill any vacancy created by the resignation, death or disability of
any member, of the Medical Advisory Board during any duly called meeting of such
Operating Board. Notwithstanding anything to the contrary contained herein, the
Medical Advisory Board will serve in a solely advisory capacity and the ultimate
authority over medical decisions affecting Practice shall reside with Practice's
Physician-Shareholders.
5.10 Indemnification of Business Manager. Practice shall hold Business
-----------------------------------
Manager, its Affiliates, Representatives, successors and assigns and each of
them harmless from and against any and all losses, damages, fines, costs,
claims, judgments, proceedings, expenses or liabilities (including, without
limitation, reasonable attorneys' fees, paralegal fees, and costs and expenses
thereof) arising out of, or attributable to, or which result from any claim of a
third party with respect to the operation of the Dispensary Business or the
performance of Medical Services performed by Practice (including, without
limitation, malpractice claims), except to the extent that any damages or losses
are attributable to the negligence, gross negligence or willful misconduct of
Business Manager or its employees and agents.
ARTICLE VI
FINANCIAL ARRANGEMENT
6.1 Definitions.
-----------
31
<PAGE>
(a) Dispensary Business Budgeted Office Expense. The term "Dispensary
-------------------------------------------
Business Budgeted Office Expense" shall mean, for any month, the Dispensary
Business Office Expense (other than the Dispensary Business Management Fee)
established in the Budget for such month.
(b) Dispensary Business Budgeted Practice Expense. The term
---------------------------------------------
"Dispensary Business Budgeted Practice Expense" shall mean, for any month, the
Dispensary Business Practice Expense (as defined in the Budget) established in
the Budget for such month.
(c) Dispensary Business Budgeted Revenue. The term "Dispensary
------------------------------------
Business Budgeted Revenue" shall mean, for any month, the Dispensary Business
Revenue established in the Budget for such month.
(d) Dispensary Business Management Fee. The term "Dispensary Business
----------------------------------
Management Fee" shall be, for any month, the * , except in the event that
either (i) * or (ii) * , in which case the "Dispensary Business
Management Fee" for such month shall be * .
(e) Dispensary Business Monthly Fee. The term "Dispensary Business
-------------------------------
Monthly Fee" shall be for any month, the * for such month.
(f) Dispensary Business Monthly Office Expense. The term "Dispensary
------------------------------------------
Business Monthly Office Expense" for any month shall mean the amount of
Dispensary Business Budgeted Office Expense for such month, plus or minus any
difference between (i) the actual Dispensary Business Office Expense incurred by
or on behalf of Practice for the previous month (other than the Dispensary
Business Management Fee) and (ii) Dispensary Business Budgeted Office Expense
for the previous month.
(g) Dispensary Business Monthly Practice Expense. The term
--------------------------------------------
"Dispensary Business Monthly Practice Expense" shall mean, for any month, the
* for such month, except in the event that either (i) * or (ii) *
, in which case the term "Dispensary Business Monthly Practice Expense" for such
month shall mean * .
(h) Dispensary Business Office Expense. The term "Dispensary Business
----------------------------------
Office Expense" shall mean all Office Expenses, operating and non-operating,
which constitute direct expenses to produce Dispensary Business Revenue, as
determined consistent with the Budget; provided that any disagreement over
whether an expense constitutes a direct expense to produce Dispensary Business
Revenue shall be resolved by the Policy Board.
- -----------------
* Confidential portions omitted and filed separately with the commission.
* Confidential portions omitted and filed separately with the commission.
32
<PAGE>
(i) Management Fee The term "Management Fee" shall mean, for any
--------------
month, the sum of the Dispensary Business Management Fee for such month and the
Principal Services Management Fee for such month.
(j) Monthly Office Expense The term "Monthly Office Expense" shall
----------------------
mean, for any month, the sum of the Dispensary Business Monthly Office Expense
for such month and the Principal Services Monthly Office Expense for such month.
(k) Monthly Practice Expense The term "Monthly Practice Expense"
------------------------
shall mean, for any month, the sum of the Dispensary Business Monthly Practice
Expense for such month and the Principal Services Monthly Practice Expense for
such month.
(l) Principal Services Budgeted Office Expense. The term "Principal
------------------------------------------
Services Budgeted Office Expense" shall mean, for any month, the Principal
Services Office Expense (other than the Principal Services Management Fee)
established in the Budget for such month.
(m) Principal Services Budgeted Practice Expense. The term
--------------------------------------------
"Principal Services Budgeted Practice Expense" shall mean, for any month, the
Principal Services Practice Expense (as defined in the Budget) established in
the Budget for such month.
(n) Principal Services Budgeted Revenue. The term "Principal
-----------------------------------
Services Budgeted Revenue" shall mean, for any month, the amount of Principal
Services Revenue established in the Budget for such month.
(o) Principal Services Management Fee. The term "Principal Services
---------------------------------
Management Fee" shall be, for any month, the * , except in the event that
either (i) * or (ii) * , in which case the "Principal Services
Management Fee" for such month shall be * .
(p) Principal Services Monthly Fee. The term "Principal Services
------------------------------
Monthly Fee" shall mean, for any month, the * for such month.
(q) Principal Services Monthly Office Expense. The term "Principal
-----------------------------------------
Services Monthly Office Expense" shall mean, for any month, the amount of
Principal Services Budgeted Office Expense for such month, plus or minus any
difference between (i) the actual Principal Services Office Expense incurred by
or on behalf of Practice for [such] month (other than the Principal Services
Management Fee) and (ii) Principal Services Budgeted Office Expense for [such]
month.
- -------------------
* Confidential portions omitted and filed separately with the commission.
33
<PAGE>
(r) Principal Services Monthly Practice Expense. The term "Principal
-------------------------------------------
Services Monthly Practice Expense" shall mean, for any month, the * for
such month, except in the event that either (i) * or (ii) * , in
which case the term "Principal Services Monthly Practice Expense" for such month
shall mean * .
(s) Principal Services Office Expense. The term "Principal Services
---------------------------------
Office Expense" for any month shall mean all Office Expenses for such month
other than Dispensary Business Office Expenses for such month.
6.2 Management Fee Practice and Business Manager agree to the
--------------
compensation set forth herein as being paid to Business Manager in consideration
of a substantial commitment made by Business Manager hereunder and that such
fees are fair and reasonable, in the priority established by Section 4.9 hereof,
Business Manager will be paid the following:
(a) the amount of all Office Expense (other than the Dispensary
Business Management Fee and the Principal Services Management Fee) for the
previous month, paid on behalf of Practice; and
(b) the Management Fee for the previous month.
6.3 Reasonable Value Payment of the Management Fee is not intended to
----------------
be and shall not be interpreted or applied as permitting Business Manager to
share in Practice's fees for Medical Services or any other services, but is
acknowledged as the parties' negotiated agreement as to the reasonable fair
market value of the equipment, contract analysis and support, other support
services, purchasing, personnel, office space, management, administration,
strategic management and other items and services furnished by Business Manager
pursuant to this Management Services Agreement, after giving effect to the
nature and volume of the services required and the risks assumed by Business
Manager. The parties agree that it is appropriate to calculate and apply
separate fees for the management of the Dispensary Business and Principal
Services, due to (i) the amount of Business Manager Expense incurred by
Business Manager in connection with the management of the operations of the
Dispensary Business, (ii) the fair market value of the management services
provided by Business Manager with respect to each of the Dispensary Business and
financial services and (iii) the nature and volume of the services required and
the risks assumed by Business Manager with respect to each of the Dispensary
Business and Principal Services.
6.4 Payment of Management Fee. To facilitate the payment of the
-------------------------
Management Fee as provided in Section 6.2 hereof, and subject to the priority of
payment methodology set forth in Section 4.9 hereof, Practice hereby expressly
authorizes Business Manager to make withdrawals of the Management Fee from the
Depository Account as such fee becomes due and payable during the Term and
thereafter as provided in Section 7.3 hereof.
34
<PAGE>
6.5 Accounts Receivable. Unless otherwise prohibited by law, to assure
-------------------
that Practice receives the entire amount of professional fees for its services
and to assist Practice in maintaining reasonable cash flow for the payment of
Office Expense, Business Manager may purchase, with recourse to Practice for the
amount of the purchase (up to the amount of Adjusted Gross Revenue for such
month), the accounts receivable of Practice arising during the previous month
(the "Purchased Receivables") (i) in an amount equal to the difference, if any,
between (A) the sum of the Monthly Office Expense and the Monthly Practice
Expense paid or accrued by Business Manager for such month and (B) the amount of
cash collections deposited into the Depository Account during such month and
used to pay all or any portion of the Office Expenses and the Monthly Practice
Expense, by transferring such amount into the Depository Account, and (ii) in an
amount equal to the difference, if any, between the Management Fee and the
amount of cash collections deposited into the Depository Account during such
month and used to pay all or any portion of the Management Fee, in satisfaction
of Practice's obligation to pay Business Manager the Management Fee. The
consideration paid to Business Manager for the purchase shall be an amount equal
to the Principal Services Revenue and Dispensary Business an amount equal to the
Adjusted Gross Revenue with respect to the Purchased Receivables (according to
GAAP on an accrual basis net of Adjustments). Although it is the intention of
the parties that Business Manager purchase and thereby become the owner of the
Purchased Receivables of Practice, in the event such purchase shall be
ineffective for any reason, Practice is concurrently granting to Business
Manager a security interest in the Purchased Receivables, and Practice shall
cooperate with Business Manager and shall execute all documents in connection
with the pledge of the Purchased Receivables to Business Manager. All
collections in respect to the Purchased Receivables by Business Manager shall be
received by Business Manager as the agent of Practice and shall be endorsed to
Business Manager and deposited in a bank account at a bank designated by
Business Manager. To the extent Practice comes into possession of any payments
in respect of the Purchased Receivables, Practice shall direct such payments to
Business Manager for deposit in bank accounts designated by Business Manager.
6.6 Disputes Regarding Fees.
-----------------------
(a) It is the parties' intent that any disputes regarding Business
Manager's performance hereunder shall be resolved to the extent possible by good
faith negotiations. To that end, the parties agree that if Practice in good
faith believes that Business Manager has failed to perform its obligations, and
that as a result of such failure, Practice is entitled to a set-off or reduction
in its Management Fees, Practice shall give Business Manager notice of the
perceived failure and request in the notice a set-off or reduction in Management
Fees. Business Manager and Practice shall then negotiate the dispute in good
faith, and if an agreement is reached, the parties shall implement the
resolution without further action.
(b) If the parties cannot reach a resolution within thirty (30) days,
and the amount at issue is $25,000 or less, then the dispute shall be submitted
to the Policy Board. The Policy Board shall then consider, develop and
implement a resolution of such dispute which shall be final and binding upon
Practice and Business Manager.
35
<PAGE>
(c) If the amount in dispute is greater than $25,000, and Business
Manager and Practice fail to resolve the dispute, then such dispute shall be
submitted by either party to binding arbitration as described by Article X of
the Contribution and Exchange Agreement.
ARTICLE VII
TERM AND TERMINATION
7.1 Initial and Renewal Term. The Term of this Management Services
------------------------
Agreement will be for an initial period of forty (40) years after the Effective
Date, and shall be automatically renewed for successive five (5) year periods
thereafter, provided that neither Business Manager nor Practice shall have given
notice of termination of this Management Services Agreement at least one hundred
twenty (120) days before the end of the initial term or any renewal term, or
unless otherwise terminated as provided in Section 7.2 hereof.
7.2 Termination.
-----------
(a) Termination By Business Manager. Business Manager may terminate
-------------------------------
this Management Services Agreement upon the occurrence of any one of the
following events which shall be deemed to be "for cause:"
(i) The suspension, restriction, revocation or cancellation of
any Physician's license to practice medicine in the state of Illinois;
(ii) Practice's loss or suspension of its Medicare or Medicaid
provider number, and/or Practice's restriction from treating patients of
the Medicare or Medicaid programs;
(iii) The dissolution of Practice or the filing by Practice of a
petition in voluntary bankruptcy, an assignment for the benefit of
creditors, or other action taken voluntarily under any state or federal
statute for the protection of debtors;
(iv) The filing against Practice of an involuntary petition
under any bankruptcy statute, or the appointment of a custodian, receiver,
trustee or assignee for the benefit of creditors, and such condition shall
continue undischarged or undismissed for sixty (60) days; and
(v) Practice materially defaults in the performance of any of
its material duties or obligations hereunder, and shall fail to cure such
default within sixty (60) days after Practice receives notice from Business
Manager specifying the nature of such default.
(b) Termination By Practice. Practice may terminate this Management
-----------------------
Services Agreement upon any of the following occurrences which shall be deemed
to be "for cause":
36
<PAGE>
(i) In the event that an arbitrator pursuant to Section 8.6
hereof makes a final determination that Business Manager has materially
breached a fiduciary duty owed to Practice, Practice may terminate this
Management Services Agreement upon ten (10) days' notice to Business
Manager;
(ii) With ten (10) days' written notice to Business Manager, in
the event Business Manager (A) intentionally and in bad faith
misappropriates Practice's funds, or (B) fails to properly account
Practice's funds and fails to correct such accounting error within thirty
(30) days of receipt of notice from Practice describing with particularity
the error;
(iii) Business Manager materially defaults in the performance of
any of its duties or obligations pursuant to Sections 4.6 or 4.7 hereunder,
and shall fail to cure such default within one hundred fifty (150) days
after Business Manager receives notice from Practice; provided, however,
that any failure of NovaMed to comply with the last two sentences of
Section 4.7 hereof shall not be deemed a material breach for purposes of
this Section 7.2;
(c) Termination by Agreement. In the event Practice and Business
------------------------
Manager shall mutually agree in writing, this Management Services Agreement may
be terminated on the date specified in such written agreement.
(d) Legislative, Regulatory or Administrative Change. In the event
------------------------------------------------
there shall be a change in the Medicare or Medicaid statutes, state or federal
statutes, case law, regulations or general instructions, the interpretation of
any of the foregoing, the adoption of new federal or state legislation, or a
change in any third-party reimbursement system, any of which are reasonably
likely to materially and adversely affect the manner in which either party may
perform or be compensated for its services under this Management Services
Agreement or which shall make this Management Services Agreement unlawful, the
parties shall immediately enter into good faith negotiations regarding a new
service arrangement or basis for compensation for the services furnished
pursuant to this Management Services Agreement that complies with the law,
regulation or policy and that approximates as closely as possible the economic
position of the parties prior to the change. If good faith negotiations cannot
resolve the matter, it shall be submitted to arbitration as referenced in
Section 8.6 hereof. If a court of competent jurisdiction compels or requires a
party hereto to refrain from performing its duties and obligations hereunder, or
a party's performance hereunder shall be directly violative of a court order
directed at such party, then, to the extent necessary to comply with such court
order, this Management Services Agreement shall be deemed suspended. In no
event shall such suspension be construed to relieve either party's obligation
under this Section 7.2(d) and the parties will immediately commence good faith
negotiations regarding a new service arrangement or compensation structure that
is in compliance with any such court order, which arrangement or structure will
allocate the economic aspects of the relationship between the parties in a
manner as nearly as possible as that intended by this Management Services
Agreement.
37
<PAGE>
7.3 Effects of Termination. Upon termination of this Management
----------------------
Services Agreement, as heretofore provided, neither party shall have any further
obligations hereunder except for (i) obligations accruing prior to the date of
termination, including, without limitation, payment of the Management Fees,
Office Expense and Practice Expense relating to services provided prior to the
termination of this Management Services Agreement, (ii) obligations, promises or
covenants set forth herein that are expressly set forth herein to extend beyond
the Term under the circumstances giving rise to such termination, including,
without limitation, indemnity, confidentiality and noncompetition provisions,
which provisions shall survive the expiration or termination of this Management
Services Agreement by Business Manager for cause, and (iii) the applicable
obligations of Practice and Business Manager described in Section 7.4 or 7.5
hereof. In effectuating the provisions of this Section 7.3, Practice
specifically acknowledges and agrees that Business Manager shall continue to
collect and receive on behalf of Practice all cash collections from accounts
receivable in existence at the time this Management Services Agreement is
terminated, it being understood that such cash collections will be applied in
accordance with Section 4.9 hereof, and will represent, in part, compensation to
Business Manager for management services already rendered and compensation on
accounts receivable purchased by Business Manager. Upon the expiration or
termination of this Management Services Agreement for any reason or cause
whatsoever, Business Manager shall surrender to Practice all books and records
pertaining to Practice's medical practice.
7.4 Repurchase Obligation. Upon termination of this Management
---------------------
Services Agreement by Business Manager for cause or by Practice without cause,
Business Manager shall have the right, but not the obligation, to require
Practice to comply with the terms and conditions of this Section 7.4. In the
event Business Manager exercises such right by delivering written notice to
Practice within sixty (60) days of such termination, then Practice shall be
required to:
(a) Purchase from Business Manager at fair market value the intangible
assets, deferred charges and all other amounts on the books of Business Manager
relating to the Management Services Agreement as adjusted, through the last day
of the month most recently ended prior to the date of such termination in
accordance with GAAP to reflect amortization or depreciation of the intangible
assets, deferred charges or covenants;
(b) Purchase from Business Manager any real estate owned by Business
Manager and used as an Office at the fair market value thereof. In the event of
any repurchase of real property, the appraised value shall be determined by
Business Manager and Practice, each selecting a duly qualified appraiser, who in
turn will agree on a third appraiser. This agreed-upon appraiser shall perform
the appraisal which shall be binding on both parties. In the event either party
fails to select an appraiser within fifteen (15) days of the selection of an
appraiser by the other party, the appraiser selected by the other party shall
make the selection of the third-party appraiser;
38
<PAGE>
(c) Purchase at the fair market value all improvements, additions, or
leasehold improvements that have been made by Business Manager at any Office and
that relate solely to the performance of Business Manager's obligations under
this Management Services Agreement;
(d) Assume all debt and all contracts, payables and leases that are
obligations of Business Manager and that relate principally to the performance
of Business Manager's obligations under this Management Services Agreement or
the properties leased or subleased hereunder as an Office by Business Manager;
and
(e) Purchase from Business Manager at the fair market value all of the
equipment listed in the Contribution and Exchange Agreement or an exhibit
thereto, including all replacements and additions thereto made by Business
Manager pursuant to the performance of its obligations under this Management
Services Agreement, and all other assets, including inventory and supplies, and
tangibles and intangibles, set forth on the books of Business Manager as
adjusted through the last day of the month most recently ended prior to the date
of such termination in accordance with GAAP to reflect operations of the Office,
depreciation, amortization and other adjustments of assets shown on the books of
Business Manager.
In the event Business Manager exercises its rights pursuant to this Section 7.4,
Practice shall have the obligation to purchase all, and not less than all, of
the items listed in subparagraphs (a) through (e) above. In no event, however,
shall this Section 7.4 be construed as enabling Practice to repurchase any
assets acquired by Business Manager pursuant to the Contribution and Exchange
Agreement, which relate directly or indirectly to the ambulatory surgical center
owned and operated by Eyes of Illinois Surgery Center, S.C. immediately prior to
the Effective Date of the Contribution and Exchange Agreement (the "ASC
Assets"). The ASC Assets are expressly excluded from the assets enumerated in
subparagraphs (a) through (e) above and Practice shall have no right to
repurchase the ASC Assets under this Section 7.4 unless Business Manager shall
so elect in writing, in which case Practice shall be required to repurchase the
ASC Assets at the greater of the then book or fair market value. For purposes
of this Article VII, "fair market value" of a particular item shall be an amount
mutually agreed upon by Practice and Business Manager. If Practice and Business
Manager are unable to reach agreement on such value after ten (10) days of
deliberations, then such fair market value shall be determined by an
independent, duly qualified appraiser mutually agreed upon by Practice and
Business Manager. If Practice and Business Manager cannot agree upon an
appraiser within ten (10) days, then each party shall select a duly qualified
appraiser, who in turn will select a third appraiser. This agreed-upon
appraiser shall perform the appraisal which shall be binding upon both parties.
All expenses of such appraisal shall be borne fifty percent (50%) by Business
Manager and fifty percent (50%) by Practice.
7.5 Repurchase Option. Upon termination of this Management Services
-----------------
Agreement by Practice for cause pursuant to Section 7.2(b) hereof, Practice
shall have the right, but not the obligation, to:
39
<PAGE>
(a) Purchase from Business Manager at fair market value the intangible
assets, deferred charges and all other amounts on the books of Business Manager
relating to the Management Services Agreement as adjusted, through the last day
of the month most recently ended prior to the date of such termination in
accordance with GAAP to reflect amortization or depreciation of the intangible
assets, deferred charges or covenants;
(b) Purchase from Business Manager any real estate owned by Business
Manager and used as an Office at the appraised fair market value thereof. In
the event of any repurchase of real property, the appraised value shall be
determined in accordance with the appraisal mechanism described in Section 7.4
hereof;
(c) Purchase at fair market value all improvements, additions or
leasehold improvements that have been made by Business Manager at any Office and
that relate solely to the performance of Business Manager's obligations under
this Management Services Agreement;
(d) Assume all debt and all contracts, payables and leases that are
obligations of Business Manager and that relate principally to the performance
of Business Manager's obligations under this Management Services Agreement or
the properties leased or subleased by Business Manager; and
(e) Purchase from Business Manager at fair market value all of the
equipment listed in the Contribution and Exchange Agreement or an exhibit
thereto, including all replacements and additions thereto made by Business
Manager pursuant to the performance of its obligations under this Management
Services Agreement, and all other tangible assets, including inventory and
supplies, set forth on the books of Business Manager as adjusted through the
last day of the month most recently ended prior to the date of such termination
in accordance with GAAP to reflect operations of the Office, depreciation,
amortization and other adjustments of assets shown on the books of Business
Manager.
In the event Practice exercises its rights pursuant to this Section 7.5,
Practice shall have the obligation to purchase all, and not less than all, of
the items listed in subparagraphs (a) through (e). In no event, however, shall
this Section 7.5 be construed as enabling Practice to repurchase any assets
acquired by Business Manager pursuant to the Contribution and Exchange
Agreement, which relate directly or indirectly to the ASC Assets. The ASC
Assets are expressly excluded from the assets enumerated in subparagraphs (a)
through (e) above and Practice shall have no right to repurchase the ASC Assets
under this Section 7.5 unless Business Manager shall so elect in writing, in
which case Practice shall be required to repurchase the ASC Assets at the
greater of the then book or fair market value. In lieu of paying cash for the
items described in this Section 7.5, Practice shall have the option of: (i)
offsetting the cash amount required pursuant to this Section 7.5 against the
outstanding balance due and owing under the Note (as such term is defined in the
Contribution and Exchange Agreement); or (ii) contributing to Business Manager
that number of Exchange Shares (as such term is defined in the Contribution and
Exchange Agreement) which, based on the then fair market value of such units
(determined in accordance
40
<PAGE>
with a consistent application of the valuation procedure established under
Section 7.01(d) of the Contribution and Exchange Agreement), equals the cash
amount required pursuant to this Section 7.5.
7.6 Closing of Repurchase. Except as expressly provided in Section
---------------------
7.5 hereof, Practice shall pay cash for the repurchased assets. The amount of
the purchase price shall be reduced by the amount of debt and liabilities of
Business Manager, if any, assumed by Practice. Practice and, if required by
law, any Physician associated with Practice, shall execute such documents as may
be required, (i) for Practice to assume the liabilities set forth in Section
7.4(d) or 7.5(d) hereof, as applicable, and (ii) for Practice to indemnify or
remove Business Manager from any liability with respect to such repurchased
asset and with respect to any property leased or subleased by Business Manager.
Business Manager shall execute such documents as may be required to convey the
assets, free and clear of all liens (except for those liens assumed by
Practice). The closing date for the repurchase shall be determined by mutual
agreement of Practice and Business Manager but shall in no event occur later
than one hundred eighty (180) days from the date of the notice of termination.
The termination of this Management Services Agreement shall become effective
upon the closing of the sale of the assets under Section 7.4 or 7.5 hereof, as
the case may be, and all parties shall be released from any restrictive
covenants provided for in Section 5.7 hereof on such closing date. From and
after any termination, each party shall provide the other party with reasonable
access to the books and records then owned by it to permit such requesting party
to satisfy reporting and contractual obligations that may be required of it.
7.7 Rights and Remedies. In the event of a material breach of this
-------------------
Management Services Agreement by either party hereunder, the nonbreaching party
shall have, in addition to any other rights and remedies contained in this
Management Services Agreement, all rights and remedies available to such party
at law or equity. Without limiting the generality of the foregoing, the parties
acknowledge and agree that Business Manager entered into this Management
Services Agreement with the understanding that the Term of this Management
Services Agreement would be forty years. In the event of a material breach
hereunder by Practice, the parties acknowledge and agree that the actual damages
to be suffered by Business Manager will be difficult to ascertain. Practice
recognizes that, in the event Practice shall fail to perform, observe or
discharge any of its duties, obligations or liabilities under this Management
Services Agreement, any remedy at law may prove to be inadequate relief to
Business Manager. Therefore, Practice agrees that, if Business Manager so elects
and in addition to any other remedies available at law or equity, Business
Manager shall be entitled to temporary and permanent injunctive relief in any
such case without the necessity of proving actual damages, or to specific
performance of any provision hereof. In addition to all other remedies of
Business Manager for any material breach hereunder by Practice, and without
limiting any and all rights set forth herein, Business Manager may set-off any
and all amounts which are due or which Business Manager reasonably believes will
become due and owing to Business Manager under this Agreement, against any and
all amounts which are due and owing under the Note. Such rights of set-off
shall be governed by the terms and conditions set forth in the Note.
41
<PAGE>
7.8 Interpretation. The purpose and intent of this Article VII is to
--------------
establish the limited instances in which a party may terminate this Management
Services Agreement. Unless the parties mutually agree to terminate this
Management Services Agreement, neither party shall be entitled to terminate this
Management Services Agreement prior to the expiration of the Term unless a
party's breach gives rise to a termination "for cause" pursuant to Section
7.2(a) or (b) hereof, as the case may be. Nothing in this Agreement (including
Section 7.4 hereof) shall be construed as permitting Practice to terminate this
Agreement without cause.
ARTICLE VIII
MISCELLANEOUS
8.1 Administrative Services Only. Nothing in this Management
----------------------------
Services Agreement is intended or shall be construed to allow Business Manager
to exercise control or direction over the manner or method by which Practice and
its Physicians and Optometrists perform Medical Services or other professional
health care services. The rendition of all Medical Services, including, but not
limited to, the prescription or administration of medicine and drugs shall be
the sole responsibility of Practice and its Physicians and Optometrists, and
Business Manager shall not interfere in any manner or to any extent therewith.
Nothing contained herein shall be construed to permit Business Manager to engage
in the practice of medicine, it being the sole intention of the parties hereto
that the services to be rendered to Practice by Business Manager are solely for
the purpose of providing nonmedical management and administrative services to
Practice to enable Practice to devote its full time and energies to the
professional conduct of its medical practice and provision of Medical Services
to its patients and not to administration or practice management. Practice,
through the Physicians and Optometrists, shall be responsible for and shall have
complete authority, responsibility, supervision and control over the opticians
and other employees of Business Manager providing services in connection with
the Dispensary Business, consistent with the requirements necessary to satisfy
the "in-office ancillary service exception" to the Stark Act.
8.2 Status of Contractor. It is expressly acknowledged that the
--------------------
parties hereto are "independent contractors," and nothing in this Management
Services Agreement is intended and nothing shall be construed to allow either
party to exercise control or direction over the manner or method by which the
other party performs the services that are the subject matter of this Management
Services Agreement; provided that the services to be provided hereunder shall be
furnished in a manner consistent with the standards governing such services and
the provisions of this Management Services Agreement. Each party understands
and agrees that (i) neither party will withhold on behalf of the other party any
sums for income tax, unemployment insurance, social security or any other
withholding pursuant to any law or requirement of any governmental body or make
available any of the benefits afforded to its employees, (ii) all of such
payments, withholdings and benefits, if any, are the sole responsibility of the
party incurring the liability, and (iii) each party will indemnify and hold the
other harmless from any and all loss or liability arising with respect to such
payments, withholdings and benefits, if any.
42
<PAGE>
8.3 Notices. Any notice, demand or communication required, permitted
-------
or desired to be given hereunder shall be in writing and shall be served on the
parties at the following respective addresses:
Practice:
Illinois Eye Specialists, Ltd.
12 Nameoki Village
Granite City, Illinois 62040
Facsimile: (618) 288-4583
Attention: Edward A. Doisy, III, M.D.
Donald C. Schnellmann, M.D.
with a copy to:
Stark & Knoll
1512 Ohio Edison Building
76 South Main Street
Akron, Ohio 44308
Facsimile: (330) 376-6237
Attention: Michael L. Stark, Esq.
Business Manager:
NovaMed Eyecare Management, LLC
980 North Michigan Avenue, Suite 1620
Chicago, Illinois 60611
Facsimile: (312) 664-4250
Attention: Stephen J. Winjum
John W. Lawrence, Jr.
with a copy to:
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661
Facsimile: (312) 902-1061
Attention: Steven V. Napolitano, Esq.
or to such other address, or to the attention of such other person or officer,
as any party may by written notice designate. Any notice, demand, or
communication required, permitted or desired to be given hereunder shall be sent
either (a) by hand delivery, in which case notice shall be deemed received when
actually delivered, (b) by prepaid certified or registered first class mail,
43
<PAGE>
return receipt requested, in which case notice shall be deemed received five
calendar days after deposit, postage prepaid in the United States Mail, (c) by
facsimile if also delivered by hand, or deposited in the United States Mail,
postage prepaid, registered or certified mail, on or before two (2) business
days after its delivery by facsimile, in which case notice shall be deemed
received one (1) business day after the facsimile transmission, or (d) by a
nationally recognized overnight courier, in which case notice shall be deemed
received one business day after prepaid deposit with such courier.
8.4 Governing Law. This Management Services Agreement shall be
-------------
governed by the laws of the State of Illinois applicable to agreements to be
performed wholly within the State of Illinois.
8.5 Assignment. Except as may be herein specifically provided to the
----------
contrary, this Management Services Agreement shall inure to the benefit of, and
be binding upon, the parties hereto and their respective legal representatives,
successors and permitted assigns; provided, however, Practice may not assign
this Management Services Agreement without the prior written consent of Business
Manager, which consent may be withheld in Business Manager's discretion. The
sale, transfer, pledge or assignment of any of the voting shares of Practice
held by any shareholder of Practice or the issuance by Practice of common or
other voting shares to any other person, or any combination of such transactions
within a period of one (1) year, such that the existing shareholders in Practice
immediately prior to such transactions or the beginning of the one-year period,
as applicable, fail to maintain a majority of the voting interests in Practice
shall be deemed an attempted assignment by Practice, and shall be null and void
unless consented to in writing by Business Manager prior to any such transfer or
issuance. Any breach of this provision, whether or not void or voidable, shall
constitute a material breach of this Management Services Agreement, and in the
event of such breach, Business Manager may terminate this Management Services
Agreement upon twenty-four (24) hours' notice to Practice. The rights and
obligations of Business Manager under this Management Services Agreement shall
not be assignable without Practice Consent; provided, however, that Business
Manager shall have the right to assign its rights, duties and obligations
hereunder, without Practice Consent: (i) to any Affiliate of Business Manager
or (ii) in connection with and in contemplation of a reorganization, merger,
consolidation or sale of all or substantially all of the capital stock or assets
of Business Manager (or any other transaction substantially similar in effect).
Moreover, Business Manager shall have the right to collaterally assign its
interest in this Management Services Agreement and its other rights hereunder to
any financial institution or other third party without Practice Consent.
8.6 Arbitration. Except as expressly provided in Section 6.6 hereof,
-----------
the parties shall negotiate in good faith to resolve any controversy, dispute or
disagreement arising out of or relating to this Management Services Agreement or
the breach of this Management Services Agreement. Any matter not resolved by
negotiation shall be submitted to binding arbitration and such arbitration shall
be governed by the terms of Article X of the Contribution and Exchange
Agreement, which, as it applies to the parties hereto, is incorporated herein by
reference in its
44
<PAGE>
entirety; provided, however, that nothing contained in this Section 8.6 shall
prevent either party hereto from pursuing any right or remedy afforded it under
Section 7.7 hereof.
8.7 Waiver of Breach. The waiver by either party of a breach or
----------------
violation of any provision of this Management Services Agreement shall not
operate as, or be construed to constitute, a waiver of any subsequent breach of
the same or another provision hereof.
8.8 Enforcement. In the event either party resorts to legal action
-----------
to enforce or interpret any provision of this Management Services Agreement, the
prevailing party shall be entitled to recover the costs and expenses of such
action so incurred, including, without limitation, reasonable attorneys' fees.
8.9 Gender and Number. Whenever the context of this Management
-----------------
Services Agreement requires, the gender of all words herein shall include the
masculine, feminine and neuter, and the number of all words herein shall include
the singular and plural.
8.10 Additional Assurances. Except as may be specifically provided
---------------------
herein to the contrary, the provisions of this Management Services Agreement
shall be self-operative and shall not require further agreement by the parties;
provided, however, at the request of either party, the other party shall execute
such additional instruments and take such additional acts as are reasonable, and
as the requesting party may reasonably deem necessary, to effectuate this
Management Services Agreement.
8.11 Consents, Approvals, and Exercise of Discretion. Whenever this
-----------------------------------------------
Management Services Agreement requires any consent or approval to be given by
either party, or either party must or may exercise discretion, and except where
specifically set forth to the contrary, the parties agree that such consent or
approval shall not be unreasonably withheld or delayed, and that such discretion
shall be reasonably exercised.
8.12 Force Majeure. Neither party shall be liable or deemed to be in
-------------
default for any delay or failure in performance under this Management Services
Agreement or other interruption of service deemed to result, directly or
indirectly, from acts of God, civil or military authority, acts of public enemy,
war, accidents, explosions, earthquakes, floods, failure of transportation,
strikes or other work interruptions by either party's employees, or any other
similar cause beyond the reasonable control of either party unless such delay or
failure in performance is expressly addressed elsewhere in this Management
Services Agreement.
8.13 Severability. The parties hereto have negotiated and prepared
------------
the terms of this Management Services Agreement in good faith with the intent
that each and every one of the terms, covenants and conditions herein be binding
upon and inure to the benefit of the respective parties. Accordingly, if any
one or more of the terms, provisions, promises, covenants or conditions of this
Management Services Agreement or the application thereof to any person or
circumstance shall be adjudged to any extent invalid, unenforceable, void or
voidable for any
45
<PAGE>
reason whatsoever by a court of competent jurisdiction or an arbitration
tribunal, such provision shall be as narrowly construed as possible, and each
and all of the remaining terms, provisions, promises, covenants and conditions
of this Management Services Agreement or their application to other persons or
circumstances shall not be affected thereby and shall be valid and enforceable
to the fullest extent permitted by law. To the extent this Management Services
Agreement is in violation of applicable law, then the parties agree to negotiate
in good faith to amend the Management Services Agreement, to the extent possible
consistent with its purposes, to conform to law.
8.14 Divisions and Headings. The divisions of this Management
----------------------
Services Agreement into articles, sections and subsections, and the use of
captions and headings in connection therewith is solely for convenience and
shall not affect in any way the meaning or interpretation of this Management
Services Agreement.
8.15 Amendments and Management Services Agreement Execution. This
------------------------------------------------------
Management Services Agreement and amendments hereto shall be in writing and
executed in multiple copies on behalf of Practice and Business Manager by their
respective duly authorized officers. Each multiple copy shall be deemed an
original, but all multiple copies together shall constitute one and the same
instrument.
8.16 Entire Management Services Agreement. With respect to the
------------------------------------
subject matter of this Management Services Agreement, this Management Services
Agreement supersedes all previous contracts and constitutes the entire agreement
between the parties. Neither party shall be entitled to benefits other than
those specified herein. No prior oral statements or contemporaneous
negotiations or understandings or prior written material not specifically
incorporated herein shall be of any force and effect, and no changes in or
additions to this Management Services Agreement shall be recognized unless
incorporated herein by amendment as provided herein, such amendment to become
effective on the date stipulated in such amendment. The parties specifically
acknowledge that, in entering into and executing this Management Services
Agreement, the parties rely solely upon the representations and agreements
contained in this Management Services Agreement and no others.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
46
<PAGE>
IN WITNESS WHEREOF, Practice and Business Manager have caused this
Management Services Agreement to be executed by their duly authorized
representatives, all as of the day and year first above written.
PRACTICE:
ILLINOIS EYE SPECIALISTS, LTD.
an Illinois professional corporation
By: /s/ Donald C. Schnellmann, M.D., Edward A. Doisy, III, M.D.
_______________________________________________________
Name: Donald C. Schnellmann, M.D., Edward A. Doisy, III, M.D.
_______________________________________________________
Title: President, Medical Director
___________________________________
BUSINESS MANAGER:
NOVAMED EYECARE MANAGEMENT, LLC,
a Delaware limited liability Company
By: /s/ Stephen J. Winjum
______________________________________
Stephen J. Winjum,
President and Chief Executive Officer
<PAGE>
EXHIBIT 1.6
BUDGET
*
- ----------------
* Confidential portions omitted and filed separately with the commission.
<PAGE>
Illinois Eye Specialists
- --------------------------------------------------------------------------------
1999 MSA Budget
<TABLE>
<CAPTION>
Description Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
- ---------------------------------- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Practice * * * * * * * * * * * *
* * * * * * * * * * * *
Revenue * * * * * * * * * * * *
Practice revenue * * * * * * * * * * * *
ASC facility revenue * * * * * * * * * * * *
Optical revenue - glasses * * * * * * * * * * * *
Optical revenue - contacts * * * * * * * * * * * *
Optometric revenue * * * * * * * * * * * *
Other revenue * * * * * * * * * * * *
Contractual adjustments * * * * * * * * * * * *
* * * * * * * * * * * *
Other Revenue * * * * * * * * * * * *
* * * * * * * * * * * *
Budgeted Principal Services Revenue * * * * * * * * * * * *
* * * * * * * * * * * *
Expenses * * * * * * * * * * * *
* * * * * * * * * * * *
Salaries and Wages: * * * * * * * * * * * *
Center Staff Salaries: * * * * * * * * * * * *
Administration * * * * * * * * * * * *
Technician * * * * * * * * * * * *
Nurses * * * * * * * * * * * *
Other salaries * * * * * * * * * * * *
Overtime pay * * * * * * * * * * * *
* * * * * * * * * * * *
Payroll Taxes & Benefits * * * * * * * * * * * *
Vacation & leave pay * * * * * * * * * * * *
Bonuses * * * * * * * * * * * *
Incentive commpensation * * * * * * * * * * * *
FICA Tax * * * * * * * * * * * *
SUI * * * * * * * * * * * *
FUI * * * * * * * * * * * *
Other payroll taxes * * * * * * * * * * * *
Labor allocation * * * * * * * * * * * *
401k Match * * * * * * * * * * * *
Life & Disability ins. * * * * * * * * * * * *
Employee Health ins. * * * * * * * * * * * *
* * * * * * * * * * * *
Benefit % * * * * * * * * * * * *
Total Salaries & Wages * * * * * * * * * * * *
* * * * * * * * * * * *
MD/OD Compensation * * * * * * * * * * * *
* * * * * * * * * * * *
* * * * * * * * * * * *
Pharmaceuticals and supplies: * * * * * * * * * * * *
Practice supplies * * * * * * * * * * * *
ASC - general * * * * * * * * * * * *
ASC - refractive * * * * * * * * * * * *
Pillar point fees * * * * * * * * * * * *
Optical COS - glasses * * * * * * * * * * * *
Optical COS - contacts * * * * * * * * * * * *
Optometric supplies * * * * * * * * * * * *
Total Pharmac. & Supplies * * * * * * * * * * * *
Practice * * * * * * * * * * * *
G&A expenses: * * * * * * * * * * * *
* * * * * * * * * * * *
</TABLE>
<TABLE>
<CAPTION>
Description Total 1998 %
- ---------------------------------- ---------------
<S> <C> <C>
Practice * * * * *
* * * * *
Revenue * * * * *
* * * * *
Practice revenue * * * * *
ASC facility revenue * * * * *
Optical revenue - glasses * * * * *
Optical revenue - contacts * * * * *
Optometric revenue * * * * *
Other revenue * * * * *
Contractual adjustments * * * * *
* * * * *
* * * * *
Other Revenue * * * * *
* * * * *
Budgeted Principal Services Revenue * * * * *
* * * * *
Expenses * * * * *
Salaries and Wages: * * * * *
Center Staff Salaries: * * * * *
Administration * * * * *
Technician * * * * *
Nurses * * * * *
Other salaries * * * * *
Overtime pay * * * * *
* * * * *
Payroll Taxes & Benefits * * * * *
Vacation & leave pay * * * * *
Bonuses * * * * *
Incentive compensation * * * * *
FICA Tax * * * * *
SUI * * * * *
FUI * * * * *
Other payroll taxes * * * * *
Labor allocation * * * * *
401k Match * * * * *
Life & Disability ins. * * * * *
Employee Health ins. * * * * *
* * * * *
Benefit % * * * * *
Total Salaries & Wages * * * * *
* * * * *
MD/OD Compensation * * * * *
* * * * *
* * * * *
Pharmaceuticals and supplies: * * * * *
Practice supplies * * * * *
ASC - general * * * * *
ASC - refractive * * * * *
Pillar point fees * * * * *
Optical COS - glasses * * * * *
Optical COS - contacts * * * * *
Optometric supplies * * * * *
Total Pharmac. & Supplies * * * * *
Practice * * * * *
G&A expenses: * * * * *
* * * * *
</TABLE>
* Confidential portions omitted and filed separately with the commission.
15
<PAGE>
Illinois MSA Specialists
- --------------------------------------------------------------------------------
1999 MSA Budget
<TABLE>
<CAPTION>
Description Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
- ---------------------------------- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Office & Administrative: * * * * * * * * * * * *
Office Supplies * * * * * * * * * * * *
---------------
Office supplies * * * * * * * * * * * *
Software/computer expense * * * * * * * * * * * *
Food service * * * * * * * * * * * *
Bank charges * * * * * * * * * * * *
Credit card fees * * * * * * * * * * * *
* * * * * * * * * * * *
Postage & freight * * * * * * * * * * * *
Employee & patient programs * * * * * * * * * * * *
Continuing education * * * * * * * * * * * *
Dues and subscriptions * * * * * * * * * * * *
Telephone * * * * * * * * * * * *
Utilities * * * * * * * * * * * *
Printing * * * * * * * * * * * *
Misc. office expense * * * * * * * * * * * *
Total office & Admin. Expenses * * * * * * * * * * * *
* * * * * * * * * * * *
* * * * * * * * * * * *
Marketing: * * * * * * * * * * * *
Advertising * * * * * * * * * * * *
Marketing - Other * * * * * * * * * * * *
Total Marketing * * * * * * * * * * * *
* * * * * * * * * * * *
* * * * * * * * * * * *
Professional and Service Fees: * * * * * * * * * * * *
Legal * * * * * * * * * * * *
Accounting * * * * * * * * * * * *
Other prof. consulting * * * * * * * * * * * *
Collection fees * * * * * * * * * * * *
Answering service * * * * * * * * * * * *
Linens & uniforms * * * * * * * * * * * *
Other services * * * * * * * * * * * *
Temporary services * * * * * * * * * * * *
Total Professional Fees * * * * * * * * * * * *
* * * * * * * * * * * *
* * * * * * * * * * * *
Rental Expense: * * * * * * * * * * * *
Building rent * * * * * * * * * * * *
Other office rent & parking * * * * * * * * * * * *
Equipment leases * * * * * * * * * * * *
Optical equipment rent * * * * * * * * * * * *
Total Rent Expense * * * * * * * * * * * *
* * * * * * * * * * * *
* * * * * * * * * * * *
Repairs and Maintenance: * * * * * * * * * * * *
Building maintenance * * * * * * * * * * * *
Repairs - equipment * * * * * * * * * * * *
Non-capitalized tools * * * * * * * * * * * *
Total Repairs & Maint. * * * * * * * * * * * *
Practice * * * * * * * * * * * *
* * * * * * * * * * * *
Taxes and Insurance: * * * * * * * * * * * *
Malpractice * * * * * * * * * * * *
Liability & casualty * * * * * * * * * * * *
Workers' compensation ins. * * * * * * * * * * * *
</TABLE>
<TABLE>
<CAPTION>
Description Total 1998 %
- ---------------------------------- ---------------
<S> <C> <C>
Office & Administrative: * * * * *
Office Supplies * * * * *
---------------
Office supplies * * * * *
Software/computer expense * * * * *
Food service * * * * *
Bank charges * * * * *
Credit card fees * * * * *
* * * * *
Postage & freight * * * * *
Employee & patient programs * * * * *
Continuing education * * * * *
Dues and subscriptions * * * * *
Telephone * * * * *
Utilities * * * * *
Printing * * * * *
Misc. office expense * * * * *
Total office & Admin. Expenses * * * * *
* * * * *
* * * * *
Marketing: * * * * *
Advertising * * * * *
Marketing - Other * * * * *
Total Marketing * * * * *
* * * * *
Professional and Service Fees: * * * * *
Legal * * * * *
Accounting * * * * *
Other prof. consulting * * * * *
Collection fees * * * * *
Answering service * * * * *
Linens & uniforms * * * * *
Other services * * * * *
Temporary services * * * * *
Total Professional Fees * * * * *
* * * * *
Rental Expense: * * * * *
Building rent * * * * *
Other office rent & parking * * * * *
Equipment leases * * * * *
Optical equipment rent * * * * *
Total Rent Expense * * * * *
* * * * *
* * * * *
Repairs and Maintenance: * * * * *
Building maintenance * * * * *
Repairs - equipment * * * * *
Non-capitalized tools * * * * *
Total Repairs & Maint. * * * * *
* * * * *
Practice * * * * *
* * * * *
Taxes and Insurance: * * * * *
Malpractice * * * * *
Liability & casualty * * * * *
Workers' compensation ins. * * * * *
</TABLE>
*Confidential portions omitted and filed separately with the commission.
16
<PAGE>
<TABLE>
<CAPTION>
Illinois Eye Specialists
- ---------------------------------------------------------------------------------------------------------------------------------
1998 MSA Budget
Description Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
- ---------------------------------- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
D&O * * * * * * * * * * * *
Key Man Life * * * * * * * * * * * *
Other insurance * * * * * * * * * * * *
Property tax * * * * * * * * * * * *
Sales & Use tax * * * * * * * * * * * *
Property tax * * * * * * * * * * * *
Other taxes * * * * * * * * * * * *
Total Taxes & Ins. * * * * * * * * * * * *
* * * * * * * * * * * *
* * * * * * * * * * * *
Other Expenses: * * * * * * * * * * * *
Travel & entertainment * * * * * * * * * * * *
Recruitment & relocation * * * * * * * * * * * *
Auto & Van * * * * * * * * * * * *
Contracted patient transport. * * * * * * * * * * * *
Donations and gifts * * * * * * * * * * * *
Allocated IT/Computing costs * * * * * * * * * * * *
Other * * * * * * * * * * * *
Total Other Expense * * * * * * * * * * * *
* * * * * * * * * * * *
Total G&A expenses * * * * * * * * * * * *
* * * * * * * * * * * *
* * * * * * * * * * * *
Depreciation & Amortization: * * * * * * * * * * * *
Building depreciation * * * * * * * * * * * *
Equipment depreciation * * * * * * * * * * * *
Goodwill amortization * * * * * * * * * * * *
Other intangible amortization * * * * * * * * * * * *
Amortization of deferred charges * * * * * * * * * * * *
* * * * * * * * * * * *
Total Depr. and Amortization * * * * * * * * * * * *
* * * * * * * * * * * *
* * * * * * * * * * * *
Interest (income) and expense: * * * * * * * * * * * *
Depository Interest * * * * * * * * * * * *
Investment Income * * * * * * * * * * * *
Bank Line Interest Expense * * * * * * * * * * * *
Cap. Lease Interest Expense * * * * * * * * * * * *
Other Interest Expense * * * * * * * * * * * *
* * * * * * * * * * * *
Total Interest (income)/expense * * * * * * * * * * * *
* * * * * * * * * * * *
Principal Services Budgeted Office Expense * * * * * * * * * * * *
Practice * * * * * * * * * * * *
* * * * * * * * * * * *
Principal Services Budgeted * * * * * * * * * * * *
Practice Expense * * * * * * * * * * * *
* * * * * * * * * * * *
Principal Services Monthly Fee * * * * * * * * * * * *
</TABLE>
<TABLE>
<CAPTION>
Description Oct Nov Dec Total 1998 %
- ---------------------------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
D&O * * * * * * * *
Key Man Life * * * * * * * *
Other insurance * * * * * * * *
Property tax * * * * * * * *
Sales & Use tax * * * * * * * *
Property tax * * * * * * * *
Other taxes * * * * * * * *
Total Taxes & Ins. * * * * * * * *
* * * * * * * *
* * * * * * * *
Other Expenses: * * * * * * * *
Travel & entertainment * * * * * * * *
Recruitment & relocation * * * * * * * *
Auto & Van * * * * * * * *
Contracted patient transport. * * * * * * * *
Donations and gifts * * * * * * * *
Allocated IT/Computing costs * * * * * * * *
Other * * * * * * * *
Total Other Expense * * * * * * * *
* * * * * * * *
Total G&A expenses * * * * * * * *
* * * * * * * *
* * * * * * * *
Depreciation & Amortization: * * * * * * * *
Building depreciation * * * * * * * *
Equipment depreciation * * * * * * * *
Goodwill amortization * * * * * * * *
Other intangible amortization * * * * * * * *
Amortization of deferred charges * * * * * * * *
* * * * * * * *
Total Depr. and Amortization * * * * * * * *
* * * * * * * *
* * * * * * * *
Interest (income) and expense: * * * * * * * *
Depository Interest * * * * * * * *
Investment Income * * * * * * * *
Bank Line Interest Expense * * * * * * * *
Cap. Lease Interest Expense * * * * * * * *
Other Interest Expense * * * * * * * *
* * * * * * * *
Total Interest (income)/expense * * * * * * * *
* * * * * * * *
Principal Services Budgeted Office Expense * * * * * * * *
* * * * *
Practice * * * * * * * *
* * * * * * * *
Principal Services Budgeted * * * * * * * *
Practice Expense * * * * * * * *
* * * * * * * *
Principal Services Monthly Fee * * * * * * * *
* * * * * * * *
</TABLE>
*Confidential portions omitted and filed separately with the commission.
17
<PAGE>
Illinois Eye Specialists
- --------------------------------------------------------------------------------
1999 MSA Budget
<TABLE>
<CAPTION>
Description Jan Feb Mar Apr May Jun
- ------------------------------------ -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Optical * * * * * *
Revenue * * * * * *
- -------
Practice revenue * * * * * *
ASC facility revenue * * * * * *
Optical revenue * * * * * *
Optometric revenue * * * * * *
Alliance revenue * * * * * *
Research & Consulting * * * * * *
Other revenue * * * * * *
* * * * * *
Laboratory revenue * * * * * *
* * * * * *
Dispensary Business Budgeted Revenue * * * * * *
* * * * * *
Expenses * * * * * *
- -------- * * * * * *
Salaries and Wages: * * * * * *
Center Staff Salaries: * * * * * *
---------------------
Administration * * * * * *
Technician/Nurses * * * * * *
PSR/Front Desk * * * * * *
Other salaries * * * * * *
Overtime pay * * * * * *
* * * * * *
Payroll Taxes & Benefits * * * * * *
------------------------
Vacation & leave pay * * * * * *
Bonuses * * * * * *
Incentive compensation * * * * * *
FICA Tax * * * * * *
SUI * * * * * *
FUI * * * * * *
Other payroll taxes * * * * * *
Labor allocation * * * * * *
401k Match * * * * * *
Life & Disability ins. * * * * * *
Employee Health ins. * * * * * *
* * * * * *
Benefits % * * * * * *
Total Salaries & Wages * * * * * *
* * * * * *
MD/OD Compensation * * * * * *
* * * * * *
* * * * * *
Pharmaceuticals and supplies: * * * * * *
Medical Supplies * * * * * *
COS - Glasses * * * * * *
COS - Contacts * * * * * *
COS - adjustments * * * * * *
Laboratory fees * * * * * *
Discount & allowances * * * * * *
Optical - Other * * * * * *
Total Pharmac. & Supplies * * * * * *
Optical * * * * * *
G & A expenses: * * * * * *
</TABLE>
<TABLE>
<CAPTION>
Description Jul Aug Sep Oct Nov Dec Total 1998 %
- ------------------------------------- ----------------------------------------------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Optical * * * * * * * * * * *
Revenue * * * * * * * * * * *
- -------
Practice revenue * * * * * * * * * * *
ASC facility revenue * * * * * * * * * * *
Optical revenue * * * * * * * * * * *
Optometric revenue * * * * * * * * * * *
Alliance revenue * * * * * * * * * * *
Research & Consulting * * * * * * * * * * *
Other revenue * * * * * * * * * * *
* * * * * * * * * * *
Laboratory revenue * * * * * * * * * * *
* * * * * * * * * * *
Dispensary Business Budgeted Revenue * * * * * * * * * * *
* * * * * * * * * * *
Expenses * * * * * * * * * * *
- -------- * * * * * * * * * * *
Salaries and Wages: * * * * * * * * * * *
Center Staff Salaries: * * * * * * * * * * *
---------------------
Administration * * * * * * * * * * *
Technician/Nurses * * * * * * * * * * *
PSR/Front Desk * * * * * * * * * * *
Other salaries * * * * * * * * * * *
Overtime pay * * * * * * * * * * *
* * * * * * * * * * *
Payroll Taxes & Benefits * * * * * * * * * * *
------------------------
Vacation & leave pay * * * * * * * * * * *
Bonuses * * * * * * * * * * *
Incentive compensation * * * * * * * * * * *
FICA Tax * * * * * * * * * * *
SUI * * * * * * * * * * *
FUI * * * * * * * * * * *
Other payroll taxes * * * * * * * * * * *
Labor allocation * * * * * * * * * * *
401k Match * * * * * * * * * * *
Life & Disability ins. * * * * * * * * * * *
Employee Health ins. * * * * * * * * * * *
* * * * * * * * * * *
Benefits % * * * * * * * * * * *
Total Salaries & Wages * * * * * * * * * * *
* * * * * * * * * * *
MD/OD Compensation * * * * * * * * * * *
* * * * * * * * * * *
* * * * * * * * * * *
Pharmaceuticals and supplies: * * * * * * * * * * *
Medical supplies * * * * * * * * * * *
COS - Glasses * * * * * * * * * * *
COS - Contacts * * * * * * * * * * *
COS - adjustments * * * * * * * * * * *
Laboratory fees * * * * * * * * * * *
Discounts & allowances * * * * * * * * * * *
Optical - Other * * * * * * * * * * *
Total Pharmac. & Supplies * * * * * * * * * * *
Optical * * * * * * * * * * *
G & A expenses: * * * * * * * * * * *
</TABLE>
* Confidential portions omitted and filed separately with the commission.
18
<PAGE>
Illinois MSA Specialists
- -------------------------------------------------------------------------------
1999 MSA Budget
<TABLE>
<CAPTION>
Description Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
- ---------------------------------- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
* * * * * * * * * * * *
Office & Administrative: * * * * * * * * * * * *
Office Supplies * * * * * * * * * * * *
---------------
Office supplies * * * * * * * * * * * *
Software/computer expense * * * * * * * * * * * *
Food service * * * * * * * * * * * *
Bank charges * * * * * * * * * * * *
Credit card fees * * * * * * * * * * * *
* * * * * * * * * * * *
Postage & freight * * * * * * * * * * * *
Employee & patient programs * * * * * * * * * * * *
Continuing education * * * * * * * * * * * *
Dues and subscriptions * * * * * * * * * * * *
Telephone * * * * * * * * * * * *
Utilities * * * * * * * * * * * *
Printing * * * * * * * * * * * *
Misc. office expense * * * * * * * * * * * *
Total Office & Admin. Expenses * * * * * * * * * * * *
* * * * * * * * * * * *
* * * * * * * * * * * *
Marketing: * * * * * * * * * * * *
Advertising * * * * * * * * * * * *
Marketing - Other * * * * * * * * * * * *
Total Marketing * * * * * * * * * * * *
* * * * * * * * * * * *
* * * * * * * * * * * *
Professional and Service Fees: * * * * * * * * * * * *
Legal * * * * * * * * * * * *
Accounting * * * * * * * * * * * *
Other prof. consulting * * * * * * * * * * * *
Collection fees * * * * * * * * * * * *
Answering service * * * * * * * * * * * *
Linens & uniforms * * * * * * * * * * * *
Other services * * * * * * * * * * * *
Temporary services * * * * * * * * * * * *
Total Professional Fees * * * * * * * * * * * *
* * * * * * * * * * * *
* * * * * * * * * * * *
Rental Expense: * * * * * * * * * * * *
Building rent * * * * * * * * * * * *
Other office rent & parking * * * * * * * * * * * *
Equipment leases * * * * * * * * * * * *
Optical equipment rent * * * * * * * * * * * *
Total Rent Expense * * * * * * * * * * * *
* * * * * * * * * * * *
* * * * * * * * * * * *
Repairs & Maintenance: * * * * * * * * * * * *
Building maintenance * * * * * * * * * * * *
Repairs - equipment * * * * * * * * * * * *
Non-capitalized tools * * * * * * * * * * * *
Total Repairs & Maint. * * * * * * * * * * * *
Optical * * * * * * * * * * * *
* * * * * * * * * * * *
Taxes and Insurance: * * * * * * * * * * * *
Malpractice * * * * * * * * * * * *
Liability & casualty * * * * * * * * * * * *
Workers' compensation ins. * * * * * * * * * * * *
</TABLE>
<TABLE>
<CAPTION>
Description Total 1998 %
- ---------------------------------- ---------------
<S> <C> <C>
* * * * *
Office & Administrative: * * * * *
Office Supplies * * * * *
---------------
Office supplies * * * * *
Software/computer expense * * * * *
Food service * * * * *
Bank charges * * * * *
Credit card fees * * * * *
* * * * *
Postage & freight * * * * *
Employee & patient programs * * * * *
Continuing education * * * * *
Dues and subscriptions * * * * *
Telephone * * * * *
Utilities * * * * *
Printing * * * * *
Misc. office expense * * * * *
Total Office & Admin. Expenses * * * * *
* * * * *
* * * * *
Marketing: * * * * *
Advertising * * * * *
Marketing - Other * * * * *
Total Marketing * * * * *
* * * * *
* * * * *
Professional and Service Fees: * * * * *
Legal * * * * *
Accounting * * * * *
Other prof. consulting * * * * *
Collection fees * * * * *
Answering service * * * * *
Linens & uniforms * * * * *
Other services * * * * *
Temporary services * * * * *
Total Professional Fees * * * * *
* * * * *
* * * * *
Rental Expense: * * * * *
Building rent * * * * *
Other office rent & parking * * * * *
Equipment leases * * * * *
Optical equipment rent * * * * *
Total Rent Expense * * * * *
* * * * *
* * * * *
Repairs & Maintenance: * * * * *
Building maintenance * * * * *
Repairs - equipment * * * * *
Non-capitalized tools * * * * *
Total Repairs & Maint. * * * * *
Optical * * * * *
* * * * *
Taxes and Insurance: * * * * *
Malpractice * * * * *
Liability & casualty * * * * *
Workers' compensation ins. * * * * *
</TABLE>
*Confidential portions omitted and filed separately with the commission.
19
<PAGE>
<TABLE>
<CAPTION>
Illinois Eye Specialists
- ------------------------------------------------------------------------------------------------------------
1999 MSA Budget
Description Jan Feb Mar Apr May Jun Jul Aug Sep
- ---------------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
D&O * * * * * * * * *
Key Man Life * * * * * * * * *
Other insurance * * * * * * * * *
Property tax * * * * * * * * *
Sales & Use tax * * * * * * * * *
Property tax * * * * * * * * *
Other taxes * * * * * * * * *
Total Taxes & Ins. * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Other Expenses: * * * * * * * * *
Travel & entertainment * * * * * * * * *
Recruitment & relocation * * * * * * * * *
Auto & Van * * * * * * * * *
Contracted patient transport. * * * * * * * * *
Donations and gifts * * * * * * * * *
Allocated IT/Computing costs * * * * * * * * *
Other * * * * * * * * *
Total Other Expense * * * * * * * * *
* * * * * * * * *
Total G&A expenses * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Depreciation & Amortization: * * * * * * * * *
Building depreciation * * * * * * * * *
Equipment depreciation * * * * * * * * *
Goodwill amortization * * * * * * * * *
Other intangible amortization * * * * * * * * *
Amortization of deferred charges * * * * * * * * *
* * * * * * * * *
Total Depr. and Amortization * * * * * * * * *
* * * * * * * * *
* * * * * * * * *
Interest (income) and expense: * * * * * * * * *
Depository Interest * * * * * * * * *
Investment Income * * * * * * * * *
Bank Line Interest Expense * * * * * * * * *
Cap. Lease Interest Expense * * * * * * * * *
Other Interest Expense * * * * * * * * *
* * * * * * * * *
Total Interest (income)/expense * * * * * * * * *
* * * * * * * * *
Dispensary Business Budgeted * * * * * * * * *
Office Expense * * * * * * * * *
Optical * * * * * * * * *
* * * * * * * * *
Dispensary Business Budgeted * * * * * * * * *
Practice Expense * * * * * * * * *
* * * * * * * * *
Dispensary Business Monthly Fee * * * * * * * * *
</TABLE>
<TABLE>
Description Oct Nov Dec
- ---------------------------------- ---------------------
<S> <C> <C> <C>
D&O * * *
Key Man Life * * *
Other insurance * * *
Property tax * * *
Sales & Use tax * * *
Property tax * * *
Other taxes * * *
Total Taxes & Ins. * * *
* * *
* * *
Other Expenses: * * *
Travel & entertainment * * *
Recruitment & relocation * * *
Auto & Van * * *
Contracted patient transport. * * *
Donations and gifts * * *
Allocated IT/Computing costs * * *
Other * * *
Total Other Expense * * *
* * *
Total G&A expenses * * *
* * *
* * *
Depreciation & Amortization: * * *
Building depreciation * * *
Equipment depreciation * * *
Goodwill amortization * * *
Other intangible amortization * * *
Amortization of deferred charges * * *
* * *
Total Depr. and Amortization * * *
* * *
* * *
Interest (income) and expense: * * *
Depository Interest * * *
Investment Income * * *
Bank Line Interest Expense * * *
Cap. Lease Interest Expense * * *
Other Interest Expense * * *
* * *
Total Interest (income)/expense * * *
* * *
Dispensary Business Budgeted * * *
Office Expense * * *
Optical * * *
* * *
Dispensary Business Budgeted * * *
Practice Expense * * *
* * *
Dispensary Business Monthly Fee * * *
</TABLE>
<TABLE>
<CAPTION>
Description Total 1998 %
- ---------------------------------- ---------------
<S> <C> <C>
D&O * * * * *
Key Man Life * * * * *
Other insurance * * * * *
Property tax * * * * *
Sales & Use tax * * * * *
Property tax * * * * *
Other taxes * * * * *
Total Taxes & Ins. * * * * *
* * * * *
* * * * *
Other Expenses: * * * * *
Travel & entertainment * * * * *
Recruitment & relocation * * * * *
Auto & Van * * * * *
Contracted patient transport. * * * * *
Donations and gifts * * * * *
Allocated IT/Computing costs * * * * *
Other * * * * *
Total Other Expense * * * * *
* * * * *
Total G&A expenses * * * * *
* * * * *
* * * * *
Depreciation & Amortization: * * * * *
Building depreciation * * * * *
Equipment depreciation * * * * *
Goodwill amortization * * * * *
Other intangible amortization * * * * *
Amortization of deferred charges * * * * *
* * * * *
Total Depr. and Amortization * * * * *
* * * * *
* * * * *
Interest (income) and expense: * * * * *
Depository Interest * * * * *
Investment Income * * * * *
Bank Line Interest Expense * * * * *
Cap. Lease Interest Expense * * * * *
Other Interest Expense * * * * *
* * * * *
Total Interest (income)/expense * * * * *
* * * * *
Dispensary Business Budgeted * * * *
Office Expense * * * *
Optical * * * * *
* * * * *
Dispensary Business Budgeted * * * * *
Practice Expense * * * * *
* * * * *
Dispensary Business Monthly Fee * * * * *
</TABLE>
*Confidential portions omitted and filed separately with the commission.
63
<PAGE>
EXHIBIT 1.30(g)
EQUIPMENT
The financing or leasing costs of the following equipment shall be Office
Expenses in the amounts described below:
Argon Laser ($680.79 per month; outstanding principal balance as of
11/4/96: $5,446.32) 1993 Euro Van ($367.79 per month; outstanding principal
balance as of 11/4/96: $8,577.18)
Pachtometer ($541.81 per month; outstanding principal balance as of
11/8/96: $15,902.13)
Radial Keratotomy Equipment ($803.10 per month; outstanding principal
balance as of 11/4/96: $9,637.20)
Medical Records Computer ($623.09 per month; outstanding principal balance
as of 11/4/96: $22,475.24)
<PAGE>
EXHIBIT 1.42
PREEXISTING OBLIGATION PAYMENTS
10. Bank Agreements*
a. First Bank and Illinois Eye Specialists
(i) Fixed Rate Commercial Promissory Note in the
amount of $11,500.00
(ii) Commercial Continuing Guaranty (unlimited) of
Donald C. Schnellmann, M.D.
(iii) Commercial Continuing Guaranty (unlimited) of
Edward A. Doisy, III, M.D.
(iv) Commercial Security Agreement securing $11,500.00
Note
(v) Agreement to Furnish Insurance in connection with
$11,500.00 Note.
b. First Bank and Illinois Eye Specialists
(i) Fixed Rate Commercial Promissory Note in the
amount of $17,195.00
(ii) Commercial Continuing Guaranty (unlimited) of
Donald C. Schnellmann, M.D.
(iii) Commercial Continuing Guaranty (unlimited) of
Edward A. Doisy, III, M.D.
(iv) Commercial Security Agreement securing $17,195.00
Note
(v) Agreement to Furnish Insurance in connection with
$11,500.00 Note.
c. First Bank and S&D Joint Venture
(i) Fixed Rate Commercial Promissory Note in the
amount of $28,000.00
<PAGE>
(ii) Commercial Security Agreement securing $28,000.00
Note
(iii) Agreement to Furnish Insurance in connection
with $28,000.00 Note
d. First Bank, U.S. Small Business Administration,
S&D Joint Venture, Donald C. Schnellmann, M.D., Edward A. Doisy,
III, M.D., Eyes of Illinois Surgery Center, S.C. and Illinois Eye
Specialists, Ltd.
(i) Note in the amount of $550,000.00
(ii) Compensation Agreement for Services in Connection
with Application and Loan from (or in Participation with)
Small Business Administration
(iii) Assignment of Life Insurance Policy as
Collateral between Edward A. Doisy, III, M.D. and Donald C.
Schnellmann, M.D.
(iv) Agreement of Compliance
(v) Assignment of Lease and Consent to Assignment of
Lease
(vi) Mortgage
(vii) Lessor's Agreement
(viii) Guaranty of Donald C. Schnellmann, M.D. and
Edward A. Doisy, III, M.D.
(ix) Security Agreements with Eyes of Illinois Surgery
Center, S.C., S&D Joint Venture and Illinois Eye
Specialists, Ltd.
(x) Assurance of Compliance for Nondiscrimination
(xi) Agreement Entered into by the Maker and the
Holder of the Within-Described Note.
e. Troy Security Bank and Tri-City Eye Center, Ltd.,
in connection with Dr. Schnellmann's and Dr. Doisy's Industrial
Revenue Bond in the amount of $650,000.00.
<PAGE>
(i) Security Agreement
(ii) Indenture of Trust
52
<PAGE>
EXHIBIT 3.1
MEMBERS OF POLICY BOARD
BUSINESS MANAGER DESIGNEES
Daniel O. Wagster
T. Trent Roark
REGIONAL PRACTICE DESIGNEES
Marvin I. Koenig, M.D.
John P. Goltschman, M.D.
Edward A. Doisy, III, M.D.
<PAGE>
EXHIBIT 4.8
POWER OF ATTORNEY
See attached.
<PAGE>
EXHIBIT 5.1
FORM OF EMPLOYMENT AGREEMENT (SHAREHOLDERS)
See attached.
<PAGE>
EXHIBIT 5.1A
LIST OF INITIAL PHYSICIAN-SHAREHOLDERS
Edward A. Doisy, III, M.D.
Donald C. Schnellmann, M.D.
<PAGE>
EXHIBIT 5.1B
FORM OF BUY-SELL AGREEMENT
The Buy-Sell Agreement referenced in Section 5.1(b) will address the following
concepts to the satisfaction of Business Manager and its counsel:
Applicable state statutes generally require that the shares of a
professional corporation held by a physician-shareholder be
transferred to a person qualified to render professional medical
services if (i) such shareholder dies, (ii) such shareholder becomes a
disqualified person, or (iii) the shares of a professional corporation
are transferred by operation of law or court decree to a disqualified
person. Illinois law requires that the articles of incorporation, by-
laws or a separate agreement provide for the purchase or redemption of
the shares of any shareholder upon death or disqualification.
Accordingly, the Buy-Sell Agreement must contain a provision providing
for (i) redemption, (ii) cross-purchase, or (iii) a combination
thereof, in the case of a shareholder's death or disqualification. In
addition, the transfer of shares to disqualified persons must be
specifically prohibited.
A provision must also be included which governs succession in the case
of death or disqualification of the last remaining shareholder of the
professional corporation. Business Manager and Practice will work
together to structure an arrangement mutually acceptable to both
parties.
Specifically, the Buy-Sell Agreement will incorporate the provisions set
forth on Schedule 1 attached to this Exhibit 5.1B.
---------- ------------
<PAGE>
SCHEDULE 1
TO
EXHIBIT 5.1B
Definitions.
- -----------
"Act" means the [applicable state Medical Corporation Act or Professional
Corporation Act].
"NovaMed" means NovaMed Eyecare Management, LLC, a Delaware limited
liability company.
"NovaMed Agreement" means that certain ___________ Agreement dated as of
_________ __, 199_, by and among the Corporation, the Shareholders and NovaMed.
["Partnership" means the limited partnership formed pursuant to that
certain Limited Partnership Agreement by and between __________ and __________,
dated ______________.] [If applicable]
"Selling Shareholder" means a Shareholder affected by a Triggering Event
other than a Final Triggering Event.
"Shares" means the shares of common stock of the Corporation, and any
shares of any other class of stock, presently authorized and issued or which the
Corporation may hereafter authorize and issue, including subscription and other
purchase rights relative to any such shares of stock and all securities and
obligations convertible into such shares of stock, in each case whether now or
hereafter issued.
"Transfer" means any sale, gift, bequest, distribution, disposition,
assignment, pledge or any other voluntary or involuntary transfer, disposition
or encumbrance, including any disposition by operation of law.
"Triggering Event" means any of the following events:
(a) the death of a Shareholder;
(b) the disability of a Shareholder (which is defined as a Shareholder's
inability to engage in the practice of medicine for ninety (90) days
within any period of one hundred eighty (180) consecutive days);
(c) the disqualification of a Shareholder from the practice of medicine;
<PAGE>
(d) the termination of a Shareholder's employment or active involvement
with the Corporation for any reason; or
(e) the voluntary or involuntary transfer, transfer by operation of law
(including without limitation a transfer in connection with a divorce
or bankruptcy), or any other transfer or attempted transfer of Shares
or any right or interest therein in violation of this Agreement.
Restriction On Transfer.
-----------------------
Each Shareholder agrees not to make any Transfer of Shares that he or she
now owns or may hereafter own, outright or beneficially, except in accordance
with and as expressly permitted in this Agreement. Except as expressly
permitted in this Agreement, no Transfer of Shares may be made by any
Shareholder without the prior written consent of the remaining Shareholders, and
no such Transfer shall be effective unless and until the Transferee agrees in
writing to be subject to and bound by all of the terms, conditions and
restrictions of this Agreement and the NovaMed Agreement by signing a
counterpart hereof and thereof. Any Transfer of Shares not in strict compliance
with this Agreement shall be null and void ab initio.
-- ------
Additional Shareholders.
-----------------------
The parties hereto acknowledge and agree that from time to time other
physicians may acquire Shares in the Corporation. Notwithstanding the
foregoing, the Corporation shall not issue any Shares to another person unless
such person agrees in writing to be subject to and bound by all of the terms,
conditions and restrictions of this Agreement and the NovaMed Agreement by
signing a counterpart hereof and thereof.
Licensing Requirement.
---------------------
Under no circumstances shall any Transfer or issuance of Shares of the
Corporation to an additional shareholder be valid unless the proposed new or
additional shareholder is a licensed physician in good standing under the laws
of the State of Missouri, except as otherwise permitted under the Act.
Final Triggering Event.
----------------------
(a) Application. Upon the occurrence of a Triggering Event affecting all
-----------
Shareholders simultaneously or affecting the last remaining Shareholder(s)
(each, a "Final Triggering Event"), the following provisions shall apply and
shall supersede any other provision contained in this Agreement relating to
cross-purchases or redemptions of a Selling Shareholder's Shares.
(b) Repurchase of Shares. Promptly upon the occurrence of a Final
--------------------
Triggering Event, but in any event not later than within three (3) days, the
Shareholder(s) to whom such Final Triggering Event relates and any Selling
Shareholder with respect to whom this Section __
<PAGE>
supersedes the application of any other provision of this Agreement pursuant to
subsection (a) above, and/or such Shareholders' estates, transferees or other
representatives (all such Shareholders or such Shareholders' estates,
transferees or other representatives, as the case may be, hereinafter referred
to as "Terminating Shareholders") shall notify NovaMed's Medical Director of the
occurrence of such Final Triggering Event, and NovaMed's Medical Director shall
have the right to purchase Shares in accordance with subsection (c) below or to
designate a New Shareholder in accordance with the provisions of the NovaMed
Agreement. Upon such designation, the Terminating Shareholders shall (i) sell to
the Corporation, and the Corporation shall purchase from each such Terminating
Shareholder, ninety-nine percent (99%) of all Shares then held by each such
Terminating Shareholder, and (ii) sell to NovaMed's Medical Director or the New
Shareholder (as defined in the NovaMed Agreement), as the case may be, and
NovaMed's Medical Director or such New Shareholder, as the case may be, shall
purchase from each such Terminating Shareholder, the remainder of the Shares
then held by each such Terminating Shareholder, in accordance with the
provisions of this Section __.
(c) Purchase Price. The purchase price to be paid for each Terminating
--------------
Shareholder's Shares (the "Purchase Price") shall be as follows:
(i) The Purchase Price for the Shares to be purchased by the Corporation
shall consist of each Terminating Shareholder's pro rata share of the
[Partnership] interests held by the Corporation.
(ii) The Purchase Price for the Shares to be purchased by NovaMed's Medical
Director or the New Shareholder, as the case may be, shall be an
amount equal to ______________________________________.
(d) Closing. The closing of any purchase and sale pursuant to this
-------
Section __ (the "Closing") shall take place within [thirty (30)] days after the
Final Triggering Event at the principal office of the Corporation or at such
other place as the parties to such purchase and sale may mutually agree. At the
Closing, each Terminating Shareholder shall deliver certificates for the Shares
to be purchased, duly endorsed in blank, and such Shares shall be conveyed (i)
to the Corporation effective as of the close of business of the day of the Final
Triggering Event, and (ii) to NovaMed's Medical Director or the New Shareholder,
as the case may be, effective as of the opening of business on the day after the
Final Triggering Event, in each case free and clear of all claims, liens,
encumbrances and other rights of third parties, and the Corporation and
NovaMed's Medical Director or the New Shareholder, as the case may be, shall
deliver the Purchase Price in the form of instruments of transfer, in form and
substance satisfactory to the Terminating Shareholders, assigning and
transferring to the Terminating Shareholders, effective as of the date of the
Final Triggering Event, each Terminating Shareholder's share of the
[Partnership] interests and all of the Corporation's right, title and interest
therein, free and clear of all claims, liens, encumbrances and other rights of
third parties, or in immediately available funds, as applicable.
(e) Taxable Year. The Corporation's taxable year shall be closed as of
------------
the close of business of the day of the Final Triggering Event.
<PAGE>
(f) Violation of Law. In the event that the consummation of the
----------------
purchase and sale of Shares as contemplated under this Section __ violates
applicable law, the Terminating Shareholders and NovaMed's Medical Director
shall in good faith negotiate and consummate an alternative transaction
structure, including without limitation, the purchase of the Corporation's
assets and assumption of the Corporation's liabilities by NovaMed's Medical
Director or his designee, which will allow (i) the continuation of the
Corporation's business by the Corporation or a successor entity, (ii) the
continued performance by the Corporation or a successor entity and NovaMed of
their respective obligations under that certain Management Services Agreement by
and between NovaMed and the Corporation, dated as of _______ __, 199_, and (iii)
the transfer of the [Partnership] interests held by the Corporation to the
Terminating Shareholders.
(g) NovaMed's Failure to Designate New Shareholder. In the event that
----------------------------------------------
NovaMed's Medical Director fails to elect to purchase Shares or to designate a
New Shareholder as required pursuant to the NovaMed Agreement, the provisions of
this Section __ shall not be binding on the Corporation or the Terminating
Shareholders.
Legend on Certificates.
----------------------
The certificates representing all Shares now or hereafter owned by the
Shareholders shall be subject to the terms of this Agreement, and shall bear the
following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A SHAREHOLDERS'
AGREEMENT, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE
CORPORATION. THE SHARES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED,
HYPOTHECATED, OR OTHERWISE DISPOSED OF EXCEPT IN STRICT ACCORDANCE WITH THE
TERMS OF THE SHAREHOLDERS' AGREEMENT. BY ACCEPTING THE SHARES OF STOCK
EVIDENCED BY THIS CERTIFICATE, THE HOLDER AGREES TO BE BOUND BY THE
SHAREHOLDERS' AGREEMENT.
Termination.
-----------
This Agreement and all restrictions on the transfer of Shares created
hereby shall terminate upon the bankruptcy or receivership of the Corporation or
the execution by all parties hereto of a written instrument terminating this
Agreement. Termination of this Agreement for any reason shall not affect any
right or remedy existing hereunder prior to the effective date of termination.
Binding Effect. This Agreement is binding upon, and shall inure to the
--------------
benefit of, the Corporation, its successors, and assigns and to the Shareholders
and their respective heirs, personal representatives, successors, and assigns.
<PAGE>
EXHIBIT 5.2A
FORM OF EMPLOYMENT AGREEMENT (NONSHAREHOLDERS)
See attached.
<PAGE>
Exhibit 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
Registration Statement File No. 333-79271.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
July 26, 1999
<PAGE>
EXHIBIT 23.3
[LETTERHEAD OF ARENT FOX KINTNER PLOTKIN & KAHN, PLLC]
July 26, 1999
NovaMed Eyecare, Inc.
980 North Michigan Avenue
Suite 1620
Chicago, IL 60611
Re: Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
We have acted as counsel for NovaMed Eyecare, Inc., a Delaware corporation
(the "Company").
We hereby consent to the reference to our name in the Company's
Registration Statement on Form S-1 under the Securities Act of 1933, as amended
under the caption "Experts" and further consent to the filing of this consent as
Exhibit 23.3 to the Registration Statement.
Very truly yours,
/s/ Arent Fox Kintner Plotkin & Kahn, PLLC
ARENT FOX KINTNER PLOTKIN & KAHN, PLLC
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM S-1 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 1,875 864
<SECURITIES> 0 0
<RECEIVABLES> 22,128 23,418
<ALLOWANCES> 10,347 10,017
<INVENTORY> 1,490 2,449
<CURRENT-ASSETS> 16,386 18,263
<PP&E> 13,441 17,574
<DEPRECIATION> 3,548 4,882
<TOTAL-ASSETS> 62,679 71,613
<CURRENT-LIABILITIES> 7,166 7,668
<BONDS> 0 0
16,551 20,027
0 0
<COMMON> 28 28
<OTHER-SE> 16,805 14,074
<TOTAL-LIABILITY-AND-EQUITY> 62,679 71,613
<SALES> 12,472 12,074
<TOTAL-REVENUES> 63,729 44,862
<CGS> 9,552 8,202
<TOTAL-COSTS> 58,986 41,881
<OTHER-EXPENSES> 1,373 1,040
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,273 1,057
<INCOME-PRETAX> 3,370 1,941
<INCOME-TAX> 1,664 869
<INCOME-CONTINUING> 1,706 1,072
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,706 1,072
<EPS-BASIC> .07 (.17)
<EPS-DILUTED> .06 (.17)
</TABLE>
